Meridian Bioscience (VIVO) 10-Q 2019 Q2 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2019

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission filenumber    0-14902

MERIDIAN BIOSCIENCE, INC.

Incorporated under the laws of Ohio

31-0888197

(I.R.S. Employer Identification No.)

3471 River Hills Drive

Cincinnati, Ohio 45244

(513)271-3700

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 RegulationS-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, anon-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	VIVO	NASDAQ Global Select Market

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding April 30, 2019
Common Stock, no par value	42,628,582

MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM10-Q

		Page(s)
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Operations Three and Six Months Ended March  31, 2019 and 2018		1
	Condensed Consolidated Statements of Comprehensive Income Three and Six Months Ended March 31, 2019 and 2018		2
	Condensed Consolidated Statements of Cash Flows Six Months Ended March  31, 2019 and 2018		3
	Condensed Consolidated Balance Sheets March 31, 2019 and September 30, 2018		4-5
	Condensed Consolidated Statements of Changes in Shareholders’ Equity Three and Six Months Ended March 31, 2019 and 2018		6
	Notes to Condensed Consolidated Financial Statements		7-16
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17-26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		26
Item 4.	Controls and Procedures		26
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		27
Item 1A.	Risk Factors		27
Item 6.	Exhibits		27-28
Signature			28

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form10-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”, “should” 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 expects or anticipates will occur in the future, including, but not limited to, statements relating to per share diluted earnings and revenue, 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 our customers operate, as well as adverse trends in buying patterns from customers, can change expected results. Costs and difficulties in complying with laws and regulations, including those administered by the United States Food and Drug Administration, can result in unanticipated expenses and delays and interruptions to the sale of new and existing products, as can the uncertainty of regulatory approvals and the regulatory process (including the currently ongoing study and other FDA actions regarding the Company’s LeadCare products). The international scope of Meridian’s operations, including changes in the relative strength or weakness of the U.S. dollar and general economic conditions in foreign countries, can impact results and make them difficult to predict. One of Meridian’s growth strategies is the acquisition of companies and product lines. There can be no assurance that additional acquisitions will be consummated or that, if consummated, will be successful and the acquired businesses will be successfully integrated into Meridian’s operations. There may be risks that acquisitions may disrupt operations and may pose potential difficulties in employee retention, and there may be additional risks with respect to Meridian’s ability to recognize the benefits of acquisitions, including potential synergies and cost savings or the failure of acquisitions to achieve their plans and objectives. Meridian cannot predict the outcome of goodwill impairment testing and the impact of possible goodwill impairments on Meridian’s earnings and financial results. Meridian cannot predict the possible impact of U.S. health care legislation enacted in 2010 – the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act – and any modification or repeal of any of the provisions thereof initiated by Congress or the presidential administration, and any similar initiatives in other countries on its results of operations. Efforts to reduce the U.S. federal deficit, breaches of Meridian’s information technology systems, trade wars, increased tariffs, and natural disasters and other events could have a materially adverse effect on Meridian’s results of operations and revenues. In the past, the Company has identified a material weakness in our internal control over financial reporting, which has been remediated, but the Company can make no assurances that a material weakness will not be identified in the future, which if identified and not properly corrected, could materially adversely affect our operations and result in material misstatements in our financial statements. In addition to the factors described in this paragraph, as well as those factors identified from time to time in our filings with the Securities and Exchange Commission, Part I, Item 1A Risk Factors of our most recent Annual Report on Form10-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 our forward-looking statements.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2019			2018			2019			2018
NET REVENUES	$	50,248		$	56,451		$	101,728		$	108,734
COST OF SALES		20,910			21,882			40,818			42,155
GROSS PROFIT		29,338			34,569			60,910			66,579
OPERATING EXPENSES
Research and development		3,816			4,491			7,700			8,895
Selling and marketing		6,911			8,647			14,474			17,461
General and administrative		7,388			8,842			16,286			18,090
Acquisition and restructuring costs		785			3,458			872			4,192
Litigation costs		603			1,453			1,192			2,202
Total operating expenses		19,503			26,891			40,524			50,840
OPERATING INCOME		9,835			7,678			20,386			15,739
OTHER INCOME (EXPENSE)
Interest income		204			90			353			162
Interest expense		(347	)		(379	)		(710	)		(774	)
Other, net		(445	)		(165	)		(306	)		(245	)
Total other income (expense)		(588	)		(454	)		(663	)		(857	)
EARNINGS BEFORE INCOME TAXES		9,247			7,224			19,723			14,882
INCOME TAX PROVISION		2,153			1,936			4,523			3,292
NET EARNINGS	$	7,094		$	5,288		$	15,200		$	11,590
BASIC EARNINGS PER COMMON SHARE	$	0.17		$	0.12		$	0.36		$	0.27
DILUTED EARNINGS PER COMMON SHARE	$	0.17		$	0.12		$	0.35		$	0.27
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC		42,496			42,323			42,472			42,289
EFFECT OF DILUTIVE STOCK OPTIONS AND RESTRICTED SHARE UNITS		450			409			453			404
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED		42,946			42,732			42,925			42,693
ANTI-DILUTIVE SECURITIES:
Common share options and restricted share units		771			1,021			742			1,015
DIVIDENDS DECLARED PER COMMON SHARE	$	0.125		$	0.125		$	0.250		$	0.250

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 1

MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(dollar amounts in thousands)

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2019			2018			2019			2018
NET EARNINGS	$	7,094		$	5,288		$	15,200		$	11,590
Other comprehensive income (loss):
Foreign currency translation adjustment		377			926			(339	)		1,217
Unrealized gain (loss) on cash flow hedge		(310	)		424			(887	)		765
Income taxes related to items of other comprehensive income		78			(107	)		223			(219	)
Other comprehensive income (loss), net of tax		145			1,243			(1,003	)		1,763
COMPREHENSIVE INCOME	$	7,239		$	6,531		$	14,197		$	13,353

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 2

MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(dollar amounts in thousands)

Six Months Ended March 31,	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	15,200		$	11,590
Non-cash items included in net earnings:
Depreciation of property, plant and equipment		2,562			2,236
Amortization of intangible assets		1,658			1,883
Amortization of deferred instrument costs		—			401
Stock-based compensation		2,368			1,975
Deferred income taxes		(677	)		(1,576	)
Change in:
Accounts receivable		(951	)		(4,185	)
Inventories		832			(2,370	)
Prepaid expenses and other current assets		286			754
Accounts payable and accrued expenses		(1,267	)		3,746
Income taxes payable		1,108			(775	)
Other, net		(149	)		160
Net cash provided by operating activities		20,970			13,839
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment		(2,113	)		(2,160	)
Net cash used for investing activities		(2,113	)		(2,160	)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid		(10,612	)		(10,577	)
Payments on term loan		(2,250	)		(2,250	)
Proceeds and tax benefits from exercises of stock options		524			—
Net cash used for financing activities		(12,338	)		(12,827	)
Effect of Exchange Rate Changes on Cash and Equivalents and Restricted Cash		(185	)		476
Net Increase (Decrease) in Cash and Equivalents and Restricted Cash		6,334			(672	)
Cash and Equivalents and Restricted Cash at Beginning of Period		60,763			58,072
Cash and Equivalents and Restricted Cash at End of Period	$	67,097		$	57,400
Cash and Equivalents	$	66,097		$	56,400
Restricted Cash		1,000			1,000
Cash and Equivalents and Restricted Cash at End of Period	$	67,097		$	57,400

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 3

MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(dollar amounts in thousands)

ASSETS

	March 31, 2019 (Unaudited)		September 30, 2018
CURRENT ASSETS
Cash and equivalents	$	66,097	$	59,763
Accounts receivable, less allowances of $437 and $310		33,031		32,336
Inventories		40,866		41,993
Prepaid expenses and other current assets		4,671		4,961
Total current assets		144,665		139,053
PROPERTY, PLANT AND EQUIPMENT, at Cost
Land		1,155		1,160
Buildings and improvements		32,454		32,444
Machinery, equipment and furniture		60,394		50,606
Construction in progress		1,806		1,631
Subtotal		95,809		85,841
Less: accumulated depreciation and amortization		65,039		55,846
Net property, plant and equipment		30,770		29,995
OTHER ASSETS
Goodwill		54,642		54,637
Other intangible assets, net		21,452		23,113
Restricted cash		1,000		1,000
Deferred instrument costs, net		—		1,239
Fair value of interest rate swap		835		1,722
Deferred income taxes		110		130
Other assets		490		488
Total other assets		78,529		82,329
TOTAL ASSETS	$	253,964	$	251,377

