SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31,
2021June 30, 2022
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
              
to
              
Commission file
number    0-14902
 
LOGO

MERIDIAN BIOSCIENCE, INC.
Incorporated under the laws of Ohio
31-0888197
(I.R.S. Employer Identification No.)
3471 River Hills Drive
Cincinnati, Ohio 45244
(513)
271-3700
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
  
Trading
Symbol(s)
  
Name of each exchange
on which registered
Common Stock, no par value
  
VIVO
  
NASDAQ Global Select Market
Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.    
Yes 
Yes
 ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files).    
Yes
  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
Large accelerated filer   Accelerated filer 
Non-accelerated
filer
   Smaller reporting company 
Emerging growth company    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  ☐    No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class
 
Outstanding JanuaryJuly 31, 2022
Common Stock, no par value 43,541,41243,747,669

MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM
10-Q
 
      
Page(s)
 
PART I.
    
Item 1.  
Item 1.
  
  
   1 
  
   2 
  
   3 
  
   
4-5
 
  
   6 
  
   
7-16
7-18
 
Item 2.  
Item 2.
   
16-23
19-28
 
Item 3.  
Item 3.
   2328 
Item 4.  
Item 4.
   2328 
PART II.
  
Item 1.Legal Proceedings   29 
Item 1A.  
Item 1.
   2429 
Item 6.  
Item 1A.
   2430 
Item 6.
Signatures
     24
2531 
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form
10-Q
contains forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements accompanied by meaningful cautionary statements. Except for historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, which may be identified by words such as “continues”, “estimates”, “anticipates”, “projects”, “plans”, “seeks”, “may”, “will”, “expects”, “intends”, “believes”, “signals”, “should”, “can” and similar expressions or the negative versions thereof and which also may be identified by their context. All statements that address operating performance or events or developments that Meridian Bioscience, Inc. (“Meridian” or “the Company”) expects or anticipates will occur in the future, including, but not limited to, statements relating to per share diluted net earnings, sales, product demand, net revenues, operating margin, other guidance and the impact of
COVID-19
on its business and prospects, are forward-looking statements. Such statements, whether expressed or implied, are based upon current expectations of the Company and speak only as of the date made. Specifically, Meridian’s forward-looking statements are, and will be, based on management’s then-current views and assumptions regarding future events and operating performance. Meridian assumes no obligation to publicly update or revise any forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. These statements are subject to various risks, uncertainties and other factors that could cause actual results to differ materially, including, without limitation, the following:
Meridian’s operating results, financial condition and continued growth depends, in part, on its ability to introduce into the marketplace enhancements of existing products or new products that incorporate technological advances, meet customer requirements and respond to products developed by Meridian’s competition, its ability to effectively sell such products and its ability to successfully expand and effectively manage increased sales and marketing operations. While Meridian has introduced a number of internally developed products and acquired products, there can be no assurance that it will be successful in the future in introducing such products on a timely basis or in protecting its intellectual property, and unexpected or costly manufacturing costs associated with its introduction of new products or acquired products could cause actual results to differ from expectations. Meridian relies on proprietary, patented and licensed technologies. As such, the Company’s ability to protect its intellectual property rights, as well as the potential for intellectual property litigation, would impact its results. Ongoing consolidations of reference laboratories and formation of multi-hospital alliances may cause adverse changes to pricing and distribution. Recessionary pressures on the economy and the markets in which the Company’s customers operate, as well as adverse trends in buying patterns from customers, can change expected results. Costs and difficulties in complying with laws and regulations, including those administered by the United States Food and Drug Administration, and in complying with the ongoing investigation of the Department of Justice described in Meridian’s reports filed with the SEC, can result in unanticipated expenses and delays and interruptions to the sale of new and existing products, as can the uncertainty of regulatory approvals and the regulatory process (including the FDA actions regarding the Company’s LeadCare products).process. The international scope of Meridian’s operations, including changes in the relative strength or weakness of the U.S. dollar and general economic conditions in foreign countries, can impact results and make them difficult to predict. One of Meridian’s growth strategies is the acquisition of companies and product lines. There can be no assurance that additional acquisitions will be consummated or that, if consummated, will be successful and that the acquired businesses will be successfully integrated into Meridian’s operations. There may be risks that acquisitions may disrupt operations and may pose potential difficulties in employee retention, and there may be additional risks with respect to Meridian’s ability to recognize the benefits of acquisitions, including potential synergies and cost savings or the failure of acquisitions to achieve their plans and objectives. Meridian cannot predict the outcome of future goodwill impairment testing and the impact of possible goodwill impairments on Meridian’s earnings and financial results. Meridian cannot predict the possible impact of any modification or repeal of any of the provisions of current U.S. health care legislation, that might be initiated by Congress or the presidential administration, and any similar initiatives in other countries on itsMeridian’s results of operations. Efforts to reduce the U.S. federal deficit, breaches of Meridian’s information technology systems, trade wars, increased tariffs, and natural disasters and other events could have a materially adverse effect on Meridian’s results of operations and net revenues. The Company can make no assurances that a material weakness in its internal control over financial reporting will not be identified in the future, which if identified and not properly corrected, could materially and adversely affect its operations and result in material misstatements in its consolidated financial statements. Meridian also is subject to risks and uncertainties related to the proposed acquisition by SD Bioscensor, Inc., as well as disruptions to or reductions in business operations or prospects due to pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases such as
COVID-19.COVID-19,
including, without limitation, related supply chain interruptions. In addition to the factors described in this paragraph, as well as those factors identified from time to time in the Company’s filings with the Securities and Exchange Commission, Part I, Item 1A Risk Factors of the Company’s most recent Annual Report on Form
10-K
contains a list and description of uncertainties, risks and other matters that may affect the Company. Readers should carefully review these forward-looking statements and risk factors, and not place undue reliance on the Company’s forward-looking statements.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(dollar and share amounts in thousands, except per share data)
 
   
Three Months
Ended
December 31,
 
   
2021
  
2020
 
NET REVENUES
  $88,341  $92,917 
COST OF SALES
   39,182   31,369 
   
 
 
  
 
 
 
GROSS PROFIT
   49,159   61,548 
   
 
 
  
 
 
 
OPERATING EXPENSES
         
Research and development
   6,194   5,651 
Selling and marketing
   7,741   7,021 
General and administrative
   14,660   11,938 
Selected legal costs
   281   1,227 
Change in fair value of acquisition consideration
   0     1,047 
   
 
 
  
 
 
 
Total operating expenses
   28,876   26,884 
   
 
 
  
 
 
 
OPERATING INCOME
   20,283   34,664 
   
OTHER INCOME (EXPENSE)
         
Interest income
   1   9 
Interest expense
   (372  (534
RADx grant income
   0     800 
Other, net
   (161  (691
   
 
 
  
 
 
 
Total other expense, net
   (532  (416
   
 
 
  
 
 
 
EARNINGS BEFORE INCOME TAXES
   19,751   34,248 
   
INCOME TAX PROVISION
   4,411   7,469 
   
 
 
  
 
 
 
NET EARNINGS
  $15,340  $26,779 
   
 
 
  
 
 
 
BASIC EARNINGS PER COMMON SHARE
  $0.35  $0.62 
DILUTED EARNINGS PER COMMON SHARE
  $0.35  $0.61 
WEIGHTED AVERAGE NUMBER OF COMMON 
SHARES OUTSTANDING - BASIC
   43,439   43,098 
EFFECT OF DILUTIVE STOCK OPTIONS AND 
RESTRICTED SHARE UNITS
   589   681 
   
 
 
  
 
 
 
WEIGHTED AVERAGE NUMBER OF COMMON 
SHARES OUTSTANDING - DILUTED
   44,028   43,779 
   
 
 
  
 
 
 
ANTI-DILUTIVE SECURITIES:
         
Common share options and restricted share units
   425   258 
   
 
 
  
 
 
 
   
Three Months Ended
June 30,
  
Nine Months Ended
June 30,
 
   
2022
  
2021
  
2022
  
2021
 
NET REVENUES  $ 67,771  $ 63,511  $ 267,343  $ 241,692 
COST OF SALES   31,043   26,400   112,979   85,261 
                  
GROSS PROFIT   36,728   37,111   154,364   156,431 
                  
OPERATING EXPENSES                 
Research and development   6,043   6,083   17,928   17,799 
Selling and marketing   8,178   6,209   23,433   19,770 
General and administrative   13,149   11,964   46,364   36,827 
Acquisition and transaction related costs   4,227   300   4,295   300 
Litigation and select legal costs   11,812   438   12,601   2,695 
Change in fair value of acquisition consideration   —     (3,563  —     (5,505
                  
Total operating expenses   43,409   21,431   104,621   71,886 
                  
OPERATING INCOME (LOSS)   (6,681  15,680   49,743   84,545 
OTHER INCOME (EXPENSE)                 
Interest income   2   —     5   15 
Interest expense   (256  (444  (969  (1,450
RADx grant income   —     —     —     1,000 
Other, net   333   59   905   (1,515
                  
Total other income (expense), net   79   (385  (59  (1,950
                  
EARNINGS (LOSS) BEFORE INCOME TAXES   (6,602  15,295   49,684   82,595 
     
INCOME TAX PROVISION   736   3,626   12,930   17,845 
                  
NET EARNINGS (LOSS)  $ (7,338 $ 11,669  $36,754  $64,750 
                  
BASIC EARNINGS (LOSS) PER COMMON SHARE  $(0.17 $0.27  $0.84  $1.50 
DILUTED EARNINGS (LOSS) PER COMMON SHARE  $(0.16 $0.26  $0.83  $1.47 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC   43,586   43,334   43,526   43,226 
EFFECT OF DILUTIVE STOCK OPTIONS AND RESTRICTED SHARE UNITS   888   763   704   780 
                  
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED   44,474   44,097   44,230   44,006 
                  
ANTI-DILUTIVE SECURITIES:                 
Common share options and restricted share units   79   190   188   180 
                  
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
Page
1

MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(dollar amounts in thousands)
 
   
Three Months Ended
December 31,
 
   
2021
  
2020
 
NET EARNINGS
  $15,340  $26,779 
Other comprehensive
(loss) income:
         
Foreign currency translation adjustment
   (58  3,301 
Unrealized gain on cash flow hedge
   550   21 
Reclassification of amortization of gain on cash flow hedge
   0     (77
Income taxes related to items of other
comprehensive (loss) income
   (135  14 
   
 
 
  
 
 
 
Other comprehensive income, net of tax
   357   3,259 
   
 
 
  
 
 
 
COMPREHENSIVE INCOME
  $15,697  $30,038 
   
 
 
  
 
 
 
   
Three Months Ended
June 30,
  
Nine Months Ended
June 30,
 
   
2022
  
2021
  
2022
  
2021
 
NET EARNINGS (LOSS)  $ (7,338 $ 11,669  $ 36,754  $ 64,750 
Other comprehensive income (loss):                 
Foreign currency translation adjustment   (5,166  41   (7,044  3,421 
Reclassification of realized gain on cash flow hedge   —     —     (935  —   
Unrealized gain on cash flow hedge   216   9   2,201   469 
Reclassification of amortization of gain on cash flow hedge   —     —     —     (154
Income taxes related to items of other comprehensive income (loss)   (53  (2  (310  (68
                  
Other comprehensive income (loss), net of tax   (5,003  48   (6,088  3,668 
                  
COMPREHENSIVE INCOME (LOSS)  $ (12,341 $ 11,717  $ 30,666  $ 68,418 
                  
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
Page
2
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollar amounts in thousands)
 
   
Three Months Ended
December 31,
 
   
2021
  
2020
 
CASH FLOWS FROM OPERATING ACTIVITIES
   
Net earnings
  $ 15,340  $ 26,779 
Non-cash
items included in net earnings:
         
Depreciation of property, plant and equipment
   1,700   1,508 
Amortization of intangible assets
   2,483   2,221 
Stock-based compensation
   1,903   1,241 
Deferred income taxes
   927   (852
Change in fair value of acquisition consideration
   0     1,047 
Change in the following:
         
Accounts receivable
   9,424   (1,776
Inventories
   2,093   (5,941
Prepaid expenses and other current assets
   200   2,682 
Accounts payable and accrued expenses
   1,018   (5,826
Income taxes payable
   1,113   4,032 
Other, net
   (646  6 
   
 
 
  
 
 
 
Net cash provided by operating activities
   35,555   25,121 
   
 
 
  
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
         
Purchase of property, plant and equipment
   (1,708  (2,086
Payment of acquisition consideration holdback
   0     (5,000
   
 
 
  
 
 
 
Net cash used
in
investing activities
   (1,708  (7,086
   
 
 
  
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
         
Payment on revolving credit facility
   (10,000  (10,000
Payment of
deferred financing costs
   (404  0   
Proceeds from exercise of stock options
   80   

 
Employee taxes 
paid upon net share settlement of restricted share units
   (763  0   
   
 
 
  
 
 
 
Net cash used
in
financing activities
   (11,087  (10,000
   
 
 
  
 
 
 
Effect of Exchange Rate Changes on Cash and Cash Equivalents
   198   1,644 
   
 
 
  
 
 
 
Net Increase in Cash and Cash Equivalents
   22,958   9,679 
Cash and Cash Equivalents at Beginning of Period
   49,771   53,514 
   
 
 
  
 
 
 
Cash and Cash Equivalents at End of Period
  $72,729  $63,193 
   
 
 
  
 
 
 
   
Nine Months Ended
June 30,
 
   
2022
  
2021
 
CASH FLOWS FROM OPERATING ACTIVITIES         
Net earnings  $ 36,754  $ 64,750 
Non-cash
items included in net earnings:
         
