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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 31, 2020
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
 
 
For the transition period from
                    
to
                    
Commission file number    
 
0-14902
 
MERIDIAN BIOSCIENCE, INC.
Incorporated under the laws of Ohio
31-0888197
(I.R.S. Employer Identification No.)
3471 River Hills Drive
Cincinnati, Ohio 45244
(513) 271-3700
Securities registered pursuant to Section 12(b) of the Act:
         
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock, no par value
 
VIVO
 
NASDAQ Global Select Market
 
 
 
 
 
 
 
 
 
 
 
 
Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  
☒
    No  
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files).    
Yes  
☒
    No  
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
             
Large accelerated filer
 
☐
 
Accelerated filer
 
☒
             
Non-accelerated
 filer
 
☐
 
Smaller reporting company
 
☐
             
Emerging growth company
 
☐
 
 
 
 
 
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act)
.     Yes
  
☐
    No  ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
     
Class
 
Outstanding April 30, 2020
Common Stock, no par value
 
42,832,859
 
 
 
 
 
 
 
 
 
 
 
 
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-
20
 
 
 
 
 
 
 
 
Item 2.
 
 
 
20-
28
 
 
 
 
 
 
 
 
Item 3.
 
 
 
29
 
 
 
 
 
 
 
 
Item 4.
 
 
 
29
 
 
 
 
 
 
 
 
PART II.
 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
29
 
 
 
 
 
 
 
 
Item 1A.
 
 
 
29
 
 
 
 
 
 
 
 
Item 6.
 
 
 
31
 
 
 
 
 
 
 
 
 
 
 
32
 
 
 
 
 
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form
10-Q
contains forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements accompanied by meaningful cautionary statements. Except for historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, which may be identified by words such as “continues”, “estimates”, “anticipates”, “projects”, “plans”, “seeks”, “may”, “will”, “expects”, “intends”, “believes”, “signals”, “should”, “can” and similar expressions or the negative versions thereof and which also may be identified by their context. All statements that address operating performance or events or developments that Meridian expects or anticipates will occur in the future, including, but not limited to, statements relating to per share diluted earnings, sales, product demand, revenue and the impact of
COVID-19
on our 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 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. Meridian also is subject to risks and uncertainties related to disruptions to or reductions in business operations or prospects due to pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases such as the coronavirus disease
COVID-19.
In addition to the factors described in this paragraph, as well as those factors identified from time to time in our filings with the Securities and Exchange Commission, Part I, Item 1A Risk Factors of our 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 our forward-looking statements.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MERIDIAN BIOSCIENCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(dollar and share amounts in thousands, except per share data)
 
 
 
 
 
 
Three Months Ended
   
Six Months Ended
 
 
March 31,
   
March 31,
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
NET REVENUES
  $
57,296
    $
50,248
    $
104,717
    $
101,728
 
COST OF SALES
   
22,842
     
20,910
     
42,823
     
40,818
 
                                 
GROSS PROFIT
   
34,454
     
29,338
     
61,894
     
60,910
 
                                 
OPERATING EXPENSES
   
     
     
     
 
Research and development
   
5,386
     
3,816
     
10,210
     
7,700
 
Selling and marketing
   
6,514
     
6,911
     
13,198
     
14,474
 
General and administrative
   
10,480
     
7,388
     
19,236
     
16,286
 
Acquisition-related costs
   
1,787
     
885
     
1,787
     
972
 
Change in fair value of contingent consideration obligation
   
(2,491
)     
—  
     
(1,304
)     
—  
 
Restructuring costs
   
252
     
(100
)     
527
     
(100
) 
Selected legal costs
   
735
     
603
     
1,055
     
1,192
 
                                 
Total operating expenses
   
22,663
     
19,503
     
44,709
     
40,524
 
                                 
OPERATING INCOME
   
11,791
     
9,835
     
17,185
     
20,386
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OTHER INCOME (EXPENSE)
   
     
     
     
 
Interest income
   
23
     
204
     
134
     
353
 
Interest expense
   
(532
)    
(347
)    
(1,299
)    
(710
)
Other, net
   
1,365
     
(445
)    
653
     
(306
)
                                 
Total other income (expense)
   
856
     
(588
)    
(512
)    
(663
)
                                 
EARNINGS BEFORE INCOME TAXES
   
12,647
     
9,247
     
16,673
     
19,723
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INCOME TAX PROVISION
   
3,288
     
2,153
     
4,487
     
4,523
 
                                 
NET EARNINGS
  $
9,359
    $
7,094
    $
12,186
    $
15,200
 
                                 
BASIC EARNINGS PER COMMON SHARE
  $
0.22
    $
0.17
    $
0.28
    $
0.36
 
DILUTED EARNINGS PER COMMON SHARE
  $
0.22
    $
0.17
    $
0.28
    $
0.35
 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
 -
BASIC
   
42,830
     
42,496
     
42,810
     
42,472
 
EFFECT OF DILUTIVE STOCK OPTIONS AND RESTRICTED SHARE UNITS
   
138
     
450
     
143
     
453
 
                                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
 -
DILUTED
   
42,968
     
42,946
     
42,953
     
42,925
 
                                 
ANTI-DILUTIVE SECURITIES:
   
     
     
     
 
Common share options and restricted share units
   
1,635
     
771
     
1,520
     
742
 
                                 
DIVIDENDS DECLARED PER COMMON SHARE
  $
—  
    $
0.125
    $
—  
    $
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,
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
NET EARNINGS
  $
9,359
    $
7,094
    $
12,186
    $
15,200
 
Other comprehensive income (loss):
   
     
     
     
 
Foreign currency translation adjustment
   
(2,786
)     
377
     
(18
)    
(339
)
Unrealized loss on cash flow hedge
   
(313
)
   
(310
)     
(313
)
   
(887
)
Reclassification of gain on cash flow hedge
   
(77
)    
—  
     
(154
)    
—  
 
Income taxes related to items of other comprehensive income
   
96
     
78
     
115
     
223
 
                                 
Other comprehensive income (loss), net of tax
   
(3,080
)     
145
     
(370
)    
(1,003
)
                                 
COMPREHENSIVE INCOME
  $
6,279
    $
7,239
    $
11,816
    $
14,197
 
                                 
 
 
 
 
 
 
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,
 
2020
 
 
2019
 
CASH FLOWS FROM OPERATING ACTIVITIES
   
     
 
Net earnings
  $
 12,186
    $
 15,200
 
Non-cash
items included in net earnings:
   
     
 
Depreciation of property, plant and equipment
   
2,439
     
2,562
 
Amortization of intangible ass
e
ts
   
3,449
     
1,658
 
Stock-based compensation
   
1,759
     
2,368
 
Deferred income taxes
   
656
     
(677
)
Change in accrued contingent consideration
   
(1,304
)     
—  
 
Change in
 the following
:
   
     
 
Accounts receivable
   
(4,950
)    
(951
)
Inventories
   
(2,511
)     
832
 
Prepaid expenses and other current assets
   
1,278
     
286
 
Accounts payable and accrued expenses
   
1,621
     
(1,267
)
Income taxes payable
   
400
     
1,108
 
Other, net
   
692
     
(68
)
                 
Net cash provided by operating activities
   
15,715
     
21,051
 
                 
CASH FLOWS FROM INVESTING ACTIVITIES
   
     
 
Purchase of property, plant and equipment
   
(1,543
)    
(2,113
)
                 
Net cash used for investing activities
   
(1,543
)    
(2,113
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES
   
     
 
Dividends paid
   
—  
     
(10,612
)
Payment on revolving credit facility
 
 
(27,000
)
 
 
—  
 
Payment of debt issuance costs
 
 
(116
)
 
 
—  
 
Payments on term loan
   
—  
     
(2,250
)
Proceeds from exercise of stock options
   
—  
     
443
 
                 
Net cash used for financing activities
   
(27,116
)    
(12,419
)
                 
Effect of Exchange Rate Changes on Cash and Equivalents and Restricted Cash
   
97
     
(185
)
                 
Net Increase (Decrease) in Cash and Equivalents and Restricted Cash
   
(12,847
)     
6,334
 
Cash and Equivalents and Restricted Cash at Beginning of Perio
d
   
62,397
     
60,763
 
                 
Cash and Equivalents and Restricted Cash at End of Period
  $
 49,550
    $
 67,097
 
                 
                 
Cash and Equivalents
  $
 49,550
    $
 66,097
 
Restricted Cash
   
—
     
1,000
 
                 
Cash and Equivalents and Restricted Cash at End of Period
  $
49,550
    $
67,097
 
                 
 
 
 
 
 
 
 
 
 
 
 
 
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,
2020
(Unaudited)
 
 
September 30,
2019
 
CURRENT ASSETS
   
     
 
Cash and equivalents
  $
49,550
    $
62,397
 
Accounts receivable, less allowances of $521 and $537, respectivel
y
   
40,184
     
35,608
 
Inventories
   
41,008
     
39,617
 
Prepaid expenses and other current asset
s
   
5,847
     
7,139
 
                 
Total current assets
   
136,589
     
144,761
 
                 
PROPERTY, PLANT AND EQUIPMENT, at Cost
   
     
 
