Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March
December 31
,
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)
 
Trading
Symbol(s)
Name of each exchange
on which registered
Common Stock, no par value
 
VIVO
 
NASDAQ Global Select Market
Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
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.practicable.
 
Class
 
Outstanding April 30, 2022January 3
0
,
2023
Common Stock, no par value 43,575,13344,041,635


MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM

10-Q

      
Page(s)
 

PART I.

    

Item 1.

  

  
  

   
1
 
  

   2 
  

   3 
  

   
4-5
 
  

   6 
  

   
7-18
 

Item 2.

     
18-26
19-26
 

Item 3.

     26 

Item 4.

     26 

PART II.

    

Item 1.

     27 

Item 1A.

     27 

Item 6.

     2827 

     28 

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form

10-Q
contains forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements accompanied by meaningful cautionary statements. Except for historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, which may be identified by words such as “continues”, “estimates”, “anticipates”, “projects”, “plans”, “seeks”, “may”, “will”, “expects”, “intends”, “believes”, “signals”, “should”, “can” and similar expressions or the negative versions thereof and which also may be identified by their context. All statements that address operating performance or events or developments that Meridian Bioscience, Inc. (“Meridian” or “the Company”) expects or anticipates will occur in the future, including, but not limited to, statements relating to per share diluted net earnings, sales, product demand, net revenues, operating margin, other guidance and the impact of
COVID-19
on its business and prospects, are forward-looking statements. Such statements, whether expressed or implied, are based upon current expectations of the Company and speak only as of the date made. Specifically, Meridian’s forward-looking statements are, and will be, based on management’s then-current views and assumptions regarding future events and operating performance. Meridian assumes no obligation to publicly update or revise any forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. These statements are subject to various risks, uncertainties and other factors that could cause actual results to differ materially, including, without limitation, the following:

Meridian’s operating results, financial condition and continued growth depends, in part, on its ability to introduce into the marketplace enhancements of existing products or new products that incorporate technological advances, meet customer requirements and respond to products developed by Meridian’s competition, its ability to effectively sell such products and its ability to successfully expand and effectively manage increased sales and marketing operations. While Meridian has introduced a number of internally developed products and acquired products, there can be no assurance that it will be successful in the future in introducing such products on a timely basis or in protecting its intellectual property, and unexpected or costly manufacturing costs associated with its introduction of new products or acquired products could cause actual results to differ from expectations. Meridian relies on proprietary, patented and licensed technologies. As such, the Company’s ability to protect its intellectual property rights, as well as the potential for intellectual property litigation, would impact its results. Ongoing consolidations of reference laboratories and formation of multi-hospital alliances may cause adverse changes to pricing and distribution. Recessionary pressures on the economy and the markets in which the Company’s customers operate, as well as adverse trends in buying patterns from customers, can change expected results. Costs and difficulties in complying with laws and regulations, including those administered by the United States Food and Drug Administration, and in


Table of Contents

complying with the ongoing investigation of the Department of Justice described in Meridian’s reports filed with the SEC, can result in unanticipated expenses and delays and interruptions to the sale of new and existing products, as can the uncertainty of regulatory approvals and the regulatory process. The international scope of Meridian’s operations, including changes in the relative strength or weakness of the U.S. dollar and general economic conditions in foreign countries, can impact results and make them difficult to predict. One of Meridian’s growth strategies is the acquisition of companies and product lines. There can be no assurance that additional acquisitions will be consummated or that, if consummated, will be successful and that the acquired businesses will be successfully integrated into Meridian’s operations. There may be risks that acquisitions may disrupt operations and may pose potential difficulties in employee retention, and there may be additional risks with respect to Meridian’s ability to recognize the benefits of acquisitions, including potential synergies and cost savings or the failure of acquisitions to achieve their plans and objectives. Meridian cannot predict the outcome of future goodwill impairment testing and the impact of possible goodwill impairments on Meridian’s earnings and financial results. Meridian cannot predict the possible impact of any modification or repeal of any of the provisions of current U.S. health care legislation, and any similar initiatives in other countries on Meridian’s results of operations. Efforts to reduce the U.S. federal deficit, breaches of Meridian’s information technology systems, trade wars, increased tariffs, and natural disasters and other events could have a materially adverse effect on Meridian’s results of operations and net revenues. The Company can make no assurances that a material weakness in its internal control over financial reporting will not be identified in the future, which if identified and not properly corrected, could materially

and
adversely affect its operations and result in material misstatements in its consolidated financial statements. Meridian also is subject to risks and uncertainties related to the acquisition by SD Biosensor, Inc., as well as disruptions to or reductions in business operations or prospects due to pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases such as
COVID-19,
including, without limitation, related supply chain interruptions
.
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.


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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(dollar and share amounts in thousands, except per share data)
 
  
Three Months Ended
March 31,
 
Six Months Ended
March 31,
   
Three Months Ended
December 31,
 
  
2022
 
2021
 
2022
 
2021
   
2022
   
2021
 
NET REVENUES
  $111,231  $85,264  $199,572  $178,181   $56,902   $88,341 
COST OF SALES
   42,754   27,492   81,936   58,861    25,397    39,182 
  
 
  
 
  
 
  
 
         
GROSS PROFIT
   68,477   57,772   117,636   119,320    31,505    49,159 
  
 
  
 
  
 
  
 
         
OPERATING EXPENSES
               
Research and development
   5,691   6,065   11,885   11,716    6,177    6,194 
Selling and marketing
   7,514   6,540   15,255   13,561    8,294    7,741 
General and administrative
   18,555   12,925   33,215   24,863    11,073    14,660 
Acquisition-related costs
   68   0   68   0 
Selected legal costs   508   1,030   789   2,257 
Change in fair value of acquisition consideration
   0   (2,989)  0   (1,942)
Acquisition and transaction related costs   1,188    —   
Litigation and select legal costs   32,888    281 
  
 
  
 
  
 
  
 
         
Total operating expenses
   32,336   23,571   61,212   50,455    59,620    28,876 
  
 
  
 
  
 
  
 
         
OPERATING INCOME
   36,141   34,201   56,424   68,865 
OPERATING INCOME (LOSS)   (28,115   20,283 
OTHER INCOME (EXPENSE)
               
Interest income
   2   6   3   15    3    1 
Interest expense
   (341  (472  (713  (1,006   (148   (372
RADx grant income
   0     200   0   1,000 
Other, net
   733   (883  572   (1,574   (837   (161
  
 
  
 
  
 
  
 
         
Total other income (expense
), net
   394   (1,149  (138  (1,565
Total other expense, net   (982   (532
  
 
  
 
  
 
  
 
         
EARNINGS BEFORE INCOME TAXES
   36,535   33,052   56,286   67,300 
EARNINGS
(LOSS)
BEFORE INCOME TAXES
   (29,097   19,751 
  
INCOME TAX PROVISION
   7,783   6,750   12,194   14,219    724    4,411 
  
 
  
 
  
 
  
 
         
NET EARNINGS
  $28,752  $26,302  $44,092  $53,081 
NET EARNINGS (LOSS)  $(29,821  $15,340 
  
 
  
 
  
 
  
 
         
BASIC EARNINGS PER COMMON SHARE
  $0.66  $0.61  $1.01  $1.23 
DILUTED EARNINGS PER COMMON SHARE
  $0.65  $0.60  $1.00  $1.21 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC
   43,549   43,244   43,495   43,171 
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
   713   878   617   789        589 
  
 
  
 
  
 
  
 
         
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED   44,262   44,122   44,112   43,960 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
DILUTED
   43,896    44,028 
  
 
  
 
  
 
  
 
         
ANTI-DILUTIVE SECURITIES:
               
Common share options and restricted share units
   186   166   480   169    813    425 
  
 
  
 
  
 
  
 
         
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
Page 1

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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (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
March 31,
  
Six Months Ended
March 31,
 
   
2022
  
2021
  
2022
  
2021
 
NET EARNINGS
  $28,752  $26,302  $44,092  $53,081 
Other comprehensive income (loss):
                 
Foreign currency translation adjustment
   (1,820  79   (1,878  3,380 
Reclassification of realized gain on cash flow hedge
   (935  0     (935  0   
Unrealized gain on cash flow hedge
   1,435   439   1,985   460 
Reclassification of amortization of gain on cash flow hedge
   0     (77  0   (154
Income taxes related to items of other comprehensive income (loss)
   (122  (80  (257  (66
   
 
 
  
 
 
  
 
 
  
 
 
 
Other comprehensive
(loss) 
income, net of tax
   (1,442  361   (1,085  3,620 
   
 
 
  
 
 
  
 
 
  
 
 
 
COMPREHENSIVE INCOME
  $27,310  $26,663  $43,007  $56,701 
   
 
 
  
 
 
  
 
 
  
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
Page 2

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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollar amounts in thousands)
 
   
Six Months Ended
March 31,
 
   
2022
  
2021
 
CASH FLOWS FROM OPERATING ACTIVITIES
   
Net earnings
  $44,092  $53,081 
Non-cash
items included in net earnings:
         
Depreciation of property, plant and equipment
   3,369   3,072 
Amortization of intangible assets
   4,966   4,363 
Stock-based compensation
   3,389   2,291 
Deferred income taxes
   1,446   (777
Change in fair value of acquisition consideration
   0     (1,942
Change in the following:
         
Accounts receivable
   (5,918  (5,267
Inventories
   4,913   (12,185
Prepaid expenses and other current assets
   1,685   1,440 
Accounts payable and accrued expenses
   5,273   77 
Income taxes payable
   3,332   (2,698
Other, net
   (575  36 
   
 
 
  
 
 
 
Net cash provided by operating activities
   65,972   41,491 
   
 
 
  
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
         
Purchase of property, plant and equipment
   (3,179  (11,955
Payment of acquisition consideration holdback
   0     (5,000
   
 
 
  
 
 
 
Net cash used in investing activities
   (3,179  (16,955
   
 
 
  
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
         
Payment on revolving credit facility
   (35,000  (18,824
Payment of deferred financing costs
   (404  0 
Proceeds from exercise of stock options
   735   2,852 
Employee taxes paid upon stock swap option exercises and net share settlement of restricted share units   (801  0 
   
 
 
  
 
 
 
Net cash used in financing activities
   (35,470  (15,972
   
 
 
  
 
 
 
Effect of Exchange Rate Changes on Cash and Cash Equivalents
   (607  1,296 
   
 
 
  
 
 
 
Net Increase in Cash and Cash Equivalents
   26,716   9,860 
Cash and Cash Equivalents at Beginning of Period
   49,771   53,514 
   
 
 
  
 
 
 
Cash and Cash Equivalents at End of Period
  $76,487  $63,374 
   
 
 
  
 
 
 
   
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.
 