Depreciation of property, plant and equipment   5,009   4,729 
Amortization of intangible assets   7,433   6,453 
Stock-based compensation   5,006   3,170 
Deferred income taxes   2,248   (35
Estimated litigation costs   10,000   —   
Change in fair value of acquisition consideration   —     (5,505
Change in the following:         
Accounts receivable   7,933   (2,363
Inventories   4,473   (11,831
Prepaid expenses and other current assets   (1,401  (1,965
Accounts payable and accrued expenses   4,800   (2,252
Income taxes payable   (1,515  (2,317
Other, net   (366  (448
          
Net cash provided by operating activities   80,374   52,386 
          
CASH FLOWS FROM INVESTING ACTIVITIES         
Purchase of property, plant and equipment   (5,138  (16,407
Acquisition, net of cash acquired and holdback   (3,750  —   
Payment of acquisition consideration holdback   —     (5,000
          
Net cash used in investing activities   (8,888  (21,407
          
CASH FLOWS FROM FINANCING ACTIVITIES         
Payment on revolving credit facility   (35,000  (18,824
Payment of deferred financing costs   (404  —   
Proceeds from exercise of stock options   2,438   2,939 
Employee taxes paid upon stock option exercises and net share
 

settlement of restricted share units
   (865  —   
          
Net cash used in financing activities   (33,831  (15,885
          
Effect of Exchange Rate Changes on Cash and Cash Equivalents   (3,939  1,404 
          
Net Increase in Cash and Cash Equivalents   33,716   16,498 
Cash and Cash Equivalents at Beginning of Period   49,771   53,514 
          
Cash and Cash Equivalents at End of Period  $ 83,487  $ 70,012 
          
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
Page
3

MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollar amounts in thousands)
ASSETS
 
   
December 31,
2021

(Unaudited)
   
September 30,
2021
 
CURRENT ASSETS
          
Cash and cash equivalents
  $72,729   $49,771 
Accounts receivable, less allowances of $1,293 and $1,078,
 
respectively
   44,300    53,568 
Inventories, net
   74,198    76,842 
Prepaid expenses and other current assets
   12,426    12,626 
   
 
 
   
 
 
 
Total current assets
   203,653    192,807 
   
 
 
   
 
 
 
PROPERTY, PLANT AND EQUIPMENT, at Cost
          
Land
   987    989 
Buildings and improvements
   33,009    32,765 
Machinery, equipment and furniture
   79,438    78,410 
Construction in progress
   10,352    9,991 
   
 
 
   
 
 
 
Subtotal
   123,786    122,155 
Less: accumulated depreciation and amortization
   80,500    78,941 
   
 
 
   
 
 
 
Property, plant and equipment, net
   43,286    43,214 
   
 
 
   
 
 
 
OTHER ASSETS
          
Goodwill
   114,713    114,668 
Other intangible assets, net
   81,658    84,151 
Right-of-use
assets, net
   5,431    5,786 
Deferred income taxes
   8,813    8,731 
Other assets
   1,086    365 
   
 
 
   
 
 
 
Total other assets
   211,701    213,701 
   
 
 
   
 
 
 
TOTAL ASSETS
  $458,640   $449,722 
   
 
 
   
 
 
 
   
June 30,
2022
(Unaudited)
   
September 30,
2021
 
CURRENT ASSETS          
Cash and cash equivalents  $83,487   $49,771 
Accounts receivable, less allowances of $1,071 and $1,078, respectively   44,911    53,568 
Inventories, net   70,105    76,842 
Prepaid expenses and other current assets   13,966    12,626 
           
Total current assets   212,469    192,807 
           
PROPERTY, PLANT AND EQUIPMENT, at Cost          
Land   976    989 
Buildings and improvements   32,917    32,765 
Machinery, equipment and furniture   79,939    78,410 
Construction in progress   9,049    9,991 
           
Subtotal   122,881    122,155 
Less: accumulated depreciation and amortization   79,712    78,941 
           
Property, plant and equipment, net   43,169    43,214 
           
OTHER ASSETS          
Goodwill   117,201    114,668 
Other intangible assets, net   76,607    84,151 
Right-of-use
assets, net
   6,680    5,786 
Deferred income taxes   8,043    8,731 
Other assets   1,759    365 
           
Total other assets   210,290    213,701 
           
TOTAL ASSETS  $ 465,928   $ 449,722 
           
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
Page
4

MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollar amounts in thousands)
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
   
December 31,
2021

(Unaudited)
   
September 30,
2021
 
CURRENT LIABILITIES
          
Accounts payable
  $16,293   $11,701 
Accrued employee compensation costs
   12,029    16,853 
Accrued product recall costs
   4,269    5,100 
Acquisition consideration
   1,000    0   
Current operating lease obligations
   2,057    1,990 
Current government grant obligations
   765    638 
Other accrued expenses
   8,667    7,027 
Income taxes payable
   4,866    3,848 
   
 
 
   
 
 
 
Total current liabilities
   49,946    47,157 
   
 
 
   
 
 
 
NON-CURRENT
LIABILITIES
          
Acquisition consideration
   0      1,000 
Post-employment benefits
   2,169    2,253 
Long-term operating lease obligations
   3,529    3,932 
Long-term debt
   50,000    60,000 
Government grant obligations
   5,068    5,176 
Long-term income taxes payable
   469    469 
Deferred income taxes
   2,067    1,055 
Other
non-current
liabilities
   173    378 
   
 
 
   
 
 
 
Total
non-current
liabilities
   63,475    74,263 
   
 
 
   
 
 
 
COMMITMENTS AND CONTINGENCIES
        
   
SHAREHOLDERS’ EQUITY
          
Preferred stock, 0 par value; 1,000,000 shares authorized; NaN issued
   0—      0—   
Common shares, 0 par value; 71,000,000 shares authorized, 43,514,258 and 43,361,898 shares
issued and outstanding, respectively
   0—      0—   
Additional
paid-in
capital
   148,623    147,403 
Retained earnings
   196,041    180,701 
Accumulated other comprehensive income
   555    198 
   
 
 
   
 
 
 
Total shareholders’ equity
   345,219    328,302 
   
 
 
   
 
 
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $458,640   $449,722 
   
 
 
   
 
 
 
   
June 30,
2022
(Unaudited)
  
September 30,
2021
 
CURRENT LIABILITIES         
Accounts payable  $15,359  $11,701 
Accrued employee compensation costs   19,697   16,853 
Accrued product recall costs   2,359   5,100 
Accrued estimated litigation cost
s

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

MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(dollar and share amounts in thousands)
 
   Common
Shares
   
Additional
Paid-In

Capital
  Retained
Earnings
   Accumulated Other
Comprehensive
Income (Loss)
  Total
Shareholders’
Equity
 
Balance at September 30, 2021
   43,362   $147,403  $180,701   $198  $328,302 
Conversion of restricted share units and exercise 
of stock options
   152    (683  —      —     (683
Stock compensation expense
   —      1,903   —      —     1,903 
Net earnings
   —      —     15,340    —     15,340 
Foreign currency translation adjustment
   —      —     —      (58  (58
Hedging activity, net of tax
   —      —     —      415   415 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Balance at December 31, 2021
   43,514   $148,623  $196,041   $555  $345,219 
 
                    
Balance at September 30, 2020
   43,069   $140,195  $109,294   $(1,860 $247,629 
Conversion of restricted share units and exercise 
of stock options
   55    (41  —      —     (41
Stock compensation expense
   —      1,241   —      —     1,241 
Net earnings
   —      —     26,779    —     26,779 
Foreign currency translation adjustment
   —      —     —      3,301   3,301 
Hedging activity, net of tax
   —      —     —      (42  (42
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Balance at December 31, 2020
   43,124   $141,395  $136,073   $1,399  $278,867 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
   
Common
Shares
   
Additional
Paid-In

Capital
   
Treasury Stock
  
Retained
Earnings
  
Accumulated

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

Capital
   
Treasury Stock
  
Retained
Earnings
  
Accumulated

Other Comp.
Income (Loss)
  
Total
Shareholders’
Equity
 
   
Sh.
  
Amt.
 
NINE MONTHS ENDED JUNE 30, 2022
                               
Balance at September 30, 2021
   43,362   $ 147,403    —    $—    $ 180,701  $198  $ 328,302 
Conversion of restricted share units and exercise of stock options   357    1,832    (10  (259  —     —     1,573 
Stock compensation expense   —      5,006    —     —     —     —     5,006 
Net earnings   —      —      —     —     36,754   —     36,754 
Foreign currency translation adjustment   —      —      —     —     —     (7,044  (7,044
Hedging activity, net of tax   —      —      —     —     —     956   956 
                                
Balance at June 30, 2022
   43,719   $ 154,241    (10 $(259 $ 217,455  $ (5,890 $ 365,547 
                                
NINE MONTHS ENDED JUNE 30, 2021
                               
Balance at September 30, 2020
   43,069   $ 140,195    —    $—    $ 109,294  $ (1,860 $ 247,629 
Conversion of restricted share units and exercise of stock options   284    2,939    —     —     —     —     2,939 
Stock compensation expense   —      3,170    —     —     —     —     3,170 
Net earnings   —      —      —     —     64,750   —     64,750 
Foreign currency translation adjustment   —      —      —     —     —     3,421   3,421 
Hedging activity, net of tax   —      —      —     —     —     247   247 
                                
Balance at June 30, 2021
   43,353   $ 146,304    —    $—    $ 174,044  $ 1,808  $ 322,156 
                                
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
Page
6
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Dollars in Thousands, Except Per Share Amounts
(Unaudited)
 
1.
Nature of Business
Meridian Bioscience, Inc. (“Meridian” or “the Company”) was formed in 1976 and functions as a fully-integrated life science company with principal businesses in: (i) the development, manufacture, sale and distribution of diagnostic testing systems and kits, primarily for certain gastrointestinal and respiratory infectious diseases, and elevated blood lead levels; and (ii) the manufacture and distribution of bulk antigens, antibodies, immunoassay blocking reagents, various Polymerase Chain Reaction (“PCR”) and isothermal amplification master mixes, and bioresearch reagents used by other diagnostic manufacturers and researchers.
Our reportable segments are Diagnostics and Life Science. The Diagnostics segment consists of: (i) manufacturing operations for infectious disease products in Cincinnati, Ohio; Quebec City, Canada; and Modi’in, Israel; (ii) manufacturing operations for blood chemistry products in Billerica, Massachusetts; and (iii) the sale and distribution of diagnostics products domestically and abroad. This segment’s products are used by hospitals, reference labs and physician offices to detect infectious diseases and elevated lead levels in blood.
The Life Science segment consists of: (i) manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; North Brunswick, New Jersey; London, England; and Luckenwalde, Germany;
and (ii) the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents domestically and abroad, including a sales and business development facility, with outsourced distribution capabilities, in Beijing, China to pursue revenue opportunities in Asia. This segment’s products are used by manufacturers and researchers in a variety of applications (e.g., in vitro medical device manufacturing, microRNA detection, next-generation sequencing, plant genotyping, and mutation detection, among others).
 
2.
Basis of Presentation
The Condensed Consolidated Financial Statements are unaudited and are prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information, and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of Management, the Condensed Consolidated Financial Statements include all normal adjustments and disclosures necessary to present fairly the Company’s consolidated financial position as of December 31, 2021,June 30, 2022, and the results of its operations cash flows, and shareholders’ equity for the three and nine months ended December 31,June 30, 2022 and 2021, and 2020.cash flows for the nine months ended June 30, 2022 and 2021. These Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s fiscal 2021 Annual Report on Form
10-K,
filed with the SEC on November 23, 2021.
It should be noted that the terms revenue and/or revenues are utilized throughout these notes to the Condensed Consolidated Financial Statements to indicate net revenue and/or net revenues.
The consolidated results of operations for interim periods are not necessarily indicative of the results to be expected for the full fiscal year. The preparation of these Condensed Consolidated Financial Statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the period. Included within these estimates are those related to the ongoing impacts of the
COVID-19
pandemic, which has had both positive and negative effects on our business; generally positive effects on our Life Science segment and negative effects on our Diagnostics segment. Actual results could differ from the estimates made by management.
 
Page
7

3.
Significant Accounting Policies
A summary of the Company’s significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company’s fiscal 2021 Annual Report on Form
10-K,
filed with the SEC on November 23, 2021, and should be referred to for a description of the Company’s significant accounting policies.
 
(a)
Recent Accounting Pronouncements –
Pronouncements Adopted
On October 1, 2021, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)
2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
(“ASU
2019-12”),
which clarified and simplified accounting for income taxes by eliminating certain exceptions for intraperiod tax allocation principles, the methodology for calculating income tax rates in an interim period, and recognition of deferred taxes for outside basis differences in an investment, among other updates. Adoption of ASU
2019-12
did not have a material impact on the Condensed Consolidated Financial Statements.
Pronouncements Issued but Not Yet Adopted as of December 31, 2021June 30, 2022
In March 2020, the FASB issued ASU
2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
, to provide temporary optional guidance relating to reference rate reform, particularly as it relates to easing the potential burden resulting from the expected discontinuation of the London Interbank Offered Rate (“LIBOR”). The guidance provides practical expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met, which may be applied through December 31, 2022. The Company continues to evaluate the impacts of this guidance but does not expect its application to have a material impact on the Condensed Consolidated Financial Statements.
No other new accounting pronouncements recently adopted or issued had or are expected to have a material impact on the Condensed Consolidated Financial Statements.
 