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, 2019 (Unaudited)			September 30, 2018
CURRENT LIABILITIES
Accounts payable	$	7,838		$	6,260
Accrued employee compensation costs		5,357			7,263
Other accrued expenses		3,724			5,065
Current portion of long-term debt		6,000			5,250
Income taxes payable		1,163			335
Total current liabilities		24,082			24,173
NON-CURRENT LIABILITIES
Post-employment benefits		2,476			2,646
Long-term debt		41,946			44,930
Long-term income taxes payable		736			441
Deferred income taxes		3,079			3,769
Totalnon-current liabilities		48,237			51,786
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, 42,515,142 and 42,399,962 shares issued, respectively		—			—
Additionalpaid-in capital		131,951			129,193
Retained earnings		54,074			49,602
Accumulated other comprehensive loss		(4,380	)		(3,377	)
Total shareholders’ equity		181,645			175,418
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	253,964		$	251,377

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, except per share data)

	Common Shares Issued		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
THREE MONTHS ENDED MARCH 31, 2019
Balance at December 31, 2018		42,489	$	130,876	$	52,291		$	(4,525	)	$	178,642
Cash dividends paid - $0.125 per share		—		—		(5,311	)		—			(5,311	)
Conversion of restricted share units and exercise of stock options		26		377		—			—			377
Stock compensation expense		—		698		—			—			698
Net earnings		—		—		7,094			—			7,094
Foreign currency translation adjustment		—		—		—			377			377
Hedging activity, net of tax		—		—		—			(232	)		(232	)
Balance at March 31, 2019		42,515	$	131,951	$	54,074		$	(4,380	)	$	181,645
THREE MONTHS ENDED MARCH 31, 2018
Balance at December 31, 2017		42,307	$	127,367	$	47,937		$	(2,426	)	$	172,878
Cash dividends paid - $0.125 per share		—		—		(5,289	)		—			(5,289	)
Conversion of restricted share units		37		—		—			—			—
Stock compensation expense		—		216		—			—			216
Net earnings		—		—		5,288			—			5,288
Foreign currency translation adjustment		—		—		—			926			926
Hedging activity, net of tax		—		—		—			317			317
Balance at March 31, 2018		42,344	$	127,583	$	47,936		$	(1,183	)	$	174,336
	Common Shares Issued		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
SIX MONTHS ENDED MARCH 31, 2019
Balance at September 30, 2018		42,400	$	129,193	$	49,602		$	(3,377	)	$	175,418
Cash dividends paid - $0.250 per share		—		—		(10,612	)		—			(10,612	)
Conversion of restricted share units and exercise of stock options		115		390		—			—			390
Stock compensation expense		—		2,368		—			—			2,368
Net earnings		—		—		15,200			—			15,200
Foreign currency translation adjustment		—		—		—			(339	)		(339	)
Hedging activity, net of tax		—		—		—			(664	)		(664	)
Adoption of ASU2014-09		—		—		(116	)		—			(116	)
Balance at March 31, 2019		42,515	$	131,951	$	54,074		$	(4,380	)	$	181,645
SIX MONTHS ENDED MARCH 31, 2018
Balance at September 30, 2017		42,207	$	125,608	$	46,923		$	(2,946	)	$	169,585
Cash dividends paid - $0.250 per share		—		—		(10,577	)		—			(10,577	)
Conversion of restricted share units		137		—		—			—			—
Stock compensation expense		—		1,975		—			—			1,975
Net earnings		—		—		11,590			—			11,590
Foreign currency translation adjustment		—		—		—			1,217			1,217
Hedging activity, net of tax		—		—		—			546			546
Balance at March 31, 2018		42,344	$	127,583	$	47,936		$	(1,183	)	$	174,336

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. Basis of Presentation

The interim condensed consolidated financial statements are unaudited and are prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, and the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of Management, the interim financial statements include all normal adjustments and disclosures necessary to present fairly the Company’s financial position as of March 31, 2019, the results of its operations for the three and six month periods ended March 31, 2019 and 2018, and its cash flows for the six month periods ended March 31, 2019 and 2018. These statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s fiscal 2018 Annual Report on Form10-K. Financial information as of September 30, 2018 has been derived from the Company’s audited consolidated financial statements. The results of operations for interim periods are not necessarily indicative of the results to be expected for the year.

2. 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 2018 Annual Report on Form10-K and should be referred to for a description of the Company’s current significant accounting policies, with the exception of Revenue Recognition, which is set forth below.

Revenue Recognition –

Adoption of New Standard

On October 1, 2018, we adopted ASUNo. 2014-09,Revenue from Contracts with Customers, using the modified retrospective transition method applied to those contracts that were not completed as of that date. Results for reporting periods beginning on or after October 1, 2018 are presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previously applicable guidance.

Upon adoption, we recorded a reduction of $116 to the opening balance of retained earnings as of October 1, 2018. This adjustment is related to writing off the book value of clinical diagnostic testing instruments located at customers for which there is no contractual arrangement for the instrument to be returned to the Company. Instruments placed with customers under an agreement to return the instrument to the Company were reclassified to machinery and equipment. Prior to adoption of the new guidance, all instruments placed with customers were capitalized and amortized over an estimated three-year utilization period, with the net balance reflected as deferred instrument costs.

Page 7

The following table summarizes the impact of the new revenue standard on our opening balance sheet:

	Balance at September 30, 2018			New Revenue Standard Adjustment			Balance at October 1, 2018
PROPERTY, PLAN AND EQUIPMENT
Machinery, equipment and furniture	$	50,606		$	8,696		$	59,302
Accumulated depreciation and amortization		(55,846	)		(7,611	)		(63,457	)
OTHER ASSETS
Deferred instrument costs, net		1,239			(1,239	)		—
NON-CURRENT LIABILITIES
Deferred income taxes		(3,769	)		38			(3,731	)
SHAREHOLDERS’ EQUITY
Retained earnings		(49,602	)		116			(49,486	)

The adoption of this new standard had an immaterial impact on our reported total revenues and operating income, as compared to what would have been reported under the prior standard. Our accounting policies under the new standard were applied prospectively and are noted below following the discussion of Revenue Disaggregation.

Revenue Disaggregation

The following tables present our revenues disaggregated by major geographic region, major product platform and disease state (Diagnostics only):

Revenue by Reportable Segment & Geographic Region

	Three Months Ended March 31,							Six Months Ended March 31,
	2019		2018		Inc (Dec)			2019		2018		Inc (Dec)
Diagnostics-
Americas	$	27,278	$	33,351		(18	)%	$	58,425	$	64,926		(10	)%
EMEA		5,535		5,912		(6	)%		10,620		11,327		(6	)%
ROW		687		519		32	%		1,120		1,019		10	%
Total Diagnostics		33,500		39,782		(16	)%		70,165		77,272		(9	)%
Life Science-
Americas		5,453		5,121		6	%		9,975		10,373		(4	)%
EMEA		7,901		7,478		6	%		15,376		12,659		21	%
ROW		3,394		4,070		(17	)%		6,212		8,430		(26	)%
Total Life Science		16,748		16,669		—	%		31,563		31,462		—	%
Consolidated	$	50,248	$	56,451		(11	)%	$	101,728	$	108,734		(6	)%

Page 8

Revenue by Product Platform/Type

	Three Months Ended March 31,							Six Months Ended March 31,
	2019		2018		Inc (Dec)			2019		2018		Inc (Dec)
Diagnostics-
Molecular assays	$	7,132	$	9,976		(29	)%	$	14,434	$	18,692		(23	)%
Immunoassays & blood chemistry assays		26,368		29,806		(12	)%		55,731		58,580		(5	)%
Total Diagnostics	$	33,500	$	39,782		(16	)%	$	70,165	$	77,272		(9	)%
Life Science-
Molecular reagents	$	5,390	$	6,143		(12	)%	$	11,998	$	11,832		1	%
Immunological reagents		11,358		10,526		8	%		19,565		19,630		—	%
Total Life Science	$	16,748	$	16,669		—	%	$	31,563	$	31,462		—	%

Revenue by Disease State (Diagnostics only)

	Three Months Ended March 31,							Six Months Ended March 31,
	2019		2018		Inc (Dec)			2019		2018		Inc (Dec)
Diagnostics-
Gastrointestinal assays	$	16,177	$	19,149		(16	)%	$	34,792	$	39,419		(12	)%
Respiratory illness assays		7,553		9,543		(21	)%		15,534		17,029		(9	)%
Blood chemistry assays		4,330		4,257		2	%		8,760		8,523		3	%
Other		5,440		6,833		(20	)%		11,079		12,301		(10	)%
Total Diagnostics	$	33,500	$	39,782		(16	)%	$	70,165	$	77,272		(9	)%

Revenue Policies

Product Sales

Revenue from contracts with customers is recognized in an amount that reflects the consideration we expect to receive in exchange for products when obligations under such contracts are satisfied. Revenue is generally recognized at apoint-in-time when products are shipped and title has passed to the customer. Such contracts can include various combinations of products that are generally accounted for as distinct performance obligations.

