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 Ended20212022
December 31
,OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission
file
number 0-14902
MERIDIAN BIOSCIENCE, INC.
Incorporated under the laws of Ohio
31-0888197
(I.R.S. Employer Identification No.)
3471 River Hills Drive
Cincinnati, Ohio 45244
(513)
271-3700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, no par value | VIVO | NASDAQ Global Select Market |
Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationYes
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit suchfiles).
☒ 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 Rule12b-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 ExchangeAct). Yes ☐
No
☒Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.practicable.
Class | Outstanding January 0 ,2023 | |
| Common Stock, no par value |
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM
10-Q
Page(s) | ||||||
PART I. | ||||||
Item 1. | Financial Statements (Unaudited) | |||||
| | 1 | | ||||
| 2 | ||||||
| 3 | ||||||
4-5 | ||||||
| 6 | ||||||
Item 2. | ||||||
Item 3. | ||||||
Item 4. | ||||||
PART II. | ||||||
Item 1. | 27 | |||||
Item 1A. | ||||||
Item 6. | ||||||
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form10-Qcontains 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 acquisition by SD Biosensor, Inc., as well as disruptions to or reductions in business operations or prospects due to pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases such asCOVID-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 FormCOVID-19.10-Kcontains 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 December 31, | ||||||||
2022 | 2021 | |||||||
| NET REVENUES | $ | 56,902 | $ | 88,341 | ||||
| COST OF SALES | 25,397 | 39,182 | ||||||
| GROSS PROFIT | 31,505 | 49,159 | ||||||
| OPERATING EXPENSES | ||||||||
| Research and development | 6,177 | 6,194 | ||||||
| Selling and marketing | 8,294 | 7,741 | ||||||
| General and administrative | 11,073 | 14,660 | ||||||
| Acquisition and transaction related costs | 1,188 | — | ||||||
| Litigation and select legal costs | 32,888 | 281 | ||||||
| Total operating expenses | 59,620 | 28,876 | ||||||
| OPERATING INCOME (LOSS) | (28,115 | ) | 20,283 | |||||
| OTHER INCOME (EXPENSE) | ||||||||
| Interest income | 3 | 1 | ||||||
| Interest expense | (148 | ) | (372 | ) | ||||
| Other, net | (837 | ) | (161 | ) | ||||
| Total other expense, net | (982 | ) | (532 | ) | ||||
EARNINGS (LOSS) BEFORE INCOME TAXES | (29,097 | ) | 19,751 | |||||
| INCOME TAX PROVISION | 724 | 4,411 | ||||||
| NET EARNINGS (LOSS) | $ | (29,821 | ) | $ | 15,340 | |||
| BASIC EARNINGS (LOSS) PER COMMON SHARE | $ | (0.68 | ) | $ | 0.35 | |||
| DILUTED EARNINGS (LOSS) PER COMMON SHARE | $ | (0.68 | ) | $ | 0.35 | |||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — BASIC | 43,896 | 43,439 | ||||||
| EFFECT OF DILUTIVE STOCK OPTIONS AND RESTRICTED SHARE UNITS | — | 589 | ||||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING — DILUTED | 43,896 | 44,028 | ||||||
| ANTI-DILUTIVE SECURITIES: | ||||||||
| Common share options and restricted share units | 813 | 425 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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1
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(dollar amounts in thousands)
Three Months Ended December 31, | ||||||||
2022 | 2021 | |||||||
| NET EARNINGS (LOSS) | $ | (29,821 | ) | $ | 15,340 | |||
| Other comprehensive income (loss): | ||||||||
| Foreign currency translation adjustment | 3,481 | (58 | ) | |||||
Unrealized gain (loss) on cash flow hedge | (68 | ) | 550 | |||||
| Income taxes related to items of other comprehensive income (loss) | 17 | (135 | ) | |||||
| Other comprehensive income, net of tax | 3,430 | 357 | ||||||
| COMPREHENSIVE INCOME (LOSS) | $ | (26,391 | ) | $ | 15,697 | |||
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 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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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 | ||||
Three Months Ended December 31, | ||||||||
2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net earnings (loss) | $ | (29,821 | ) | $ | 15,340 | |||