(b)
Reclassifications –
Certain reclassifications have been made to the prior year Condensed Consolidated Financial Statements to conform to the current year presentation. Such reclassifications had no impact on net earnings (loss) or shareholders’ equity.
Page 8

4.
Revenue Recognition
Revenue Disaggregation
The following tables present our net revenues disaggregated by major geographic region, major product platform and disease state (Diagnostics segment only):
Net Revenues by Reportable Segment & Geographic Region
 
   
Three Months Ended December 31,
 
   
2021
   
2020
   
Inc (Dec)
 
Diagnostics-
               
Americas
  $26,613   $23,551    13
EMEA
   6,093    6,020    1
ROW
   498    750    (34)%
   
 
 
   
 
 
   
 
 
 
Total Diagnostics
   33,204    30,321    10
Life Science-
               
Americas
   8,137    18,755    (57)% 
EMEA
   28,648    32,311    (11)% 
ROW
   18,352    11,530    59
   
 
 
   
 
 
   
 
 
 
Total Life Science
   55,137    62,596    (12)% 
   
 
 
   
 
 
   
 
 
 
Consolidated
  $88,341   $92,917    (5)% 
   
 
 
   
 
 
   
 
 
 
Page
8

   
Three Months Ended June 30,
  
Nine Months Ended June 30,
 
   
2022
   
2021
   
Inc (Dec)
  
2022
   
2021
   
Inc (Dec)
 
Diagnostics-                             
Americas  $38,158   $24,543    55 $98,322   $73,367    34
EMEA   3,836    6,251    (39)%   17,042    18,352    (7)% 
ROW   415    395    5  1,352    1,740    (22)% 
                              
Total Diagnostics   42,409    31,189    36  116,716    93,459    25
                              
Life Science-                             
Americas   7,314    7,419    (1)%   25,833    39,661    (35)% 
EMEA   8,200    15,723    (48)%   70,188    70,084    —  
ROW   9,848    9,180    7  54,606    38,488    42
                              
Total Life Science   25,362    32,322    (22)%   150,627    148,233    2
                              
Consolidated  $67,771   $63,511    7 $267,343   $241,692    11
                              
Net Revenues by Product Platform/Type
 
   
Three Months Ended December 31,
 
   
2021
   
2020
   
Inc (Dec)
 
Diagnostics-
               
Molecular assays
  $4,752   $4,590    4
Non-molecular
assays
   28,452    25,731    11
   
 
 
   
 
 
   
 
 
 
Total Diagnostics
  $33,204   $30,321    10
   
 
 
   
 
 
   
 
 
 
Life Science-
               
Molecular reagents
  $31,488   $46,029    (32)% 
Immunological reagents
   23,649    16,567    43
   
 
 
   
 
 
   
 
 
 
Total Life Science  $55,137   $62,596    (12)% 
   
 
 
   
 
 
   
 
 
 
   
Three Months Ended June 30,
  
Nine Months Ended June 30,
 
   
2022
   
2021
   
Inc (Dec)
  
2022
   
2021
   
Inc (Dec)
 
Diagnostics-                             
Molecular assays  $4,876   $4,383    11 $14,039   $13,368    5
Non-molecular
assays
   37,533    26,806    40  102,677    80,091    28
                              
Total Diagnostics   42,409    31,189    36  116,716    93,459    25
                              
Life Science-                             
Molecular reagents   7,743    20,385    (62)%   79,531    104,016    (24)% 
Immunological reagents   17,619    11,937    48  71,096    44,217    61
                              
Total Life Science   25,362    32,322    (22)%   150,627    148,233    2
                              
Consolidated  $67,771   $63,511    7 $267,343   $241,692    11
                              
Net Revenues by Disease State (Diagnostics segment only)
   
Three Months Ended June 30,
  
Nine Months Ended June 30,
 
   
2022
   
2021
   
Inc (Dec)
  
2022
   
2021
   
Inc (Dec)
 
Diagnostics-                             
Gastrointestinal assays  $22,715   $17,844    27 $64,704   $48,962    32
Respiratory illness assays   5,488    3,742    47  21,359    12,233    75
Blood chemistry assays   6,431    4,254    51  9,762    13,006    (25)% 
Other   7,775    5,349    45  20,891    19,258    8
                              
Total Diagnostics  $42,409    31,189    36 $116,716    93,459    25
                              
Page 9

   
Three Months Ended December 31,
 
   
2021
   
2020
   
Inc (Dec)
 
Diagnostics-
               
Gastrointestinal assays
  $21,619   $15,452    40
Respiratory illness assays
   6,380    4,806    33
Blood chemistry assays
   78    4,394    (98)% 
Other
   5,127    5,669    (10)% 
   
 
 
   
 
 
   
 
 
 
Total Diagnostics
  $33,204   $30,321    10
   
 
 
   
 
 
   
 
 
 
Royalty Income
Royalty income received from a third party related primarily to sales of
H. pylori
products, totaled approximately $1,040$2,080 and $860
$1,380 in the three months ended December 31,June 30, 2022 and 2021, respectively, and 2020,$5,630 and $5,085 in the nine months ended June 30, 2022 and 2021, respectively. Such revenueRoyalty income is included as part of
Non-molecular
assays and Other within the Net Revenues by Product Platform/Type and Net Revenues by Disease State tables, respectively, above.
Reagent Rental Arrangements
Revenue allocated to the lease elements of Reagent Rental arrangements totaled approximately $
995
$1,080 and $
880
$950 in the
three
months ended December 
31
,
June 30, 2022 and 2021,
respectively, and
2020
, $2,805 and $2,730 in the nine months ended June 30, 2022 and 2021, respectively. Such revenue is included as part of net revenues in our Condensed Consolidated Statements of Operations.
 
5.
Fair Value Measurements
To limit exposure to volatility in the LIBOR interest rate, the Company has entered into interest rate swap agreements, which effectively convert the variable interest rate on the outstanding revolving credit facility discussed in Note 12 to a fixed rate. The fair values of the interest rate swap agreements were determined by reference to a third-party valuation, which is considered a Level 2 input within the fair value hierarchy of valuation techniques, and totaled a
$347
$1,062 asset and a
$203
$203 liability, as of December 31, 2021June 30, 2022 and September 30, 2021, respectively. In conjunction with the paydown of $25,000 on the revolving credit facility in March 2022, a $25,000 interest rate swap agreement was terminated, resulting in a gain of $935, which is recorded in other income (expense), net in our Condensed Consolidated Statements of Operations during the nine months ended June 30, 2022.
As indicated in Note 6, we acquired EUPROTEIN Inc. of North Brunswick, New Jersey (EUPROTEIN”) on April 30, 2022 and the BreathTek business on July 31, 2021. The fair values of inventories acquired were valued using Level 2 inputs, which included data points that were observable, such as established values of comparable assets and historical sales information (market approach). Identifiable intangible assets, if applicable and specifically the acquired customer relationships, were valued using Level 3 inputs, which are unobservable by nature, and included internal estimates of future cash flows and attrition rates (income approach). Significant increases (decreases) in any of those unobservable inputs, as of the date of the acquisition, in isolation would result in a significantly lower (higher) fair value measurement.
 
Page
9

6.
Business Combinations
On April 30, 2022, we acquired substantially all of the assets of EUPROTEIN for $4,250 in cash, of which $3,750 was paid at closing, with the remainder held back for final closing adjustments, which is recorded in other
non-current
liabilities on the Condensed Consolidated Balance Sheets and is payable within 18 months of the acquisition date. EUPROTEIN offers custom development and production of high-quality bioresearch reagents, with a particular focus on human and other mammalian proteins and recombinant monoclonal antibodies. The acquired assets of EUPROTEIN are included within the Life Science segment and are expected to help the Company accelerate its pipeline of new immunological reagents, while expanding recombinant capabilities. The acquired assets, which are comprised of goodwill, property, plant and equipment, and inventory, were valued on April 30, 2022, on a
preliminary basis 
at $3,971, $269 and $10, respectively. The goodwill is not expected to be deductible for income tax purposes. The preliminary purchase price allocation may change in the future as the fair valuing of assets is completed.
On July 31,
, 2021, (“the BreathTek acquisition date”), we acquired the BreathTek business, a urea breath test for the detection of
H. pylori
, from Otsuka America Pharmaceutical, Inc. Cash consideration totaled $19,585, subject to a $1,000
holdback, which is recorded in acquisition considerationother accrued expenses on the Condensed Consolidated Balance Sheets, to secure the selling party’s performance of certain post-closing obligations that is
 and
i
s payable 15 months following the BreathTek acquisition date. As part of the acquisition, we acquired BreathTek inventories and assumed the customer relationships to supply the BreathTek product in North America. TheGiving effect to purchase adjustments made during the nine months ended June 30, 2022 to increase the value of acquired inventories by approximately $100, the acquired inventories and customer relationships were valued on July 31, 2021 on a preliminary basis, at
$9,855$9,955 and $9,730,$9,630, respectively, with the useful life of the customer relationships estimated at five yearsyears.
. There have been no material purchase price adjustments to the preliminary inventories and customer relationships values through December 31, 2021.
Page 10

Table of Contents
The Company’s consolidated results for the three-month periodthree and nine months ended December 31, 2021June 30, 2022 include
$5,611approximately $5,500 and $16,600, respectively, of net revenues from sales of BreathTek products,product sales, which contributed approximately $1,600$1,800 and $5,000, respectively, of net earnings. These results, which are reported as part of the Diagnostics segment, include amortization expense related to the customer relationships recorded in the purchase price allocation totaling $486.$479 and $1,439, during the three and nine months ended June 30, 2022, respectively.
The following table provides the unaudited consolidated pro forma results for the periods presented as if the BreathTek business had been acquired as of the beginning of fiscal 2021:
 
Three Months Ended December 31,
  2021   2020 
Net revenues
  $88,341   $97,824 
Net earnings
   15,340    28,014 
   
Three Months Ended
June 30,
   
Nine Months Ended
June 30,
 
   
2022
   
2021
   
2022
   
2021
 
Net revenues  $67,771   $69,920   $267,343   $258,777 
Net earnings (loss)   (7,338   13,685    36,754    69,737 
Based on the nature of the EUPROTEIN business, EUPROTEIN is not expected to contribute materially to net revenues and net earnings (loss) and therefore, no amounts are included in the table above.
7.
Lead Testing Matters
On September 1, 2021, the Company’s wholly owned subsidiary Magellan announced the expansion of a Class I voluntary recall of its LeadCare test kits for the detection of lead in blood, which it had initiated in May 2021. Customers generally run controls when they receive a new lot of product and reportedreport to us thatwhen the control results wereare outside of specified ranges. As a result of theThis process identified issue,certain impacted test kit lots that could potentially underestimate blood lead levels when processing patient blood samples. Although it was initially believed that the root cause of the issue related to the plastic containers used for the treatment reagent, additional studies have indicated that the root cause relatesrelated to the third-party-sourced cardboard trays that hold the containers used forheld the treatment reagent.reagent containers. Upon correction of the identified supplier issue, shipment of product resumed during February 2022. The Company continues to work closely with the FDA in its execution of the recall activities, which include notifications to customers and distributors, and providing instructions for the return of impacted test kits. The evaluation of the recall and the related notification process and correction of the identified supplier issue isare ongoing. Of the approximate
$5,100
$5,100 estimated and accrued as of September 30, 2021, to cover the estimated costs of the recall, approximately 
$4,300
$2,359 remains accrued and is reflected in the Condensed Consolidated Balance Sheet as of December 31, 2021.June 30, 2022. Anticipated recall-related costs, which primarily include product replacement and/or refund costs, mailing/shipping costs, attorneys’ fees, and other miscellaneous costs are estimated based upon the most recent information available. Information utilized in the accrual estimation process includes observable inputs such as customer
on-hand
inventory data, product sales data, average sales price, and product inventory turns, among other things. Available information is subject to change as the recall period extends, and such changes will be recorded in the period known. There have been no material changes in estimates related to the LeadCare recall reserve during the three or nine months ended December 31, 2021.June 30, 2022.

As previously disclosed, o
non April 17, 2018,
, the
Company’s wholly owned subsidiary Magellan received a subpoena from the U.S. Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlined documents to be produced, and the Company is cooperating with the DOJ in this matter. The Company maintains rigorous policies and procedures to promote compliance with applicable regulatory agencies and requirements and is working with the DOJ to promptly respond to the subpoena, including responding to additional information requests that have followed receipt of the subpoena in April 2018. The Company has executed tolling agreements to extend the statute of limitations. In March and April 2021, the DOJ issued two subpoenas, both to former employees of Magellan, calling for witnesses to testify before a federal grand jury related to this matter. 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. In September and October 2021, the DOJ issued additional subpoenas to individuals seeking testimony and documents in connection with its ongoing investigation. It is the Company’s understanding that multiple witnesses have testified before the federal grand jury and the DOJ’s activity beforeinvestigation is ongoing. Discussions continue with the federal grand juryDOJ to explore resolution of the matter. As of June 30, 2022, in accordance with the applicable accounting guidance, the Company accrued $10,000 as an estimate of the cost to settle the LeadCare legal matter, which is ongoing.reflected in litigation and select legal costs within the Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2022. The Company cannot predict when the investigation will be resolved or the outcome of the investigation, or its potential impact onand the Company.ultimate resolution of the LeadCare legal matter may exceed the amount accrued at June 30, 2022 and could be material to the Condensed Consolidated Statement of Operations. Approximately
$281 $1,812 and $1,227
$438 of expense for attorneys’ fees related to this matter is included in litigation and select legal costs within the Condensed Consolidated Statements of Operations for the three months ended December 31,June 30, 2022 and 2021, respectively, and 2020,$2,601 and $2,695, for the nine months ended June 30, 2022 and 2021, respectively.
Page 11
Page 1
0

8.
Cash and Cash Equivalents
Cash and cash equivalents include the following:
 
   
December 31,
2021
   
September 30,
2021
 
 
Institutional money market funds
  $1,020   $1,020 
Cash on hand, unrestricted
   71,709    48,751 
   
 
 
   
 
 
 
Total
  $72,729   $49,771 
   
 
 
   
 
 
 
   
June 30,
2022
   
September 30,
2021
 
Institutional money market funds  $1,021   $1,020 
Cash on hand, unrestricted   82,466    48,751 
           
Total  $83,487   $49,771 
           
Cash equivalents, institutional money market funds, are classified within Level 1 of the fair value hierarchy. Financial instruments classified as Level 1 are based on quoted market prices in active markets. The Company does not adjust the quoted market price for such financial instruments.
 