Land
   
987
     
982
 
Buildings and improvements
   
32,004
     
31,904
 
Machinery, equipment and furniture
   
66,006
     
64,155
 
Construction in progress
   
1,252
     
522
 
                 
Subtotal
   
100,249
     
97,563
 
Less: accumulated depreciation and amortization
   
69,875
     
66,996
 
                 
Net property, plant and equipment
   
30,374
     
30,567
 
                 
OTHER ASSETS
   
     
 
Goodwill
   
89,198
     
89,241
 
Other intangible assets, net
   
56,848
     
60,243
 
Right-of-use
assets
   
5,355
     
—  
 
Deferred income taxes
   
137
     
156
 
Other assets
   
573
     
510
 
                 
Total other assets
   
152,111
     
150,150
 
                 
TOTAL ASSETS
  $
319,074
    $
325,478
 
                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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,
2020
(Unaudited)
 
 
September 30,
2019
 
CURRENT LIABILITIES
   
     
 
Accounts payable
  $
7,879
    $
7,238
 
Accrued employee compensation costs
   
9,009
     
7,938
 
Accrued interest
   
180
     
498
 
Current portion of acquisition consideration
   
13,656
     
—  
 
Current operating lease obligations
   
1,350
     
—  
 
Other accrued expenses
   
3,445
     
3,260
 
Income taxes payable
   
2,366
     
1,980
 
                 
Total current liabilities
   
37,885
     
20,914
 
                 
NON-CURRENT LIABILITIES
   
     
 
Acquisition consideration
   
17,242
     
32,202
 
Post-employment benefits
   
2,458
     
2,500
 
Fair value of interest rate swaps
 
 
313
 
 
 
—
 
 
 
Long-term operating lease obligations
   
4,111
     
—  
 
Long-term debt
   
48,824
     
75,824
 
Long-term income taxes payable
   
549
     
549
 
Deferred income taxes
   
3,159
     
2,522
 
Total
non-current
liabilities
   
76,656
     
113,597
 
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, 42,831,267 and 42,712,296 shares issued, respectively
   
—   
     
—   
 
Additional
paid-in
capital
   
134,584
     
132,834
 
Retained earnings
   
75,294
     
63,108
 
Accumulated other comprehensive loss
   
(5,345
)    
(4,975
)
Total shareholders’ equity
   
204,533
     
190,967
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $
  319,074
    $
  325,478
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2019
   
42,828
    $
133,622
    $
65,935
    $
(2,265
)   $
197,292
 
Conversion of restricted share units
   
3
     
(9
)     
—   
     
—   
     
(9
) 
Stock compensation expense
   
—   
     
971
     
—   
     
—   
     
971
 
Net earnings
   
—   
     
—   
     
9,359
     
—   
     
9,359
 
Foreign currency translation adjustment
   
—   
     
—   
     
—   
     
(2,786
)     
(2,786
) 
Hedging activity, net of tax
   
—   
     
—   
     
—   
     
(294
)    
(294
)
Balance at March 31, 2020
   
42,831
    $
134,584
    $
75,294
    $
(5,345
)   $
204,533
 
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
 
                               
 
Common
Shares
Issued
   
Additional
Paid-In

Capital
   
Retained
Earnings
   
Accumulated Other
Comprehensive
Income (Loss)
   
Total
Shareholders’
Equity
 
SIX MONTHS ENDED MARCH 31, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at September 30, 2019
   
42,712
    $
132,834
    $
63,108
    $
(4,975
)   $
190,967
 
Conversion of restricted share units 
   
119
     
(9
)     
—   
     
—   
     
(9
) 
Stock compensation expense
   
—   
     
1,759
     
—   
     
—   
     
1,759
 
Net earnings
   
—   
     
—   
     
12,186
     
—   
     
12,186
 
Foreign currency translation adjustment
   
—   
     
—   
     
—   
     
(18
)    
(18
)
Hedging activity, net of tax
   
—   
     
—   
     
—   
     
(352
)    
(352
)
Balance at March 31, 2020
   
42,831
    $
134,584
    $
75,294
    $
(5,345
)   $
204,533
 
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 ASU
2014-09
   
—   
     
—   
     
(116
)    
—   
     
(116
)
Balance at March 31, 2019
   
42,515
    $
131,951
    $
54,074
    $
(4,380
)   $
181,645
 
 
 
 
 
 
 
 
 
 
 
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, 2020, the results of its operations for the three- and
 
six-month
 
periods ended March 31, 2020 and 2019, and its cash flows for the six-month periods ended March 31, 2020 and 2019. These statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s fiscal 2019 Annual Report on Form
 
10-K.
 Financial information as of September 30, 2019 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.
 
In December 2019, the SARS-CoV-2 virus emerged in Wuhan, China and spread to other parts of the world. In March 2020, the World Health Organization (“WHO”) designated
COVID-19
(the disease caused by SARS-CoV-2) a global pandemic. Governments have implemented lockdown and
shelter-in-place
orders, requiring many
non-essential
businesses to shut down operations for the time being. The Company’s business, however, is deemed “essential” and it has continued to operate, manufacture and distribute its products to customers globally.
While
COVID-19
has not had a material negative impact on the Company’s operations, financial condition or cash flows as of the date of this filing, we cannot reasonably predict the extent of the impact of
COVID-19
on our future results of operations and cash flows due to the continued uncertainty around the duration and severity of the pandemic. See Management’s Discussion and Analysis of Financial Condition and Results of Operations included herein for additional discussion of the effects of the COVID-19 pandemic on the Company and its results of operations.
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 2019 Annual Report on Form
10-K
and should be referred to for a description of the Company’s current significant accounting policies, with the exception of Revenue Recognition
 and Fair Value Measurements
, which
are
set forth below.
(a) Revenue Recognition –
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,
 
 
2020
 
 
2019
 
 
Inc (Dec)
 
 
2020
 
 
2019
 
 
Inc (Dec)
 
Diagnostics-
   
     
     
     
     
     
 
Americas
  $
27,670
    $
26,263
     
5
%   $
55,405
    $
56,686
     
(2
)%
EMEA
   
6,777
     
6,549
     
3
%    
13,277
     
12,351
     
7
%
ROW
   
495
     
688
     
(28
)%    
1,051
     
1,128
     
(7
)%
                                                 
Total Diagnostics
   
34,942
     
33,500
     
4
%  
 
 
 
 
69,733
     
70,165
     
(1
)%
                                                 
 
Page 7
Life Science-
   
     
     
     
     
     
 
Americas
   
4,612
     
5,454
     
(15
)%    
8,627
     
9,976
     
(14
)%
EMEA
   
9,946
     
7,852
     
27
%    
14,914
     
15,213
     
(2
)%
ROW
   
7,796
     
3,442
     
126
%    
11,443
     
6,374
     
80
%
                                                 
Total Life Science
   
22,354
     
16,748
     
33
%    
34,984
     
31,563
     
11
%
                                                 
Consolidated
  $
57,296
    $
50,248
   
 
 
 
 
 
14
%   $
104,717
    $
101,728
   
 
 
 
 
 
 
 
3
%
                                                 
Revenue by Product Platform/Type
 
Three Months Ended March 31,
   
Six Months Ended March 31,
 
 
2020
 
 
2019
 
 
Inc (Dec)
 
 
2020
 
 
2019
 
 
Inc (Dec)
 
Diagnostics-
   
     
     
     
     
     
 
Molecular assays
  $
7,238
    $
7,084
     
2
%   $
14,077
    $
14,314
     
(2
)%
Immunoassays & blood chemistry assays
   
27,704
     
26,416
     
5
%    
55,656
     
55,851
     
-
%
                                                 
Total Diagnostics
  $
34,942
    $
33,500
     
4
%   $
69,733
    $
70,165
     
(1
)%
                                                 
Life Science-
   
     
     
     
     
     
 
Molecular reagents
  $
11,534
    $
5,390
     
114
%   $
16,892
    $
11,998
     
41
%
Immunological reagents
   
10,820
     
11,358
     
(5
)%    
18,092
     
19,565
     
(8
)
%
                                                 
Total Life Science
  $
22,354
    $
16,748
     
33
%   $
34,984
    $
31,563
     
11
%
                                                 
Revenue by Disease State (Diagnostics only)
 
Three Months Ended March 31,
   
Six Months Ended March 31,
 
 
2020
 
 
2019
 
 
Inc (Dec)
 
 
2020
 
 
2019
 
 
Inc (Dec)
 
Diagnostics-
   
     
     
     
     
     
 
Gastrointestinal assays
  $
14,014
    $
16,177
     
(13
)%   $
30,060
    $
34,792
     
(14
)%
Respiratory illness assays
   
10,863
     
7,553
     
44
%    
18,612
     
15,534
     
20
%
Blood chemistry assays
   
4,329
     
4,330
     
-
%    
9,479
     
8,760
     
8
%
Other
   
5,736
     
5,440
     
5
%    
11,582
     
11,079
     
5
%
                                                 
Total Diagnostics
  $
34,942
    $
33,500
     
4
%   $
69,733
    $
70,165
     
(1
)%
                                                 
Revenue Policies
Product Sales
Revenue from contracts with customers is recognized in an amount that reflects the consideration we expect to receive in exchange for products when obligations under such contracts are satisfied. Revenue is generally recognized at a
point-in-time
when products are shipped and control has passed to the customer. Such contracts can include various combinations of products that are generally accounted for as distinct performance obligations.
Revenue is reduced in the period of sale for fees paid to distributors, which are inseparable from the distributor’s purchase of our product and for which we receive no goods or services in return. Revenue for the Diagnostics segment is reduced at the date of sale for product price adjustments payable to certain distributors under local contracts. Management estimates accruals for distributor price adjustments based on local contract terms, sales data provided 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.
 