Revenue is reduced in the period of sale for fees paid to distributors, which are inseparable from the distributor’s purchase of our product and for which we receive no goods or services in return. Revenue for the Diagnostics segment is reduced at the date of sale for product price adjustments due to certain distributors under local contracts. Management estimates accruals for distributor price adjustments based on local contract terms, sales data provided by distributors, historical statistics, current trends, and other factors. Changes to the accruals are recorded in the period that they become known. Such accruals are netted against accounts receivable.

Shipping and handling costs incurred after control of the product is transferred to our customers are treated as fulfillment costs and not a separate performance obligation.

Our payment terms differ by jurisdiction and customer but payment is generally required in a term ranging from 30 to 90 days from the date of shipment or satisfaction of the performance obligation. Trade accounts receivable are recorded in the accompanying Consolidated Balance Sheets at invoiced amounts less provisions for distributor price adjustments under local contracts and doubtful accounts. The allowance for doubtful accounts represents our estimate of probable credit losses and is based on historicalwrite-off experience and known conditions that would likely lead tonon-payment. Customer invoices are charged off against the allowance when we believe it is probable that the invoices will not be paid.

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Practical Expedients and Exemptions

Revenue is recognized net of any taxes collected from customers (sales tax, value added tax, etc.), which are subsequently remitted to government authorities.

Our products are generally not subject to a customer right of return except for product recall events under the rules and regulations of the Food and Drug Administration or equivalent agencies outside the United States. In this circumstance, the costs to replace affected products would be accrued at the time a loss was probable and estimable.

We expense as incurred the costs to obtain contracts, as the amortization period would have been one year or less. These costs, recorded within selling and marketing expense, include our internal sales force compensation programs and certain partner sales incentive programs, as we have determined that annual compensation is commensurate with annual selling activities.

Reagent Rental Arrangements

Our Alethia and LeadCare product platforms require the use of instruments for the tests to be processed. In many cases, a customer is given use of the instrument provided they continue purchasing the associated tests, also referred to as “consumables” or “reagents”. If a customer stops purchasing the consumables, the instrument must be returned to Meridian. Such arrangements are common practice in the diagnostics industry and are referred to as “Reagent Rental” agreements. These agreements may also include instrument related services such as a limited replacement warranty, training and installation. We concluded that the use of the instrument and related services (collectively known as “lease elements”) are not within the scope of ASUNo. 2014-09 but rather ASU2016-02,Leases. Accordingly, we first allocate the transaction price between the lease elements and thenon-lease elements based on estimates of relative standalone selling prices. Lease revenue is derived solely from the sale of consumables and is therefore recognized monthly as earned, which coincides with the transfer of control of thenon-lease elements.

For the portion of the transaction price allocated to thenon-lease elements, which are principally the test kits, the related revenue will be recognized at apoint-in-time when control transfers.

Revenue allocated to the lease elements of these Reagent Rental arrangements represent less than 1% of total revenue and are included as part of net revenues in our Condensed Consolidated Statements of Income.

Recent Accounting Pronouncements –

In February 2016, the FASB issued ASU2016-02,Leases, which amends the accounting guidance related to leases. These changes, which are designed to increase transparency and comparability among organizations for both lessees and lessors, include, among other things, requiring recognition of lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. Adoption and implementation of the guidance is not required by the Company until the beginning of fiscal 2020, although early adoption is permitted. During the second quarter of fiscal 2019, the Company commenced the process of gathering and summarizing its corporate-wide lease information in order to assess the impact that adoption of this guidance will have on its financial statements.

In August 2016, the FASB issued ASU2016-15,Classification of Certain Cash Receipts and Cash Payments. The update addresses certain specific cash flows and their treatment, with the objective being to reduce the existing diversity in how the items are presented and classified within the statement of cash flows. The Company adopted this guidance in the first quarter of fiscal 2019, with the Condensed Consolidated Statements of Cash Flows reflecting such adoption, including the information related to restricted cash.

In February 2018, the FASB issued ASU2018-02,Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, to address certain of the recent U.S. federal income tax legislation’s impact on Accumulated Other Comprehensive Income (“AOCI”). The guidance specifically provides the option of reclassifying “stranded tax effects” related to the tax legislation from AOCI to retained earnings. Adoption and implementation of the optional guidance is not effective for the Company until the beginning of fiscal 2020, although early adoption is permitted. The Company plans to adopt this guidance in fiscal 2020 as required but does not expect adoption to have a significant impact on the Company’s consolidated results of operations, cash flows or financial position.

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Reclassifications –

Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. Such reclassifications had no impact on net earnings or shareholders’ equity.

3. Cash and Equivalents

Cash and equivalents include the following components:

	March 31, 2019				September 30, 2018
	Cash and Equivalents		Other Assets		Cash and Equivalents		Other Assets
Institutional money market funds	$	20,668	$	—	$	20,421	$	—
Cash on hand -
Restricted		—		1,000		—		1,000
Unrestricted		45,429		—		39,342		—
Total	$	66,097	$	1,000	$	59,763	$	1,000

4. Inventories

Inventories are comprised of the following:

	March 31, 2019		September 30, 2018
Raw materials	$	7,473	$	6,689
Work-in-process		11,810		12,098
Finished goods - instruments		965		1,191
Finished goods - kits and reagents		20,618		22,015
Total	$	40,866	$	41,993

5. Intangible Assets

A summary of our acquired intangible assets subject to amortization, as of March 31, 2019 and September 30, 2018, is as follows:

	March 31, 2019				September 30, 2018
	Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization
Manufacturing technologies, core products and cell lines	$	22,298	$	14,571	$	22,297	$	13,974
Trade names, licenses and patents		8,647		5,717		8,647		5,267
Customer lists, customer relationships and supply agreements		24,463		13,668		24,461		13,051
Total	$	55,408	$	33,956	$	55,405	$	32,292

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The actual aggregate amortization expense for these intangible assets was $829 and $945 for the three months ended March 31, 2019 and 2018, respectively, and $1,658 and $1,883 for the six months ended March 31, 2019 and 2018, respectively. The estimated aggregate amortization expense for these intangible assets for each of the fiscal years through fiscal 2024 is as follows: remainder of fiscal 2019 – $1,664, fiscal 2020 – $3,165, fiscal 2021 – $2,560, fiscal 2022 – $2,182, fiscal 2023 – $2,170, and fiscal 2024 – $2,166.

6. Restructuring

During the second quarter of fiscal 2018, the Company began implementation of a plan to realign its business structure into two business units, Diagnostics and Life Science, supported by a global corporate team. As part of this plan, certain functions and locations within both business units were streamlined, including: (i) the elimination of certain executive management and commercial sales positions; (ii) the closing of Life Science locations in Taunton, Massachusetts and Singapore, the operations of which were transferred to locations in Memphis, Tennessee and London, England, respectively; and (iii) the transfer of certain functions performed in the Billerica, Massachusetts Diagnostics facility to the corporate headquarters in Cincinnati, Ohio. As a result of these activities, restructuring costs totaling $6,332 were recorded during the fiscal year ended September 30, 2018.

During the second quarter of fiscal 2019, approximately $270 of restructuring accrual was reversed and is reflected as a reduction of the Acquisition and Restructuring Costs within the Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2019. A summary of the accrued liability associated with the restructuring costs as of March 31, 2019 and September 30, 2018, is as follows:

	March 31, 2019		September 30, 2018
Severance, other termination benefits and related costs	$	78	$	987
Lease and other contract termination fees		—		33
Other		—		6
Total	$	78	$	1,026

7. Income Taxes

On December 22, 2017, the United States enacted tax reform legislation commonly known as the Tax Cuts and Jobs Act (the “tax reform act”). In applying the tax reform act during the three months ended December 31, 2017, we followed the guidance in SEC Staff Accounting Bulletin 118 (“SAB 118”), regarding the application of ASC Topic 740 in situations where a company does not have the necessary information available, prepared or analyzed in reasonable detail to complete the accounting for certain income tax effects of the tax reform act for the reporting period in which the tax reform act was enacted. SAB 118 provides for a measurement period beginning in the reporting period that includes the tax reform act’s enactment date and ending when a company has obtained, prepared and analyzed the information needed in order to complete the accounting requirements, but in no circumstances should the measurement period extend beyond one year from the enactment date.