9.
Inventories, Net
Inventories, net, are comprised of the following:
 
  
December 31,
2021
   
September 30,
2021
 
  
June 30,
2022
   
September 30,
2021
 
Raw materials
  $15,104   $14,843   $15,920   $14,843 
Work-in-process
   21,479    25,072    21,492    25,072 
Finished goods - instruments
   2,699    2,260    2,259    2,260 
Finished goods - kits and reagents
   34,916    34,667    30,434    34,667 
  
 
   
 
         
Total
  $74,198   $76,842   $70,105   $76,842 
  
 
   
 
         
 
10.
Goodwill and Other Intangible Assets, Net
Goodwill is not amortized but is subject to an annual impairment test. Goodwill has been assigned to reporting units within the reportable segments. The Company assesses the carrying value of goodwill annually, or more often if events or changes in circumstances indicate there may be impairment. Impairment testing is performed at a reporting unit level. During the threenine months ended December 31, 2021,June 30, 2022, goodwill increased
$45, reflecting: $2,533, comprised of: (i) a $4 increase from the currency translation adjustment on goodwill$411 decrease in the Diagnostics segment;segment goodwill; and (ii) a $41$2,944 increase from the currency translation adjustment onin Life Science segment goodwill. This overall net increase in goodwill reflects $3,971 of goodwill acquired in the Life Science segment.
EUPROTEIN acquisition (see Note 6), partially offset by the effects of foreign currency translation. During the three and nine months ended December 31, 2021,June 30, 2022, the Company did not observe any triggering events or substantive changes in circumstances requiring the need for an interim impairment assessment.
Page 12

A summary of other intangible assets, net, subject to amortization is as follows:
 
   
December 31, 2021
   
September 30, 2021
 
   
Gross
Carrying
Value
   
Accumulated
Amortization
   
Gross
Carrying
Value
   
Accumulated
Amortization
 
Manufacturing technologies, core products and cell lines
  $62,421   $23,592   $62,416   $22,633 
Trade names, licenses and patents
   18,495    9,806    18,489    9,492 
Customer lists, customer relationships and

supply agreements
   54,954    20,887    54,941    19,649 
Non-compete
agreements
   110    37    110    31 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $135,980   $54,322   $135,956   $51,805 
   
 
 
   
 
 
   
 
 
   
 
 
 
Page 11

   
June 30, 2022
   
September 30, 2021
 
   
Gross
Carrying
Value
   
Accumulated
Amortization
   
Gross
Carrying
Value
   
Accumulated
Amortization
 
Manufacturing technologies, core products and cell lines  $62,291   $25,369   $62,416   $22,633 
Trade names, licenses and patents   18,341    10,268    18,489    9,492 
Customer lists, customer relationships and supply agreements   54,491    22,941    54,941    19,649 
Non-compete
agreements
   110    48    110    31 
                     
Total  $135,233   $58,626   $135,956   $51,805 
                     
The aggregate amortization expense for these other intangible assets was $2,483$2,467 and $2,221$2,090 for the three months ended December 31,June 30, 2022 and 2021, respectively, and 2020
,$7,433 and $6,453 for the nine months ended June 30, 2022 and 2021, respectively.
The estimated aggregate amortization expense for these other intangible assets for each of the fiscal years through fiscal 2027 is as follows: remainder of fiscal 2022 – $7,455,$2,480, fiscal 2023 – $9,925,$9,905, fiscal 2024 – $9,920,$9,900, fiscal 2025 – $9,915,$9,890, fiscal 2026 – $8,920,$8,900, and fiscal 2027 – $6,645.

 
11.
Leasing Arrangements
The Company is party to several operating leases, the majority of which are related to office, warehouse and manufacturing space. The related operating lease assets and obligations are reflected within
right-of-use
assets, net, current operating lease obligations, and long-term operating lease obligations on the Condensed Consolidated Balance Sheets. Lease expense for these leases is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred.
The lease costs for these operating leases reflected in our Condensed Consolidated Statements of Operations, as well as the
right-of-use
assets, net obtained during these periods in exchange for operating lease liabilities, are as follows:
 
Three Months Ended December 31,
  
2021
   
2020
 
  
Three Months
Ended June 30,
   
Nine Months
Ended June 30,
 
  
2022
   
2021
   
2022
   
2021
 
Lease costs within cost of sales
  $225   $158   $223   $213   $676   $569 
Lease costs within operating expenses
   388    374    340    390    1,086    1,151 
Right-of-use
assets, net
,
obtained in exchange for operating lease liabilities
   218    80 
Right-of-use
assets, net obtained in exchange for operating lease liabilities
   —      381    3,021    1,073 
In addition, the Company periodically enters into other short-term operating leases, generally with an initial term of twelve months or less. These leases are not recorded on the Condensed Consolidated Balance Sheets and the related lease expense is immaterial for the three and nine months ended December 31, 2021June 30, 2022 and 2020.2021.
The Company often has options to renew lease terms, with the exercise of lease renewal options generally at the Company’s sole discretion. In addition, certain lease arrangements may be terminated prior to their original expiration date at our discretion. We evaluate renewal and termination options at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis of economic factors. The discount rate implicit within our leases is generally not determinable and, therefore, the Company uses its incremental borrowing rate as the basis for its discount rate.

Page 13

Table of Contents
The weighted average remaining lease term for our operating leases and the weighted average discount rate used to measure our operating leases were as follows:
 
  
December 31,
2021
 
September 30,
2021
 
  
June 30,
2022
 
September 30,
2021
 
Weighted average remaining lease term
   3.3 years   3.6 years    4.0 years   3.6 years 
Average discount rate
   3.2  3.2%   3.5  3.2%
Maturities of lease liabilities by fiscal year for the Company’s operating leases were as follows as of December 31, 2021:June 30, 2022:
 
2022 (represents remainder of fiscal year)
  $1,687 
2023
   1,690 
2024
   1,218 
2025
   908 
2026
   316 
Thereafter
   62 
   
 
 
 
Total lease payments
   5,881 
Less amount of lease payments representing interest
   (295
   
 
 
 
Total present value of lease payments
  $5,586 
   
 
 
 
Page 1
2

Table of Contents
2022 (represents remainder of fiscal year)  $556 
2023   2,073 
2024   1,696 
2025   1,403 
2026   829 
Thereafter   723 
      
Total lease payments   7,280 
Less amount of lease payments representing interest   (482
      
Total present value of lease payments  $6,798 
      
Supplemental cash flow information related to the Company’s operating leases is as follows:
 
Three Months Ended December 31,
  
2021
   
2020
 
Nine Months Ended June 30,
  
2022
   
2021
 
Cash paid for amounts included in the measurement of lease liabilities:
            
Operating cash flows from operating leases
  $627   $494   $1,784   $1,611 
  
 
   
 
         
 
12.
Bank Credit Arrangements
The Company maintains a revolving credit facility with a commercial bank in an aggregate principal amount not to exceed $200,000, which onexpires in October 25, 2021, was amended primarily to: (i) increase the borrowing capacity from $150,000 to $200,000; (ii) extend the term from May 24, 2024 to October 25, 2026; and (iii) modify the financial covenants to more closely align with the Company’s size and strategic plans. Other provisions of the credit facility remain unchanged.2026. Outstanding principal amounts bear interest at a fluctuating rate tied to, at the Company’s option, either the federal funds rate or LIBOR, resulting in an effective interest rate
cost of 2.22%borrowing of 3.47% and 2.54%2.52% on the revolving credit facility during the three months ended December 31,June 30, 2022 and 2021, respectively, and 2020, respectively.2.55% during each of the nine month periods ended June 30, 2022 and 2021. In light of the interest being determined on a variable rate basis, the fair value of the borrowings under the revolving credit facility at both December 31, 2021June 30, 2022 and September 30, 2021, approximates the current carrying value reflected in the Condensed Consolidated Balance Sheets of $50,000$25,000 and $60,000, respectively, which is consistent with a level 2 fair value measurement.
The revolving credit facility is collateralized by the business assets of the Company’s U.S. subsidiaries and requires compliance with financial covenants that limit the amount of debt obligations and require a minimum level of coverage of fixed charges, as defined in the revolving credit facility agreement. As of December 31, 2021,June 30, 2022, the Company was in compliance with all covenants.
 
13.
Contingent Obligations and
Non-Current
Liabilities
In connection with the acquisition of Exalenz Bioscience Ltd. (“Exalenz”) in fiscal 2020, the Company assumed several Israeli government grant obligations. The repayment of the grants, along with interest incurred at varying stated fixed rates based on LIBOR at the time each grant was received, is not dictated by an established repayment schedule. Rather, the grants and related interest are required to be repaid
using 3% of the net revenues generated from the sales of BreathID products, with the timing of repayment contingent upon the level and timing of such revenues. In addition, the grants have no collateral or financial covenant provisions generally associated with traditional borrowing instruments.
T
hese These obligation amounts total $5,833$5,603 and $5,814 as of December 31, 2021June 30, 2022 and September 30, 2021, respectively, bearing interest at rates ranging from 0.58% to 2.02%.
Page 14

Table of Contents
The grant obligations are reflected in the Condensed Consolidated Balance Sheets as follows:
 
  
December 31,
2021
   
September 30,
2021
   
June 30,
2022
   
September 30,
2021
 
Current liabilities
  $765   $638   $1,200   $638 
Non-current
liabilities
  $5,068   $5,176   $4,403   $5,176 
Additionally, the Company has provided certain post-employment benefits to its former Chief Executive Officer, and these obligations total $1,639$1,570 and $1,676 at December 31, 2021June 30, 2022 and September 30, 2021, respectively. In addition, the Company is required by the governments of certain foreign countries in which we operate to maintain a level of accruals for potential future severance indemnity. These accruals total $707$641 and $754 at December 31, 2021June 30, 2022 and September 30, 202
1
,2021, respectively.
Page 1
3

Table of Contents
 
14.
National Institutes of Health Contracts
In December 2020, the Company entered into a
sub-award
grant contract with the University of Massachusetts Medical School as part of the National Institutes of Health Rapid Acceleration of Diagnostics (“RADx”) initiative to support the Company’s research and development of its diagnostic test for the
SARS-CoV-2
antigen. During fiscal 2021, the Company received $1,000 under the grant contract for reimbursement of eligible research and development expenditures, $800 of which was received during the threenine months ended December 31, 2020June 30, 2021 and is included within other income (expense), net in the Condensed Consolidated Statement of Operations for that period.
Effective February 1, 2021,On January 25, 2022, the Company entered into a contract to amend the Company’s second grant contract under the RADx initiative, thewhich was originally effective February 1, 2021. The purpose of whichthe grant is to support the Company’s manufacturing production
scale-up
and expansion to meet the demand for
COVID-19
testing.testing, as well as the Company’s Revogene respiratory panel. The amended contract is a twelve-month
24-month
service contract through January 2023, with payment of up to $5,500$8,000 being made based on the Company achieving key milestones related to increasing its capacity to produce
COVID-19
tests.
tests and the Revogene respiratory panel. As of December 31, 2021: (i)
$1,500June 30, 2022, $2,750 has been received related to this contract and is reflected as a reduction in the cost of equipment within construction in progressbuilding and improvements on the Condensed Consolidated
Balance Sheet; and (ii) the Company wasSheet, in the process of finalizing an amendment to the grant, which among other things, would increase the grant by $
2,500
to a total of $
8,000
and extend the term by 12 months (see Note 17 for discussion of subsequent amendment to the grant).
accordance with applicable accounting guidance.
15.
Reportable Segment and Major Customers Information
The Company’s reportable segments maintain separate financial information for which results of operations are evaluated on a regular basis by the Company’s chief operating decision maker in deciding how to allocate resources and in assessing performance.
The Company records the direct costs of business operations to the reportable segments, including allocations for certain corporate-wide costs such as treasury management, human resources and technology, among others. Corporate provides certain executive management and administrative services to each reportable segment. These services primarily include executive oversight by
non-segment-specific
executives, including the Board of Directors, along with certain other corporate-wide support functions such as insurance, legal and business development. The Company generally does not allocate these types of corporate expenses to the reportable segments.
Page 15

Table of Contents
Reportable segment and corporate information for the interim periods is as follows:
 
   
Diagnostics
  
Life Science
   
Corporate
(1)
  
Eliminations
(2)
  
Total
 
Three Months Ended December 31, 2021
 
Net revenues -
                      
Third-party
  $33,204  $55,137   $—    $—    $88,341 
Inter-segment
   34   55    —     (89  —   
Operating (loss) income
   (2,612  26,517    (3,637  15   20,283 
Goodwill (December 31, 2021)
   94,908   19,805    —     —     114,713 
Other intangible assets, net (December 31, 2021)
   81,656   2    —     —     81,658 
Total assets (December 31, 2021)
   352,318   106,339    —     (17  458,640 
   
 
 
  
 
 
   
 
 
  
 
 
  
 
 