Non-cash items included in net earnings (loss): | ||||||||
| Depreciation of property, plant and equipment | 1,643 | 1,700 | ||||||
| Amortization of intangible assets | 2,541 | 2,483 | ||||||
| Stock compensation expense | 1,393 | 1,903 | ||||||
| Deferred income taxes | 216 | 927 | ||||||
| Estimated litigation costs | 32,000 | — | ||||||
| Change in the following, net of acquisition: | ||||||||
| Accounts receivable | 6,083 | 9,424 | ||||||
| Inventories | (3,496 | ) | 2,093 | |||||
| Prepaid expenses and other current assets | 894 | 200 | ||||||
| Accounts payable and accrued expenses | (10,833 | ) | 1,018 | |||||
| Income taxes payable | (2,023 | ) | 1,113 | |||||
| Other, net | (946 | ) | (646 | ) | ||||
Net cash (used in) provided by operating activities | (2,349 | ) | 35,555 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property, plant and equipment | (2,654 | ) | (1,708 | ) | ||||
| Acquisition, net of holdback | (2,000 | ) | — | |||||
| Net cash used in investing activities | (4,654 | ) | (1,708 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Payment on revolving credit facility | — | (10,000 | ) | |||||
| Payment of deferred financing costs | — | (404 | ) | |||||
| Proceeds from exercise of stock options | 799 | 80 | ||||||
| Employee taxes paid upon net share settlement of restricted share units | (3,323 | ) | (763 | ) | ||||
| Net cash used in financing activities | (2,524 | ) | (11,087 | ) | ||||
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | 2,172 | 198 | ||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | (7,355 | ) | 22,958 | |||||
| Cash and Cash Equivalents at Beginning of Period | 81,453 | 49,771 | ||||||
| Cash and Cash Equivalents at End of Period | $ | 74,098 | $ | 72,729 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollar amounts in thousands)
ASSETS
December 31, 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, | 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 | 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 | ||||
December 31, 2022 (Unaudited) | September 30, 2022 | |||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 74,098 | $ | 81,453 | ||||
Accounts receivable, less allowances of $1,327 and $1,325, respectively | 41,573 | 47,235 | ||||||
| Inventories, net | 72,663 | 67,814 | ||||||
| Prepaid expenses and other current assets | 13,200 | 14,095 | ||||||
| Total current assets | 201,534 | 210,597 | ||||||
| PROPERTY, PLANT AND EQUIPMENT | ||||||||
| Land | 979 | 968 | ||||||
| Buildings and improvements | 33,068 | 32,983 | ||||||
| Machinery, equipment and furniture | 86,732 | 79,517 | ||||||
| Construction in progress | 5,693 | 10,589 | ||||||
| Subtotal | 126,472 | 124,057 | ||||||
| Less: accumulated depreciation and amortization | 81,051 | 79,199 | ||||||
| Net property, plant and equipment | 45,421 | 44,858 | ||||||
| OTHER ASSETS | ||||||||
| Goodwill | 120,567 | 116,302 | ||||||
| Other intangible assets, net | 71,572 | 74,131 | ||||||
Right-of-use | 6,041 | 5,850 | ||||||
| Deferred income taxes | 9,650 | 9,278 | ||||||
| Other assets | 1,978 | 2,081 | ||||||
| Total other assets | 209,808 | 207,642 | ||||||
| TOTAL ASSETS | $ | 456,763 | $ | 463,097 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollar amounts in thousands)
LIABILITIES AND SHAREHOLDERS’ EQUITY
December 31, 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 | 0 | 0 | ||||||
SHAREHOLDERS’ EQUITY | ||||||||
Preferred stock, 0 par value; 1,000,000 shares authorized; NaN issued | 0— | 0— | ||||||
Common shares, 0 par value; 71,000,000 shares authorized, 43,514,258 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 | ||||
December 31, 2022 (Unaudited) | September 30, 2022 | |||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 14,413 | $ | 17,759 | ||||
| Accrued employee compensation costs | 9,894 | 17,682 | ||||||
| Accrued estimated litigation costs | 42,000 | 10,000 | ||||||
| Accrued product recall costs | 997 | 1,157 | ||||||
| Current operating lease obligations | 1,954 | 1,830 | ||||||
| Current government grant obligations | 799 | 667 | ||||||
| Other accrued expenses | 6,288 | 5,048 | ||||||