Page 3

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MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollar amounts in thousands)
ASSETS
 
   
March 31,
2022
(Unaudited)
   
September 30,
2021
 
CURRENT ASSETS
          
Cash and cash equivalents
  $76,487   $49,771 
Accounts receivable, less allowances of $1,122 and $1,078,

respectively
   59,218    53,568 
Inventories, net
   70,926    76,842 
Prepaid expenses and other current assets
   10,929    12,626 
   
 
 
   
 
 
 
Total current assets
   217,560    192,807 
   
 
 
   
 
 
 
PROPERTY, PLANT AND EQUIPMENT, at Cost
          
Land
   983    989 
Buildings and improvements
   33,043    32,765 
Machinery, equipment and furniture
   82,095    78,410 
Construction in progress
   8,100    9,991 
   
 
 
   
 
 
 
Subtotal
   124,221    122,155 
Less: accumulated depreciation and amortization
   80,848    78,941 
   
 
 
   
 
 
 
Property, plant and equipment, net
   43,373    43,214 
   
 
 
   
 
 
 
OTHER ASSETS
          
Goodwill
   114,039    114,668 
Other intangible assets, net
   79,058    84,151 
Right-of-use
assets, net
   7,517    5,786 
Deferred income taxes
   8,677    8,731 
Other assets
   1,586    365 
   
 
 
   
 
 
 
Total other assets
   210,877    213,701 
   
 
 
   
 
 
 
TOTAL ASSETS
  $471,810   $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
assets, net
   6,041    5,850 
Deferred income taxes   9,650    9,278 
Other assets   1,978    2,081 
           
Total other assets   209,808    207,642 
           
TOTAL ASSETS  $456,763   $463,097 
           
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
Page 4

MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollar amounts in thousands)
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
   
March 31,
2022
(Unaudited)
  
September 30,
2021
 
CURRENT LIABILITIES
         
Accounts payable
  $15,682   $11,701 
Accrued employee compensation costs
   18,131    16,853 
Accrued product recall costs
   3,375    5,100 
Acquisition consideration
   1,000    0   
Current operating lease obligations
   2,134    1,990 
Current government grant obligations
   675    638 
Other accrued expenses
   8,533    7,027 
Income taxes payable
   6,935    3,848 
   
 
 
   
 
 
 
Total current liabilities
   56,465    47,157 
NON-CURRENT
LIABILITIES
          
Acquisition consideration
   0      1,000 
Post-employment benefits
   2,125    2,253 
Long-term operating lease obligations
   5,579    3,932 
Long-term debt
   25,000    60,000 
Government grant obligations
   4,913    5,176 
Long-term income taxes payable
   469    469 
Deferred income taxes
   2,444    1,055 
Other
non-current
liabilities
   183    378 
Total
non-current
liabilities
   40,713    74,263 
   
 
 
   
 
 
 
COMMITMENTS AND CONTINGENCIES
0     0  
SHAREHOLDERS’ EQUITY
          
Preferred stock, 0par value; 1,000,000 shares authorized; NaN issued
   0—      0—   
Common shares, 0par value; 71,000,000 shares authorized, 43,570,530 and 43,361,898 shares issued and outstanding, respectively
   0—      0—   
Additional
paid-in
capital
   150,985    147,403 
Treasury stock, at cost; 9,655 shares   (259  0   
Retained earnings
   224,793    180,701 
Accumulated other comprehensive income (loss)   (887   198 
   
 
 
   
 
 
 
Total shareholders’ equity
   374,632    328,302 
   
 
 
   
 
 
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $471,810   $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.
 
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
   
Treasury Stock
  
Retained
Earnings
   
Accumulated

Other
Comprehensive
Income (Loss)
  
Total
Shareholders’
Equity
 
   
    Sh.    
  
Amt.
 
THREE MONTHS ENDED MARCH 31, 2022
           
Balance at December 31, 2021
   43,514  $148,623   0   $0    $196,041  $555 $345,219
Conversion of restricted share units and exercise of stock options
   56   876   (10  (259  —     —    617
Stock compensation expense
   —     1,486   —    —    —     —    1,486
Net earnings
   —     —     —    —    28,752   —    28,752
Foreign currency translation adjustment
   —     —     —    —    —     (1,820  (1,820
Hedging activity, net of tax
   —     —     —    —    —     378  378
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
   
 
 
  
 
 
 
Balance at March 31, 2022
   43,570  
$
 
150,985   (10 $(259 $224,793  $(887 $374,632
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
   
 
 
  
 
 
 
THREE MONTHS ENDED MARCH 31, 2021
           
Balance at December 31, 2020
   43,124  $141,395   0   $0    $136,073  $1,399 $278,867
Conversion of restricted share units and exercise of stock options
   205   2,893   —    —    —     —    2,893
Stock compensation expense
   —     1,050   —    —    —     —    1,050
Net earnings
   —     —     —    —    26,302    —    26,302 
Foreign currency translation adjustment
   —     —     —    —    —     79  79
Hedging activity, net of tax
   —     —     —    —    —     282  282
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
   
 
 
  
 
 
 
Balance at March 31, 2021
   43,329  $145,338   0   $0    $162,375  $1,760 $309,473
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
   
 
 
  
 
 

   
Common
Shares
Issued
   
Additional
Paid-In

Capital
   
Treasury Stock
  
Retained
Earnings
   
Accumulated

Other
Comprehensive
Income (Loss)
  
Total
Shareholders’
Equity
 
   
Sh.
  
Amt.
 
SIX MONTHS ENDED MARCH 31, 2022
           
Balance at September 30, 2021
   43,362  $147,403   0   $0    $180,701  $198 $328,302
Conversion of restricted share units and exercise of stock options
   208   193   (10  (259  —     —    (66
Stock compensation expense
   —     3,389   —    —    —     —    3,389
Net earnings
   —     —     —    —    44,092   —    44,092
Foreign currency translation adjustment
   —     —     —    —    —     (1,878  (1,878
Hedging activity, net of tax
   —     —     —    —    —     793  793
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
   
 
 
  
 
 
 
Balance at March 31, 2022
   43,570  $150,985   (10 $(259 $224,793  $(887 $374,632
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
   
 
 
  
 
 
 
SIX
MONTHS ENDED MARCH 31, 2021
           
Balance at September 30, 2020
   43,069  $ 140,195   0   $0    $109,294  $(1,860 $247,629
Conversion of restricted share units and exercise of stock options
   260   2,852   —    —    —     —    2,852
Stock compensation expense
   —     2,291   —    —    —     —    2,291
Net earnings
   —     —     —    —    53,081   —    53,081
Foreign currency translation adjustment
   —     —     —    —    —     3,380  3,380
Hedging activity, net of tax
   —     —     —    —    —     240  240
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
   
 
 
  
 
 
 
Balance at March 31, 2021
   43,329  $145,338   0   $0    $162,375  $1,760 $309,473
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
   
 
 
  
 
 
 
   
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.
 
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”) andmaster mixes, isothermal amplification master 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 MarchDecember 31, 2022, and the results of its operations, cash flows, and shareholders’ equity for the three and six months ended March 31, 2022 and 2021, and cash flows for the six months ended MarchDecember 31, 2022 and 2021. These Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s fiscal 20212022 Annual Report on Form
10-K,
filed with the SEC on November 23, 2021.22, 2022.
It should be noted that the terms revenue and/or revenues are utilized throughout these notes to the Condensed Consolidated Financial Statements to indicate net revenue and/or net revenues.
The consolidated results of operations for interim periods are not necessarily indicative of the results to be expected for the full fiscal year. The preparation of these Condensed Consolidated Financial Statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the period. 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 20212022 Annual Report on Form
10-K,
filed with the SEC on November 23, 2021,22, 2022, 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,
In March 2020, the Company adopted Financial Accounting Standards Board (“FASB”) issued 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 March 31, 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 impacts2024. Application of this guidance but doesdid 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
Within the notes to the Condensed Consolidated Financial Statements, certain reclassifications have been made to the prior year Condensed Consolidated Financial Statementsallocation of expenses between segments in order to conform to the current year presentation. Such reclassifications had no impact on any consolidated figures or segment net earnings or shareholders’ equity.
revenues.
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 March 31,
 
Six Months Ended March 31,
   
Three Months Ended December 31,
 
  
2022
   
2021
   
Inc (Dec)
 
2022
   
2021
   
Inc (Dec)
   
2022
   
2021
   
Inc (Dec)
 
Diagnostics-
                 
Americas
  $33,551   $25,290    33 $60,164   $48,824    23  $33,182   $26,613    25
EMEA
   7,113    6,071    17  13,206    12,101    9   5,694    6,093    (7)% 
ROW
   439    588    (25)%   937    1,345    (30
)
%
   490    498    (2)% 
  
 
   
 
   
 
  
 
   
 
   
 
             
Total Diagnostics
   41,103    31,949    29  74,307    62,270    19   39,366    33,204    19
            
Life Science-
                          
Americas
   10,377    13,550    (23)%   18,514    32,296    (43
)
%
   5,859    8,137    (28)% 
EMEA
   33,246    21,773    53  61,894    54,066    14   6,944    28,648    (76)% 
ROW
   26,505    17,992    47  44,857    29,549    52   4,733    18,352    (74)% 
  
 
   
 
   
 
  
 
   
 
   
 
             
Total Life Science
   70,128    53,315    32  125,265    115,911    8   17,536    55,137    (68)% 
  
 
   
 
   
 
  
 
   
 
   
 
             
Consolidated
  $111,231   $85,264    30 $199,572   $178,181    12  $56,902   $88,341    (36)% 
  