 
Three Months Ended December 31, 2020
                      
Net revenues -
                      
Third-party
  $30,321  $62,596   $—    $—    $92,917 
Inter-segment
   69   18    —     (87  —   
Operating (loss) income
   (1,182  39,797    (3,963  12   34,664 
Goodwill (September 30, 2021)
   94,904   19,764    —     —     114,668 
Other intangible assets, net (September 30, 2021)
   84,149   2    —     —     84,151 
Total assets (September 30, 2021)
   339,208   110,536    —     (22  449,722 
   
 
 
  
 
 
   
 
 
  
 
 
  
 
 
 
   
Diagnostics
   
Life Science
   
Corporate
(1)
  
Eliminations
(2)
  
Total
 
Three Months Ended June 30, 2022
 
Net revenues -                       
Third-party  $42,409   $25,362   $—    $—    $67,771 
Inter-segment   67    43    —     (110  —   
Operating income (loss)   3,278    9,088    (19,084  37   (6,681
Goodwill (June 30, 2022)   94,493    22,708    —     —     117,201 
Other intangible assets, net (June 30, 2022)   76,605    2    —     —     76,607 
Total assets (June 30, 2022)   347,177    118,786    —     (35  465,928 
                        
Three Months Ended June 30, 2021
                       
Net revenues -                       
Third-party  $31,189   $32,322   $—    $—    $63,511 
Inter-segment   100    54    —     (154  —   
Operating income (loss)   2,717    16,078    (3,154  39   15,680 
Goodwill (September 30, 2021)   94,904    19,764    —     —     114,668 
Other intangible assets, net (September 30, 2021)   84,149    2    —     —     84,151 
Total assets (September 30, 2021)   339,208    110,536    —     (22  449,722 
                        
Nine Months Ended June 30, 2022
 
Net revenues -                       
Third-party  $116,716   $150,627   $—    $—    $267,343 
Inter-segment   214    130    —     (344  —   
Operating income (loss)   3,104    75,976    (29,407  70   49,743 
                        
Nine Months Ended June 30, 2021
 
Net revenues -                       
Third-party  $93,459   $148,233   $—    $—    $241,692 
Inter-segment   285    163    —     (448  —   
Operating income (loss)   4,400    91,832    (11,754  67   84,545 
                        
 
(1) 
Includes selectedlitigation and select legal costs, and acquisition and transaction related costs of $281$16,000 and $1,227$16,789 in the three and nine months ended December 31,June 30, 2022, respectively, and $438 and $2,695 in the three and nine months ended June 30, 2021, and 2020, respectively.
(2) 
Eliminations consist of inter-segment transactions.
 
Page 1
416

Table of Contents
A reconciliation of reportable segment operating (loss) income to consolidated earnings (loss) before income taxes for the three months ended December 31, 2021 and 2020, is as follows:
 
Three Months Ended December 31,
  
2021
   
2020
 
Operating (loss) income:
          
Diagnostics segment
  $(2,612  $(1,182
Life Science segment
   26,517    39,797 
Eliminations
   15    12 
   
 
 
   
 
 
 
Total operating income
   23,920    38,627 
Corporate expenses
   (3,637   (3,963
Interest income
   1    9 
Interest expense
   (372   (534
RADx initiative grant income
   0      800 
Other, net
   (161   (691
   
 
 
   
 
 
 
Consolidated earnings before income taxes
  $19,751   $34,248 
   
 
 
   
 
 
 
   
Three Months
Ended June 30,
   
Nine Months
Ended June 30,
 
   
2022
   
2021
   
2022
   
2021
 
Operating income:                    
Diagnostics segment  $3,278   $2,717   $3,104   $4,400 
Life Science segment   9,088    16,078    75,976    91,832 
Eliminations   37    39    70    67 
                     
Total segment operating income   12,403    18,834    79,150    96,299 
Corporate operating expenses   (19,084   (3,154   (29,407   (11,754
Interest income   2    —      5    15 
Interest expense   (256   (444   (969   (1,450
RADx initiative grant income   —      —      —      1,000 
Other, net   333    59    905    (1,515
                     
Consolidated earnings (loss) before income taxe
s

  $(6,602  $15,295   $49,684   $82,595 
                     
Transactions between reportable segments are accounted for at established intercompany prices for internal and management purposes, with all intercompany amounts eliminated in consolidation.
Net revenues generated by the Company’s three major Diagnostics segment product families – gastrointestinal, respiratory illnesses and blood chemistry – accounted for 32%51% and 27%41% of consolidated net revenues during the three months ended December 31,June 30, 2022 and 2021, respectively, and 2020,36% and 31% during the nine months ended June 30, 2022 and 2021, respectively.
Three individualIndividual Diagnostics and twoor Life Science segment customers, including their affiliates,
comprising 10% or more of reportable segment net revenues were as follows:
 
Three Months Ended December 31,
  
2021
 
2020
 
  
Three Months
Ended June 30,
 
Nine Months
Ended June 30,
 
  
2022
 
2021
 
2022
 
2021
 
Diagnostics
        
Customer A
   10%  12%   7  10  8  11
Customer B
   11%  10%   9  11  9  10
Customer C
   11%  11%   12  14  11  12
     
Life Science
        
Customer D
   14%  19%   14  9  7  7
Customer E
   23%  2%   1  4  11  12
Customer F   17  3  21  2
In addition,During the twothree months ended June 30, 2022 and 2021, 0individual Diagnostics segment or Life Science segment customers, including their affiliates, identified abovecustomer accounted for greater than 10% or more of consolidated net revenues. During the nine months ended June 30, 2022 and 2021, 0Diagnostics segment customer accounted for 10% or more of consolidated net revenues, as follows:
Three Months Ended December 31,
  
2021
  
2020
 
Life Science
         
Customer D
   9%  13%
Customer E
   14%  2%
No
individual Diagnosticswhile one Life Science segment customer accounted for greater than 10%(Customer F above) comprised 12% of consolidated net revenues during the threenine months ended December 31,June 30, 2022, and 1% of consolidated net revenues during the corresponding fiscal 2021 or 2020.interim period.
Page 17

DuringIn addition, during the three months ended December 31,June 30, 2022 and 2021, and 2020, the Life Science segment’s ten largest customers, including their affiliates, accounted for approximately
 67% 54% and 55%46%, respectively, of Life Science segment net revenues, and 42%approximately 20% and 37%24%, respectively, of consolidated net revenues. During the nine months ended June 30, 2022 and 2021, the Life Science segment’s ten largest customers, including their affiliates, accounted for approximately 58% and 43%, respectively, of Life Science segment net revenues, and 33% and 27%, respectively, of consolidated net revenues.

Page 1
5

Table of Contents
No Diagnostics or Life Science segment customer accounted for greater than 10% of consolidated accounts receivable as of December 31, 2021,June 30, 2022, while one Diagnostics segment customer (Customer B above) and one Life Science segment customer (Customer D above) accounted for approximately 12% and 10%, respectively, of consolidated accounts receivable as of September 30, 2021.
 
16.
Income Taxes
The effective rate for income taxes was approximately
(11%) and 26% for the three and nine months ended June 30, 2022, respectively, and 24% and 22%
for each ofthe three and nine months ended June 30, 2021, respectively. The negative effective rate for the three months ended December 31, 2021June 30, 2022 and 2020.the increase in effective rates for the nine months ended June 30, 2022, relate primarily to the anticipated
non-deductibility
of the previously discussed LeadCare legal matter (see Note 7).
17.
Subsequent Event
On January 25,July 7, 2022, the Company entered into an amended grant contractAgreement and Plan of Merger (the “Merger Agreement”) with SD Biosensor, Inc., a corporation with limited liability organized under the RADx initiative. The purposelaws of this grantthe Republic of Korea (“SDB”), Columbus Holding Company, a Delaware corporation (“Parent”), and Madeira Acquisition Corp., an Ohio corporation and a direct wholly owned subsidiary of Parent (“Merger Sub”). Meridian is informed that SJL Partners, LLC (“SJL”) is currently the sole shareholder of Parent, and SDB together with SJL will be the sole shareholders of Parent as of the closing of the Merger. Pursuant to supportthe Merger Agreement, Merger Sub will merge with and into Meridian (the “Merger”), with Meridian surviving the Merger as a direct wholly owned subsidiary of Parent.
At the effective time of the proposed Merger (the “Effective Time”), each share of common stock, 0 par value per share, of the Company issued and outstanding as of immediately prior to the Effective Time (other than dissenting shares or shares of the Company’s manufacturing production
scale-up
common stock held by the Company as treasury stock or owned by SDB, Merger Sub or any subsidiary of the Company or SDB) will be cancelled and expansioncease to meetexist and automatically convert into the demand forright to receive cash in an amount equal to $34.00, without interest.
COVID-19
testing,
Consummation of the Merger is subject to customary closing conditions, including, without limitation: (i) the absence of certain legal impediments; (ii) the expiration or termination of the required waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as well asamended; (iii) approval by the holders of two thirds of the issued and outstanding shares of the Company’s Revogene respiratory assay. common stock entitled to vote on such matter; and (iv) the condition that no adverse outcome, as defined in the Merger Agreement, related to the previously discussed DOJ matter has occurred or is reasonably likely to occur.
The amended contract is a twelve-month service contract through January 2023, with payment of up to an additional $2,500 being made based onMerger Agreement contains certain termination rights for the Company achieving key milestonesand SDB. The Company will be required to pay SDB a termination fee of approximately
$
45,960
if we terminate the Merger Agreement under specified circumstances. In addition to the foregoing termination right, and subject to certain limitations: (i) the Company or SDB may terminate the Merger Agreement if the Merger is not consummated by January 6, 2023; and (ii) the Company and SDB may mutually agree to terminate the Merger Agreement.
The Company incurred transaction related costs of approximately $4,200 for the three and nine months ended June 30, 2022 related to increasing its capacity to produce
COVID-19
teststhe Merger, which is recorded in acquisition and transaction related costs in the Revogene respiratory assay, bringing the total possible payment under the grant to $8,000.Condensed Consolidated Statements of Operations.
Page 18

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Refer to “Forward-Looking Statements” following the Table of Contents in front of this Form
10-Q.    In
In the discussion that follows, all dollar amounts are in thousands (both tables and text), except per share data.
The purpose of Management’s Discussion and Analysis is to provide an understanding of the financial condition, changes in financial condition and results of operations of Meridian Bioscience, Inc. (“Meridian”, the “Company”, “We”). This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and notes. It should be noted that the terms revenue and/or revenues are utilized throughout the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) to indicate net revenue and/or net revenues. In addition, throughout the MD&A, we refer to certain product tradenames and trademarks, which are protected under applicable intellectual property laws and are our property. Solely for convenience, these tradenames and trademarks are referred to without the
®
or
symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent of the law, our rights to these tradenames and trademar
ks.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. These diagnostic test products are sold and distributed in the countries comprising North and Latin America (the “Americas”); Europe, Middle East and Africa (“EMEA”); and other countries outside of the Americas and EMEA (rest of the world, or “ROW”). The Life Science segment consists of manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; North Brunswick, New Jersey; London, England; and Luckenwalde, Germany, and the sale and distribution of bulk antigens, antibodies, immunoassay blocking reagents, various Polymerase Chain Reaction (“PCR”) and isothermal amplification master mixes, and bioresearch reagents domestically and abroad, including a sales and business development facility, with outsourced distribution capabilities, in Beijing, China to further pursue growing revenue opportunities in Asia.
Recent Developments
Page 16
Agreement and Plan of Merger
On July 7, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with SD Biosensor, Inc., a corporation with limited liability organized under the laws of the Republic of Korea (“SDB”), Columbus Holding Company, a Delaware corporation (“Parent”), and Madeira Acquisition Corp., an Ohio corporation and a direct wholly owned subsidiary of Parent (“Merger Sub”). Meridian is informed that SJL Partners, LLC (“SJL”) is currently the sole shareholder of Parent, and SDB together with SJL will be the sole shareholders of Parent as of the closing of the Merger. Pursuant to the Merger Agreement, Merger Sub will merge with and into Meridian (the “Merger”), with Meridian surviving the Merger as a direct wholly owned subsidiary of Parent.
At the effective time of the proposed Merger (the “Effective Time”), each share of common stock, no par value per share, of the Company issued and outstanding as of immediately prior to the Effective Time (other than dissenting shares or shares of the Company’s common stock held by the Company as treasury stock or owned by SDB, Merger Sub or any subsidiary of the Company or SDB) will be cancelled and cease to exist and automatically convert into the right to receive cash in an amount equal to $34.00, without interest (the “Merger Consideration”).
Consummation of the Merger is subject to customary closing conditions, including, without limitation: (i) the absence of certain legal impediments; (ii) the expiration or termination of the required waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; (iii) approval by the holders of two thirds of the issued and outstanding shares of the Company’s common stock entitled to vote on such matter; and (iv) the condition that no adverse outcome, as defined in the Merger Agreement, related to the previously discussed DOJ matter has occurred or is reasonably likely to occur.
Page 19