Page 8
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
Con
densed
Consolidated Balance Sheets at invoiced amounts less provisions for distributor price adjustments under local contracts and doubtful accounts. The allowance for doubtful accounts represents our estimate of probable credit losses and is based on historical
write-off
experience and known conditions that would likely lead to
non-payment.
Customer invoices are charged off against the allowance when we believe it is probable that the invoices will not be paid.
Practical Expedients and Exemptions
Revenue is recognized net of any taxes collected from customers (sales tax, value added tax, etc.), which are subsequently remitted to government authorities.
Our diagnostic assay products are generally not subject to a customer right of return except for product recall events under the rules and regulations of the Food and Drug Administration or equivalent agencies outside the United States. In this circumstance, the costs to replace affected products would be accrued at the time a loss was probable and estimable.
We expense as incurred the costs to obtain contracts, as the amortization period would be one year or less. These costs, recorded within selling and marketing expense, include our internal sales force compensation programs and certain partner sales incentive programs, as we have determined that annual compensation is commensurate with annual selling activities.
Reagent Rental Arrangements
Certain of our Diagnostics segment’s product platforms require the use of instruments for the tests to be processed. In many cases, a customer is given use of the instrument provided they continue purchasing the associated tests, also referred to as “consumables” or “reagents”. If a customer stops purchasing the consumables, the instrument must be returned to us. Such arrangements are common practice in the diagnostics industry and are referred to as “Reagent Rentals”. Reagent Rentals may also include instrument related services such as a limited replacement warranty, training and installation. We concluded that the use of the instrument and related services (collectively known as “lease elements”) are not within the scope of Accounting Standards
Codification (“ASC”) 606,
Revenue from Contracts with Customers
 
but rather
ASC 842,
 
Leases
. Accordingly, we first allocate the transaction price between the lease elements and the
non-lease
elements based on estimates of relative standalone selling prices. Lease revenue is derived solely from the sale of consumables and is therefore recognized monthly as earned, which coincides with the transfer of control of the
non-lease
elements.
For the portion of the transaction price allocated to the
non-lease
elements, which are principally the test kits, the related revenue is recognized at a
point-in-time
when control transfers.
Revenue allocated to the lease elements of these Reagent Rental arrangements totaled approximately $1,125 and $1,050 in the three months ended March 31, 2020 and 2019, respectively, and $2,250 and $2,100 in the six months ended March 31, 2020 and 201
9
, respectively. Such revenue is included as part of net revenues in our Condensed Consolidated Statements of Operations.
(b)
Fair Value Measurements –
Certain assets
and liabilities are recorded at fair value in accordance with ASC 
820-10,
Fair Value Measurements and Disclosures
. ASC
820-10
defines fair value as the price that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC
820-10
establishes a three-level hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy level assigned to each asset and liability is based on the assessment of the transparency and reliability of the inputs used in the valuation of such items at the measurement date based on the lowest level of input that is significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Page 9
Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories based on inputs:
Level 1
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities
Level 2
Quoted prices in markets that are not active and financial instruments for which all significant inputs are observable, either directly or indirectly
Level 3
Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable
As described in Note 3, we acquired the business of GenePOC in fiscal 2019. The fair value of the acquired accounts receivable and other current assets and the fair value of the assumed accounts payable and accrued expenses approximated their carrying value at the acquisition date. Inventories, property, plant and equipment, intangible assets and contingent consideration were valued using Level 3 inputs.
The following table provides information by level for financial assets and liabilities that are measured at fair value on a recurring basis:
                                 
 
 
 
 
 
Fair Value Measurements Using
Inputs Considered as
 
 
 
Carrying
Value
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
Interest rate swaps (see Note 9) -
 
 
 
 
 
 
 
 
 
 
 
 
As of March 31, 2020
 
$
(313
)
 
$
—
 
 
 
 
$
(313
)
 
$
—
 
 
 
As of September 30, 2019
 
$
—
 
 
 
 
$
—
 
 
 
 
$
—
 
 
 
 
$
—
 
 
 
Contingent consideration -
   
     
     
     
 
As of March 31, 2020
  $
(25,898
)    $
—
 
 
    $
—
 
 
    $
(25,898
) 
As of September 30, 201
9
  $
(27,202
)    $
—
 
 
    $
—
 
 
    $
(27,202
) 
In connection with the acquisition of the business of GenePOC and as described in Note 3, the Company is required to make contingent consideration payments of up to $70,000, comprised of up to $20,000 for achievement of product development milestones and up to $50,000 for achievement of certain financial targets. The fair value for the contingent payments recognized upon the acquisition as part of the purchase accounting opening balance sheet totaled $27,202. The fair value of the
product
 
development milestone payments was estimated by disc
o
unting the probability-weighted contingent payments to present value. Assumptions used in the calculations include probability of success, duration of the
earn-out
and discount rate. The fair value of the financial performance target payments was determined using a Monte Carlo simulation-based model. Assumptions used in these calculations include expected revenue, probability of certain developments, expected expenses and discount rate. The ultimate settlement of contingent consideration could deviate from current estimates based on the actual results of these financial measures. The liability is considered to be a Level 3 financial liability that is
re-measured
each reporting period, resulting in a value of $25,898 as of March 31, 2020.
 
Page 10
(c)
Recent Accounting Pronouncements –
 
Pronouncements Adopted
On October 1, 2019, the Company adopted ASC 842,
Leases
. ASC 842 was issued to increase transparency and comparability among entities by recognizing
right-of-use
assets (“ROU assets”) and lease liabilities on the balance sheet and disclosing key information about lease arrangements. The Company elected to adopt ASC 842 effective October 1, 2019 using the modified retrospective transition method, which was applied to leases that existed or will be entered into on or after such date, with no adjustment made to prior comparative periods. The comparative periods presented herein reflect the former lease accounting guidance and the required comparative disclosures are included in Note 7,
“Leasing Arrangements”
. There was no cumulative-effect adjustment to beginning retained earnings as a result of adopting ASC 842, and additional operating lease ROU assets and obligations of approximately $5,880 were recognized as of October 1, 2019. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the ROU asset is amortized over the lease term. The Company elected the package of practical expedients permitted under the new guidance to not reassess prior conclusions related to the identification, classification and accounting for initial direct costs for leases that commenced prior to October 1, 2019. Additionally, the elections were made to not use hindsight to determine lease terms and to not separate
non-lease
 components within the lease portfolio. See Note 7 for further information.
Pronouncements Issued but Not Yet Adopted as of March 31, 2020
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
 2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
, to provide temporary optional guidance relating to reference rate reform, particularly as it relates to easing the potential burden resulting from the expected discontinuation of the LIBOR rate. The guidance provides practical expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met, which may be applied through December 31, 2022. The Company plans to apply this guidance to such transactions and modifications of arrangements but does not expect application to have a material impact on financial condition, results of operations or cash flows.
In June 2016, the FASB issued ASU 2016-13,
 
Measurement of Credit Losses on Financial Instruments
, which changes the impairment model used to measure credit losses for most financial assets. We will be required to use a new forward-looking expected credit loss model that will replace the existing incurred credit loss model for our accounts receivables. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years (fiscal 2021 for the Company), with early adoption permitted. The Company does not anticipate that the adoption of this guidance will have a material impact on its consolidated financial statements.
(d)
Reclassifications –
Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. Such reclassifications had no impact on net earnings or shareholders’ equity.
3.
Acquisition of Business of GenePOC
On June 3, 2019, we acquired the business of GenePOC Inc. (“GenePOC”), a Quebec City, Quebec Province, Canada based provider of molecular diagnostic instruments and assays. The purchase agreement contemplates a maximum total consideration of up to $120,000, which was estimated at a total fair value of $77,526 as of the acquisition date. Pursuant to the purchase agreement, the maximum consideration is comprised of the following (noting that the valuation
set
the contingent consideration identified in (ii) and (iii) below at an aggregate amount of $27,202 as of the acquisition date):
  (i) a $50,000 cash payment on June 3, 2019, subject to a working capital adjustment and a holdback of $5,000 to secure selling party’s performance of certain post-closing obligations;
 