 
   
 
   
 
  
 
   
 
   
 
             
Page 8

Net Revenues by Product Platform/Type
 
  
Three Months Ended March 31,
 
Six Months Ended March 31,
   
Three Months Ended December 31,
 
  
2022
   
2021
   
Inc (Dec)
 
2022
   
2021
   
Inc (Dec)
   
2022
   
2021
   
Inc (Dec)
 
Diagnostics-
                 
Molecular assays
  $4,385   $4,395    0 $9,137   $8,985    2  $4,490   $4,752    (6)% 
Non-molecular
assays
   36,718    27,554    33  65,170    53,285    22   34,876    28,452    23
  
 
   
 
   
 
  
 
   
 
   
 
             
Total Diagnostics
  
41,103   
31,949    29 
74,307   
62,270    19   39,366    33,204    19
            
Life Science-
                          
Molecular reagents
  
40,334   
37,752    7 
71,822   
83,776    (14
)
%
   7,574    31,488    (76)% 
Immunological reagents
   29,794    15,563    91  53,443    32,135    66   9,962    23,649    (58)% 
  
 
   
 
   
 
  
 
   
 
   
 
             
Total Life Science
  
70,128   
53,315    32 
125,265   
115,911    8   17,536    55,137    (68)% 
  
 
   
 
   
 
  
 
   
 
   
 
             
Consolidated
  $111,231   $85,264    30 $199,572   $178,181    12  $56,902   $88,341    (36)% 
  
 
   
 
   
 
  
 
   
 
   
 
             
Net Revenues by Disease State (Diagnostics segment only)
 
   
Three Months Ended March 31,
  
Six Months Ended March 31,
 
   
2022
   
2021
   
Inc (Dec)
  
2022
   
2021
   
Inc (Dec)
 
Diagnostics-
                             
Gastrointestinal assays
  $20,281   $15,666    29 $41,900   $31,118    35
Respiratory illness assays
   9,491    3,686    157  15,871    8,492    87
Blood chemistry assays
   3,425    4,358    (21
)
%
  3,503    8,753    (60
)
%
Other
   7,906    8,239    (4
)
%
  13,033    13,907    (6
)
%
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
Total Diagnostics
  $41,103   $31,949    29 $74,307   $62,270    19
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
Page 9

   
Three Months Ended December 31,
 
   
2022
   
2021
   
Inc (Dec)
 
Diagnostics-               
Gastrointestinal assays  $21,273   $21,619    (2)% 
Respiratory illness assays   6,714    6,380    5
Blood chemistry assays   4,620    78    5823
Other   6,759    5,127    32
                
Total Diagnostics  $39,366   $33,204    19
                
Royalty Income
Royalty income received from a third party related to sales of
H. pylori
products, totaled approximately $2,580$1,650 and $2,850
$1,040 in the three months ended MarchDecember 31, 2022 and 2021, respectively, and $3,550 and $3,710 in the six months ended March 31, 2022 and 2021, respectively.
Royalty income
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 $970$1,135 and $900
$995 in the three months ended March 31, 2022 and 2021, respectively, and $1,725 and $1,780 in the six months ended MarchDecember 31, 2022 and 2021, respectively. Such revenue is included as part of net revenues in our Condensed Consolidated Statements of Operations.
5.
Fair Value Measurements
To limit exposure to volatility in the LIBOR interest rate, the Company has entered into interest rate swap agreements, which effectively convert the variable interest rate on the outstanding revolving credit facility discussed in Note 12 to a fixed rate. The fair values of the interest rate swap agreements were determined by reference to a third-party valuation, which is considered a Level 2 input within the fair value hierarchy of valuation techniques, and totaled atechniques.
n
$846 asset and a $203
liability, as of March 31, 2022 and September 30, 2021, respectively
. In
conjunction with the paydown of $25,000 on the revolving credit facility
, a $25,000 interest rate swap agreement was terminated during March 2022, resulting
in a gain of $935, which is
recorded in
other income
(expense), net 
in our Condensed Consolidated Statements of Operations
 during the three and six months ended March 31, 2022
.
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.

Page 9

6.
Business Combinations 
On July 31, 2021, 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 consideration on the Condensed Consolidated Balance Sheets, to secure the selling party’s performance of certain post-closing obligations that is 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. Giving effect to purchase adjustments made during the three months ended March 31, 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
$
9,955
and $
9,630
,
respectively, with the useful life of the customer relationships estimated at
five years
.
The Company’s consolidated results for the three and six
 months
 ended March 31, 2022 include approximately
 $5,500
and $11,100, respectively, of net
revenues from BreathTek product sales, which contributed approximate
ly
$1,600
and $3,200, 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
$474
and $960, during the three and six months ended March 31, 2022, respectively.
Page 10

The following table provides information by level for financial assets and liabilities that are measured at fair value on a recurring basis, the unaudited consolidated pro forma resultscarrying values for the periods presented as if the BreathTek business had been acquired aswhich are included within other assets of the beginningDecember 31, 2022 and September 30, 2022 Condensed Consolidated Balance Sheets, respectively:

       
Fair Value Measurements Using
Inputs Considered as
 
   
Carrying

Value
   
Level 1
   
Level 2
   
Level 3
 
Interest rate swap agreements -                    
As of December 31, 2022
  $1,353   $—     $1,353   $—   
As of September 30, 2022
  $1,421   $—     $1,421   $—   
6.
Business Combinations
On October 26, 2022, we acquired substantially all of fiscal 2021:the assets of Estel for $3,500 in cash, of which $2,000 was paid at closing, with the remainder held back pending the achievement of certain milestones, which is payable within 18 months of the acquisition date. The amount held back is recorded in other accrued expenses ($1,125) and other
non-current
liabilities ($375) on the December 31, 2022 Condensed Consolidated Balance Sheet. Estel offers development and production of high-quality bioresearch reagents developed in the areas of tropical disease and autoimmune through a proprietary insect cell expression system. Based on the
timing
of
this transaction
, the full $3,500 of consideration represents goodwill, which is attributable to combining Estel and Meridian’s products and capabilities to give the Company’s customers access to new immunological reagents. The goodwill is included within the Life Science segment and is not expected to be deductible for income tax purposes. The preliminary purchase price allocation may change in the future as the fair valuing of assets is completed.
There were no material changes in the preliminary purchase price allocation during the three months ended December 31, 2022. 
On April 30, 2022, we acquired substantially all of the assets of EUPROTEIN for $4,250 in cash, of which $3,750 was paid at closing, with the remainder held back for final closing adjustments, which is recorded in other
accrued expenses
on the Condensed Consolidated Balance Sheets and is payable within 18 months of the acquisition date. EUPROTEIN offers custom development and production of high-quality bioresearch reagents, with a particular focus on human and other mammalian proteins and recombinant monoclonal antibodies. The acquired assets of EUPROTEIN are included within the Life Science segment and are expected to help the Company accelerate its pipeline of new immunological reagents, while expanding recombinant capabilities. The acquired assets, which are comprised of goodwill, property, plant and equipment, prepaid expenses, and inventories, were valued on April 30, 2022, on a preliminary basis at $3,947, $279, $14 and $10, respectively. The goodwill for EUPROTEIN is attributable to combining EUPROTEIN and Meridian’s products and capabilities to give the Company’s customers access to new immunological reagents. The goodwill is not expected to be deductible for income tax purposes. The preliminary purchase price allocation may change in the future as the fair valuing of assets is completed.
 
   
Three Months Ended
March 31,
   
Six Months Ended
March 31,
 
   
2022
   
2021
   
2022
   
2021
 
Net revenues
  $111,231   $91,033   $199,572   $188,857 
Net earnings
   28,752    28,099    44,092    56,052 

There were no material changes in the preliminary purchase price allocation during the three months ended December 31, 2022. 
Based on the nature of both the Estel and EUPROTEIN businesses, Estel and EUPROTEIN are not expected to contribute materially to net revenues and net earnings
(loss).
7.
Lead Testing Matters
On September 1, 2021, the Company’s wholly owned subsidiary Magellan announced the expansion of 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 receive2021 after identifying an issue in certain manufactured lots of its LeadCare test kits. As a new lotresult of product and report to us when the control results are outside of specified ranges. This process identified certainissue, 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 holdheld the treatment reagent containers. Upon correction of the identified supplier issue, shipment of product resumed during Februarythe second quarter of fiscal 2022. The Company continues to work closely with the FDAU.S. Food and Drug Administration (“FDA”) in its execution
Page 10

of the recall activities, which include notifications tohas included Magellan notifying customers and distributors affected by the recall and providing instructions for the return of impacted test kits. The evaluation of theRemaining accrued LeadCare product recall costs totaling approximately
$177 and the related notification process$430 are ongoing. Of the approxima
te 
$5,100
estimated and accrued as of September 30, 2021 to cover the estimated costs of the recall, approxim
at
ely $3,375
remains accrued and is reflected inwithin the Condensed Consolidated Balance Sheet as of MarchSheets at December 31, 2022.2022 and September 30, 2022, respectively. Anticipated recall-related costs which primarily include temporary labor costs, product replacement and/or refund costs, mailing/shipping costs, attorneys’ fees and other miscellaneous costs are estimated based upon the most recent information available.costs. Information utilized in the accrual estimation process includes observable inputs such as customer
on-hand
inventory data, product sales data, average sales price, and product inventory turns, among other things. 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 six months ended March 31, 2022.
As previously disclosed, onOn 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 investigation is ongoing. Discussions continue with the DOJ to explore resolution of the matter. The Company believes a loss is probable in the DOJ LeadCare legal matter and, in accordance with applicable accounting guidance, has accrued $42,000 and $10,000 as of December 31, 2022 and September 30, 2022, respectively, as an estimate of the cost to resolve the DOJ LeadCare legal matter. The increase in the estimated cost to resolve the DOJ LeadCare legal matter is based upon additional information received by the Company during discussions held with the DOJ subsequent
to 
September 30, 2022. The $32,000 expense resulting from the increase in the accrual is reflected in litigation and select legal costs within the
Condensed 
Consolidated Statement of Operations for the three months ended December 
31
, 2022. The Company cannot predict when the investigation will be resolved or the outcome of the investigation, or its potential impact onand the ultimate resolution of the DOJ LeadCare legal matter may exceed the amount accrued at
December 31
, 2022 and could be material to the Company. Approximately
$508 $814 and $1,030$281 of expense for attorneys’ fees related to this matter is included within the Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021, respectively, and $789 and $2,257, for the six months ended MarchDecember 31, 2022 and 2021, respectively.
 