Table of Contents
The Merger Agreement contains certain termination rights for the Company and SDB. The Company will be required to pay SDB a termination fee of approximately $45,960 if we terminate the Merger Agreement under specified circumstances. In addition to the foregoing termination right, and subject to certain limitations: (i) the Company or SDB may terminate the Merger Agreement if the Merger is not consummated by January 6, 2023; and (ii) the Company and SDB may mutually agree to terminate the Merger Agreement.
The foregoing description of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full text of the Merger Agreement, which is attached as an exhibit to our Current Report on Form
8-K
filed with the SEC on July 7, 2022.
Recent Developments
The Company incurred transaction related costs of approximately $4,200 for the three and nine months ended June 30, 2022 related to the Merger, which is recorded in acquisition and transaction related costs in the Condensed Consolidated Statements of Operations.
Impact of
COVID-19
Pandemic
Starting in the latter half of fiscal 2020 and continuing to the date of this filing, the ongoing
COVID-19
pandemic has had both positive and negative effects on our business.
Our Life Science segment’s products have been well positioned to respond to in vitro device (“IVD”) manufacturers’ increased demand for reagents used in the manufacture of molecular, rapid antigen and serology tests. Consequently, through the end of the second quarter of fiscal 2022, our Life Science segment has consistently delivered significantly higher levels of net revenues and operating income than those achieved prior to the
COVID-19
pandemic, with the peak to date peak in such levels occurring during the thirdsecond quarter of fiscal 2020 and2022. This revenue peak has been followed by a significant decrease in the firstlevel of such revenues during the fiscal 2022 third quarter, of fiscal 2021, respectively.
reflecting the softening in demand for
COVID-19
related reagents during the quarter.
Our Diagnostics segment, on the other hand, has generally been negatively impacted by health systems’ increased focus on
COVID-19
testing over traditional infectious disease testing. The impacts of the
COVID-19
pandemic are most dramatically evident in the 34% year-over-year decline in revenues from respiratory illness assays in fiscal 2021, following flat year-over-year revenue levels experienced in fiscal 2020. Reflecting what we believe to be the starta continuation of a return to
pre-pandemic
activity levels, during the firstthird quarter of fiscal 2022, revenues from respiratory illness assays were 33%47% higher than the firstthird quarter of fiscal 2021, and 18% lower than the
pre-pandemic
first quarter of fiscal 2020, a marked improvement over the aforementioned 34% decline in fiscal 2021.
Despite these recent
COVID-19
pandemic related trends, due to the many uncertainties surrounding the
COVID-19
pandemic, we can provide no assurances with respect to our views of the longevity or severity of the positive or negative impacts to our consolidated financial condition of the ongoing
COVID-19
pandemic.
Employee Safety
While the majority of our employee base in the U.S. has returned to working
on-site
at our facilities, we have implemented a hybrid work-from-home program for certain personnel and we continue to utilize a work-from-home process as needed on a
site-by-site
basis outside the U.S. for those employees whose
on-site
presence has been deemed to be
non-essential.
We also continue to utilize enhanced cleaning and sanitizing procedures, and provide additional personal hygiene supplies at all our sites. We have implemented policies for employees to adhere to Centers for Disease Control and Prevention (“CDC”) guidelines on social distancing, and similar guidelines by authorities outside the U.S. To date, we have been able to manufacture and distribute products globally, and all our sites have continued to operate with little, if any, impact on shipments to customers to date. As the
COVID-19
pandemic continues, along with continuing governmental restrictions which vary by locale and jurisdiction, there is an increased risk of employee absenteeism, which could materially impact our operations at one or more sites. To date, the steps we have taken, including our work-from-home processes, have not materially impacted the Company’s financial reporting systems, internal controls over financial reporting or disclosure controls.
Page 20

Table of Contents
Supply Chains
Supply chains supporting our products have generally remained intact, providing access to sufficient inventory of the key materials needed for manufacturing. While we have experienced extended lead times for certain select raw materials, delays and allocations for raw materials have to date been limited and have not had a material impact on our results of operations. From time to time, we identify alternative suppliers to address the risk of a current supplier’s inability to deliver materials in volumes sufficient to meet our manufacturing needs; or we may choose to purchase certain materials in bulk volumes where we have supply chain scarcity concerns. It remains possible that we may experience some sort of interruption to our supply chains, and such an interruption could materially affect our ability to timely manufacture and distribute our products and unfavorably impact our results of operations.
We are also starting to experience input cost inflation, including materials, labor and labor.transportation costs. Pricing actions and supply chain productivity initiatives have mitigated and are expected to continue to mitigate some of these inflationary pressures, but we may not be successful in fully offsetting these incremental costs, which could have an impact on the Company’s consolidated results of operations and cash flows during 2022 and beyond.
Page 17

Table of Contents
Product Development and Clinical Trials
Our Diagnostics segment’s new product development programs are continuing to progress at a slower pace than normal, due in part to the prevalence of certain infectious diseases having been lower than normal during the
COVID-19
pandemic. These matters continue to impact our timing for filing applications for product clearances with the U.S. Food and Drug Administration (“FDA”), as well as related timing of FDA clearances of such filings. Additionally, the ongoing
COVID-19
pandemic has slowed and could continue to slow down our efforts to expand our product portfolio, through acquisitions and/or distribution opportunities, impacting the speed with which we are able to bring additional products to market.
Product Demand
Our Life Science segment manufactures, markets and sells a number of molecular and immunological reagents to IVD customers, including those who are making both molecular and immunoassay
COVID-19
tests. SinceWhile there have been
quarter-to-quarter
fluctuations in demand throughout the
COVID-19
pandemic, from late in the second quarter of fiscal 2020 through the second quarter of fiscal 2022, we have generally experienced unprecedented demand for certain of our molecular reagents (e.g., ribonucleic acid (“RNA”) master mixes and nucleotides), including a resurgence. While we expect demand to continue to exceed
pre-COVID-19
pandemic levels, the significant decline in such
COVID-19
related demand experienced during our fiscal 2021 fourth quarter and throughout the firstthird quarter of fiscal 2022 is expected to continue throughout the remainder of fiscal 2022. While we expect a continuation of this trend, this expectationThese expectations will certainly be impacted by infection rates and the responses to such levels of infection varying by country based on their individual
COVID-19
case statistics, potential seasonality of infection rates and vaccine programs.
Our Diagnostics segment manufactures, markets and sells a number of molecular, immunoassay, blood chemistry and urea breath tests
for various infectious diseases and blood-lead levels. Sales volumes for a number of these assays have been adversely affected by the
COVID-19
pandemic over the past two fiscal years, as such assays are often used in
non-critical
care settings; however, we have seen indications of a return to more normal
pre-pandemic
levels. The
COVID-19
pandemic also has depressed instrument orders and placements for our BreathID, Curian and Revogene platforms. Order activity for our Revogene platform was affected by the delay in obtaining emergency use authorization (“EUA”) for our
SARS-CoV-2
assay, as customers took a “wait and see” approach throughout our entire EUA application process. We received the EUA on November 9, 2021, but havedid not yet begunbegin to ship product at that time, as our
SARS-CoV-2
assay is currently being enhancedrequired enhancement to detect the recently prevalent Omicron variantvariants of the
COVID-19
infection. We anticipate completing thecompleted validation of these changes during the second quarter of fiscal 2022 with shipmentand submitted the required information to the FDA. The FDA also requested the completion of additional clinical studies. Having completed the additional studies and submitting the results to the FDA, on July 28, 2022 notification was received from the FDA that it has re-authorized the EUA for the Revogene SARS-CoV-2 assay. As such, we expect to begin shipping this product to commence thereafter upon clearance bybefore the FDA.end of our fiscal year ending September 30, 2022. Despite the situation encountered with our EUA application for the
SARS-CoV-2
assay, and the delay in shipment due to the Omicron variant related enhancements, we have proceeded with the process of increasing our capacity to produce these tests, as well as other tests on the Revogene platform, at our facilities in Quebec and Cincinnati. Specifically, we havehave: (i) added a second production line at our Quebec manufacturing facility and are installing two additionalfacility; (ii) installed a production linesline in a leased facility near our corporate headquarters in Cincinnati.Cincinnati; and (iii) are in the process of installing an additional production line in the Cincinnati leased facility. With a gross cost of approximately $11,700 expended on$15,400 through June 30, 2022, we expect these expansion efforts through December 31, 2021, we expect them to be completed during calendar 2022 at a total gross cost of approximately $21,300,$22,400, which is expected to be partially offset by the monies received under the National Institutes of Health Rapid Acceleration of Diagnostics (“RADx”) initiative grant entered into on February 1, 2021, and as amended on January 25, 2022, $1,500$2,750 of which had been received and used to offset the above gross cost as of December 31, 2021June 30, 2022 (see Note 14,
“National Institutes of Health Contracts”
and Note 17,
“Subsequent Event”
of the Condensed Consolidated Financial Statements for further discussion).
Page 21

Table of Contents
Critical Accounting Estimates
ForAs of and for the three and nine months ended December 31, 2021,June 30, 2022, there were no significant changes to our critical accounting estimates, as outlined in our Annual Report on Form
10-K
as of and for the year ended September 30, 2021, filed with the SEC on November 23, 2021.
Page 18

Table of Contents
Lead Testing Matters
On September 1, 2021, the Company’s wholly owned subsidiary Magellan announced the expansion of the Class I voluntary recall of its LeadCare test kits for the detection of lead in blood, which it had initiated in May 2021 after identifying an ongoing issue with the testing controls included in certain manufactured lots of its LeadCare test kits. As a result of the identified issue, impacted test kit lots could potentially underestimate blood lead levels when processing patient blood samples. Although it was initially believed that the root cause of the issue related to the plastic containers used for the treatment reagent, additional studies have indicated that the root cause relatesrelated to the third-party-sourced cardboard trays that hold the containers used forheld the treatment reagent.reagent containers. Upon correction of the identified supplier issue, shipment of product resumed during February 2022. The Company continues to work closely with the FDA in its execution of the recall activities, which include Magellan notifying customers and distributors affected by the recall and providing instructions for the return of impacted test kits. The evaluation of the recall and the related notification process and correction of the identified supplier issue isare ongoing. Of the approximate $5,100 estimated and accrued as of September 30, 2021 to cover the estimated costs of the recall, approximately $4,300$2,359 remains accrued and is reflected in the Condensed Consolidated Balance Sheet as of December 31, 2021.June 30, 2022. Anticipated recall-related costs primarily include product replacement and/or refund costs, mailing/shipping costs, attorneys’ fees and other miscellaneous costs.
As previously disclosed, on April 17, 2018, the Company’s wholly owned subsidiary Magellan received a subpoena from the U.S. Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlined documents to be produced, and the Company is cooperating with the DOJ in this matter. The Company maintains rigorous policies and procedures to promote compliance with applicable regulatory agencies and requirements and is working with the DOJ to promptly respond to the subpoena, including responding to additional information requests that have followed receipt of the subpoena in April 2018. The Company has executed tolling agreements to extend the statute of limitations. In March and April 2021, the DOJ issued two subpoenas, both to former employees of Magellan, calling for witnesses to testify before a federal grand jury related to this matter. 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. In September and October 2021, the DOJ issued additional subpoenas to individuals seeking testimony and documents in connection with its ongoing investigation. It is the Company’s understanding that multiple witnesses have testified before the federal grand jury and the DOJ’s activity beforeinvestigation is ongoing. Discussions continue with the federal grand juryDOJ to explore resolution of the matter. As of June 30, 2022, in accordance with the applicable accounting guidance, the Company accrued $10,000 as an estimate of the cost to settle the LeadCare legal matter, which is ongoing.reflected in litigation and select legal costs within the Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2022. The Company cannot predict when the investigation will be resolved or the outcome of the investigation, or its potential impact onand the Company.ultimate resolution of the LeadCare legal matter may exceed the amount accrued at June 30, 2022 and could be material to the Condensed Consolidated Statement of Operations. Approximately $281$1,812 and $1,227$438 of expense for attorneys’ fees related to this matter is included in litigation and select legal costs within the Condensed Consolidated Statements of Operations for the three months ended December 31,June 30, 2022 and 2021, respectively, and 2020,$2,601 and $2,695, for the nine months ended June 30, 2022 and 2021, respectively.
Having issued a Warning Letter to Magellan on October 23, 2017 related to the Billerica location’s manufacturing of LeadCare testing systems for venous blood samples (the “Warning Letter”), on August 3, 2021, the FDA sent Magellan a
close-out
letter for the Warning Letter. The FDA’s
close-out
letter notified Magellan that the FDA has completed an evaluation of Magellan’s corrective actions in response to the FDA’s Warning Letter, and based on the FDA’s evaluation, Magellan has addressed the issues identified in the Warning Letter. The FDA’s
close-out
letter also stated that future FDA inspections of Magellan and regulatory activities will further assess the adequacy and sustainability of Magellan’s corrections. For a more detailed discussion of this matter, see the “Lead Testing Matters” section beginning on page 29 of the Company’s fiscal 2021 Annual Report on Form
10-K,
filed with the SEC on November 23, 2021.
Page 22