Page 11
  (ii) two $10,000 installments contingent upon the achievement of certain product development milestones if achieved by September 30, 2020 and March 31, 2021, respectively; and
  (iii) up to $50,000 of contingent consideration payable if certain financial performance targets are achieved during the twelve-month period ending September 30, 2022.
The total of the holdback identified in (i) above and the currently estimated value of the contingent consideration identified in (ii) and (iii) above are reflected within the accompanying Condensed Consolidated Balance Sheets as of March 31, 2020 as follows:
Current liabilities
 -
$13,656
Reflects anticipated settlement of the first product milestone payment and the holdback amounts in the first quarter of fiscal 2021.
Non-current liabilities
 -
$17,242
Reflects anticipated settlement of the second product milestone payment and the financial performance targets payments in the third quarter of fiscal 2021 and first quarter of fiscal 2023, respectively.
To finance the acquisition, we utilized cash and equivalents on hand and proceeds drawn from our revolving credit facility
;
 see Note 9 for a discussion of subsequent amendments to the credit facility. Proceeds from the credit facility were also utilized to repay and settle the outstanding principal and interest due on our term loan (see Note 9). As a result of estimated total consideration exceeding the fair value of the net assets acquired, goodwill in the amount
 
of $34,582 was
recorded in connection with this acquisition,
most of
which will be deductible for U.S. tax purposes ratably over 15 years. The goodwill results largely from our ability to market and sell GenePOC’s technology and instrument platform through our established customer base and distribution channels.
Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed in the acquisition of the GenePOC business are as follows:
 
June 3,
2019
(as initially
reported)
 
 
Measurement
Period
Adjustments
 
 
June 3,
2019
(as adjusted)
 
Fair value of assets acquired -
   
     
     
 
Accounts receivable
  $
58
    $
 (1
)   $
57
 
Inventories
   
1,617
     
(106
)    
1,511
 
Other current assets
   
77
     
7
     
84
 
Property, plant and equipment
   
1,520
     
(96
)    
1,424
 
Goodwill
   
34,482
     
100
     
34,582
 
Other intangible assets (estimated useful life):
   
     
     
 
License agreement (10 years)
   
5,990
     
—  
     
5,990
 
Technology (15 years)
   
34,040
     
96
     
34,136
 
Government grant (1.33 years)
   
800
     
—  
     
800
 
                         
   
78,584
     
—  
     
78,584
 
Fair value of liabilities assumed -
   
     
     
 
Accounts payable and accrued expenses
   
1,082
     
(24
)    
1,058
 
                         
Total consideration paid (including contingent consideration
 
originally
estimated at $27,202)
  $
 77,502
    $
24
    $
 77,526
 
                         
 
Page 12
Pro Forma Information
The following table provides the unaudited consolidated pro forma results for the periods presented as if the business of GenePOC had been acquired as of the beginning of fiscal 2019. Pro forma results do not include the effect of any synergies anticipated to be achieved from the acquisition, and accordingly, are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the date indicated or that may result in the future.
 
Three
 
Months
Ended
March 31,
 2019
   
Six
 
Months
Ended
March 31,
 2019
 
Net Revenues
  $
 50,319
    $
 101,871
 
Net Earnings
  $
3,527
    $
7,906
 
These pro forma amounts have been calculated by including the results of GenePOC, and adjusting the combined results to give effect to the following, as if the acquisition had been consummated on October 1, 2018, together with the consequential tax effects thereon:
 
Three Months
Ended
March 31,
 2019
   
Six
 
Months
Ended
March 31,
 2019
 
Adjustments to Net Revenues
   
     
 
GenePOC
pre-acquisition
revenues
  $
71
    $
143
 
Adjustments to Net Earnings
   
     
 
GenePOC
pre-acquisition
net loss
  $
(3,125
)   $
(6,328
)
Pro forma adjustments:
   
     
 
Expenses related to
non-continuing
personnel, locations or activities
   
627
     
1,195
 
Incremental depreciation and amortization
   
(872
)    
(1,748
)
Incremental interest costs
   
(254
)    
(538
)
Tax effects of pro forma adjustments
   
57
     
125
 
                 
Total Adjustments to Net Earnings
  $
(3,567
)   $
(7,294
)
                 
4.
Restructuring
During the second quarter of fiscal 2018, the Company began implementation of a plan to realign its business structure into two business units, Diagnostics and Life Science, supported by a global corporate team. Since that time and as part of this plan, certain functions and locations within both business units have been streamlined, including: (i) the elimination of certain executive management and commercial sales positions; (ii) the closing of Life Science locations in Taunton, Massachusetts and Singapore, the operations of which were transferred to our locations in Memphis, Tennessee and London, England, respectively; and (iii) the transfer of certain functions performed in the Billerica, Massachusetts Diagnostics facility to the corporate headquarters in Cincinnati, Ohio. Further restructuring costs were incurred in fiscal 2019 and the first half of fiscal 2020, as refinements to each business unit’s cost structure continued to be made and the Company incurred severance payment obligations relating to the transition of its previous chief financial officer.
 
Page 13
As a result of these activities, restructuring costs totaling $252
,
 
$527 and
 
$2,839 were
recorded during the three and six months ended March 31, 2020 and the fiscal year ended September 30, 2019, respectively.
A reconciliation of the changes in the liabilities associated with the restructuring charges from September 30, 2019 through March 31, 2020 is as follows:
 
Employee
Separation
and
Related
Costs
 
 
Lease and
Other
Contract
Termination
Fees
 
 
Other
 
 
Total
 
Balance at September 30, 2019
  $
1,010
    $
12
   
$
114
    $
1,136
 
Restructuring charges
   
482
     
86
     
—  
     
568
 
Reversal of prior period accruals
   
(41
)    
—  
     
—  
     
(41
)
Payments
   
(1,367
)    
(98
)    
(114
)    
(1,579
)
                                 
Balance at March 31, 2020
  $
84
    $
—
 
 
    $
—  
    $
84
 
                                 
5.
Cash and Equivalents
Cash and equivalents include the following:
 
March 31,
2020
 
 
September 30,
2019
 
Institutional money market funds
  $
 1,015
    $
 20,913
 
Cash on hand, unrestricted
   
48,535
     
41,484
 
                 
Total
  $
 49,550
    $
 62,397
 
                 
6.
Inventories
Inventories are comprised of the following:
 
March 31,
2020
 
 
September 30,
2019
 
Raw materials
  $
9,103
    $
7,455
 
Work-in-process
   
12,856
     
11,504
 
Finished goods - instruments
   
827
     
935
 
Finished goods - kits and reagents
   
18,222
     
19,723
 
                 
Total
  $
 41,008
    $
 39,617
 
                 
7.
Leasing Arrangements
The Company is party to a number of operating leases, the majority of which are related to office, warehouse and manufacturing space. The related operating lease assets and obligations are reflected within
right-of-use
assets, current operating lease obligations and long-term operating lease obligations on the Condensed Consolidated Balance Sheet. Lease expense for these leases is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred. Our Condensed Consolidated
Statements of
 
Operations for the three months ended March 31, 2020 reflect lease costs for these operating leases
of
$
130
and $
292
within cost of sales and
 
Page 14
operating expenses, respectively
;
 and
$259 and $559 within cost of sales and operating expenses, respectively, for the six months ended March 31, 2020.
 
In addition, the Company has periodically entered into other short-term operating leases, generally with an initial term of twelve months or less. These leases are not recorded on the balance sheet and the related lease expense is immaterial for the three and six months ended March 31, 2020.
The Company often has options to renew lease terms, with the exercise of lease renewal options generally at the Company’s sole discretion. In addition, certain lease arrangements may be terminated prior to their original expiration date at our discretion. We evaluate renewal and termination options at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis of economic factors. The weighted average remaining lease term for our operating leases as of March 31, 2020
w
as 4.4 years.
The discount rate implicit within our leases is generally not determinable and, therefore, the Company determines the discount rate
using
its incremental borrowing rate. The weighted average discount rate used to measure our operating leases as of March 31, 2020
was 3.7%.
Supplemental cash flow information related to the Company’s operating leases are as follows:
 
 
Three Months
   
Six Months
 
 
Ended March 31,
   
Ended March 31,
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
Cash paid for amounts included in the measurement of lease
 
liabilities:
   
     
     
     
 
Operating cash flows from operating leases
  $
391
    $
—
    $
778
    $
—
 
                                 
Maturities of lease liabilities by fiscal year for the Company’s operating lease liabilities were as follows as of March 31, 2020:
 
March 31,
2020
 
Remainder of 2020
  $
 768
 
2021
   
1,515
 
2022
   
1,302
 
2023
   
943
 
2024
   
692
 
Thereafter
   
600
 
         
Total lease payments
   
5,820
 
Less amount of lease payment representing interest
   
(359
)
         
Total present value of lease payments
  $
 5,461
 
         
 
Page 15
As of September 30, 2019, future minimum lease payments under noncancelable operating leases were as follows:
 