Page 11

8.
Cash and Cash Equivalents
Cash and cash equivalents includeare comprised of the following:

 
  
March 31,
2022
   
September 30,
2021
 
  
December 31,
2022
   
September 30,
2022
 
Institutional money market funds
  $1,020   $1,020   $1,027   $1,027 
Cash on hand, unrestricted
   75,467    48,751    73,071    80,426 
  
 
   
 
         
Total
  $76,487   $49,771   $74,098   $81,453 
  
 
   
 
         
Cash equivalents and institutional money market funds are classified within Level 1 of the fair value hierarchy. Financial instruments classified as Level 1 are based on quoted market prices in active markets. The Company does not adjust the quoted market price for such financial instruments.
Page 11

9.
Inventories, Net
Inventories, net are comprised of the following:
 
  
March 31,
2022
   
September 30,
2021
   
December 31,
2022
   
September 30,
2022
 
 
Raw materials
  $15,140   $14,843   $18,063   $15,726 
Work-in-process
   22,296    25,072    25,329    21,570 
Finished goods - instruments
   2,596    2,260    2,126    1,796 
Finished goods - kits and reagents
   30,894    34,667    27,145    28,722 
  
 
   
 
         
Total
  $70,926   $76,842   $72,663   $67,814 
  
 
   
 
         

10.
Goodwill and Other Intangible Assets, Net
Goodwill is not amortized but is subject to an annual impairment test. Goodwill has been assigned to reporting units within the reportable segments. The Company assesses the carrying value of goodwill annually, or more often if events or changes in circumstances indicate there may be impairment.
Impairment testing is performed at a reporting unit level. During the sixthree months ended MarchDecember 31, 2022, goodwill decrease
d $629, reflecting:increased $4,265, comprised of: (i) a $376 decrease$20 increase in Diagnostics segment
 goodwill
; goodwill; and (ii) a $253 decrease$4,245 increase in Life Science segment
goodwill. This overall net increase in goodwill primarily due toreflects $3,500 of goodwill acquired in the Estel acquisition (see Note 6), along with the effects of foreign currency translation
.translation. During the sixthree months ended MarchDecember 31, 2022, the Company did not observe any triggering events or substantive changes in circumstances requiring the need for an interim impairment assessment.assessment
.

A summary of other intangible assets, net, subject to amortization is as follows:
 
   
March 31, 2022
   
September 30, 2021
 
   
Gross
Carrying
Value
   
Accumulated
Amortization
   
Gross
Carrying
Value
   
Accumulated
Amortization
 
Manufacturing technologies, core products and cell lines
  $62,385   $24,510   $62,416   $22,633 
Trade names, licenses and patents
   18,451    10,070    18,489    9,492 
Customer lists, customer relationships and supply agreements
   54,755    22,021    54,941    19,649 
Non-compete
agreements
   110    42    110    31 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $135,701   $56,643   $135,956   $51,805 
   
 
 
   
 
 
   
 
 
   
 
 
 
Page 12

   
December 31, 2022
   
September 30, 2022
 
   
Gross
Carrying
Value
   
Accumulated
Amortization
   
Gross
Carrying
Value
   
Accumulated
Amortization
 
Manufacturing technologies, core products and cell lines  $56,380   $21,366   $56,289   $20,321 
Trade names, licenses and patents   18,363    10,906    18,257    10,491 
Customer lists, customer relationships and supply agreements   52,829    23,779    52,703    22,363 
Non-compete
agreements
   110    59    110    53 
                     
Total  $127,682   $56,110   $127,359   $53,228 
                     
The aggregate amortization expense for these other intangible assets was $2,483$2,541 and $2,142$2,483 for the three months ended March 31, 2022 and 2021, respectively, and $4,966 and $4,363 for the six months ended MarchDecember 31, 2022 and 2021, respectively. The estimated aggregate amortization expense for these other intangible assets for each of the fiscal years through fiscal 20272028 is as follows: remainder of fiscal 2022 – $4,960, fiscal 2023 – $9,905,$7,425, fiscal 2024 – $9,900,
$9,900, fiscal 2025 – $9,895,
$9,890, fiscal 2026 – $8,900,
$8,900, fiscal 2027
$6,645, and fiscal 20272028 – $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.
Page 12

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 March 31,
   
Six Months
Ended March 31,
 
   
2022
   
2021
   
2022
   
2021
 
Lease costs within cost of sales
  $228   $198   $453   $356 
Lease costs within operating expenses
   358    387    746    761 
Right-of-use
assets, net obtained in exchange for operating lease liabilities
   2,803    612    3,021    692 
Three Months Ended December 31,
  
2022
   
2021
 
Lease costs within cost of sales  $226   $225 
Lease costs within operating expenses   349    388 
Right-of-use
assets, net, obtained in exchange for operating lease liabilities
   423    218 
In addition, the Company periodically enters into other short-term operating leases, generally with an initial term of twelve months or less. These leases are not recorded on the Condensed Consolidated Balance Sheets and the related lease expense is immaterial for the three and six months ended MarchDecember 31, 2022 and 2021.
The Company often has options to renew lease terms, with the exercise of lease renewal options generally at the Company’s sole discretion. In addition, certain lease arrangements may be terminated prior to their original expiration date at our discretion. We evaluate renewal and termination options at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis of economic factors. The discount rate implicit within our leases is generally not determinable and, therefore, the Company uses its incremental borrowing rate as the basis for its discount rate.

The weighted average remaining lease term for our operating leases and the weighted average discount rate used to measure our operating leases were as follows:
 
   
March 31,
2022
  
September 30,
2021
 
 
Weighted average remaining lease term
   4.3 years   3.6 years 
Average discount rate
   3.4  3.2%
Page 13
   
December 31,
2022
  
September 30,
2022
 
Weighted average remaining lease term   3.6 years   3.9 years 
Average discount rate   3.5  3.5%

Maturities of lease liabilities by fiscal year for the Company’s operating leases were as follows as of MarchDecember 31, 2022:
 
2022 (represents remainder of fiscal year)
  $1,173 
2023
   2,183 
2024
   1,775 
2025
   1,474 
2026
   890 
Thereafter
   792 
   
 
 
 
Total lease payments
   8,287 
Less amount of lease payments representing interest
   (574
   
 
 
 
Total present value of lease payments
  $7,713 
   
 
 
 
2023 (represents remainder of fiscal year)  $1,571 
2024   1,796 
2025   1,519 
2026   796 
2027   545 
Thereafter   136 
      
Total lease payments   6,363 
Less amount of lease payments representing interest   (222
      
Total present value of lease payments  $6,141 
      
Supplemental cash flow information related to the Company’s operating leases is as follows:

Six Months Ended March 31,
  
2022
   
2021
 
Three Months Ended December 31,
  
2022
   
2021
 
Cash paid for amounts included in the measurement of lease liabilities:
            
Operating cash flows from operating leases
  $1,216   $1,072   $580   $627 
  
 
   
 
 
12.
Bank Credit Arrangements
The Company maintains a revolving credit facility with a commercial bank in an aggregate principal amount not to exceed $200,000, which expires in October 2026. Outstanding principal amounts bear interest at a fluctuating rate tied to, at the Company’s option, either the federal funds rate or LIBOR, resulting in an effective interest rate of 2.47%3.46% and 2.60%2.22% on the revolving credit facility during the three months ended MarchDecember 31, 2022 and 2021, respectively, and 2.33% and 2.57% during the six months ended March 31, 2022 and 2021, respectively.
Page 13

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 MarchDecember 31, 2022 and September 30, 2021,2022 approximates the current$25,000 carrying value reflected in the Condensed Consolidated Balance Sheets, of $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 MarchDecember 31, 2022, the Company was in compliance with all covenants.
See Note 18 for a discussion of activities related to the Company’s bank credit arrangements occurring subsequent to the December 31, 2022 Condensed Consolidated Balance Sheet date.
13.
Contingent Obligations and
Non-Current
Liabilities
In connection with the acquisition of Exalenz Bioscience Ltd. (“Exalenz”) in fiscal 2020, the Company assumed several Israeli government grant obligations. The repayment of the grants, along with interest incurred at varying stated fixed rates based on LIBOR at the time each grant was received, is not dictated by an established repayment schedule. Rather, the grants and related interest are required to be repaid using 3% of the net revenues generated from the sales of BreathID products, with the timing of repayment contingent upon the level and timing of such revenues. In addition, the grants have no collateral or financial covenant provisions generally associated with traditional borrowing instruments. These obligation amounts total $5,588$5,320 and $5,814$5,287 as of MarchDecember 31, 2022 and September 30, 2021,2022, respectively, bearing interest at rates ranging from 0.58% to 2.02%.
Page 1
4

The grant obligations are reflected in the Condensed Consolidated Balance Sheets as follows:
 
  
March 31,

2022
   
September 30,

2021
   
December 31,
2022
 
September 30,
2022
 
Current liabilities
  $675   $638   $799  $667 
Non-current
liabilities
  $4,913   $5,176   $4,521  $4,620 
Additionally, the Company has provided certain post-employment benefits to its former Chief Executive Officer, and these obligations total $1,589$1,254 and $1,676$1,284 at MarchDecember 31, 2022 and September 30, 2021,2022, respectively. In addition, the Company is required by the governments of certain foreign countries in which we operate to maintain a level of accruals for potential future severance indemnity. These accruals total $713$652 and $754$566 at MarchDecember 31, 2022 and September 30, 2021,2022, respectively.
 