| Income taxes payable | 2,232 | 3,808 | ||||||
| Total current liabilities | 78,577 | 57,951 | ||||||
NON-CURRENT LIABILITIES | ||||||||
| Post-employment benefits | 1,728 | 1,673 | ||||||
| Long-term operating lease obligations | 4,187 | 4,127 | ||||||
| Long-term debt | 25,000 | 25,000 | ||||||
| Government grant obligations | 4,521 | 4,620 | ||||||
| Long-term income taxes payable | 395 | 395 | ||||||
| Deferred income taxes | 1,104 | 578 | ||||||
Other non-current liabilities | 712 | 692 | ||||||
Total non-current liabilities | 37,647 | 37,085 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Preferred stock, no par value; 1,000,000 shares authorized; none issued | — | — | ||||||
| Common shares, no par value; 71,000,000 shares authorized, 43,999,659 and 43,755,188 shares issued and outstanding, respectively | — | — | ||||||
Additional paid-in capital | 154,533 | 155,664 | ||||||
| Treasury stock, at cost, 9,655 shares | (259 | ) | (259 | ) | ||||
| Retained earnings | 193,339 | 223,160 | ||||||
| Accumulated other comprehensive loss | (7,074 | ) | (10,504 | ) | ||||
| Total shareholders’ equity | 340,539 | 368,061 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 456,763 | $ | 463,097 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(dollar and share amounts in thousands)
| Common Shares | Additional Paid-In Capital | 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. | |||||||||||||||||||||||||||
Balance at September 30, 2022 | 43,755 | $ | 155,664 | (10 | ) | $ | (259 | ) | $ | 223,160 | $ | (10,504) | $ | 368,061 | ||||||||||||||
| Conversion of restricted share units and exercise of stock options | 245 | (2,524 | ) | — | — | — | — | (2,524 | ) | |||||||||||||||||||
| Stock compensation expense | — | 1,393 | — | — | — | — | 1,393 | |||||||||||||||||||||
| Net loss | — | — | — | — | (29,821 | ) | — | (29,821 | ) | |||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | 3,481 | 3,481 | |||||||||||||||||||||
| Hedging activity, net of tax | — | —�� | — | — | — | (51 | ) | (51 | ) | |||||||||||||||||||
Balance at December 31, 2022 | 44,000 | $ | 154,533 | (10 | ) | $ | (259 | ) | $ | 193,339 | $ | (7,074) | $ | 340,539 | ||||||||||||||
Balance at September 30, 2021 | 43,362 | $ | 147,403 | — | $ | — | $ | 180,701 | $ | 198 | $ | 328,302 | ||||||||||||||||
| Conversion of restricted share units and exercise of stock options | 152 | (683 | ) | — | — | — | — | (683 | ) | |||||||||||||||||||
| Stock compensation expense | — | 1,903 | — | — | — | — | 1,903 | |||||||||||||||||||||
| Net earnings | — | — | — | — | 15,340 | — | 15,340 | |||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | (58 | ) | (58 | ) | |||||||||||||||||||
| Hedging activity, net of tax | — | — | — | — | — | 415 | 415 | |||||||||||||||||||||
Balance at December 31, 2021 | 43,514 | $ | 148,623 | — | $ | — | $ | 196,041 | $ | 555 | $ | 345,219 | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Dollars in Thousands, Except Per Share Amounts
(Unaudited)
1. | Nature of Business |
Meridian Bioscience, Inc. (“Meridian” or “the Company”) was formed in 1976 and functions as a fully-integrated life science company with principal businesses in: (i) the development, manufacture, sale and distribution of diagnostic testing systems and kits, primarily for certain gastrointestinal and respiratory infectious diseases, and elevated blood lead levels; and (ii) the manufacture and distribution of bulk antigens, antibodies, immunoassay blocking reagents, various Polymerase Chain Reaction (“PCR”) master mixes, isothermal mixes, enzymes, nucleotides, and bioresearch reagents used by other diagnostic manufacturers and researchers.
Our reportable segments are Diagnostics and Life Science. The Diagnostics segment consists of: (i) manufacturing operations for infectious disease products in Cincinnati, Ohio; Quebec City, Canada; and Modi’in, Israel; (ii) manufacturing operations for blood chemistry products in Billerica, Massachusetts; and (iii) the sale and distribution of diagnostics products domestically and abroad. This segment’s products are used by hospitals, reference labs and physician offices to detect infectious diseases and elevated lead levels in blood.