September 30,
2019
 
2020
  $
 1,528
 
2021
   
1,451
 
2022
   
1,293
 
2023
   
967
 
2024
   
712
 
Thereafter
   
616
 
         
Total
  $
 6,567
 
8.
Intangible Assets
In light of the economic impacts of
COVID-19,
the Company performed a review of the assets on our consolidated balance sheet as of March 31, 2020, including goodwill, intangible and other long-lived assets. Based on our review, we do not believe that a triggering event exists at this time and, therefore, we believe that we will be able to realize the full value of our assets. As such, no impairments or other write-downs related to
COVID-19
have been recorded during fiscal 2020. Our assessment was based on information currently available and relies on various assumptions based on estimates of future cash flows and the probability of achieving the estimated cash flows. Future changes in market, economic or other conditions may lead to impairments in the future.
A summary of our acquired intangible assets subject to amortization, as of March 31, 2020 and September 30, 2019, is as follows:
                                 
 
 
March 31, 2020
   
September 30, 2019
 
 
 
Gross
Carrying
Value
 
 
Accumulated
Amortization
 
 
Gross
Carrying
Value
 
 
Accumulated
Amortization
 
Manufacturing technologies, core products and cell lines
 
$
56,188
 
 
$
16,838
 
 
$
56,193
 
 
$
15,096
 
Trade names, licenses and patents
 
 
14,499
 
 
 
6,851
 
 
 
14,494
 
 
 
6,094
 
Customer lists, customer relationships and supply agreements
 
 
24,285
 
 
 
14,720
 
 
 
24,274
 
 
 
14,110
 
Government grants
 
 
759
 
 
 
474
 
 
 
814
 
 
 
232
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
95,731
 
 
$
38,883
 
 
$
95,775
 
 
$
35,532
 
                                 
The actual aggregate amortization expense for these intangible assets was $1,727 and $829 for the three months ended March 31, 2020 and 2019, respectively, and $3,449 and $1,658 for the six months ended March 31, 2020 and 2019, respectively. The estimated aggregate amortization expense for these intangible assets for each of the fiscal years through fiscal 2025 is as follows: remainder of fiscal 2020 – $3,306, fiscal 2021 – $5,490, fiscal 2022 – $5,113, fiscal 2023 – $5,100, fiscal 2024 – $5,096, and fiscal 2025 – $5,096.
9.
Bank Credit Arrangements
In anticipation of the acquisition of the business of GenePOC (see Note 3), on May 24, 2019 the Company entered into a credit facility agreement with a commercial bank
. The Company amended the credit facility agreement
on February 19, 2020 in anticipation of the Company’s pending acquisition of Exalenz Bioscience Ltd. (see Note 12). The credit facility expires in May 2024, and as amended makes available to the Company a revolving credit facility in an aggregate principal amount not
to exceed
 $
160,000
 (originally $125,000), with outstanding principal amounts
Page 16
bearing interest at a fluctuating rate tied to, at the Company’s option, either the federal funds rate or LIBOR, resulting in an effective
interest rate of 4.15%
and 4.04% on the credit facility during the three and six months ended March 31, 2020, respectively.
Since entering into the credit facility through March 31, 2020
, two draws totaling
$75,824 
have been made on the credit facility, with a January 2020 principal repayment resulting in an outstanding principal balance of $48,824 at March 31, 2020
 (see Note 12 for activity subsequent to quarter-end)
. The proceeds from these draws were used to: (i) repay and settle the outstanding principal and interest due on our previously existing $60,000 five-year term loan; and (ii) along with cash
on-hand,
fund the GenePOC acquisition closing payment. In light of the interest being determined on a variable rate basis, the fair value of the borrowings under the credit facility at
March
 31, 2020 approximates the current carrying value reflected in the accompanying Condensed Consolidated Balance Sheet
.
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 credit facility agreement. As of March 31, 2020, the Company is in compliance with all covenants.
In order to limit exposure to volatility in the LIBOR interest rate, during March 2020 the Company and the commercial bank entered into two interest rate swap agreements that will effectively convert the variable interest rate on $25,000 of the outstanding principal to a fixed rate of 2.31%
(
at the current credit spread
)
beginning May 24, 2020, the effective date of the swap agreements. With an initial notional balance of $25,000, the interest rate swap agreements were established with critical terms identical to borrowings under the credit facility, including: (i)
 one-month
LIBOR settlement rates, as to be elected by the Company throughout the remaining term of the credit facility; (ii) rate reset dates; and (iii) term/maturity.
Consequently
, the interest rate swaps have been designated as effective cash flow hedges, with changes in fair
values
reflected as a separate component of other comprehensive income in the accompanying Condensed Consolidated Statements of Comprehensive Income. At March 31, 2020, the fair value of the interest rate swaps
was reported as
a liability of $313, which is reflected as a
non-current
liability in the accompanying Condensed Consolidated Balance Sheet. This fair value was determined by information provided by the counterparty and is considered a Level 2 input within the fair value hierarchy of valuation techniques.
In connection with the Company’s term loan repayment in May 2019, the Company also settled the interest rate swap that had been entered into to limit exposure to volatility in the term loan’s LIBOR interest rate. At the time of settlement, the Company received a cash payment in an amount equal to the 
 $563
then-current fair value of the interest rate swap. Accordingly, there is no balance for this interest rate swap reflected within assets or liabilities within the accompanying Consolidated Balance Sheets as of March 31, 2020 or September 30, 2019. The fair value of the swap that had been reflected within a separate component of other comprehensive income in the accompanying Consolidated Statements of Comprehensive Income, as a result of the interest rate swap having been designated as an effective cash flow hedge, is being released ratably into income through March 31, 2021, the interest rate swap’s original term. 
The balance reflected within accumulated other comprehensive income related to the interest rate swap agreements associated with both the current credit facility and the former term loan totaled ($6
)
and $461 at March 31, 2020 and September 30, 2019, respectively.
10.
Reportable Segments and Major Customers Information
Meridian was formed in 1976 and functions as a fully-integrated life science company with principal businesses in: (i) the development, manufacture, sale and distribution of diagnostic test kits, primarily for certain gastrointestinal and respiratory infectious diseases, and elevated blood lead levels; and (ii) the manufacture and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents used by researchers and other diagnostic manufacturers.
Our reportable segments are Diagnostics and Life Science. The Diagnostics segment consists of manufacturing operations for infectious disease products in Cincinnati, Ohio and Quebec City, Canada, 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.
 
Page 17
The Life Science segment consists of manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; London, England; and Luckenwalde, Germany, and the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents domestically and abroad, including a sales and business development facility 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).
Amounts due from two Diagnostics distributor customers accounted for 13% of consolidated accounts receivable at
both
March 31, 2020 and September 30, 2019. Revenues from these two distributor customers accounted for 23% and 25% of the Diagnostics segment third-party revenues during the three months ended March 31, 2020 and 2019, respectively, and
 25% and
30% during the six
-
month periods ended March 31, 2020 and 2019
, respectively
. These distributors represented 14% and 17% of consolidated revenues for the fiscal 2020 and 2019 second quarters, respectively, and
 17% and
21% for the respective
year-to-date
six
-
month periods.
Within our Life Science segment, two diagnostic manufacturing customers accounted for 17% and 27% of the segment’s third-party revenues during the three months ended March 31, 2020 and 2019, respectively, and 16% and 27% during the six months ended March 31, 2020 and 2019, respectively.
Segment information for the interim periods is as follows:
 
 
Diagnostics
   
Life Science
   
Corporate
(1)
   
Eliminations
(2)
   
Total
 
Three Months Ended March 31, 2020
 
Net revenues -
   
     
     
     
     
 
Third-party
  $
34,942
    $
 22,354
    $
 
 
 
 
 
 
 
 
—  
    $
—  
    $
57,296
 
Inter-segment
   
81
     
55
     
—  
     
(136
)    
—  
 
Operating income
   
3,842
     
10,818
     
(2,896
)    
27
     
11,791
 
Goodwill (March 31, 2020)
   
70,317
     
18,881
     
—  
     
—  
     
89,198
 
Other intangible assets, net (March 31, 2020)
   
56,681
     
167
     
—  
     
—  
     
56,848
 
Total assets (March 31, 2020)
   
245,059
     
74,036
     
—  
     
(21
)    
319,074
 
                                         
Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenues -
   
     
     
     
     
 
Third-party
  $
33,500
    $
 16,748
    $
—  
    $
—  
    $
50,248
 
Inter-segment
   
89
     
53
     
—  
     
(142
)    
—  
 
Operating income
   
6,676
     
5,361
     
(2,216
)    
14
     
9,835
 
Goodwill (September 30, 2019)
   
70,395
     
18,846
     
—  
     
—  
     
89,241
 
Other intangible assets, net (September 30, 2019)
   
59,807
     
436
     
—  
     
—  
     
60,243
 
Total assets (September 30, 2019)
   
255,169
     
70,392
     
—  
     
(83
)    
325,478
 
                                         
Six Months Ended March 31, 2020
 
Net revenues -
   
     
     
     
     
 
Third-party
  $
69,733
    $
34,984
    $
—  
    $
—  
    $
 
104,717
 
Inter-segment
   
178
     
120
     
—  
     
(298
)    
—  
 
Operating income
   
8,250
     
13,879
     
(4,983
)    
39
     
17,185
 
                                         
Six Months Ended March 31, 2019
 
Net revenues -
   
     
     