Table of Contents
RESULTS OF OPERATIONS
Three Months Ended December 31, 2021June 30, 2022
Net earnings for firstA net loss of $7,338, or $0.16 per diluted share, was generated during the third quarter of fiscal 2022, decreased 43%compared to $15,340,$11,669 of net earnings, or $0.35$0.26 per diluted share, from net earnings forduring the firstthird quarter of fiscal 2021 of $26,779, or $0.61 per diluted share.2021. The level of net earningsloss in the firstthird quarter of fiscal 2022 resultedreflects primarily from the decreaseoverall increase in operating expenses described in the Operating Expenses section below, along with the decline in net revenues and operating income in our Life Science segment, when compared tostemming from the recordsoftening in demand for the reagents utilized in
COVID-19
related testsreagents during the first quarter of fiscal 2021.quarter. As it relates to our Life Science segment net revenues, a significant number of our Life Science segment customers now use our molecular reagents in multiple tests, including
non-COVID-19
related tests, therefore making it has become increasingly difficult to accurately estimate the portion of molecular reagent sales related specifically to
COVID-19.
As a result, we are no longer reporting the portion of Life Science segment net revenues related to
COVID-19.
Such net revenues were identified and reported throughout fiscal 2021 and totaled approximately $43,000 and $111,900$14,500 in the firstthird quarter and full year of fiscal 2021, respectively.2021.
Consolidated net revenues for the firstthird quarter of fiscal 2022 totaled $88,341, a decrease$67,771, an increase of 5%7% compared to the firstthird quarter of fiscal 2021.
Notwithstanding the impact of the LeadCare recall, netNet revenues from the Diagnostics segment for the firstthird quarter of fiscal 2022 increased 10%36% compared to the firstthird quarter of fiscal 2021, comprised primarily of a 4%an increase in molecular assay products and an 11% increase insales of
non-molecular
assay products.products including the addition of sales of the BreathTek product, which was acquired July 31, 2021. The firstthird quarter of fiscal 2022 represents the thirdfifth consecutive quarter our Diagnostics segment has shown positive revenue growth versus the same quarter in the prior fiscal year. Our Diagnostics segment generated a $2,600$3,278 of operating lossincome for the firstthird quarter of fiscal 2022, compared to a $1,200$2,717 of operating lossincome in the firstthird quarter of fiscal 2021, reflecting the increase in net revenues and gross profit margins being offset by the increase in operating expenses described in the respective sections below.
With a 62% decrease in net revenues from molecular reagent products and a 48% increase in net revenues from immunological reagent products, net revenues for our Life Science segment decreased 22% during the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021. Our Life Science segment generated $9,088 of operating income for the third quarter of fiscal 2022, a decrease of $6,990 from the third quarter of fiscal 2021, primarily due to the decrease in net revenues and associated gross profit margins, resulting in large part from the immunological reagent products representing a higher percentage of net revenues, as described in the respective sections below.
Nine Months Ended June 30, 2022
Net earnings for the nine months ended June 30, 2022 decreased 43% to $36,754, or $0.83 per diluted share, from net earnings for the comparable fiscal 2021 period of $64,750, or $1.47 per diluted share. The level of net earnings in the first nine months of fiscal 2022 reflects primarily: (i) the overall increase in operating expenses described in the Operating Expenses section below; and (ii) the decrease in gross profit margins resulting from immunological reagent products representing a higher percentage of both Life Science segment and total consolidated net revenues in the fiscal 2022 period, compared to higher margin molecular reagent products in the fiscal 2021 period. As previously noted, we are no longer reporting the portion of Life Science segment net revenues related to
COVID-19,
noting that such net revenues totaled approximately $88,500 in the first nine months of fiscal 2021.
Consolidated net revenues increased 11% to $267,343 for the first nine months of fiscal 2022 compared to the same period of the prior year.
Diagnostics segment net revenues increased 25%, comprised of a 5% increase in sales of molecular assay products and a 28% increase in sales of
non-molecular
assay products including the addition of sales of the BreathTek product, which was acquired July 31, 2021. Our Diagnostics segment generated $3,104 of operating income for the first nine months of fiscal 2022, compared to $4,400 of operating income in the first nine months of fiscal 2021, reflecting the increase in net revenues being offset by the decrease in gross profit margins and increase in operating expenses described in the respective sections below.
 
Page 1923

Table of Contents
With a 32%24% decrease in net revenues from molecular reagent products and a 43%61% increase in net revenues from immunological reagent products, including
COVID-19
related products, net revenues for our Life Science segment decreased 12%increased 2% during the first quarternine months of fiscal 2022 compared to the first quartersame period of fiscal 2021, the period in which the Life Science segment experienced near unprecedented demand from diagnostic test manufacturers for use in
COVID-19
related tests.prior year. Our Life Science segment generated $26,500$75,976 of operating income for the first quarternine months of fiscal 2022, a declinedecrease of $13,300$15,856 from the first quarternine months of fiscal 2021, primarily due to the increase in net revenues being offset by the decrease in gross profit margins, resulting from the decreaseaforementioned mix of products sold, and the increase in net revenues and gross profit marginsoperating expenses, as described in the respective sections below.
REVENUE OVERVIEW
Below are analyses of the Company’s net revenues, provided for each of the following:
 
 -
By Reportable Segment & Geographic Region
 
 -
By Product Platform/Type
Revenue Overview- By Reportable Segment & Geographic Region
Revenues for the Diagnostics segment, in the normal course of business, may be affected from quarter to quarter by buying patterns of major distributors, seasonality and severity of seasonal diseases and outbreaks (including the ongoing
COVID-19
pandemic), and foreign currency exchange rates. Revenues for the Life Science segment, in the normal course of business, may be affected from quarter to quarter by buying patterns of major IVD manufacturing customers, severity of disease outbreaks (including(specifically the ongoing
COVID-19
pandemic), and foreign currency exchange rates.
See the “Revenue Disaggregation” section of Note 4,
“Revenue Recognition”
of the Condensed Consolidated Financial Statements for detailed revenue disaggregation information.
Following is a discussion of the net revenues generated by these product platforms/types and/or disease states:
Diagnostics Segment Products
The Diagnostics segment’s overall 10% growth in net revenues of 36% and 25% during the third quarter and first quarternine months of fiscal 2022, respectively, compared to the first quartersame periods of fiscal 2021, primarily results from the combined net effects of the following:
 
Volume growth in the gastrointestinal and
non-molecular
products benefitting from sales of the BreathTek product, acquired on July 31, 2021 (approximately $5,600$5,500 and $16,600 of net revenues from BreathTek in the third quarter and first quarternine months of fiscal 2022)2022, respectively);
 
Volume growth in sales of respiratory illness products, comprised of tests for Group A Strep, Mycoplasma pneumonia, Influenza, and Pertussis and
SARS-CoV-2,
among others, reflecting an increase in the testing for these illnesses compared to the quarterly and
year-to-date
fiscal 2021 periods (total increases in respiratory illness products compared to the prior year periods of 47% and 75% in the third quarter and first quarternine months of fiscal 2021, despite the ongoing
COVID-19
pandemic;2022, respectively); and
 
Volume declines fromFluctuations in the volumes of sales of blood chemistry products, due toreflecting the ongoing LeadCare product recall, which commenced in May 2021, and the resumption of product shipments in February 2022 ($4,3162,177 increase in quarterly net revenues compared to the third quarter of fiscal 2021, and a $3,244 decrease in fiscal
year-to-date
net revenues compared to the first quarternine months of fiscal 2021).
Life Science Segment Products
Despite continuing to achieveDuring the third quarter and first nine months of fiscal 2022, net revenues levels that are significantly higher than
pre-pandemic
levels, thefor our Life Science segment’s 12% decline insegment decreased 22% and increased 2%, respectively, compared to the fiscal 2021 periods. While the level of net revenues during the firstthird quarter of fiscal 2022 primarily results from a year-over-year quarterly comparison toreflects the record levels ofsignificant decline in demand achievedfor
COVID-19
related reagents during the firstquarter, such level of quarterly net revenues significantly outpaced the
pre-pandemic
level of net revenues generated in the third quarter of fiscal 2021. As previously noted, it was during the first quarter2019; increasing 66% in total, 41% for molecular reagents and 79% for immunological reagents.
Page 24

Table of fiscal 2021 that our Life Science segment experienced near unprecedented demand for its products by diagnostic test manufacturers for use inContents
COVID-19
related tests.
Significant Customers
Revenue concentrations related to certain customers within our Diagnostics and Life Science segments are set forth in Note 15,
“Reportable SegmentsSegment and Major Concentration Data”Customers Information”
of the Condensed Consolidated Financial Statements.
Page 20

Table of Contents
Gross Profit
 
   
Three Months Ended December 31,
 
   
2021
  
2020
  
Change
 
Gross Profit
  $49,159  $61,548   (20)% 
Gross Profit Margin
   56  66  -10 points 
   
Three Months Ended June 30,
  
Nine Months Ended June 30,
 
   
2022
  
2021
  
Change
  
2022
  
2021
  
Change
 
Gross profit
  $36,728 $37,111  (1)%  $154,364  $156,431  (1)% 
Gross profit margin
   54  58  -4 points   58  65  -7 points 
Overall gross profit margins during the first quarter of fiscal 2022 have been unfavorably impacted by a decline in net revenues contributions from our Life Science segment’s molecular reagent products, which are some of our highest margin products. During the third quarter and first quarternine months of fiscal 2022, approximately 36% of consolidated net revenues related to sales of molecular reagent products represented approximately 11% and 30%, respectively, of consolidated net revenues, compared to approximately 50%32% and 43% during the first quartercomparable periods of fiscal 2021, when the Life Science segment experienced the to date peak in net revenues from sales of molecular reagent products.
respectively.
Additionally, overall gross profit margins in the first quarter of fiscal 2022 have been unfavorably impacted in our Diagnostics segment by the previously discussed LeadCare product recall (see “Lead Testing Matters” above) and production capacity
ramp-up
costs at our Cincinnati and Quebec Revogene manufacturing facilities.
Operating Expenses – Segment Detail and Corporate
 
  
Research &
Development
   
Selling &
Marketing
   
General &
Administrative
   
Other
   
Total Operating
Expenses
   
Three Months Ended June 30,
 
Fiscal 2021 First Quarter:
               
  
Research &
Development
   
Selling &
Marketing
   
General &
Administrative
   
Other
 
Total Operating
Expenses
 
Fiscal 2021:
Fiscal 2021:
 
Diagnostics
  $5,070   $5,728   $5,748   $1,047   $17,593   $5,463  $4,966  $5,933  $(3,263 $13,099
Life Science
   581    1,293    3,454    —      5,328    620   1,243   3,315   —    5,178
Corporate
   —      —      2,736    1,227    3,963    —     —     2,716   438  3,154
  
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
  
 
 
Total 2021 First Quarter Expenses
  $5,651   $7,021   $11,938   $2,274   $26,884 
Total Expenses (2021 Quarter)
  $6,083  $6,209  $11,964  $(2,825 $21,431
  
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
  
 
 
Fiscal 2022 First Quarter:
 
Fiscal 2022:
Fiscal 2022:
 
Diagnostics
  $5,556   $6,009   $7,143   $—     $18,708   $5,228  $6,353  $7,130  $—    $18,711
Life Science
   638    1,732    4,161    —      6,531    815   1,825   2,935   39  5,614
Corporate
   —      —      3,356    281    3,637    —     —     3,084   16,000  19,084
  
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
  
 
 
Total 2022 First Quarter Expenses
  $6,194   $7,741   $14,660   $281   $28,876 
Total Expenses (2022 Quarter)
  $6,043  $8,178  $13,149  $16,039 $43,409
  
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
  
 
 
Page 25

Table of Contents
   
Nine Months Ended June 30,
 
   
Research &
Development
   
Selling &
Marketing
   
General &
Administrative
   
Other
  
Total Operating
Expenses
 
Fiscal 2021:
 
Diagnostics
  $16,011  $15,914  $17,790  $(5,205 $44,510
Life Science
   1,788   3,856   9,978   —    15,622
Corporate
   —     —     9,059   2,695  11,754
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total Expenses (2021
Year-to-Date)
  $17,799  $19,770  $36,827  $(2,510 $71,886
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Fiscal 2022:
 
Diagnostics
  $15,856  $18,040  $21,750  $—    $55,646
Life Science
   2,072   5,393   11,996   107  19,568
Corporate
   —     —     12,618   16,789  29,407
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total Expenses (2022
Year-to-Date)
  $17,928  $23,433  $46,364  $16,896 $104,621
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Compared to the prior year period,periods, operating expenses increased $1,992$21,978 to $28,876$43,409 in the third quarter of fiscal 2022 and increased $32,735 to $104,621 in the first quarternine months of fiscal 2022. Major components of this increasethese increases were as follows:
Increased Research & Development costs, reflecting increased clinical trial spending and product development costs within our Diagnostics segment;
 
Increased Selling & Marketing costs in both the Diagnostics and Life Science segments, primarily reflecting the effects of filling certain open positions and the easing of certain travel and meeting restrictions imposed during the prior year in connection with the
COVID-19
pandemic; and
 
Increased General & Administrative costs, primarily reflecting the combined effects ofof: (i) increased purchase accounting amortization expense; (ii) additional investment in incentive compensation tied to the Company’s financial performance; (iii) the timing of certain outside services costscosts; and (iv) increased commercial insurance costs for Directors & Officers and Property & Casualty coverages.coverages;
 
Page 21

Table of Contents
Offsetting these increases were: (i) a $1,047A $3,563 and $5,505 year-over-year decreaseincrease in net expense within our Diagnostics segment resulting from the adjustmentadjustments to the fair value of acquisition consideration in the third quarter and first nine months of fiscal 2021, respectively;
An $11,374 and $9,906 year-over-year increase in litigation and select legal costs in the third quarter and first quarter;nine months of fiscal 2022, respectively, reflected within Corporate and (ii) lower spending on selectedprimarily related to the previously discussed LeadCare legal costs.matter (see “Lead Testing Matters” above); and
A $3,927 and $3,995 year-over-year increase in acquisition and transaction related costs in the third quarter and first nine months of fiscal 2022, respectively, primarily within Corporate and related to the previously discussed pending acquisition (see “
Agreement and Plan of Merger”
above).
Operating Income (Loss)
Compared to the prior year period,An operating income decreased 41% to $20,283loss of $6,681 was generated in the firstthird quarter of fiscal 2022, ascompared to $15,680 of operating income during the third quarter of fiscal 2021. During the first nine months of fiscal 2022, operating income totaled $49,743, a 41% decrease from the comparable fiscal 2021 period. These operating income (loss) levels result offrom the factors discussed above.
Income Taxes
The effective rate for income taxes was approximately (11%) and 26% for the three and nine months ended June 30, 2022, respectively, and 24% and 22% for both the first quarter of fiscalthree and nine months ended June 30, 2021, respectively. The negative effective rate for the three months ended June 30, 2022 and fiscal 2021.the increase in effective rates for the nine months ended June 30, 2022, relate primarily to the anticipated
non-deductibility
of the previously discussed LeadCare legal matter (see “Lead Testing Matters” above).
Page 26