The Life Science segment consists of: (i) manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; North Brunswick, New Jersey; London, England; and Luckenwalde, Germany;
and (ii) the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents domestically and abroad, including a sales and business development facility, with outsourced distribution capabilities, in Beijing, China to pursue revenue opportunities in Asia. This segment’s products are used by manufacturers and researchers in a variety of applications (e.g., in vitro medical device manufacturing, microRNA detection, next-generation sequencing, plant genotyping, and mutation detection, among others).
2. | Basis of Presentation |
The Condensed Consolidated Financial Statements are unaudited and are prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information, and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of Management, the Condensed Consolidated Financial Statements include all normal adjustments and disclosures necessary to present fairly the Company’s consolidated financial position as of December 31, 2021,2022, and the results of its operations, cash flows, and shareholders’ equity for the three months ended December 31, 20212022 and 2020.2021. 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 20212022 Annual Report on Form23, 2021.22, 2022.
10-K,
filed with the SEC on November 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 theCOVID-19pandemic, which has had both positive and negative effects on our business; positive effects on our Life Science segment and negative effects on our Diagnostics segment. Actual results could differ from the estimates made by management.
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3. | Significant Accounting Policies |
A summary of the Company’s significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company’s fiscal 20212022 Annual Report on Form23, 2021,22, 2022, and should be referred to for a description of the Company’s significant accounting policies.
10-K,
filed with the SEC on November (a) | Recent Accounting Pronouncements – |
Pronouncements Adopted
In March 2020, the FASBFinancial Accounting Standards Board (“FASB”) issued ASUAccounting Standards Update (“ASU”), 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 impacts2024. Application of this guidance but doesdid not expect its application to have a material impact on the Condensed Consolidated Financial Statements.
2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
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 – |
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 | )% | ||||||
Three Months Ended December 31, | ||||||||||||
2022 | 2021 | Inc (Dec) | ||||||||||
Diagnostics- | ||||||||||||
| Americas | $ | 33,182 | $ | 26,613 | 25 | % | ||||||
| EMEA | 5,694 | 6,093 | (7 | )% | ||||||||
| ROW | 490 | 498 | (2 | )% | ||||||||
| Total Diagnostics | 39,366 | 33,204 | 19 | % | ||||||||
| Life Science- | ||||||||||||
| Americas | 5,859 | 8,137 | (28 | )% | ||||||||
| EMEA | 6,944 | 28,648 | (76 | )% | ||||||||
| ROW | 4,733 | 18,352 | (74 | )% | ||||||||
| Total Life Science | 17,536 | 55,137 | (68 | )% | ||||||||
| Consolidated | $ | 56,902 | $ | 88,341 | (36 | )% | ||||||
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Net Revenues by Product Platform/Type
Three Months Ended December 31, | ||||||||||||
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 December 31, | ||||||||||||
2022 | 2021 | Inc (Dec) | ||||||||||
Diagnostics- | ||||||||||||
| Molecular assays | $ | 4,490 | $ | 4,752 | (6 | )% | ||||||
Non-molecular assays | 34,876 | 28,452 | 23 | % | ||||||||
| Total Diagnostics | 39,366 | 33,204 | 19 | % | ||||||||
| Life Science- | ||||||||||||
| Molecular reagents | 7,574 | 31,488 | (76 | )% | ||||||||
| Immunological reagents | 9,962 | 23,649 | (58 | )% | ||||||||
| Total Life Science | 17,536 | 55,137 | (68 | )% | ||||||||
| Consolidated | $ | 56,902 | $ | 88,341 | (36 | )% | ||||||
Net Revenues by Disease State (Diagnostics segment only)
Three Months Ended December 31, | Three Months Ended December 31, | |||||||||||||||||||||||
2021 | 2020 | Inc (Dec) | 2022 | 2021 | Inc (Dec) | |||||||||||||||||||
Diagnostics- | ||||||||||||||||||||||||
Gastrointestinal assays | $ | 21,619 | $ | 15,452 | 40 | % | $ | 21,273 | $ | 21,619 | (2 | )% | ||||||||||||
Respiratory illness assays | 6,380 | 4,806 | 33 | % | 6,714 | 6,380 | 5 | % | ||||||||||||||||
Blood chemistry assays | 78 | 4,394 | (98 | )% | 4,620 | 78 | 5823 | % | ||||||||||||||||
Other | 5,127 | 5,669 | (10 | )% | 6,759 | 5,127 | 32 | % | ||||||||||||||||
Total Diagnostics | $ | 33,204 | $ | 30,321 | 10 | % | $ | 39,366 | $ | 33,204 | 19 | % | ||||||||||||
Royalty Income
Royalty income received from a third party related to sales ofproducts, totaled approximately$1,650 and $1,040 and $860
H. pylori
in the three months ended December 31, 20212022 and 2020,2021, respectively. Such revenue is included as part of