14.
National Institutes of Health Contracts
In December 2020, the Company entered into a
sub-award
grant contract with the University of Massachusetts Medical School as part of the National Institutes of Health Rapid Acceleration of Diagnostics (“RADx”) initiative to support the Company’s research and development of its diagnostic test for the
SARS-CoV-2
antigen. During fiscal 2021, theThe Company has received $1,000 under the grant contract for reimbursement of eligible research and development expenditures, $200
and $1,000 of which was received during the three and six months ended March 31, 2021, respectively, and is included within other income (expense
), netexpenditures.
in the Condensed Consolidated Statement of Operations for
those periods
.
On January 25, 2022, the Company entered into a contract to amend the Company’s second grant contract under the RADx initiative, which was originally effective February 1, 2021. The purpose of the grant is to support the Company’s manufacturing production
scale-up
and expansion to meet the demand for
COVID-19
testing, as well as the Company’s Revogene respiratory
panel
. panel. The amended contract is a
24
-month24-month
service contract through January 2023, with
a subsequent extension to January 2025 and 
payment of up to $8,000$6,250 being made based on the Company achieving key milestones related to increasing its capacity to produce
COVID-19
tests and the Revogene respiratory
panel
. panel. As of MarchDecember 31, 2022, $1,500$2,750 has been received related to this contract and is reflected as a reduction in the cost of building and improvements on the Condensed Consolidated Balance Sheet
,Sheets, in accordance with applicable accounting guidance.
Page 14

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 1
5

Reportable segment and corporate information for the interim periods is as follows:
 
   
Diagnostics
  
Life Science
   
Corporate
(1)
  
Eliminations
(2)
  
Total
 
Three Months Ended March 31, 2022
 
Net revenues -
                      
Third-party
  $41,103   $70,128   $—    $—    $111,231 
Inter-segment
   113    32    —     (145  —   
Operating income
 (loss)
   1,589    40,286    (5,752  18   36,141 
Goodwill (March 31, 2022)
   94,528    19,511    —     —     114,039 
Other intangible assets, net (March 31, 2022)
   79,056    2    —     —     79,058 
Total assets
(
March 31, 2022)
   355,754    116,090    —     (34)  471,810 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
Three Months Ended March 31, 2021
                       
Net revenues -
                       
Third-party
  $31,949   $53,315   $—    $—    $85,264 
Inter-segment
   116    91    —     (207  —   
Operating income
 (loss)
   2,641    36,025    (4,481  16   34,201 
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 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
Six Months Ended March 31, 2022
 
Net revenues -
                       
Third-party
  $74,307   $125,265   $—    $—    $199,572 
Inter-segment
   147    87    —     (234  —   
Operating
(loss) 
income
   (174)
 
   66,888    (10,323  33   56,424 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
Six Months Ended March 31, 2021
 
Net revenues -
                       
Third-party
  $62,270   $115,911   $—    $—    $178,181 
Inter-segment
   185    109    —     (294  —   
Operating income
 (loss)
   1,683    75,754    (8,600  28   68,865 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
   
Diagnostics
  
Life Science
   
Corporate
(1)
  
Eliminations
(2)
  
Total
 
Three Months Ended December 31, 2022
 
Net revenues -                      
Third-party  $39,366  $17,536   $—    $—    $56,902 
Inter-segment   86   8    —     (94  —   
Operating
income 
(loss)
   3,160   5,383    (36,693  35   (28,115
Goodwill (December 31, 2022)   94,432   26,135    —     —     120,567 
Other intangible assets, net (December 31, 2022)   71,570   2    —     —     71,572 
Total assets (December 31, 2022)   353,997   102,775    —     (9  456,763 
                       
Three Months Ended December 31, 2021
                      
Net revenues -                      
Third-party  $33,204  $55,137   $—    $—    $88,341 
Inter-segment   34   55    —     (89  —   
Operating income (loss)   (1,763  26,602    (4,571  15   20,283 
Goodwill (September 30, 2022)   94,412   21,890    —     —     116,302 
Other intangible assets, net (September 30, 2022)   74,129   2    —     —     74,131 
Total assets (September 30, 2022)   357,630   105,511    —     (44  463,097 
                       
 
(1)
Includes selectedacquisition and transaction related costs and litigation and select legal costs of $508$34,048 and $789 
$281 in the three and six months ended MarchDecember 31, 2022 respectively, and $1,030 and $2,257 in the three and six months ended March 31, 2021, respectively.
(2)
Eliminations consist of inter-segment transactions.
Page 1
6

A reconciliation of reportable segment operating income (loss) to consolidated earnings
 (loss)
before income taxes is as follows:
Three Months Ended December 31,
  
2022
   
2021
 
Operating income
 (loss):
          
Diagnostics segment  $3,160   $(1,763)
Life Science segment   5,383    26,602 
Eliminations   35    15 
           
Total operating income   8,578    24,854 
Corporate expenses   (36,693   (4,571
Interest income   3    1 
Interest expense   (148   (372
Other, net   (837   (161
           
Consolidated earnings
(loss) 
before income taxes
  $(29,097)  $19,751 
           
 
   
Three Months
Ended March 31,
   
Six Months
Ended March 31,
 
   
2022
   
2021
   
2022
   
2021
 
Operating income (loss):
                    
Diagnostics segment
  $1,589   $2,641   $(174  $1,683 
Life Science segment
   40,286    36,025    66,888    75,754 
Eliminations
   18    16    33    28 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total segment operating income
   41,893    38,682    66,747    77,465 
Corporate operating expenses
   (5,752   (4,481   (10,323   (8,600
Interest income
   2    6    3    15 
Interest expense
   (341   (472   (713   (1,006
RADx initiative grant income
   0      200    0    1,000 
Other, net
   733    (883   572    (1,574
   
 
 
   
 
 
   
 
 
   
 
 
 
Consolidated earnings before income taxes
  $36,535   $33,052   $56,286   $67,300 
   
 
 
   
 
 
   
 
 
   
 
 
 
Page 15

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 30%57% and 28%32% of consolidated net revenues during the three months ended March 31, 2022 and 2021, respectively,
and 
31% and 27% during the six months ended MarchDecember 31, 2022 and 2021, respectively.
IndividualThree individual Diagnostics orand two Life Science segment customers, including their affiliates, comprising
10% or more of reportable segment net revenues were as follows:

Three Months Ended December 31,
  
2022
  2021 
Diagnostics
         
Customer A   7%  10%
Customer B   10%  11%
Customer C   12%  11%
Life Science
   
Customer D
   %  23%
Customer
E
   4%  14%
Customer 
F
   12%  5%
In addition,
one of 
the Life Science segment customers, including their affiliates, identified above accounted for greater than 10% of consolidated net revenues as follows:
 

   
Three Months
Ended March 31,
  
Six Months
Ended March 31,
 
   
2022
  
2021
  
2022
  
2021
 
Diagnostics
                 
Customer A
   6  10  9  11
Customer B
   9  10  10  10
Customer C
   9  11  10  11
     
Life Science
                 
Customer D
   13  9  13  14
Customer E
   22  2  22  2
Three Months Ended December 31,
  
2022
  2021 
Life Science
         
Customer D   %  14%
During the three and six months ended March 31, 2022 and 2021, 0No individual Diagnostics segment customer accounted for greater than 10% or more of
consolidated net revenues, while one Life Science segment customer (Customer E above) comprised 14% of consolidated net revenues during
both
the three and six months ended March 31, 2022, and 1% of consolidated net revenues during the corresponding fiscal 2021 interim periods.
three months ended December 31, 2022 or 2021.
In addition, during bothDuring the three and six months ended MarchDecember 31, 2022 and 2021, the Life Science segment’s ten largest customers, including their affiliates, accounted for approximately 62%42% and 67%, respectively, of Life Science segment net revenues, and 39%13% and 42%, respectively, of consolidated net revenues. During the three and six months ended March 31, 2021,
the
Life Science
segment’s ten largest customers accounted for approximately 48% of Life Science segment net revenues and
 30%
of consolidated net revenues.
Page 17

No
Diagnostics or Life Science segment customer accounted for greater than 10% of consolidated accounts receivable as of MarchDecember 31,
2022
, while one Diagnostics segment customer (Customer B above) and one Life Science segment customer (Customer D (
Customer F
above) accounted for approximately 12% and 10%11%, respectively, of consolidated accounts receivable as of September 30, 2021.2022.
 
16.
Income Taxes
The effective rate for income taxes was approximately 21%(2%) and 22% for the three and six months ended MarchDecember 31, 2022 respectively, and 20% and 21%2021, respectively. The negative effective rate for the three and six months ended MarchDecember 31, 2021,2022 relates primarily to the anticipated
non-deductibility
of
litigation and select legal costs associated with 
respectively.
the previously discussed DOJ LeadCare legal matter (see Note 7).
 