     
     
 
Third-party
  $
70,165
    $
31,563
    $
—  
    $
—  
    $
101,728
 
Inter-segment
   
252
     
229
     
—  
     
(481
)    
—  
 
Operating income
   
15,374
     
10,492
     
(5,521
)    
41
     
20,386
 
                                         
(1)
Includes Restructuring Costs and Selected Legal Costs
of $685 and $603 in
the three months ended March 31, 2020 and 2019, respectively,
and
$1,055 and $1,192 in the
six months ended March 31,
2020 and 2019, respectively.
(2)
Eliminations consist of inter-segment transactions.
Page 18
A reconciliation of segment operating income to consolidated earnings before income taxes for the three
and six months ended March 31, 2020 and 2019 is as follows:
                                 
 
 
Three Months
   
Six Months
 
 
 
Ended March 31,
   
Ended March 31,
 
 
 
2020
   
2019
   
2020
   
2019
 
Segment operating income
  $
14,687
    $
12,051
    $
22,168
    $
25,907
 
Corporate
operating
expenses
   
(2,896
)
   
(2,216
)
   
(4,983
)
   
(5,521
)
Interest income
   
23
     
204
     
134
     
353
 
Interest expense
 
 
(532
)
   
(347
)
   
(1,299
)
   
(710
)
Other, net
   
1,365
     
(445
)
   
653
     
(306
)
                                 
Consolidated earnings before income taxes
  $
12,647
    $
9,247
    $
16,673
    $
19,723
 
                                 
Transactions between segments are accounted for at established intercompany prices for internal and management purposes, with all intercompany amounts eliminated in consolidation.
11.
Litigation Matters
On November 15, 2017, Barbara Forman filed a class action complaint in the United States District Court for the Southern District of Ohio (the Court) naming Meridian, its former Chief Executive Officer and former Chief Financial Officer (in their capacities as such) as defendants. An amended complaint was filed on April 16, 2018 and the Company believes the essential elements of the amended complaint are the same. On July 9, 2019, a settlement was reached with the plaintiff that provides for a $2,100 payment by the Company. On October 9, 2019, the Court granted a motion for preliminary approval of the settlement, and on November 7, 2019, the settlement amount was paid from the Company’s directors and officers insurance policy into a plaintiff escrow account.
After
a final approval hearing
on
March
16,
 
2020
, on March 17, 2020, the Court issued an order and judgment approving the settlement
.
Because the settlement was a covered claim under our directors and officers insurance policy, no provision for litigation losses has been included within  the accompanying Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2020 or March 31, 2019.
On December 6, 2017, Michael Edelson filed a derivative complaint in the United States District Court for the Southern District of Ohio naming Meridian, its former Chief Executive Officer, former Chief Financial Officer and certain members of Meridian’s Board of Directors and Audit Committee (in their capacities as such) as defendants. The complaint alleges that Meridian made false and misleading representations concerning certain of Magellan’s lead test systems at or around the time of Meridian’s acquisition of Magellan and subsequent thereto, and the complaint alleges that certain members of the Board of Directors and Audit Committee breached their fiduciary duties in their oversight of the Company’s public disclosures and corporate governance matters. The complaint sought compensatory damages, equitable relief relating to corporate governance matters and attorneys’ fees. On October 9, 2019, the Court granted plaintiff’s motion for voluntary dismissal.
Accordingly, no provision for litigation losses has been included within the accompanying Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2020 or March 31, 2019.
On April 17, 2018, Meridian’s wholly-owned subsidiary, Magellan Diagnostics, Inc. 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. The Company has executed
multiple
tolling agreements to extend the statute of limitations. The Company cannot predict when the investigation will be resolved, the outcome of the investigation, or its potential impact on the Company. Approximately $725 and $560 of expense for attorneys’ fees related to this matter is included within the accompanying Condensed Consolidated Statements of Operations for the three months ended March 31
, 2020
and March 31
, 2019
, respectively; approximately $1,005
and $1,100
for the six months ended March 31
, 2020
and March 31
, 2019
, respectively.
Page 19
12.
Subsequent Even
ts
On 
April 30
, 2020, the Company acquired
all of the outstanding capital stock of
 
Exalenz Bioscience Ltd. (“Exalenz”), a manufacturer of a urea breath diagnostic testing platform headquartered in Modi’in, Israel, for approximately $48,000
 