Table of Contents
Impact of Inflation
To the extent feasible, we have consistently followed the practice of reviewing our prices to consider the impacts of inflation on salaries and fringe benefits for employees, and the cost of purchased materials and services.services, and transportation costs. Inflation and changing prices did not have a material adverse impact on our gross margin, revenues or operating income in the third quarter or first quarternine months of fiscal 2022 or fiscal 2021.
Liquidity and Capital Resources
Liquidity
Our cash flow and financing requirements are determined by analyses of operating and capital spending budgets and debt service. We have historically maintained a credit facility to augment working capital requirements and to respond quickly to acquisition opportunities.
We have an investment policy that guides the holdings of our investment portfolio, which presently consists of bank savings accounts and institutional money market mutual funds. Our objectives in managing the investment portfolio are to: (i) preserve capital; (ii) provide sufficient liquidity to meet working capital requirements and fund strategic objectives such as acquisitions; and (iii) capture a market rate of return commensurate with market conditions and our policy’s investment eligibility criteria. As we look forward, we will continue to manage the holdings of our investment portfolio with preservation of capital being the primary objective.
We intend to continue to fund our working capital requirements from current cash flows from operating activities and cash on hand, and such sources are anticipated to be adequate to fund working capital requirements, capital expenditures and debt service during the next twelve months. However, if needed, we also have an additional source of liquidity through the amount remaining available on our $200,000 bank revolving credit facility, which totaled $150,000$175,000 as of December 31, 2021.June 30, 2022. Our liquidity needs may change if overall economic conditions worsen and/or liquidity and credit within the financial markets tightens for an extended period, and such conditions impact the collectability of our customer accounts receivable, impact credit terms with our vendors, or disrupt the supply of raw materials and services.
As of December 31, 2021,June 30, 2022, our cash and cash equivalents balance was $72,729 or $22,958 higher than at$83,487, an increase of $33,716 compared to September 30, 2021. This net increase primarily results from the combined effects of: (i) generating $35,555$80,374 of cash flow from operations, an increase of 42%53% over the first quarternine months of fiscal 2021, and the use of2021; (ii) using cash to pay down $10,000$35,000 on the revolving credit facility.facility; and (iii) using cash to acquire property, plant and equipment ($5,138 net of RADx grant monies received) and the assets of EUPROTEIN, Inc. ($3,750) (see Note 6,
“Business Combinations”
of the Condensed Consolidated Financial Statements). In addition, the net balance of cash and cash equivalents decreased approximately $3,900 during the nine months ended June 30, 2022 as a result of the movement in foreign currency exchange rates, specifically the British pound and Euro, since September 30, 2021.
Considering these factors, our balance of cash and cash equivalents on hand exceeded our total debt (defined as bank debt, government grant obligations and obligations related to acquisitions) by approximately $16,000$51,400 at December 31, 2021.June 30, 2022.
Capital Resources
As described in Note 12,
“Bank Credit Arrangements”
of the Condensed Consolidated Financial Statements, the Company maintains a $200,000 revolving credit facility, which is secured by substantially all of our U.S. assets and includes certain restrictive financial covenants. The Company also maintains a shelf registration statement on file with the SEC.
Page 22

During fiscal 2022, our capital expenditures are estimated to total approximately $15,000,$15,300, comprised of approximately $12,000$12,900 and $3,000$2,400 in the Diagnostics and Life Science segments, respectively. Included within the Diagnostics segment capital expenditures estimate is approximately $10,400$7,000 related to completion of the manufacturing capacity
scale-up
and automation initiatives for Revogene assay production. Such expenditures may be funded with cash and cash equivalents on hand, operating cash flows, and/or availability under the $200,000 revolving credit facility discussed above. In addition, a portion of the Diagnostics segment expansion may be funded by the remaining amounts to be received under the previously noted RADx grant entered into on February 1, 2021, and as amended on January 25, 2022 (see Note 14,
“National Institutes of Health Contracts”
and Note 17,
“Subsequent Event”
of the Condensed Consolidated Financial Statements for further discussion).
Page 27

License Agreements
The Company has entered into various license agreements that require payment of royalties based on a specified percentage of sales of related products. During the third quarter and first quarternine months of fiscal 2022, royalty expense totaled approximately $800,$400 and $2,100, respectively, with 35%the Diagnostics/Life Science segment split of such revenues equating to approximately 40/60 and 65%70/30 in the third quarter and first nine months of fiscal 2022, respectively. This compares to a total of approximately $1,500 and $4,700 of royalty expense in the third quarter and first nine months of fiscal 2021, respectively, with approximately 20% and 80% of such expense relating to our Diagnostics and Life Science segments, respectively. This compares to a total of approximately $450 of royalty expense in the first quarter of fiscal 2021, with 70% and 30% relating to our Diagnostics and Life Science segments, respectively.respectively, during both periods. The Company expects that paymentsroyalty expense under these agreements will amount to approximately $3,000$2,600 in fiscal 2022, a decrease from the $5,200 in fiscal 2021.
2021, largely due to raw material sourcing activities.
Off-Balance
Sheet Arrangements
We utilize foreign currency exchange forward contracts to limit exposure to volatility in foreign currency gains and losses related to financial assets denominated in other than the holding subsidiary’s functional currency. These contracts are generally settled within a
30-day
time frame and are not formally designated or accounted for as accounting hedges. We also utilize interest rate swap agreements to limit exposure to volatility in the LIBOR interest rate in connection with the revolving credit facility. The interest rate swap agreements are designated and accounted for as accounting hedges (see Note 5,
“Fair Value Measurements”
of the Condensed Consolidated Financial Statements). Aside from these instruments, we do not utilize special-purpose financing vehicles or have any material undisclosed
off-balance
sheet arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 2021,June 30, 2022, there were no material changes to the information provided under Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Form
10-K
for the year ended September 30, 2021, filed with the SEC on November 23, 2021.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Principal AccountingChief 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 December 31, 2021.June 30, 2022. Based on this evaluation, our Chief Executive Officer and Principal AccountingChief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the period covered by this report.
Control systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that control objectives are met. Because of inherent limitations in all control systems, no evaluation of controls can provide assurance that all control issues and instances of fraud, if any, within a company will be detected. Additionally, controls can be circumvented by individuals, by collusion of two or more people or by management override. Over time, controls can become inadequate because of changes in conditions or the degree of compliance may deteriorate. Further, the design of any system of controls is based in part upon assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all future conditions. Because of the inherent limitations in any cost-effective control system, misstatements due to errors or fraud may occur and not be detected.
Page 23

Changes in Internal Control over Financial Reporting
In the ordinary course of business, we routinely enhance our information systems by either upgrading current systems or implementing new ones. There were no changes in our internal control over financial reporting (as that term is defined in Rules
13a-15(f)
and
15d-15(f)
under the Exchange Act) during the quarter ended December 31, 2021June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Page 28

PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information with respect to legal proceedings can be found in Note 7,
“Lead Testing Matters”
of the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form
10-Q
and is incorporated herein by reference.
ITEM 1A. RISK FACTORS
In addition to the other information set forthThe risk factors described in this report, careful consideration should be given to the factors discussed inPart I, Item 1A,1A. “Risk Factors” in our Annual Report on Form
10-K
for the year ended September 30, 2021, filedas supplemented below, should be carefully considered, together with the other information contained or incorporated by reference in this Quarterly Report on Form
10-Q
and in our other filings with the SEC, on November 23, 2021, as may be supplemented byin connection with evaluating the Company, our business, and the forward-looking statements contained in this Quarterly ReportsReport on Form
10-Q,10-Q.
any or all of which could materially affect our business, financial condition or future results. TheOther risks described therein arethat we do not the only risks facing us. Additional risks and uncertainties not currently known to us,presently know about or that we currently deem to be immaterial,presently believe are not material could also may adversely affect our business, financial condition and/or operating results. There have been no material changes with respect tous. The risk factors described below update the risk factors disclosed in Part I, Item 1A. in our 2021
10-K
to include additional information, and should be read in conjunction with the risk factors in our Annual Report on Form
10-K
for the year ended September 30, 2021, filed2021.
If the Merger contemplated by the Agreement and Plan of Merger (the “Merger Agreement”) does not occur, it could have a material adverse effect on our business, results of operations, financial condition and stock price.
On July 7, 2022, we entered into the Merger Agreement with SD Biosensor, Inc. (“SDB”). Completion of the proposed Merger is subject to the satisfaction of various conditions, including the receipt of approvals from our stockholders and from government or regulatory agencies. There is no assurance that all of the various conditions will be satisfied, or that the Merger will be completed on the proposed terms, within the expected timeframe, or at all. The proposed Merger gives rise to inherent risks that include:
the amount of the cash to be paid under the Merger agreement is fixed and will not be adjusted for changes in our business, assets, liabilities, prospects, outlook, financial condition or results of operations or in the event of any change in the market price of, analyst estimates of, or projections relating to, our common stock;
legal or regulatory proceedings, including regulatory approvals from governmental entities (including any conditions, limitations or restrictions placed on these approvals) and the risk that one or more governmental entities may delay or deny approval, or other matters that affect the timing or ability to complete the transaction as contemplated;
the possibility of disruption to our business, including increased costs and diversion of management time and resources;
difficulties maintaining business and operational relationships, including relationships with clients, vendors, suppliers, distributors, resellers and other business partners;
the inability to attract and retain key personnel pending consummation of the proposed Merger;
potential stockholder litigation relating to the Merger could prevent or delay the Merger or otherwise negatively impact our business and operations;
the inability to pursue alternative business opportunities or make changes to our business pending the completion of the proposed Merger;
the requirement to pay a termination fee of $45,960 if we terminate the Merger Agreement under specified circumstances;
Page 29

developments beyond our control including, but not limited to, changes in domestic or global economic conditions that may affect the timing or success of the proposed Merger; and
the risk that if the proposed Merger is not completed, the market price of our common stock could decline, investor confidence could decline, stockholder litigation could be brought against us, relationships with clients, suppliers and other business partners may be adversely impacted, we may be unable to retain key personnel, and profitability may be adversely impacted due to costs incurred in connection with the SECproposed Merger.
Our ability to meet future customer demand for selected products is dependent upon our ability to successfully manage our manufacturing capacity and supply chains.
To manage our anticipated future growth effectively, it may become necessary for us to enhance our manufacturing and supply chain capabilities, infrastructure and operations, information technology infrastructure, and financial and accounting systems and controls. Organizational growth
and scale-up
of operations could strain our existing managerial, operational, financial, and other resources. If our management is unable to effectively prepare for our expected future growth, our expenses may increase more than anticipated, our net revenues could grow more slowly than expected, and we may not be able to achieve our commercialization, profitability, or product development goals. Our failure to effectively implement the necessary processes and procedures and otherwise prepare for our anticipated growth could have a material adverse effect on November 23, 2021, as may be supplemented by our Quarterly Reportsfuture consolidated financial condition and results of operations.
The Russia / Ukraine war that developed during the second quarter of fiscal year 2022 also could disrupt our supply chains. While to date this war has not caused us to experience any material negative impacts on Form
10-Q.our business, financial condition, or results of operations, we are unable to estimate the extent to which, if at all, the war could hurt our supply chains. The evolving nature of the war, related international sanctions, other potential government actions, and economic consequences of the war, including incurring higher costs to source materials due to inflation or otherwise, are factors that could disrupt supply chains throughout the world, including potentially the supply chains on which our business relies. If the Russia / Ukraine war either directly or indirectly disrupts our supply chains and we are unable to mitigate such disruption, the war could have material adverse effect on our future consolidated financial condition and results of operations.
ITEM 6. EXHIBITS
The following exhibits are being filed or furnished as a part of this Quarterly Report on Form
10-Q:
 
10.1* +2.1*  Chief Executive Officer Cash-Based Incentive CompensationAgreement and Plan for Fiscal Year 2022
10.2* +Executive Vice President Cash-Based Incentive Compensation Plan for Fiscal Year 2022
10.3* +Form of Performance-Based Restricted Share Unit Award Agreement
10.4Amended and Restated Credit Agreement,Merger, dated as of October 25, 2021,July 7, 2022, by and among Meridian Bioscience, Inc., as Borrower, the Guarantors party thereto, the Lenders party thereto, PNC Bank, National Association, as administrative agent, PNC Capital Markets LLC, as joint lead arrangerSD Biosensor, Inc., Columbus Holding Company, and sole bookrunner, and Fifth Third Bank, National Association, as joint lead arranger and syndication agentMadeira Acquisition Corp. (Incorporated by reference to Meridian’s Form 8-K filed with the SEC on October 29, 2021)July 7, 2022)
10.1Form of Indemnification Agreement (Incorporated by reference to Meridian’s Form 8-K filed with the SEC on July 7, 2022)
31.1  Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
31.2  Certification of Principal Accounting Officer Pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
32  Certification of Chief Executive Officer and Principal AccountingChief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Page 24

101.INS  Inline XBRL Instance Document
101.SCH  Inline XBRL Instance Extension Schema
Page 30

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)
 
*
Management Compensatory Contracts
+
Certain portions of these exhibits and schedules have been omitted, pursuant to Item 601(b)(2) of Regulation S-K. The omitted information is not material and would likely cause competitive harm to the Registrant if publicly disclosed. The Registrant hereby agrees to furnish a copy of any omitted scheduleexhibits or other portion to the SECschedules upon request.
SIGNATURESIGNATURES
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:
February 4,August 5, 2022
By:
/s/ Andrew S. Kitzmiller
Andrew S. Kitzmiller
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Date:
August 5, 2022
  By: 
/s/ Julie Smith
   Julie Smith
   
Senior Vice President and Controller
(Principal Accounting Officer)
 
Page 2531