Page 16

17.
Subsequent EventThe Merger
On April 30,July 7, 2022, the Company acquired substantiallyentered into an Agreement and Plan of Merger (as it may be amended, supplemented or otherwise modified from time to time, the “Merger Agreement”) with SD Biosensor, Inc., a corporation with limited liability organized under the laws of the Republic of Korea (“SDB”), Columbus Holding Company, a Delaware corporation (“Parent”), and Madeira Acquisition Corp., an Ohio corporation and a direct wholly owned subsidiary of Parent (“Merger Sub,” and together with SDB and Parent, the “Parent Parties”). Pursuant to the Merger Agreement, Merger Sub merged with and into Meridian (the “Merger”), with Meridian surviving the Merger as a direct wholly owned subsidiary of Parent.
On December 9, 2022, Meridian and the Parent Parties entered into a Letter Agreement (the “Letter Agreement”), modifying the Merger Agreement, such that all of the assetsconditions to the Parent Parties’ obligation to complete the Merger have been satisfied (and are deemed to remain satisfied through the completion of EUPROTEIN Inc.the Merger), provided that Meridian is required to comply with certain covenants in the Merger Agreement through the completion of North Brunswick, New Jersey (“EUPROTEIN”) for $4,250the Merger. Under the Letter Agreement, Meridian and the Parent Parties also agreed to, among other things, consummate the Merger on January 31, 2023.
On January 31, 2023, the Merger was consummated in accordance with the terms of the Merger Agreement and the Letter Agreement, and Parent, which at the time of Closing was wholly-owned and controlled by SDB, became the sole shareholder of Meridian. Pursuant to the terms of the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of Meridian’s common stock (subject to certain exceptions set forth in the Merger Agreement) was canceled and converted into the right to receive
$
34.00
i
n cash, without interest (the “Merger Consideration”). See Note 18 below regarding consummation of the Merger. 
The foregoing description of the Merger, the Merger Agreement, and the Letter Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of (i) the Merger Agreement, a copy of which $3,750 was paid at closing,filed by Meridian as Exhibit 2.1 to Meridian’s Current Report on Form
8-K
filed on July 7, 2022 and is incorporated herein by reference, and (ii) the Letter Agreement, a copy of which was filed by Meridian as Exhibit 2.1 to Meridian’s Current Report on Form
8-K
filed on December 12, 2022 and is incorporated herein by reference.
The Company incurred transaction related costs of approximately $1,160 during the three months ended December 31, 2022 related to the Merger, which is recorded in acquisition and transaction related costs in the Condensed Consolidated Statement of Operations.
18.
Subsequent Events
On January 31, 2023, the Merger was consummated in accordance with the remainder held back for final closing adjustments. EUPROTEIN offers custom developmentterms of the Merger Agreement and productionthe Letter Agreement, as described in Note 17. Upon completion of high-quality bioresearch reagents,the Merger, effective January 31, 2023:
Meridian named Jack Kenny and Andrew Kitzmiller as the sole directors of Meridian’s Board of Directors (the “Board”), and all other previously named directors tendered their resignations and resigned from the Board effective January 31, 2023;
Meridian amended and restated its Articles of Incorporation and Code of Regulations in accordance with the Merger Agreement which, among other things, changed the fiscal year of the Company to an annual calendar year;
Meridian: (i) notified the Nasdaq Stock Market LLC (“Nasdaq”) of the consummation of the Merger, and (ii) requested that Nasdaq (A) suspend trading of Meridian’s common stock effective before the opening of trading on January 31, 2023, and (B) file with the SEC a particular focusForm 25 Notification of Removal from Listing and/or Registration to delist and deregister the Shares under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”);
Meridian terminated its Amended and Restated Credit Agreement, dated as of October 25, 2021, by and among Meridian, as borrower, the guarantors party thereto, the lenders party thereto, PNC Bank,
Page 17

National Association, as administrative agent, PNC Capital Markets LLC, as joint lead arranger and sole bookrunner, and Fifth Third Bank, National Association, as joint lead arranger and syndication agent; and
Meridian, entered into: (i) a Term Loan Credit Agreement (the “Term Loan Credit Agreement”) with Standard Chartered Bank (“SCB”), as administrative agent, SCB, Industrial Bank of Korea, The Export-Import Bank of Korea, JPMorgan Chase Bank, N.A., Kookmin Bank, New York Branch and Citibank N.A., Hong Kong Branch, as joint lead arrangers, and SCB, as coordinating bank; and (ii) a Revolving Credit Facility Credit Agreement (the “RCF Credit Agreement”, and together with the Term Loan Credit Agreement, the “Credit Agreements”) with PNC Bank, National Association (“PNC”), as administrative agent, and PNC Capital Markets LLC, as sole lead arranger, sole bookrunner and syndication agent. The Term Loan Credit Agreement made available to Meridian an aggregate principal amount of $500,000, in the form of a term loan credit facility (the “Term Loan”). The RCF Agreement makes available to Meridian revolving loan commitments in an aggregate principal amount of $50,000 (the “RCF Loan”, and together with the Term Loan, the “Credit Facilities”). As of January 31, 2023, the principal amount of the RCF Loan outstanding was $25,000. The Credit Facilities mature on humanJanuary 31, 2028.
The foregoing descriptions of events occurring on or about the consummation of the Merger, including the foregoing description of the Credit Facilities, do not purport to be complete and are subject to and qualified in their entirety by reference to the respective agreements, articles of incorporation and other mammalian proteins and recombinant monoclonal antibodies. The acquired assetsdocuments, each of EUPROTEIN will be part of Meridian’s Life Science segment andwhich are expectedattached as an exhibit to helpour Current Report on Form
8-K
filed with the Company accelerate its pipeline of new immunological reagents, while expanding recombinant capabilities.SEC on February 1, 2023.
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
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 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.

Page 19


Recent Developments

Agreement and Plan of Merger

On July 7, 2022, the Company entered into an Agreement and Plan of Merger (as it may be amended, supplemented or otherwise modified from time to time, the “Merger Agreement”) with SD Biosensor, Inc., a corporation with limited liability organized under the laws of the Republic of Korea (“SDB”), Columbus Holding Company, a Delaware corporation (“Parent”), and Madeira Acquisition Corp., an Ohio corporation and a direct wholly owned subsidiary of Parent (“Merger Sub,” and together with SDB and Parent, the “Parent Parties”). Pursuant to the Merger Agreement, Merger Sub merged with and into Meridian (the “Merger”), with Meridian surviving the Merger as a direct wholly owned subsidiary of Parent.

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

On January 31, 2023, the Merger was consummated in accordance with the terms of the Merger Agreement and the Letter Agreement, and Parent, which at the time of Closing was wholly-owned and controlled by SDB, became the sole shareholder of Meridian. Pursuant to the terms of the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of Meridian’s common stock (subject to certain exceptions set forth in the Merger Agreement) was canceled and converted into the right to receive $34.00 in cash, without interest (the “Merger Consideration”). See Note 18, “Subsequent Events” of the Condensed Consolidated Financial Statements regarding consummation of the Merger.

The foregoing description of the Merger, the Merger Agreement, and the Letter Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of (i) the Merger Agreement, a copy of which was filed by Meridian as Exhibit 2.1 to Meridian’s Current Report on Form 8-K filed on July 7, 2022 and is incorporated herein by reference, and (ii) the Letter Agreement, a copy of which was filed by Meridian as Exhibit 2.1 to Meridian’s Current Report on Form 8-K filed on December 12, 2022 and is incorporated herein by reference.

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

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 beenwere 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 in such levels occurring during the second quarter of fiscal 2022.
Page 18

fiscal 2022, reflecting the softening in demand for COVID-19 related reagents.

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 revenuesRevenues from our respiratory illness assays in fiscal 2021, following flat year-over-year revenue levels experienced in fiscal 2020. Reflecting significant net revenues fromwere most dramatically impacted by the sale of
SARS-CoV-2
tests, as well asCOVID-19 pandemic. However, we are continuing to experience what we believe to be a continuation of a return to
pre-pandemic
activity levels, during the second quarter of fiscal 2022, revenues from respiratory illness assays were 157% higher than the second quarter of fiscal 2021, a marked improvement over the aforementioned 34% decline in fiscal 2021.
Despite these recent
COVID-19
pandemic related trends, duelevels.

There continues to thebe many uncertainties surrounding the

COVID-19
pandemic, and 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.

Page 20

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.customers. As the
COVID-19
pandemic continues, along with continuing governmental restrictions which vary by locale and jurisdiction, there is an increased risk of employee absenteeism, which could materially impact our operations at one or more sites. To date, the steps we have taken, including our work-from-home processes, have not materially impacted the Company’s financial reporting systems, internal controls over financial reporting or disclosure controls.

Supply Chains

Supply chains supporting our products have generally remained intact, providing access to sufficient inventory of the key materials needed for manufacturing. While we have experienced extended lead times for certain select raw materials, delays and allocations for raw materials have to date been limited and have not had a material impact on our results of operations. From time to time, we identify alternative suppliers to address the risk of a current supplier’s inability to deliver materials in volumes sufficient to meet our manufacturing needs; or we may choose to purchase certain materials in bulk volumes where we have supply chain scarcity concerns. It remains possible that we may experience some sort of interruption to our supply chains, and such an interruption could materially affect our ability to timely manufacture and distribute our products and unfavorably impact our results of operations.

We are also starting to experience

Since the second half of fiscal 2021, we have experienced 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.

in the future.

Product Development and Clinical Trials

Our Diagnostics segment’s new product development programs are continuing to progress at a slower pace than normal, due in part to the prevalence of certain infectious diseases having been lower than normal during the

COVID-19
pandemic. These matters continue to impact our timing for filing applications for product clearances with the U.S. Food and Drug Administration (“FDA”), as well as related timing of FDA clearances of such filings. Additionally, the ongoing
COVID-19
pandemic has slowed and could continue to slow down our efforts to expand our product portfolio, impacting the speed with which we are able to bring additional products to market.
Product Demand
Our Life Science segment manufactures, markets and sells a number of molecular and immunological reagents to IVD customers, including those who are making both molecular and immunoassay
COVID-19
tests. While there have been
quarter-to-quarter
fluctuations in demand throughout the
COVID-19
pandemic, since late in the second quarter of fiscal 2020, we have generally experienced unprecedented demand for certain of our molecular reagents (e.g., ribonucleic acid (“RNA”) master mixes and nucleotides). While we expect demand to continue to exceed
pre-COVID-19
pandemic levels, we do not expect demand in the second half of fiscal 2022 to be as high as that of the first half, reflecting an anticipated decline in testing. These 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.
Page 19

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 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 have not yet begun to ship product, as our
SARS-CoV-2
assay required enhancement to detect the recently prevalent Omicron variants of the
COVID-19
infection. We completed validation of these changes during the second quarter of fiscal 2022 and submitted the required information to the FDA. The FDA has also requested the completion of additional clinical studies, which are currently under way. 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 have: (i) added a second production line at our Quebec manufacturing facility; (ii) installed a production line in a leased facility near our corporate headquarters in Cincinnati; and (iii) are in the process of installing an additional production line in the Cincinnati leased facility. With approximately $11,700 expended on these expansion efforts through March 31, 2022, we expect them to be completed during calendar 2022 at a total cost of approximately $21,300, 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 of which had been received as of March 31, 2022 (see Note 14,
“National Institutes of Health Contracts”
of the Condensed Consolidated Financial Statements for further discussion).
Critical Accounting Estimates
As of and for the three and six months ended March 31, 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.