As a result, our financial statements for the three months ended December 31, 2017 reflected the effects of the tax reform act as provisional based on a reasonable estimate of the income tax effects and included a provisional noncurrent income tax payable in the amount of $854 related to the repatriation transition tax. Subsequent to the quarter ended December 31, 2017 and prior to September 30, 2018, we completed the accounting for the effects of the tax reform act. As a result, our repatriation transition tax liability was increased to $876, which is reflected as follows in the accompanying Condensed Consolidated Balance as of March 31, 2019, after our having recently paid the amount estimated for fiscal 2018: $65 of current income taxes payable and $736 long-term income taxes payable.

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In addition, during the three months ended December 31, 2017 we recorded aone-time tax benefit of $1,695 resulting from the tax reform act, including an adjustment from there-measurement of deferred tax assets and liabilities. Thisre-measurement included an estimate of the temporary differences expected to be realized during fiscal 2018 at a transitional blended rate of 24.5%. The remaining temporary differences werere-measured at 21%.

8. Bank Credit Arrangements

In March 2016, the Company entered into a $60,000 five-year term loan with a commercial bank. The term loan requires quarterly principal and interest payments, with interest at a variable rate tied to LIBOR, and a balloon principal payment due March 31, 2021. The required principal payments on the term loan for each of the remaining fiscal years are as follows: remainder of fiscal 2019 - $3,000, fiscal 2020 - $6,000, and fiscal 2021 - $39,000. In light of the term loan’s interest being determined on a variable rate basis, the fair value of the term loan at March 31, 2019 approximates the current carrying value reflected in the accompanying Condensed Consolidated Balance Sheet.

In order to limit exposure to volatility in the LIBOR interest rate, the Company and the commercial bank also entered into an interest rate swap that effectively converts the variable interest rate on the term loan to a fixed rate of 2.76%. With an initial notional balance of $60,000, the interest rate swap was established with critical terms identical to those of the term loan, including: (i) notional reduction amounts and dates; (ii) LIBOR settlement rates; (iii) rate reset dates; and (iv) term/maturity. Due to this, the interest rate swap has been designated as an effective cash flow hedge, with changes in fair value reflected as a separate component of other comprehensive income in the accompanying Condensed Consolidated Statements of Comprehensive Income. At March 31, 2019 and September 30, 2018, the fair value of the interest rate swap was $835 and $1,722, respectively, and is reflected as anon-current asset in the accompanying Condensed Consolidated Balance Sheets. This fair value was determined by information provided by the counterparty, and is considered a Level 2 input within the fair value hierarchy of valuation techniques.

In addition, the Company maintains a $30,000 revolving credit facility with a commercial bank, which expires March 31, 2021. There were no borrowings outstanding on this credit facility at March 31, 2019 or September 30, 2018.

The term loan and the revolving credit facility are collateralized by the business assets of the Company’s U.S. subsidiaries and require 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 borrowing agreement. As of March 31, 2019, the Company is in compliance with all covenants. The Company is also required to maintain a compensating cash balance with the bank in the amount of $1,000, and is in compliance with this requirement.

See Note 12,“Subsequent Event”.

9. Reportable Segments and Major Customers Information

Meridian was formed in 1976 and functions as a fully-integrated life science company with principal businesses in: (i) the development, manufacture, sale and distribution of diagnostic test kits, primarily for certain gastrointestinal and respiratory infectious diseases, and elevated blood lead levels; and (ii) the manufacture and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, competent cells, and bioresearch reagents used by researchers and other diagnostic manufacturers.

Our reportable segments are Diagnostics and Life Science. The Diagnostics segment consists of manufacturing operations for infectious disease products in Cincinnati, Ohio, manufacturing operations for blood chemistry products in Billerica, Massachusetts (near Boston), and the sale and distribution of diagnostics products domestically and abroad. This segment’s products are used by hospitals, reference labs and physician offices to detect infectious diseases and elevated lead levels in blood.

The Life Science segment consists of manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; London, England; and Luckenwalde, Germany, and the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, competent cells, and bioresearch reagents domestically and abroad, including a sales and business development facility in Beijing, China to further 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-gen sequencing, plant genotyping, and mutation detection, among others).

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Amounts due from two Diagnostics distributor customers accounted for 14% and 12% of consolidated accounts receivable at March 31, 2019 and September 30, 2018, respectively. Revenues from these two distributor customers accounted for 25% and 27% of the Diagnostics segment third-party revenues during the three months ended March 31, 2019 and 2018, respectively, and 30% during each of the six month periods ended March 31, 2019 and 2018. These distributors represented 17% and 19% of consolidated revenues for the fiscal 2019 and 2018 second quarters, respectively, and 21% for each of the respectiveyear-to-date six month periods.

Within our Life Science segment, two diagnostic manufacturing customers accounted for 27% and 22% of the segment’s third-party revenues during the three months ended March 31, 2019 and 2018, respectively, and 27% and 19% during the six months ended March 31, 2019 and 2018, respectively.

Segment information for the interim periods is as follows:

	Diagnostics		Life Science		Corporate(1)			Eliminations(2)			Total
Three Months Ended March 31, 2019
Net revenues -
Third-party	$	33,500	$	16,748	$	—		$	—		$	50,248
Inter-segment		89		53		—			(142	)		—
Operating income		7,561		5,361		(3,101	)		14			9,835
Goodwill (March 31, 2019)		35,213		19,429		—			—			54,642
Other intangible assets, net (March 31, 2019)		20,705		747		—			—			21,452
Total assets (March 31, 2019)		183,234		70,152		—			578			253,964
Three Months Ended March 31, 2018
Net revenues -
Third-party	$	39,782	$	16,669	$	—		$	—		$	56,451
Inter-segment		80		75		—			(155	)		—
Operating income		10,684		3,638		(6,723	)		79			7,678
Goodwill (September 30, 2018)		35,213		19,424		—			—			54,637
Other intangible assets, net (September 30, 2018)		22,068		1,045		—			—			23,113
Total assets (September 30, 2018)		180,978		70,341		—			58			251,377
Six Months Ended March 31, 2019
Net revenues -
Third-party	$	70,165	$	31,563	$	—		$	—		$	101,728
Inter-segment		252		229		—			(481	)		—
Operating income		16,346		10,492		(6,493	)		41			20,386
Six Months Ended March 31, 2018
Net revenues -
Third-party	$	77,272	$	31,462	$	—		$	—		$	108,734
Inter-segment		201		267		—			(468	)		—
Operating income		19,310		6,580		(10,334	)		183			15,739

(1) Includes Acquisition, Restructuring and Litigation Costs of $1,488 and $4,911 in the three months ended March 31, 2019 and 2018, respectively, and $2,164 and $6,394 in the six months ended March 31, 2019 and 2018, respectively.

(2) Eliminations consist of inter-segment transactions.

Transactions between segments are accounted for at established intercompany prices for internal and management purposes, with all intercompany amounts eliminated in consolidation.

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10. Litigation Matters

On November 15, 2017, Barbara Forman filed a class action complaint in the United States District Court for the Southern District of Ohio naming Meridian, its Chief Executive Officer and Chief Financial Officer (in their capacities as such) as defendants. An amended complaint was filed on April 16, 2018 and the Company believes the essential elements of the amended complaint are the same. The complaint and the amended complaint are hereafter referred to as the “Complaint”. The Complaint seeks compensatory damages and attorneys’ fees. On February 13, 2019 the Court granted Meridian’s motion to dismiss and dismissed the Complaint in its entirety. Plaintiff filed a Motion to Reconsider, Set Aside, Alter, Amend, or Vacate the Judgment of dismissal on March 13, 2019. Meridian opposed the Plaintiff’s motion on April 3, 2019 and the Plaintiff filed a reply on April 17, 2019. The motion remains pending before the Court. Accordingly, no provision for litigation losses has been included within either of the accompanying Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2019 or March 31, 2018.

On December 6, 2017, Michael Edelson filed a derivative complaint in the United States District Court for the Southern District of Ohio naming Meridian, its Chief Executive Officer, Chief Financial Officer and certain members of Meridian’s Board of Directors and Audit Committee (in their capacities as such) as defendants. The complaint alleges that Meridian made false and misleading representations concerning certain of Magellan’s lead test systems at or around the time of Meridian’s acquisition of Magellan and subsequent thereto, and the complaint alleges that certain members of the Board of Directors and Audit Committee breached their fiduciary duties in their oversight of the Company’s public disclosures and corporate governance matters. The complaint seeks compensatory damages, equitable relief relating to corporate governance matters and attorneys’ fees. The case has been stayed by agreement of the parties pending resolution of the motion to dismiss the class action described above. We are unable to determine or predict the ultimate outcome or estimate the range of possible losses, if any. Accordingly, no provision for litigation losses has been included within either of the accompanying Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2019 or March 31, 2018.