in cash. In addition, the Company paid approximately $8,000 in cash for Exalenz to repay two bank loans
. During 2019, Exalenz generated approximately $14,000 of revenue from sales of its BreathID
®
Breath Test Systems. This purchase will be included in our Diagnostics operating segment
 and accounted for as a business combination. In connection with the merger consideration for the acquisition and repayment of the Exalenz bank loans, the Company executed two forward contracts with a total notional amount of 187,000 New Israeli Shekels, both of which settled on April 20, 2020
.
In anticipation of the Exalenz acquisition, in April 2020, an additional $50,000 was drawn on the revolving credit facility, resulting in an outstanding principal balance of $98,424 as of the date of this filing.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Refer to “Forward-Looking Statements” following the Table of Contents in front of this Form
10-Q.
In the discussion that follows, all dollar amounts are in thousands (both tables and text), except per share data.
The purpose of Management’s Discussion and Analysis is to provide an understanding of Meridian’s financial condition, changes in financial condition and results of operations. This discussion should be read in conjunction with the financial statements and notes.
Impact of
COVID-19
Pandemic
In December 2019, the SARS-CoV-2 virus emerged in Wuhan, China and spread to other parts of the world. In March 2020, the World Health Organization (“WHO”) designated
COVID-19
(the disease caused by SARS-CoV-2) a global pandemic. Governments have implemented lockdown and
shelter-in-place
orders, requiring many
non-essential
businesses to shut down operations for the time being. Our business, however, is deemed “essential” and has continued to operate and manufacture and distribute products to customers globally. We have developed a comprehensive plan that enables us to maintain operational continuity with an emphasis on manufacturing, product distribution and new product development during this crisis. We continually assess
COVID-19
related developments and adjust risk mitigation planning and business continuity activities as needed.
Employee Safety
In
mid-March
2020, we instituted a work from home process for employees whose on-site presence is designated as
non-essential
to the ongoing function of our manufacturing site, distribution centers, and new product development facilities. We have implemented enhanced cleaning and sanitizing procedures, and provided additional personal hygiene supplies at all of our sites. We have implemented policies for employees to adhere to the Centers for Disease Control and Prevention (“CDC”) guidelines on social distancing and any employees experiencing any symptoms of
COVID-19
are required to stay home and seek medical attention. Any employee who tests positive for
COVID-19
is required to quarantine and is not allowed to return to our facilities without a physician’s release. We have closed our facilities to outside persons who are not critical to continuing our operations. To date, we have been able to manufacture and distribute products globally, and our sites continue to operate without interruption. As the pandemic continues to spread over time, there is an increased risk of employee absenteeism, which could materially impact our operations at one or more sites. To date, 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
Currently and as anticipated for the near future, our supply chains supporting our products remain intact, providing access to sufficient inventory of the key materials needed for manufacturing. To date, delays and allocations for certain raw materials of higher demand have been limited, and have not had a material impact on our results of operations. We are regularly communicating with our suppliers, third-party partners, customers, health care providers
Page 20
and government officials in order to respond rapidly to issues as they arise. The longer the current situation continues, it is more likely that we may experience some sort of interruption to our supply chains, and such an interruption could materially affect our ability to timely manufacture and distribute our products and unfavorably impact our results of operations.
Clinical Trial Delays
As a result of the pandemic, certain clinical trials which were underway or scheduled to begin have been temporarily placed on hold. Such delays will impact our timing for filing applications for product clearances with the FDA, as well as related timing of FDA clearances of such filings. Additionally, the pandemic could slow down our efforts to expand our product portfolio through acquisitions and distribution opportunities, impacting the speed with which we are able to bring additional products to market.
Product Demand
Our Life Science segment manufactures, markets and sells a number of immunoassay and molecular reagents to IVD customers, including those who are making both molecular and immunoassay
COVID-19
tests. During our second quarter of fiscal 2020, we began seeing unprecedented demand for certain of our molecular reagents (e.g., ribonucleic acid (“RNA”) master mixes and nucleotides), and such demand has continued into our third fiscal quarter. Although we are unable to predict when this demand may subside, we expect materially higher revenue levels for these products during the next three to six months. These products are currently being used by over 35 IVD companies around the world in the development of
COVID-19
molecular tests. In addition, during April we announced the launch of several recombinant antigens critical for the development of antibody tests for
COVID-19.
Based upon the launch of these immunological reagent products and the strong demand for molecular reagent products noted above, we are currently expecting third quarter Life Science revenues of at least double that of normal quarterly levels.
Our Diagnostics segment manufactures, markets and sells a number of molecular, immunoassay and blood chemistry assays for various infectious diseases and blood-lead levels. We expect near-term sales volumes for a number of these assays to be adversely affected by the
COVID-19
pandemic as such assays are often used in
non-critical
care settings. In addition, the
COVID-19
pandemic has greatly slowed our instrument placements as diagnostic testing sites have turned their attention to critical care testing. During the month of April, our weekly shipments of Diagnostic products were approximately 50% of expected volume levels. Given the nature of our diagnostic assays (i.e., infectious disease and blood-lead), we expect to return to expected sales volume levels within three to six months assuming shelter in place orders relax and health care facilities return to normal,
pre-pandemic
operations in the near term. However, no assurances can be made in this regard.
Asset Impairment Review
In light of the economic impacts of
COVID-19,
the Company performed a review of the assets on our consolidated balance sheet as of March 31, 2020, including intangible and other long-lived assets. Based on our review, we do not believe that a triggering event exists at this time and, therefore, we believe that we will be able to realize the full value of our assets. As such, no impairments or other write-downs related to
COVID-19
were recorded during fiscal 2020. Our assessment was based on information currently available and relies on various assumptions based on estimates of future cash flows and the probability of achieving the estimated cash flows. Future changes in market, economic or other conditions may lead to future impairments.
Access to Capital
As of March 31, 2020, the Company’s outstanding debt balance on its revolving credit facility was $48,824. The impacts of
COVID-19
have adversely affected the capital markets and the ability of many companies to access capital and liquidity on favorable terms or at all. The Company believes it has sufficient liquidity and cash flows to meet its operating and debt service requirements for at least the next twelve months. We drew $50,000 on our revolving credit facility in April to complete the acquisition of Exalenz Bioscience Ltd. (“Exalenz”) described in Note 12, “
Subsequent Events”
of the accompanying condensed consolidated financial statements. The Company expects to be in compliance with its financial covenants during the same period. However, the Company is currently unable to predict the impact that
COVID-19
will have on its ability to access capital in the future. If the Company is unable to access additional capital and liquidity on acceptable terms, it could adversely impact the Company’s results of operations and ability to meet its future obligations beyond the next twelve months.
Page 21
Based on the foregoing, the Company cannot reasonably predict the extent of the impact of
COVID-19
on our future results of operations and cash flows due to the continued uncertainty around the duration and severity of the pandemic. The
COVID-19
situation is changing rapidly and future impacts may materialize that are not yet known.
RESULTS OF OPERATIONS 
Three and Six Months Ended March 31, 2020
Net earnings for the second quarter of fiscal 2020 increased 32% to $9,359, or $0.22 per diluted share, from net earnings for the second quarter of fiscal 2019 of $7,094, or $0.17 per diluted share. For the
six-month
period ended March 31, 2020, net earnings were $12,186, or $0.28 per diluted share. The level of net earnings in the second quarter (“QTD”) and first six months (“YTD”) of fiscal 2020 were affected by several factors, including most notably the combined effects of the following (amounts presented on a
pre-tax
basis):
  (i) significantly higher revenue in the Life Science operating segment, due in large part to supplying key molecular components to diagnostic test manufacturers for use in
COVID-19
related tests;
  (ii) higher research and development spending in the Diagnostics segment ($1,618 QTD; $2,731 YTD);
  (iii) increased cash-based incentive compensation ($2,045 QTD; $2,570 YTD);
  (iv) increased intangible asset amortization, primarily resulting from purchase accounting amortization related to the acquisition of the GenePOC business in June 2019 ($825 QTD; $1,715 YTD);
  (v) increased acquisition-related costs in connection with the fiscal 2020 Exalenz transaction, as compared to those related to the GenePOC transaction in fiscal 2019 ($902 QTD; $815 YTD);
  (vi) a decrease in the fair value of the earnout obligation for the acquisition of the GenePOC business ($2,491 QTD; $1,304 YTD); and
  (vii) significantly higher gains related to foreign currency, particularly as it relates to the British pound sterling ($1,704 QTD; $643 YTD).
Consolidated revenues for the second quarter of fiscal 2020 totaled $57,296, an increase of 14% compared to the second quarter of fiscal 2019 (15% increase on a constant-currency basis).
Revenues for the Diagnostics segment for the second quarter of fiscal 2020 increased 4% compared to the second quarter of fiscal 2019 (5% increase on a constant-currency basis), comprised of a 2% increase in molecular assay products and a 5% increase in immunoassay and blood chemistry assay products. As previously noted, the
COVID-19
pandemic dramatically slowed the placement of our molecular assay products during the quarter, resulting in 35 Revogene
®
systems being installed during the second quarter of fiscal 2020 and a total Revogene system install base of 148 systems as of March 31, 2020. With a 114% increase in molecular reagents products and a 5% decrease in immunological reagents products, revenues for our Life Science segment increased 33% during the second quarter of fiscal 2020 compared to the second quarter of fiscal 2019. On a constant-currency basis, revenues for the Life Science segment increased 34%. Life Science revenues reflect a significant increase in the sales of key molecular components such as RNA master mixes and deoxyribonucleotide triphosphates (“dNTPs”) to diagnostic test manufacturers for use in
COVID-19
related tests, including a fourfold increase in revenue from sales into China.
Consolidated revenues increased 3% to $104,717 for the first six months of fiscal 2020 compared to the same period of the prior year (also 3% on a constant-currency basis). On an operating segment basis, Diagnostics revenues decreased 1% (flat on a constant-currency basis) and Life Science revenues increased 11% (12% increase on a constant-currency basis).
Lead Testing Matters 
On June 29, 2017, the United States Food and Drug Administration (“FDA”), in connection with its Safety Notification related to Magellan’s LeadCare testing systems for venous blood samples, issued to Magellan its Form 483, Inspectional Observations. The FDA issued a related Warning Letter on October 23, 2017. On April 17, 2018, Magellan received a subpoena from the United States Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlines documents to be produced, and we continue to cooperate with the DOJ in this matter, including responding to additional information requests. We have executed multiple tolling agreements to extend the statute of limitations.
Page 22
Magellan submitted 510(k) applications in December 2018, seeking to reinstate venous blood sample-types for its LeadCare
®
II, LeadCare
®
Plus
™
and LeadCare Ultra
®
testing systems. In the second fiscal quarter of 2019 the FDA informed Magellan that each of these 510(k) applications had been put on Additional Information hold. On July 15, 2019, we provided responses to the FDA’s requests for Additional Information. These 510(k) applications have since expired and are no longer under FDA review. Further, while Magellan’s LeadCare testing systems remain cleared for marketing by the FDA and permitted for use with capillary blood samples, the FDA advised that it has commissioned a third-party study of Magellan’s LeadCare testing systems using both venous and capillary blood samples. According to the FDA, the results of the field study will be used in conjunction with other information, including review by an FDA Advisory Committee, to determine whether further action by the FDA or the CDC is necessary to protect the public health. Meridian intends to fully cooperate with the FDA as the third-party study and Advisory Committee review are completed.
During October 2019, the FDA performed a
follow-up
inspection of Magellan’s manufacturing facility. The FDA issued five Form FDA 483 observations. In November 2019, we submitted to the FDA our written responses to the five Form FDA 483 observations and have implemented a remediation plan that we are actively working. In January and February 2020, we submitted to the FDA additional written responses to the Form FDA 483 observations. On March 18, 2020, we participated in a regulatory meeting with the FDA at the FDA’s request to further discuss the Form FDA 483 observations and our remediation efforts. While we remain committed to strengthening Magellan’s quality system and ensuring that all aspects of the system are in full compliance, we can provide no assurance that our remediation efforts will be successful to a degree acceptable by the FDA.
In the course of remediation, we may encounter additional matters that warrant notifications to the FDA and/or customers regarding the use of our products. At this time, we do not believe that any such notifications would impact the ability to use the LeadCare systems with capillary blood samples. While we remain confident in the performance of the Magellan LeadCare testing systems using capillary samples, we do not expect that the FDA will reinstate our venous blood claims. We can provide no assurance that the ongoing investigation and study of the DOJ and FDA, respectively, or future exercise of their respective enforcement, regulatory, discretionary or other powers will not result in findings or alleged violations of federal laws that could lead to enforcement actions, proceedings or litigation and the imposition of damages, fines, penalties, restitution, other monetary liabilities, sanctions, injunctions, settlements or changes to our business practices, product offerings or operations that could have a material adverse effect on our business, financial condition or results of operations; or eliminate altogether our ability to operate our lead testing business, or on terms substantially similar to those on which we currently operate.
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. The Diagnostics segment consists of manufacturing operations for infectious disease diagnostic products in Cincinnati, Ohio and Quebec City, Canada, and manufacturing operations for blood chemistry products in Billerica, Massachusetts (near Boston). These diagnostic test products are sold and distributed in the countries comprising North and Latin America (the “Americas”); Europe, Middle East and Africa (“EMEA”); and other countries outside of the Americas and EMEA (rest of the world, or “ROW”). The Life Science segment consists of manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; London, England; and Luckenwalde, Germany, and the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents domestically and abroad, including a sales and business development facility, with outsourced distribution capabilities, in Beijing, China to further pursue growing revenue opportunities in Asia.
Revenues for the Diagnostics segment, in the normal course of business, may be affected from quarter to quarter by buying patterns of major distributors, seasonality and severity of seasonal diseases and outbreaks, and foreign currency exchange rates. Revenues for the Life Science segment, in the normal course of business, may be affected
Page 23
from quarter to quarter by buying patterns of major IVD manufacturing customers and foreign currency exchange rates.
See the “Revenue Disaggregation” section of Note 2,
“Significant Accounting Policies”
of the accompanying Condensed Consolidated Financial Statements for detailed revenue disaggregation information.
Following is a discussion of the revenues generated by these product platforms/types and/or disease states:
Diagnostics Products
The acquisition of the Revogene molecular diagnostics platform, the development of the Curian
®
immunoassay platform, and the expansion of the related assay-menu for each of these platforms are important steps in addressing competitive pressures in our gastrointestinal and respiratory illness assay families. We are actively converting our existing Alethia
®
install base to the Revogene platform for
C. difficile
, Group A
Streptococcus
(“Group A Strep”) and Group B
Streptococcus
(“Group B Strep”) assays. As previously noted, the
COVID-19
pandemic dramatically slowed the placement of our molecular assay products during the quarter, resulting in 35 Revogene systems being installed during the second quarter of fiscal 2020 and a total Revogene system install base of 148 systems as of March 31, 2020. In March 2020, we received clearance from the FDA for the Curian immunoassay diagnostics instrument and its first assay, a test for
H. pylori
antigen in stool. We believe the advantages of the Curian analyzer will help protect our existing rapid test accounts.
Gastrointestinal Assays
During the second quarter and first six months of fiscal 2020, revenues from our gastrointestinal products, which include tests for
C. difficile
,
H. pylori
and certain foodborne pathogens, among others, totaled $14,014 and $30,060, respectively. These revenue levels represent 13% and 14% decreases for this product category from the fiscal 2019 quarterly and
year-to-date
periods, respectively. These decreases result in large part from the pricing and volume pressures we continue to face within this product category. We have executed multi-year supply agreements with our two largest reference laboratory customers for
H. pylori
tests to secure volume, albeit at lower selling prices. We continue to believe there are ongoing benefits to be realized from: (i) the health and economic benefits of a test and treat strategy; (ii) changes in policies that discourage the use of traditional serology methods and promote the utilization of active infection testing methods; and (iii) physician behavior movement away from serology-based testing. Beginning in April, we began seeing lower order demand for most of our gastrointestinal products as a result of the
COVID-19
pandemic.
Contributing to the competitive pressures being faced in this product category, the patents for our
H. pylori
products, owned by us, expired in May 2016 in the U.S. and in May 2017 in countries outside the U.S. We expect competition with respect to our
H. pylori
products to continue to increase, and such competition may have an adverse impact on our selling prices for these products, or our ability to retain business at prices acceptable to us, and consequently, adversely affect our future results of operations and liquidity, including revenues and gross profit. We intend for our Curian HpSA
®
assay, cleared by the FDA in March 2020, to help protect our existing customer base using lateral flow tests. We also maintain a strategic collaboration with DiaSorin to sell
H. pylori
tests. 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
Overcoming lower sales volumes in the first quarter of fiscal 2020, revenues for our respiratory illness products, which include tests for Group A Strep, Mycoplasma pneumonia, Influenza, and Pertussis, among others, increased 44% and 20% in the second quarter and first six months of fiscal 2020, respectively. These increases primarily reflect volume increases in Group A Strep, Influenza and Mycoplasma related products from a very strong respiratory season, including the
COVID-19
pandemic.
Blood Chemistry Assays
Revenues from our sale of products to test for elevated levels of lead in blood remained flat during the second quarter of fiscal 2020 at a level of $4,329 and increased 8% for the fiscal
year-to-date
period to $9,479. During the latter part of March, we began seeing lower order demand for our blood-lead test as a result of the
COVID-19
pandemic.
Page 24
Life Science Products
During the second quarter of fiscal 2020, revenues from our Life Science segment increased 33% compared to the fiscal 2019 second quarter, with revenues from molecular reagent sales increasing 114% and revenues from immunological reagent sales decreasing 5%. Life Science segment revenues increased 11% for the first six months of fiscal 2020, reflecting a 41% increase in revenues from molecular reagent sales and an 8% 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 2019 periods, with revenues increasing 34% and 12% over the second quarter and first six months of fiscal 2019, respectively, on a constant-currency basis. The increase in revenues was primarily attributable to the increased demand for key molecular components such as RNA master mixes and dNTPs from diagnostic test manufacturers for use in
COVID-19
related tests. Largely as a result of this
COVID-19
related demand, revenue from sales into China totaled approximately $5,300 for the second quarter of fiscal 2020, a fourfold increase over the comparable fiscal 2019 quarter. For the first six months of fiscal 2020, revenue from sales into China totaled approximately $7,100, or a threefold increase over the comparable fiscal 2019 period.
Additionally, order patterns for
non-COVID-19
related products from many of our top IVD manufacturing customers returned to more normal levels during the current quarter. However, it remains unclear whether the shortfall experienced from these customers during the fiscal 2020 first quarter will be overcome throughout the remainder of the fiscal year.
Significant Customers
Revenue concentrations related to certain customers within our Diagnostics and Life Science segments are set forth in Note 10,
“Reportable Segments and Major Customers Information”
of the accompanying Condensed Consolidated Financial Statements.
Gross Profit
                                                 