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 holdheld the treatment reagent containers. Upon correction of the identified supplier issue, shipment of product resumed during Februarythe second quarter of fiscal 2022. The Company continues to work closely with the FDA in its execution of the recall activities, which includehas included Magellan notifying customers and distributors affected by the recall and providing instructions for the return of impacted test kits. The evaluation of theRemaining accrued LeadCare product recall costs totaling approximately $177 and the related notification process$430 are ongoing. Of the approximate $5,100 estimated and accrued as of September 30, 2021 to cover the estimated costs of the recall, approximately $3,375 remains accrued and is reflected inwithin the Condensed Consolidated Balance Sheet as of MarchSheets at December 31, 2022.2022 and September 30, 2022, respectively. Anticipated recall-related costs primarily include temporary labor costs, product replacement and/or refund costs, mailing/shipping costs, attorneys’ fees and other miscellaneous costs.

Page 21


As previously disclosed, on

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 investigation is ongoing. Discussions continue with the DOJ to explore resolution of the matter. The Company believes a loss is probable in the DOJ LeadCare legal matter and, in accordance with applicable accounting guidance, has accrued $42,000 and $10,000 as of December 31, 2022 and September 30, 2022, respectively, as an estimate of the cost to resolve the DOJ LeadCare legal matter. The increase in the estimated cost to resolve the DOJ LeadCare legal matter is based upon additional information received by the Company during discussions held with the DOJ subsequent to September 30, 2022. The $32,000 expense resulting from the increase in the accrual is reflected in litigation and select legal costs within the Condensed Consolidated Statement of Operations for the three months ended December 31, 2022. The Company cannot predict when the investigation will be resolved or the outcome of the investigation, or its potential impact onand the ultimate resolution of the DOJ LeadCare legal matter may exceed the amount accrued at December 31, 2022 and could be material to the Company. Approximately $508$814 and $1,030$281 of expense for attorneys’ fees related to this matter is included within the Condensed Consolidated Statements of Operations for the three months ended MarchDecember 31, 2022 and 2021, respectively, and $789 and $2,257, for the six months ended March 31, 2022 and 2021, respectively.

Page 20

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.

RESULTS OF OPERATIONS

Three Months Ended MarchDecember 31, 2022

Net earnings for second

A net loss of $29,821, or $0.68 per diluted share, was generated during the first quarter of fiscal 2022 increased 9%2023, compared to $28,752,$15,340 of net earnings, or $0.65$0.35 per diluted share, from net earnings forduring the secondfirst quarter of fiscal 2021 of $26,302, or $0.60 per diluted share.2022. The level of net earningsloss in the secondfirst quarter of fiscal 20222023 reflects primarily the increase in net revenues in our Life Science segment, partially offset by the overall increase in operating expenses described in the Operating Expenses section below. As it relates tobelow, along with the decline in net revenues and operating income in our Life Science segment, net revenues, a significant number of our Life Science segment customers now use our molecularstemming from the dramatic softening in demand for COVID-19 related reagents in multiple tests, including

non-COVID-19
related tests, making it increasingly difficult to accurately estimateduring 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 $31,000 in the second quarter of fiscal 2021.
quarter.

Consolidated net revenues for the secondfirst quarter of fiscal 20222023 totaled $111,231, an increase$56,902, a decrease of 30%36% compared to the secondfirst quarter of fiscal 2021.

2022.

Net revenues from the Diagnostics segment for the secondfirst quarter of fiscal 2023 increased 19% to $39,366, compared to the first quarter of fiscal 2022, increased 29% compared to the secondcomprised of a 23% increase in non-molecular assay products, partially offset by a 6% decrease in molecular assay products. The first quarter of fiscal 2021, comprised primarily of an in increase in sales of

non-molecular
assay products including the addition of sales of the BreathTek product, which was acquired July 31, 2021. The second quarter of fiscal 20222023 represents the fourthseventh consecutive quarter our Diagnostics segment has shown positive revenue growth versus the same quarter in the prior fiscal year. Our Diagnostics segment generated $1,589 of operating income for the second quarter of fiscal 2022, compared to $2,641$3,160 of operating income in the secondfirst quarter of fiscal 2021,2023, compared to an operating loss of $1,763 in the first quarter of fiscal 2022, reflecting the increase in net revenues being offset by the decrease inand gross profit margins, and increase inalong with relatively flat operating expenses, as described in the respective sections below.

With a 7% increase76% decrease in net revenues from molecular reagentreagents products and a 91% increase58% decrease in net revenues from immunological reagent products, including

COVID-19
relatedreagents products, net revenues for our Life Science segment increased 32%decreased 68% during the secondfirst quarter of fiscal 20222023 compared to the secondfirst quarter of fiscal 2021.2022. Our Life Science segment generated $40,286$5,383 of operating income, or a margin of 31%, for the secondfirst quarter of fiscal 2022, an increase2023, a decrease of $4,261 over$21,219 from $26,602, or a margin of 48%, achieved in the secondfirst quarter of fiscal 2021,2022. This decrease primarily due toresults the increase in net revenues being partially offset by the decrease in gross profit margins, resulting from the immunological reagent products representing a higher percentage of net revenues, and the increase in operating expenses, as described in the respective sections below.
Page 21

Six Months Ended March 31, 2022
Net earnings for the six months ended March 31, 2022 decreased 17% to $44,092, or $1.00 per diluted share, from net earnings for the comparable fiscal 2021 period of $53,081, or $1.21 per diluted share. The level of net earnings in the first six months of fiscal 2022 reflects primarily: (i) the decrease in gross profit margins resulting from immunological reagent products representing a higher percentage of net revenues in the fiscal 2022 period, compared to higher margin molecular reagent products in the fiscal 2021 period; and (ii) the overall increase in operating expenses described in the Operating Expenses section below. 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 $74,000 in the first six months of fiscal 2021.
Consolidated net revenues increased 12% to $199,572 for the first six months of fiscal 2022 compared to the same period of the prior year.
Diagnostics segment net revenues increased 19%, comprised of a 2% increase in sales of molecular assay products and a 22% 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 a $174 operating loss for the first six months of fiscal 2022, compared to $1,683 of operating income in the first six 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.
With a 14% decrease in net revenues from molecular reagent products and a 66% increase in net revenues from immunological reagent products, including
COVID-19
related products, net revenues for our Life Science segment increased 8% during the first six months of fiscal 2022 compared to the same period of the prior year. Our Life Science segment generated $66,888 of operating income for the first six months of fiscal 2022, a decrease of $8,866 from the first six months of fiscal 2021, primarily due to the increase in net revenues being partially offset by the decrease inassociated gross profit, margins, resultingwhich result in large part from the aforementioned mix of products sold, and the increasedramatic softening in operating expenses, as described in the respective sections below.demand for COVID-19 related reagents.

Page 22


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

- 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 quarteryear to quarteryear by buying patterns of major distributors and reference laboratories, 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 quarteryear to quarteryear 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.
Page 22

Following is a discussion of the net revenues generated by these product platforms/types and/or disease states:

Diagnostics Segment Products

The

During the first quarter of fiscal 2023, Diagnostics segment’s overall growth insegment net revenues of 29% andincreased $6,162, or 19% during the second quarter and first six months of fiscal 2022, respectively,, compared to the same periodsfirst quarter of fiscal 2021,2022. This growth primarily resultsresulted from the combined net effects of the following:

Volume growth in the gastrointestinal products benefitting from sales of the BreathTek product, acquired on July 31, 2021 (approximately $5,500 and $11,100 of net revenues from BreathTek in the second quarter and first six months of fiscal 2022, respectively);
Volume growth in sales of respiratory illness products, comprised of tests for Group A Strep, Mycoplasma pneumonia, Influenza, Pertussis and
SARS-CoV-2,
among others, reflecting an$4,542 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 157% and 87% in the second quarter and first six months of fiscal 2022, respectively); and
Volume declinesnet revenues from sales of blood chemistry products, dueas sales of the LeadCare product have continued to rebound since shipment of the ongoingproduct resumed in the second quarter of fiscal 2022. LeadCare shipments resumed upon correction of the identified supplier issue that caused the LeadCare product recall, which commenced in May 2021 reflecting(see Note 7, “Lead Testing Matters” of the resumption of product shipment in February 2022 ($933 and $5,250 decrease in net revenues compared to the second quarter and first six months of fiscal 2021, respectively)Condensed Consolidated Financial Statements).

Life Science Segment Products

During the secondfirst quarter and first six months of fiscal 2022,2023, net revenues for our Life Science segment increased 32% and 8%, respectively, overdecreased 68% compared to the comparablefirst quarter of fiscal 2021 periods. The2022. While the level of net revenues during the secondfirst quarter of fiscal 2022 was higher than that2023 reflects the significant decline in demand for COVID-19 related reagents, such level of anyquarterly net revenues significantly outpaced the pre-pandemic level of net revenues generated in the first quarter during the

COVID-19
pandemic,of fiscal 2020; increasing 39% in total, 41% for molecular reagents and significantly higher than
pre-pandemic
levels.
37% for immunological reagents.

Significant Customers

Revenue concentrations related to certain customers within our Diagnostics and Life Science segments are set forth in Note 15,

“Reportable Segment and Major Customers Information”
of the Condensed Consolidated Financial Statements.

Gross Profit

   
Three Months Ended March 31,
  
Six Months Ended March 31,
 
   
2022
  
2021
  
Change
  
2022
  
2021
  
Change
 
Gross profit
  $68,477 $57,772  19 $117,636  $119,320  (1)% 
Gross profit margin
   62  68  -6 points   59  67  -8 points 

   Three Months Ended December 31, 
   2022  2021  Change 

Gross Profit

  $31,505 $49,159  (36)% 

Gross Profit Margin

   55  56  -1 point 

Overall gross profit margins during the first quarter of fiscal 2023 are relatively consistent with the fiscal 2022 have been unfavorably impacted by afirst quarter margins, with the slight decline largely reflecting the shift in net revenues from our Life Science segment’s molecular reagent products, which are some of our highest margin products.segment revenue mix. During both the secondfirst quarter and first six months of fiscal 2022,2023, approximately 36%31% of consolidated net revenues related to saleswere generated from the Life Science segment, the products of molecular reagent products, compared to approximately 44% and 47% during the comparable periods of fiscal 2021, respectively.