Approximately $40 of expense for attorneys’ fees related to the above two class action matters is included within the accompanying Condensed Consolidated Statements of Operations for both the three and six months ended March 31, 2019, with approximately $530 and $545 of related expense being reflected within the accompanying Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2018, respectively. The Company maintains an insurance policy covering these matters, which has a $500 deductible.

On April 17, 2018, Magellan received a subpoena from the United States Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlines documents to be produced, and 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 and executing a tolling agreement to extend the statute of limitations. However, the Company cannot predict when the investigation will be resolved, the outcome of the investigation, or its potential impact on the Company. Approximately $560 and $1,100 of expense for attorneys’ fees related to this matter is included within the accompanying Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2019, respectively, with no related expense being reflected within the accompanying Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2018.

On October 9, 2018, the Company and DiaSorin Inc. entered into a strategic collaboration to sell DiaSorin’sHelicobacter pylori stool antigen test to detectH. pylori for use on its automated LIAISON platform under the Meridian brand name worldwide. The new collaboration results in the termination of all pending legal disputes between the two parties and will expand the previous agreement between DiaSorin and Meridian, which focused on the sale, by DiaSorin, ofco-developed products in major countries in continental Europe. Approximately $0 and $50 of expense for attorneys’ fees related to this matter is included within the accompanying Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2019, respectively, and approximately $925 and $1,655 of related expense is included within the accompanying Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2018, respectively.

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11. FDA Matters Related to LeadCare

As previously disclosed, on June 29, 2017, the FDA, in connection with its Safety Notification related to Magellan’s LeadCaretesting systems for venous blood samples, issued to Magellan its Form 483, Inspectional Observations. The FDA issued a related Warning Letter on October 23, 2017. As also previously disclosed, on April 17, 2018, Magellan received a subpoena from the United States Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlines documents to be produced, and we continue to cooperate with the DOJ in this matter, including responding to additional information requests and executing a tolling agreement to extend the statute of limitations.

Magellan submitted 510(k) applications in December 2018, seeking to reinstate venous blood sample-types for its LeadCare^® II, LeadCare^® Plus^™ and LeadCare Ultra^® testing systems. In the second fiscal quarter of 2019 the FDA informed Magellan that each of these 510(k) applications has been put on Additional Information hold. Further, while Magellan’s LeadCare testing systems remain cleared for marketing by the FDA and permitted for use with capillary blood samples, the FDA advised that it has commissioned a third-party study of Magellan’s LeadCare testing systems using both venous and capillary blood samples. According to the FDA, the results of the field study will be used in conjunction with other information to determine whether further action by FDA or the Centers for Disease Control and Prevention is necessary to protect the public health. Meridian intends to fully cooperate with the FDA as FDA completes its third-party study and continues to work to complete remediation actions at Magellan’s blood–chemistry manufacturing facility to the FDA’s full and complete satisfaction.

While we remain confident in the performance of the Magellan LeadCare testing systems, there can be no assurance that the ongoing investigation and study of the DOJ and FDA, respectively, or future exercise of their respective enforcement, regulatory, discretionary or other powers will not result in findings or alleged violations of federal laws that could lead to enforcement actions, proceedings or litigation and the imposition of damages, fines, penalties, restitution, other monetary liabilities, sanctions, settlements or changes to our business practices, product offerings or operations that could have a material adverse effect on our business, financial condition or results of operations; or eliminate altogether our ability to operate our lead testing business, or on terms substantially similar to those on which we currently operate.

See Part II, Item 1A Risk Factors below.

12. Subsequent Event

On April 29, 2019, we signed a definitive agreement to acquire substantially all of the assets, as well as selected liabilities, of GenePOC Inc., a molecular diagnostics company located in Quebec City, Quebec Province, Canada. This purchase will be included in our Diagnostics operating segment. The maximum purchase price is $120,000, which consists of: (i) $50,000 to be paid at closing (subject to a working capital adjustment and a $5,000 hold-back to secure seller’s post-closing obligations); (ii) up to $20,000 to be paid in fiscal 2021, contingent upon the achievement of product development milestones; and (iii) up to $50,000 to be paid in fiscal 2023 based on certain sales and profit margin thresholds to be measured in fiscal 2022. GenePOC’s molecular diagnostics testing system is branded under the name revogene^™, and currently includes threeFDA-cleared assays (C. difficile, Group A Strep and Group B Strep). The purchase is expected to close no later than early fourth quarter fiscal 2019, pending the satisfaction of certain closing conditions.

In connection with the proposed acquisition of GenePOC, we also expect to execute a new five-year $125,000 revolving credit facility that would replace our existing $30,000 credit facility. We expect the new credit facility will be secured by substantially all of our assets and will include certain restrictive financial covenants. We expect to draw down approximately $73,000 from this new facility and use approximately $20,000 of cashon-hand to repay the existing term loan outstanding at March 31, 2019 and fund the closing payment for the acquisition of GenePOC.

Also, our Board of Directors suspended the declaration and payment of quarterly dividends by Meridian to invest in new product development activities for the revogene^™ molecular diagnostics platform, among other investments in the business, and to preserve our capital resources and liquidity for general corporate purposes.

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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 Form10-Q. In the discussion that follows, all dollar amounts are in thousands (both tables and text), except per share data.

Following is a discussion and analysis of the financial statements and other statistical data that management believes will enhance the understanding of Meridian’s financial condition, changes in financial condition and results of operations. Unless otherwise noted, increases or decreases are measured over the corresponding period of the prior fiscal year. This discussion should be read in conjunction with the financial statements and notes thereto beginning on page 1.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2019

Net earnings for the second quarter of fiscal 2019 increased 34% to $7,094, or $0.17 per diluted share, from net earnings for the second quarter of fiscal 2018 of $5,288, or $0.12 per diluted share. The fiscal 2019 second quarter results include $1,388 of costs associated with acquisition and restructuring activities, and litigation costs, while the fiscal 2018 second quarter results include $4,911 of costs associated with restructuring activities and litigation costs. These items had a combined impact on net earnings of $1,065, or $0.02 per diluted share, in the fiscal 2019 quarter and $3,575, or $0.08 per diluted share, in the fiscal 2018 quarter (see “USE OFNON-GAAP MEASURES” below). Consolidated revenues for the second quarter of fiscal 2019 totaled $50,248, a decrease of 11% compared to the second quarter of fiscal 2018 (10% decrease on a constant-currency basis).

Revenues for the Diagnostics segment for the second quarter of fiscal 2019 decreased 16% compared to the second quarter of fiscal 2018 (15% on a constant-currency basis), comprised of a 29% decrease in molecular assay products and a 12% decrease in immunoassay and blood chemistry assay products. With a 12% decrease in its molecular reagents products and an 8% increase in its immunological reagents products, revenues for our Life Science segment were flat during the second quarter of fiscal 2019 compared to the second quarter of fiscal 2018. On a constant-currency basis, revenues for the Life Science segment increased 2%.

The second quarter Diagnostics revenues reflect modest growth in our blood chemistry assay product line being more than offset by decreased revenues for our gastrointestinal and respiratory assays. Life Science revenues reflect inconsistent buying patterns with a number of our multi-national IVD manufacturing customers and general market softness in China.

Six Months Ended March 31, 2019

For the six month period ended March 31, 2018, net earnings were $15,200, or $0.35 per diluted share. Theyear-to-date fiscal 2019 results include $2,064 of costs associated with acquisition and restructuring activities, and litigation costs, while the comparable fiscal 2018 results include $6,394 of costs associated with restructuring activities and litigations costs, along with certainone-time tax effects of the U.S. tax reform act enacted in December 2017. These items had a combined impact on net earnings of $1,583, or $0.04 per diluted share, in the fiscal 2019year-to-date period and $3,814, or $0.09 per diluted share, in the comparable fiscal 2018 period (see “USE OFNON-GAAP MEASURES” below). Consolidated revenues decreased 6% to $101,728 for the first six months of fiscal 2019 compared to the same period of the prior year (also 6% on a constant-currency basis). On an operating segment basis, Diagnostics revenues decreased 9% (also 9% in constant-currency) and Life Science revenues were flat (2% increase in constant-currency).

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USE OFNON-GAAP MEASURES

We have supplemented our reported GAAP financial information with information on operating expenses, operating income, net earnings, basic earnings per share and diluted earnings per share excluding the effects of: (i) acquisition transaction costs (fiscal 2019); (ii) restructuring costs (fiscal 2019 and 2018); (iii) litigation costs (fiscal 2019 and 2018); and (iv) certainone-time tax effects of the tax reform act (fiscal 2018) – each of which is anon-GAAP measure. We have provided in the tables below reconciliations to the operating expenses, operating income, net earnings, basic earnings per share and diluted earnings per share amounts reported under U.S. Generally Accepted Accounting Principles. We believe that this information is useful to those who read our financial statements and evaluate our operating results because:

1) These measures help to appropriately evaluate and compare the results of operations from period to period by removing the impacts of thesenon-routine items; and

2) These measures are used by our management for various purposes, including evaluating performance against incentive bonus achievement targets, comparing performance from period to period in presentations to our board of directors, and as a basis for strategic planning and forecasting.