Non-molecular
assays and Other within the Net Revenues by Product Platform/Type and Net Revenues by Disease State tables, respectively, above.Reagent Rental Arrangements
Revenue allocated to the lease elements of Reagent Rental arrangements totaled approximately $
$1,135 and $
$995 in the
threemonths ended December
31,5. | 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
As indicated in Note 6, we acquired the BreathTek businessEstel Biosciences, Inc. of San Diego, California (“Estel”) on July 31, 2021.October 26, 2022 and EUPROTEIN Inc. of North Brunswick, New Jersey (“EUPROTEIN”) on April 30, 2022. The fair values of inventories acquired, if applicable, were valued using Level 2 inputs, which included data points that were observable, such as established values of comparable assets and historical sales information (market approach). Identifiable intangible assets, if applicable and specifically the acquired customer relationships, were valued using Level 3 inputs, which are unobservable by nature, and included internal estimates of future cash flows and attrition rates (income approach). Significant increases (decreases) in any of those unobservable inputs, as of the date of the acquisition, in isolation would result in a significantly lower (higher) fair value measurement.
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The following table provides information by level for financial assets and liabilities that are measured at fair value on a recurring basis, the carrying values for which are included within other assets of the December 31, 2022 and September 30, 2022 Condensed Consolidated Balance Sheets, respectively:
Fair Value Measurements Using Inputs Considered as | ||||||||||||||||
Carrying Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Interest rate swap agreements - | ||||||||||||||||
As of December 31, 2022 | $ | 1,353 | $ | — | $ | 1,353 | $ | — | ||||||||
As of September 30, 2022 | $ | 1,421 | $ | — | $ | 1,421 | $ | — | ||||||||
6. | Business Combinations |
On July 31
non-current
liabilities ($375) on the December 31, 2022 Condensed Consolidated Balance Sheet. Estel offers development and production of high-quality bioresearch reagents developed in the areas of tropical disease and autoimmune through a timing
ofThere were no material changes in the preliminary purchase price allocation during the three months ended December 31, 2022.
On April 30, 2022, we acquired substantially all of the assets of EUPROTEIN for $4,250 in cash, of which $3,750 was paid at closing, with the remainder held back for final closing adjustments, which is recorded in acquisition consideration otheron the Condensed Consolidated Balance Sheets to secure the selling party’s performance of certain post-closing obligations thatand is payable 15within 18 months following the BreathTek acquisition date. As part of the acquisition we acquired BreathTek inventoriesdate. EUPROTEIN offers custom development and assumed the customer relationships to supply the BreathTek product in North America.production of high-quality bioresearch reagents, with a particular focus on human and other mammalian proteins and recombinant monoclonal antibodies. The acquired inventoriesassets of EUPROTEIN are included within the Life Science segment and customer relationshipsare expected to help the Company accelerate its pipeline of new immunological reagents, while expanding recombinant capabilities. The acquired assets, which are comprised of goodwill, property, plant and equipment, prepaid expenses, and inventories, were valued on July 31, 2021April 30, 2022, on a preliminary basis at
accrued expenses
There have beenwere no material changes in the preliminary purchase price adjustments toallocation during the preliminary inventories and customer relationships values through December 31, 2021. The Company’s consolidated results for the three-month periodthree months ended December 31, 2021 include2022.
Based on the nature of both the Estel and EUPROTEIN businesses, Estel and EUPROTEIN are not expected to contribute materially to net revenues from sales of BreathTek products, which contributed approximately $1,600 ofand 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.
earningsThree Months Ended December 31, | 2021 | 2020 | ||||||
Net revenues | $ | 88,341 | $ | 97,824 | ||||
Net earnings | 15,340 | 28,014 | ||||||
7. | Lead Testing Matters |
On September 1, 2021, the Company’s wholly owned subsidiary Magellan announced the expansion of athe 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 lot2021 after identifying an issue in certain manufactured lots of product and reported to us that the control results were outside of specified ranges.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 the second quarter of fiscal 2022. The Company continues to work closely with the FDAU.S. Food and Drug Administration (“FDA”) in its execution
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