Additionally, overallwhich generally generate higher gross profit margins relative to the Diagnostics segment. This compares to the Life Science comprising approximately 62% of consolidated net revenues in the first quarter of fiscal 2022 have been unfavorably impacted in our2022.

Page 23


In addition, Diagnostics segment gross profit margins were favorably impacted by the previously discussed LeadCareresumption of blood chemistry product recall (see “Lead Testing Matters” above) and production capacity

ramp-up
costs at our Cincinnati and Quebec Revogene manufacturing facilities.
Page 23

Operating Expenses – Segment Detail and Corporate
   
Three Months Ended March 31,
 
   
Research &
Development
   
Selling &
Marketing
   
General &
Administrative
   
Other
  
Total Operating
Expenses
 
Fiscal 2021:
 
Diagnostics
  $5,478  $5,220  $6,333  $(2,989 $14,042
Life Science
   587   1,320   3,141   —    5,048
Corporate
   —     —     3,451   1,030  4,481
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total Expenses (2021 Quarter)
  $6,065  $6,540  $12,925  $(1,959 $23,571
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Fiscal 2022:
 
Diagnostics
  $5,072  $5,678  $8,326  $—    $19,076
Life Science
   619   1,836   4,985   68  7,508
Corporate
   —     —     5,244   508  5,752
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total Expenses (2022 Quarter)
  $5,691  $7,514  $18,555  $576 $32,336
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
   
Six Months Ended March 31,
 
   
Research &
Development
   
Selling &
Marketing
   
General &
Administrative
   
Other
  
Total Operating
Expenses
 
Fiscal 2021:
 
Diagnostics
  $10,548  $10,948  $11,857  $(1,942 $31,411
Life Science
   1,168   2,613   6,663   —    10,444
Corporate
   —     —     6,343   2,257  8,600
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total Expenses (2021
Year-to-Date)
  $11,716  $13,561  $24,863  $315 $50,455
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Fiscal 2022:
 
Diagnostics
  $10,628  $11,687  $14,620  $—    $36,935
Life Science
   1,257   3,568   9,061   68  13,954
Corporate
   —     —     9,534   789  10,323
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total Expenses (2022
Year-to-Date)
  $11,885  $15,255  $33,215  $857 $61,212
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Compared to the prior year periods, operating expenses increased $8,765 to $32,336sales in the second quarter of fiscal 2022 and increased $10,757 to $61,212(see “Diagnostics Segment Products” above). This resulted in $4,620 of net revenues from sales of such products in the first six monthsquarter of fiscal 2022.2023, compared to only $78 in the fiscal 2022 first quarter.

Operating Expenses – Segment Detail and Corporate

   Research &
Development
   Selling &
Marketing
   General &
Administrative
   Other   Total
Operating
Expenses
 

Fiscal 2023 First Quarter:

 

Diagnostics

  $5,230  $6,280  $6,010  $—     $17,520

Life Science

   947   2,014   2,418   28   5,407

Corporate

   —     —     2,645   34,048   36,693
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total 2023 First Quarter Expenses

  $6,177  $8,294  $11,073  $34,076  $59,620
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fiscal 2022 First Quarter:

 

Diagnostics

  $5,556  $6,009  $6,294  $—     $17,859

Life Science

   638   1,732   4,076   —     6,446

Corporate

   —     —     4,290   281   4,571
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total 2022 First Quarter Expenses

  $6,194  $7,741  $14,660  $281  $28,876
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Compared to the prior year first quarter, operating expenses increased $30,744 to $59,620 in the first quarter of fiscal 2023. Major components of these increasesthis increase were as follows:

Increased Selling & Marketing

A $32,607 increase in litigation and select legal costs, in bothreflected within Corporate and primarily related to the Diagnosticspreviously discussed LeadCare legal matter (see “Lead Testing Matters” above); 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;
Increased General & Administrative costs, primarily reflecting the combined effects of additional investment

A $1,188 increase in acquisition and transaction related costs, primarily within Corporate and related to the previously discussed merger (see “Agreement and Plan of Merger” above).

Partially offsetting these increases was a $2,124 decrease in incentive compensation expense across both segments, tied to the Company’s financial performance, the timingperformance.

Operating Income (Loss)

An operating loss of certain outside services costs and increased commercial insurance costs for Directors & Officers and Property & Casualty coverages; and

A $2,989 and $1,942 year-over-year increase in net expense within our Diagnostics segment resulting from adjustments to the fair value
of acquisition consideration
$28,115 was generated in the second quarter and first six months of fiscal 2021, respectively.
Offsetting these increases was lower spending on selected legal costs.
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Operating Income
Compared to the prior year periods, operating income increased 6% to $36,141 in the second quarter of fiscal 2022 and decreased 18%2023, compared to $56,424 for$20,283 of operating income during the first six monthsquarter of fiscal 2022, as a2022. These operating income (loss) levels result offrom the factors discussed above.

Income Taxes

The effective tax rate has remained relatively consistent throughout the periods presented, at approximately 21%for income taxes was (2%) and 22% for the three and six months ended MarchDecember 31, 2022 respectively, and approximately 20% and 21%2021, respectively. The negative effective rate for the three and six months ended MarchDecember 31, 2021, respectively.

2022 relates primarily to the anticipated non-deductibility of the previously discussed LeadCare legal matter (see “Lead Testing Matters” above).

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 (loss) in the secondfirst quarter or first six months of fiscal 20222023 or fiscal 2021.2022.

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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 $175,000 as of MarchDecember 31, 2022.2022 (see Note 18, “Subsequent Events” of the Condensed Consolidated Financial Statements for a discussion of activities related to the Company’s bank credit arrangements occurring subsequent to the December 31, 2022 Condensed Consolidated Balance Sheet date). 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 MarchDecember 31, 2022, our cash and cash equivalents balance was $76,487, an increase of $26,716 compared to$74,098 or $7,355 lower than at September 30, 2021.2022. This net increasedecrease primarily results from:primarily from the combined effects of: (i) generating $65,972$2,349 of cash flow from operations, an increase of 59% over the first six months of fiscal 2021;used in operations; and (ii) the use ofusing cash to pay down $35,000 onacquire property, plant and equipment ($2,654) and the revolving credit facility.

assets of Estel Biosciences, Inc. ($2,000) (see Note 6, “Business Combinations” of the Condensed Consolidated Financial Statements).

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 $45,000$41,800 at MarchDecember 31, 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. TheAs of December 31, 2022, the Company alsowas in compliance with all covenants. In addition, as of December 31, 2022, Meridian maintains a shelf registration statement on file with the SEC.
See Note 18, “Subsequent Events” of the Condensed Consolidated Financial Statements for a discussion of activities related to the Company’s bank credit arrangements and public company status occurring subsequent to the December 31, 2022 Condensed Consolidated Balance Sheet date.

During fiscal 2022,2023 our capital expenditures are estimated to total approximately $15,500,$10,000, comprised of approximately $12,500$6,500 and $3,000$3,500 in the Diagnostics and Life Science segments, respectively. Included within the Diagnostics segment capital expenditures estimate is approximately $9,600 related to completion of the manufacturing capacity

Page 25

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”
of the Condensed Consolidated Financial Statements for further discussion).

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 secondfirst quarter and first six months of fiscal 2022,2023, royalty expense totaled approximately $900$150, with 70% and $1,700, respectively, with 30% and 70% of such expense relating to our Diagnostics and Life Science segments, respectively, during both periods.respectively. This compares to a total of approximately $2,700 and $3,200$800 of royalty expense in the secondfirst quarter and first six months of fiscal 2021, respectively,2022, with the Diagnostics/35% and 65% relating to our Diagnostics and Life Science segment split of such revenues equating to approximately 15/85 and 20/80 in the second quarter and first six months of fiscal 2021,segments, respectively. The Company expects that payments under these agreements will amount to approximately $3,000$700 in fiscal 2023, a decrease from the $2,300 in fiscal 2022, awith the anticipated decrease largely resulting from $5,200 inthe last of the licensed patents applicable to the Alethia product line having expired during fiscal 2021.2022.

Page 25


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 MarchDecember 31, 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, 2021,2022, filed with the SEC on November 23, 2021.
22, 2022.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rules

13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of MarchDecember 31, 2022. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of 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 26

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 MarchDecember 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Page 26


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 forth in this report, careful consideration should be given to the factors discussed in Item 1A, “Risk Factors” in our Annual Report on Form

10-K
for the year ended September 30, 2021,2022, filed with the SEC on November 23, 2021,22, 2022, as may be supplemented by our Quarterly Reports on Form
10-Q,
any or all of which could materially affect our business, financial condition or future results. The risks described therein are not the only risks facing us. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may adversely affect our business, financial condition and/or operating results. There have been no material changes with respect to the risk factors disclosed in our Annual Report on Form
10-K
for the year ended September 30, 2021,2022, filed with the SEC on November 23, 2021,22, 2022, as may be supplemented by our Quarterly Reports on Form
10-Q,
except that the following risk factor related to the Company’s supply chain management is amended as follows:
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 our future 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 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.
Page 27

Table of Contents
10-Q.

ITEM 6. EXHIBITS

The following exhibits are being filed or furnished as a part of this Quarterly Report on Form

10-Q:

10.1*Andrew S. Kitzmiller Meridian Offer Letter, dated February 8, 2022 (Incorporated by reference to Meridian’s Form 8-K filed with the SEC on February 22, 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 Chief FinancialPrincipal Accounting Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS  Inline XBRL Instance Document
101.SCH  Inline XBRL Instance Extension Schema
101.CAL  Inline XBRL Instance Extension Calculation Linkbase
101.DEF  Inline XBRL Instance Extension Definition Linkbase
101.LAB  Inline XBRL Instance Extension Label Linkbase
101.PRE  Inline XBRL Instance Extension Presentation Linkbase
104  Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Page 27


*
Management Compensatory Contracts

SIGNATURES

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:

May 6, 2022
February 9, 2023

  By: 

/s/ Andrew S. Kitzmiller

   Andrew S. Kitzmiller
   

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

Date:

May 6, 2022
February 9, 2023

  By: 

/s/ Julie Smith

   Julie Smith
   

Senior Vice President and Controller

(Principal Accounting Officer)

Page 28