Revenue reported on a constant-currency basis is also anon-GAAP measure and is calculated by applying current period average foreign currency exchange rates to each of the prior comparable periods. Management analyzes revenue on a constant-currency basis to better measure the comparability of results between periods. Because changes in foreign currency exchange rates have anon-operating impact on revenue, management believes that evaluating revenue changes on a constant-currency basis provides an additional and meaningful assessment of revenue to both management and investors.

Thesenon-GAAP measures may be different fromnon-GAAP measures used by other companies. In addition, thesenon-GAAP measures are not based on any comprehensive set of accounting rules or principles.Non-GAAP measures have limitations, in that they do not reflect all amounts associated with our results as determined in accordance with U.S. GAAP. Therefore, these measures should only be used to evaluate our results in conjunction with corresponding GAAP measures.

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	Three Months						Six Months
	Ended March 31,						Ended March 31,
	2019			2018			2019			2018
Operating Expenses -
U.S. GAAP basis	$	19,503		$	26,891		$	40,524		$	50,840
Acquisition & restructuring costs		(785	)		(3,458	)		(872	)		(4,192	)
Litigation costs		(603	)		(1,453	)		(1,192	)		(2,202	)
Adjusted Operating Expenses	$	18,115		$	21,980		$	38,460		$	44,446
Operating Income -
U.S. GAAP basis	$	9,835		$	7,678		$	20,386		$	15,739
Acquisition & restructuring costs		785			3,458			872			4,192
Litigation costs		603			1,453			1,192			2,202
Adjusted Operating Income	$	11,223		$	12,589		$	22,450		$	22,133
Net Earnings -
U.S. GAAP basis	$	7,094		$	5,288		$	15,200		$	11,590
Acquisition & restructuring costs (1)		602			2,517			669			3,052
Litigation costs(1)		463			1,058			914			1,603
One-time benefit from tax law change		—			—			—			(1,695	)
Repatriation transition tax		—			—			—			854
Adjusted Net Earnings	$	8,159		$	8,863		$	16,783		$	15,404
Net Earnings per Basic Common Share -
U.S. GAAP basis	$	0.17		$	0.12		$	0.36		$	0.27
Acquisition & restructuring costs		0.01			0.06			0.02			0.07
Litigation costs		0.01			0.02			0.02			0.04
One-time benefit from tax law change		—			—			—			(0.04	)
Repatriation transition tax		—			—			—			0.02
Adjusted Basic EPS(2)	$	0.19		$	0.21		$	0.40		$	0.36
Net Earnings per Diluted Common Share -
U.S. GAAP basis	$	0.17		$	0.12		$	0.35		$	0.27
Acquisition & restructuring costs		0.01			0.06			0.02			0.07
Litigation costs		0.01			0.02			0.02			0.04
One-time benefit from tax law change		—			—			—			(0.04	)
Repatriation transition tax		—			—			—			0.02
Adjusted Diluted EPS(2)	$	0.19		$	0.21		$	0.39		$	0.36

(1) These acquisition and restructuring costs, and litigation costs are net of the following income tax effects: $183 and $140, respectively, for the three months ended March 31, 2019; $941 and $395, respectively, for the three months ended March 31, 2018; $203 and $278, respectively, for the fiscal 2019year-to-date period; and $1,140 and $599, respectively, for the fiscal 2018year-to-date period. These tax effects were calculated using the effective tax rates of the jurisdictions in which the costs were incurred.

(2) Neither Net Earnings per Basic Common Share nor Net Earnings per Diluted Common Share for the fiscal 2018 quarterly period sum to their respective Adjusted EPS amounts due to rounding.

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REVENUE OVERVIEW

Below are analyses of the Company’s revenue, provided for each of the following:

• By Reportable Segment & Geographic Region

• By Product Platform/Type

Revenue Overview- By Reportable Segment & Geographic Region

Our reportable segments are Diagnostics and Life Science, with products 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”). A full description of our segments is set forth in Note 9,“Reportable Segments and Major Customers Information” of the accompanying Condensed Consolidated Financial Statements.

Revenues for the Diagnostics segment, in the normal course of business, may be affected from quarter to quarter by buying patterns of major distributors, seasonality and the severity of seasonal diseases and outbreaks, and foreign currency exchange rates. Revenues for the Life Science segment, in the normal course of business, may be affected from quarter to quarter by buying patterns of major customers, and foreign currency exchange rates.

	Three Months Ended March 31,									Six Months Ended March 31,
	2019			2018			Inc (Dec)			2019			2018			Inc (Dec)
Diagnostics -
Americas	$	27,278		$	33,351			(18	)%	$	58,425		$	64,926			(10	)%
EMEA		5,535			5,912			(6	)%		10,620			11,327			(6	)%
ROW		687			519			32	%		1,120			1,019			10	%
Total Diagnostics		33,500			39,782			(16	)%		70,165			77,272			(9	)%
Life Science -
Americas		5,453			5,121			6	%		9,975			10,373			(4	)%
EMEA		7,901			7,478			6	%		15,376			12,659			21	%
ROW		3,394			4,070			(17	)%		6,212			8,430			(26	)%
Total Life Science		16,748			16,669			—	%		31,563			31,462			—	%
Consolidated	$	50,248		$	56,451			(11	)%	$	101,728		$	108,734			(6	)%
% of total revenues -
Diagnostics		67	%		70	%					69	%		71	%
Life Science		33	%		30	%					31	%		29	%
Total		100	%		100	%					100	%		100	%
Ex-Americas		35	%		32	%					33	%		31	%

Revenue Overview- By Product Platform/Type

The revenues generated by each of our reportable segments result primarily from the sale of the following segment-specific categories of products:

Diagnostics

1) Molecular assays that operate on our Alethia platform (formerly branded asillumigene)

2) Immunoassays and blood chemistry assays on multiple technology platforms

Life Science

1) Molecular reagents

2) Immunological reagents

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Revenues for each product platform/type, as well as its relative percentage of segment revenues, are shown below.

	Three Months Ended March 31,									Six Months Ended March 31,
	2019			2018			Inc (Dec)			2019			2018			Inc (Dec)
Diagnostics-
Molecular assays	$	7,132		$	9,976			(29	)%	$	14,434		$	18,692			(23	)%
Immunoassays & blood chemistry assays		26,368			29,806			(12	)%		55,731			58,580			(5	)%
Total Diagnostics	$	33,500		$	39,782			(16	)%	$	70,165		$	77,272			(9	)%
Life Science-
Molecular reagents	$	5,390		$	6,143			(12	)%	$	11,998		$	11,832			1	%
Immunological reagents		11,358			10,526			8	%		19,565			19,630			—	%
Total Life Science	$	16,748		$	16,669			—	%	$	31,563		$	31,462			—	%
% of Diagnostics revenues-
Molecular assays		21	%		25	%					21	%		24	%
Immunoassays & blood chemistry assays		79	%		75	%					79	%		76	%
Total Diagnostics		100	%		100	%					100	%		100	%
% of Life Science revenues-
Molecular reagents		32	%		37	%					38	%		38	%
Immunological reagents		68	%		63	%					62	%		62	%
Total Life Science		100	%		100	%					100	%		100	%

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

Diagnostics Products

Gastrointestinal Assays

During the second quarter and first six months of fiscal 2019, revenues from our gastrointestinal products, which include tests forC. difficile,H. pylori and certain foodborne pathogens, among others, totaled $16,177 and $34,792, respectively. These revenue levels represent 16% and 12% decreases for this product category from the fiscal 2018 quarterly andyear-to-date periods, respectively. OurC. difficile products continue to experience pressure as a result of competition, particularly our Alethia product, which experienced volume declines impacting both the quarterly andyear-to-date periods. For our stool antigenH. pylori products, we have executed multi-year supply agreements with a number of customers, including our two largest reference laboratory customers, to secure volume, albeit at lower selling prices. As a consequence of this strategy, such products experienced price declines for the quarterly andyear-to-date periods. We continue to believe there are ongoing benefits to be realized from our partnerships with managed care companies in promoting: (i) the health and economic benefits of a test and treat strategy; (ii) changes in policies that discourage the use of traditional serology methods and promote the utilization of active infection testing methods; and (iii) physician behavior movement away from serology-based testing and toward direct antigen testing. We experienced a favorable volume increase for the quarterly period as a result of promoting this test and treat strategy.

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The patents for ourH. pylori products, owned by us, expired in May 2016 in the U.S. and in May 2017 in countries outside the U.S. We expect competition with respect to ourH. pylori products to increase in the near future, and such competition may have an adverse impact on our selling prices for these products, or our ability to retain business at prices acceptable to us, and consequently, adversely affect our future results of operations and liquidity, including revenues and gross profit. Our product development pipeline includes new product initiatives for the detection ofH. pylori, and early in the first quarter of fiscal 2019 we entered into a strategic collaboration with DiaSorin to sellH. pylori tests (see Note 10,“Litigation Matters” of the accompanying Condensed Consolidated Financial Statements). We are unable to provide assurances that we will be successful with any strategy or that any strategy will prevent an adverse effect on our future results of operations and liquidity, including revenues and gross profit.

Respiratory Illness Assays

Including tests for Group A Strep, Mycoplasma pneumonia, influenza, and Pertussis, among others, our respiratory illness product revenues decreased 21% and 9% in the second quarter and first six months of fiscal 2019, respectively. The quarterly decrease primarily results from a significant decrease in the volume of tests sold, reflecting the fact that the prior year 2017-2018 flu season was a particularly strong one, as measured by outpatientinfluenza-like illness surveillance data published by the CDC.

Blood Chemistry Assays

Revenues from our sale of products to test for elevated levels of lead in blood increased 2% during the second quarter of fiscal 2019 to a total of $4,330, and increased 3% for the fiscalyear-to-date period to $8,760. In late December 2018, the documents to reinstate our venous blood claims removed in fiscal 2017 were submitted to the FDA, and in March 2019, we were informed by the FDA that each of the submitted 510(k) applications has been put on Additional Information (AI) hold. Further, while our LeadCare testing systems remain cleared for marketing by the FDA for use with capillary blood samples, the FDA advised that it has commissioned a third-party study of the LeadCare testing systems using both venous and capillary blood samples. According to the FDA, the results of the field study will be used in conjunction with other information to determine whether further action by FDA and CDC is necessary to protect the public health. We intend to fully cooperate with the FDA as it completes its third-party study and continue to work to complete remediation actions at our blood–chemistry manufacturing facility to the FDA’s full and complete satisfaction. We remain confident in the performance of the LeadCare products and believe that they serve a critical role in promoting the public health.

See Note 10,“Litigation Matters” of the accompanying Condensed Consolidated Financial Statements for additional information related to the Company’s LeadCare product line. See also Part II, Item 1A Risk Factors below.

Life Science Products

During the second quarter of fiscal 2019, revenues from our Life Science segment remained flat compared to the fiscal 2018 second quarter, with revenues from molecular reagent sales decreasing 12% and revenues from immunological reagent sales increasing 8%. Life Science segment revenues also remained flat for the first six months of fiscal 2019, reflecting a slight increase in revenues from molecular reagent sales being offset by a slight decrease in immunological reagent sales. Our Life Science segment’s revenue growth was slightly impacted by the movement in currency exchange rates since the fiscal 2018 periods, with revenues increasing 2% on a constant-currency basis over both the second quarter and first six months of fiscal 2018. Our Life Science segment was also impacted by buying patterns of certain IVD manufacturing customers in China, with such sales totaling approximately $1,350 and $2,350 during the second quarter and first six months of fiscal 2019, respectively – representing decreases of approximately 37% and 33%, respectively, from the comparable fiscal 2018 periods.

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Significant Customers

Revenue concentrations related to certain customers within our Diagnostics and Life Science segments are set forth in Note 9,“Reportable Segments and Major Customers Information” of the accompanying Condensed Consolidated Financial Statements.

Gross Profit

	Three Months Ended March 31,									Six Months Ended March 31,
	2019			2018			Change			2019			2018			Change
Gross Profit	$	29,338		$	34,569			(15	)%	$	60,910		$	66,579			(9	)%
Gross Profit Margin		58	%		61	%		-3 points			60	%		61	%		-1 point

The gross profit margin decreases experienced in fiscal 2019 result from the impact of the previously-noted pricing changes within ourH. pyloriproduct line, along with the combined effects of mix of products sold and operating segment mix.

Operating Expenses – Segment Detail

	Three Months Ended March 31, 2019
	Research & Development		Selling & Marketing		General & Administrative		Other			Total Operating Expenses
Fiscal 2018:
Diagnostics	$	3,735	$	6,101	$	4,795	$	—		$	14,631
Life Science		756		2,546		2,235		—			5,537
Corporate		—		—		1,812		4,911			6,723
Total Expenses (2018 Quarter)	$	4,491	$	8,647	$	8,842	$	4,911		$	26,891
Fiscal 2019:
Diagnostics	$	3,172	$	5,481	$	4,336	$	(125	)	$	12,864
Life Science		644		1,430		1,439		25			3,538
Corporate		—		—		1,613		1,488			3,101
Total Expenses (2019 Quarter)	$	3,816	$	6,911	$	7,388	$	1,388		$	19,503
	Six Months Ended March 31, 2019
	Research & Development		Selling & Marketing		General & Administrative		Other			Total Operating Expenses
Fiscal 2018:
Diagnostics	$	7,425	$	12,526	$	9,899	$	—		$	29,850
Life Science		1,470		4,935		4,251		—			10,656
Corporate		—		—		3,940		6,394			10,334
Total Expenses (2018Year-to-Date)	$	8,895	$	17,461	$	18,090	$	6,394		$	50,840
Fiscal 2019:
Diagnostics	$	6,286	$	11,523	$	9,027	$	(125	)	$	26,711
Life Science		1,414		2,951		2,930		25			7,320
Corporate		—		—		4,329		2,164			6,493
Total Expenses (2019Year-to-Date)	$	7,700	$	14,474	$	16,286	$	2,064		$	40,524

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Operating Expenses – Comparisons to Prior Year Periods

	Three Months Ended March 31, 2019
	Research & Development			Selling & Marketing			General & Administrative			Other			Total Operating Expenses
2018 Expenses	$	4,491		$	8,647		$	8,842		$	4,911		$	26,891
% of Revenues		8	%		15	%		16	%		9	%		48	%
Fiscal 2019 Increases/(Decreases):
Diagnostics		(563	)		(620	)		(459	)		(125	)		(1,767	)
Life Science		(112	)		(1,116	)		(796	)		25			(1,999	)
Corporate		—			—			(199	)		(3,423	)		(3,622	)
2019 Expenses	$	3,816		$	6,911		$	7,388		$	1,388		$	19,503
% of Revenues		8	%		14	%		15	%		3	%		39	%
% Decrease		(15	)%		(20	)%		(16	)%		(72	)%		(27	)%
	Six Months Ended March 31, 2019
	Research & Development			Selling & Marketing			General & Administrative			Other			Total Operating Expenses
2018 Expenses	$	8,895		$	17,461		$	18,090		$	6,394		$	50,840
% of Revenues		8	%		16	%		17	%		6	%		47	%
Fiscal 2019 Increases/(Decreases):
Diagnostics		(1,139	)		(1,003	)		(872	)		(125	)		(3,139	)
Life Science		(56	)		(1,984	)		(1,321	)		25			(3,336	)
Corporate		—			—			389			(4,230	)		(3,841	)
2019 Expenses	$	7,700		$	14,474		$	16,286		$	2,064		$	40,524
% of Revenues		8	%		14	%		16	%		2	%		40	%
% Decrease		(13	)%		(17	)%		(10	)%		(68	)%		(20	)%

Total operating expenses decreased during both the second quarter and first six months of fiscal 2019 compared to the respective fiscal 2018 periods, with overall decreases in spending in all of our segments, reflecting the following:

1) Decreased Research & Development costs due primarily to the timing of product development projects and the clinical trials for our cCMV test in fiscal 2018;

2) Decreased Selling & Marketing costs due to: (i) the effects of the fiscal 2018 organization streamlining initiatives; and (ii) lower sales commissions resulting from the decrease in sales levels;

3) Decreased General & Administrative costs due to: (i) the effects of the fiscal 2018 organization streamlining initiatives; and (ii) lower Quality System remediation costs related to our blood-lead manufacturing facility; and

4) Decreased restructuring & litigation costs (reflected within “Other” in the above tables).

Operating Income

Operating income increased 28% to $9,835 for the second quarter of fiscal 2019, and increased 30% to $20,386 for the first six months of fiscal 2019, as a result of the factors discussed above, including the costs associated with acquisition and restructuring activities, and litigation costs.

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Income Taxes

The effective rate for income taxes was 23% for both the fiscal 2019 second quarter and six monthyear-to-date period, compared to 27% and 22% during the corresponding fiscal 2018 periods. These fluctuations in tax rates result from the fact that the fiscal 2019 periods reflect the lower U.S. federal tax rate of 21% being fullyphased-in, while the fiscal 2018 periods reflect the combined net impact of the following effects of the tax reform act (see Note 7,“Income Taxes” of the accompanying Condensed Consolidated Financial Statements):

1) Application of an approximate 24.5% blended rate due to the lowering of the applicable rate from 35% to 21% on aphased-in basis;

2) Recognizing in the first quarter aone-time $1,695 tax benefit, including there-measurement of deferred tax balances at the lower rate; and

3) Recording in the first quarter a provisionalone-time $854 tax expense related to the estimated repatriation transition tax on foreign earnings.

Liquidity and Capital Resources

Comparative Cash Flow Analysis

Our cash flow and financing requirements are determined by analyses of operating and capital spending budgets, debt service, and consideration of acquisition plans, including our pending acquisition of GenePOC (see Note 12, “Subsequent Event” of the accompanying Condensed Consolidated Financial Statements).

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.

Considering the various worldwidegeo-political andgeo-economic conditions, we do not expect macroeconomic conditions to have a significant impact on our liquidity needs, financial condition or results of operations, although no assurances can be made in this regard. We intend to continue to fund our working capital requirements from current cash flows from operating activities and cash on hand. If needed, we also have an additional source of liquidity through our $30,000 bank revolving credit facility. Our liquidity needs may change if overall economic conditions worsen and/or liquidity and credit within the financial markets tightens for an extended period of time, and such conditions impact the collectability of our customer accounts receivable, impact credit terms with our vendors, or disrupt the supply of raw materials and services.

As of March 31, 2019, our cash and equivalents balance is $66,097 or $9,697 higher than at the end of the fiscal 2018 second quarter, and $6,334 higher than at September 30, 2018. This increase results in large part from the cash flows from operating activities being more than sufficient to cover capital expenditures and debt service. Net cash flows from operating activities and cash on hand are anticipated to be adequate to fund working capital requirements and capital expenditures during the next 12 months.

Capital Resources

In 2016, the Company entered into a $60,000 five-year term loan and related interest rate swap agreement with a commercial bank, the details of which are set forth in Note 8,“Bank Credit Arrangements” of the accompanying Condensed Consolidated Financial Statements. In addition, we have a $30,000 revolving credit facility (discussed above) with a commercial bank that expires March 31, 2021. As of April 30, 2019, there were no borrowings outstanding on this facility and we had 100% borrowing capacity available to us. We have had no borrowings outstanding under this revolving credit facility during the first six months of fiscal 2019 or during the full year of fiscal 2018.

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Our capital expenditures are estimated to range between approximately $4,000 to $5,000 for fiscal 2019, with the actual amount dependent upon actual operating results and the phasing of certain projects. Such expenditures may be funded with cash and equivalents on hand, operating cash flows, and/or availability under the $30,000 revolving credit facility discussed above.

We do not utilize special-purpose financing vehicles or have undisclosedoff-balance sheet arrangements.

On April 29, 2019, we signed a definitive agreement to acquire substantially all of the assets, as well as selected liabilities, of GenePOC Inc., a molecular diagnostics company located in Quebec City, Quebec Province, Canada. This purchase will be included in our Diagnostics operating segment. The maximum purchase price is $120,000, which consists of: (i) $50,000 to be paid at closing (subject to a working capital adjustment and a $5,000 hold-back to secure seller’s post-closing obligations); (ii) up to $20,000 to be paid in fiscal 2021, contingent upon the achievement of product development milestones; and (iii) up to $50,000 to be paid in fiscal 2023 based on certain sales and profit margin thresholds to be measured in fiscal 2022. GenePOC’s molecular diagnostics testing system is branded under the name revogene^™, and currently includes threeFDA-cleared assays (C. difficile, Group A Strep and Group B Strep). The purchase is expected to close no later than early fourth quarter fiscal 2019, pending the satisfaction of certain closing conditions.

In connection with the proposed acquisition of GenePOC, we also expect to execute a new five-year $125,000 revolving credit facility that would replace our existing $30,000 credit facility. We expect the new credit facility will be secured by substantially all of our assets and will include certain restrictive financial covenants. We expect to draw down approximately $73,000 from this new facility and use approximately $20,000 of cashon-hand to repay the existing term loan outstanding at March 31, 2019 and fund the closing payment for the acquisition of GenePOC.

Also, our Board of Directors suspended the declaration and payment of quarterly dividends by Meridian to invest in new product development activities for the revogene^™ molecular diagnostics platform, among other investments in the business, and to preserve our capital resources and liquidity for general corporate purposes.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the Company’s exposure to market risk since September 30, 2018.

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 Rules13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of March 31, 2019. 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 March 31, 2019.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as that term is defined in Rules13a-15(f) and15d-15(f) under the Exchange Act) during the quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 10,“Litigation Matters”of the accompanying Condensed Consolidated Financial Statements.

ITEM 1A. RISK FACTORS

The following risk factor is added to the risk factors included in Item 1A of Part I of the Company’s Annual Report on Form10-K:

The United States Department of Justice and FDA are investigating our Magellan lead testing systems, and any adverse finding, allegation, or exercise of enforcement or regulatory discretion by the DOJ or FDA could materially and adversely affect our business, financial condition, or results of operations.

As previously disclosed, on June 29, 2017, the FDA, in connection with its Safety Notification related to Magellan’s LeadCaretesting systems for venous blood samples, issued to Magellan its Form 483, Inspectional Observations. The FDA issued a related Warning Letter on October 23, 2017. As also previously disclosed, on April 17, 2018, Magellan received a subpoena from the United States Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlines documents to be produced, and we continue to cooperate with the DOJ in this matter, including responding to additional information requests and executing a tolling agreement to extend the statute of limitations.

Magellan submitted 510(k) applications in December 2018, seeking to reinstate venous blood sample-types for its LeadCare^® II, LeadCare^® Plus^™ and LeadCare Ultra^® testing systems. In the second fiscal quarter of 2019 the FDA informed Magellan that each of these 510(k) applications has been put on Additional Information hold. Further, while Magellan’s LeadCare testing systems remain cleared for marketing by the FDA and permitted for use with capillary blood samples, the FDA advised that it has commissioned a third-party study of Magellan’s LeadCare testing systems using both venous and capillary blood samples. According to the FDA, the results of the field study will be used in conjunction with other information to determine whether further action by FDA or the Centers for Disease Control and Prevention is necessary to protect the public health. Meridian intends to fully cooperate with the FDA as FDA completes its third-party study and continues to work to complete remediation actions at Magellan’s blood–chemistry manufacturing facility to the FDA’s full and complete satisfaction. 

While we remain confident in the performance of the Magellan LeadCare testing systems, there can be no assurance that the ongoing investigation and study of the DOJ and FDA, respectively, or future exercise of their respective enforcement, regulatory, discretionary or other powers will not result in findings or alleged violations of federal laws that could lead to enforcement actions, proceedings or litigation and the imposition of damages, fines, penalties, restitution, other monetary liabilities, sanctions, settlements or changes to our business practices, product offerings or operations that could have a material adverse effect on our business, financial condition or results of operations; or eliminate altogether our ability to operate our lead testing business, or on terms substantially similar to those on which we currently operate.

ITEM 6. EXHIBITS

The following exhibits are being filed or furnished as a part of this Quarterly Report on Form10-Q:

2.1**	Share Purchase Agreement dated as of April  29, 2019 by and among GenePOC Inc., Meridian Bioscience Canada Inc., the shareholders of GenePOC Inc., Après-Demain Holding SA, as Shareholders’ Representative, and Meridian Bioscience, Inc.
31.1	Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rule13a-14(a)/15d-14(a)
31.2	Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rule13a-14(a)/15d-14(a)

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32

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

The following financial information from Meridian Bioscience Inc.’s Quarterly Report on Form10-Q for the quarter ended March 31, 2019 filed with the SEC on May 7, 2019, formatted in XBRL includes: (i) Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2019 and 2018; (ii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended March 31, 2019 and 2018; (iii) Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2019 and 2018; (iv) Condensed Consolidated Balance Sheets as of March 31, 2019 and September 30, 2018; (v) Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended March 31, 2019 and 2018; and (vi) the Notes to Condensed Consolidated Financial Statements

^**  Schedules to and certain portions of Exhibit 2.1 have been omitted pursuant to Item 601(b)(2) of RegulationS-K. The omitted information is not material and would likely cause competitive harm to the Registrant if publicly disclosed. The Registrant hereby agrees to furnish a copy of any omitted schedule or other portion to the SEC upon request.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		MERIDIAN BIOSCIENCE, INC.
Date:May 7, 2019	By:	/s/ Bryan T. Baldasare
		Bryan T. Baldasare
		Senior Vice President, Corporate Controller, Treasurer and Chief Accounting Officer (Principal Accounting Officer)

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