 
Three Months Ended March 31,
   
Six Months Ended March 31,
 
 
2020
 
 
2019
 
 
Change
 
 
2020
 
 
2019
 
 
Change
 
Gross Profit
  $
  34,454
    $
  29,338
     
17
%   $
  61,894
    $
  60,910
     
2
%
Gross Profit Margin
   
60
%    
58
%    
2 points
     
59
%    
60
%    
-1 point
 
The gross profit margin increase experienced in the second quarter of fiscal 2020 results primarily from the positive impacts of a significantly higher percentage of the Life Science segment’s revenue relating to sales of molecular products and the segment’s manufacturing of larger-than-normal batch sizes for the RNA master mixes, both in response to the
COVID-19
pandemic demand. The decrease during the six month fiscal
year-to-date
period primarily reflects the effect of this increased
COVID-19
demand being more than offset by the combined effects of: (i) previously-noted pricing changes within our
H. pylori
product line; (ii) mix of products sold, particularly decreased contribution from certain of our higher margin gastrointestinal assays; and (iii) production capacity
ramp-up
costs for our Quebec facility where Revogene instruments and test devices are made.
Page 25
Operating Expenses - Segment Detail
                                                                                                                                                          
 
Three Months Ended March 31,
 
 
Research &
Development
 
 
Selling &
Marketing
 
 
General &
Administrative
 
 
Other
 
 
Total Operating
Expenses
 
Fiscal 2019:
   
     
     
     
     
 
Diagnostics
  $
  3,172
    $
  5,481
    $
4,336
    $
760
    $
  13,749
 
Life Science
   
644
     
1,430
     
1,439
     
25
     
3,538
 
Corporate
   
—  
     
—  
     
1,613
     
603
     
2,216
 
                                         
Total Expenses (2019 Quarter)
  $
  3,816
    $
  6,911
    $
7,388
    $
  1,388
    $
  19,503
 
                                         
Fiscal 2020:
   
     
     
     
     
 
Diagnostics
  $
  4,791
    $
  5,374
    $
6,363
    $
(505
)   $
  16,023
 
Life Science
   
595
     
1,140
     
1,906
     
103
     
3,744
 
Corporate
   
—  
     
—  
     
2,211
     
685
     
2,896
 
                                         
Total Expenses (2020 Quarter)
  $
  5,386
    $
  6,514
    $
  10,480
    $
283
    $
  22,663
 
                                         
                                                                                                                                                          
 
Six Months Ended March 31,
 
 
Research &
Development
 
 
Selling &
Marketing
 
 
General &
Administrative
 
 
Other
 
 
Total Operating
Expenses
 
Fiscal 2019:
   
     
     
     
     
 
Diagnostics
  $
6,286
    $
  11,523
    $
9,027
    $
847
    $
  27,683
 
Life Science
   
1,414
     
2,951
     
2,930
     
25
     
7,320
 
Corporate
   
—  
     
—  
     
4,329
     
1,192
     
5,521
 
                                         
Total Expenses (2019
Year-to-Date)
  $
7,700
    $
  14,474
    $
  16,286
    $
  2,064
    $
  40,524
 
                                         
Fiscal 2020:
   
     
     
     
     
 
Diagnostics
  $
9,017
    $
  10,713
    $
  11,841
    $
812
    $
  32,383
 
Life Science
   
1,193
     
2,485
     
3,467
     
198
     
7,343
 
Corporate
   
—  
     
—  
     
3,928
     
1,055
     
4,983
 
                                         
Total Expenses (2020
Year-to-Date)
  $
  10,210
    $
  13,198
    $
  19,236
    $
2,065
    $
  44,709
 
                                         
Operating Expenses – Comparisons to Prior Year Periods
                                                                                                                                           
 
Three Months Ended March 31, 2020
 
 
Research &
Development
 
 
Selling &
Marketing
 
 
General &
Administrative
 
 
Other
 
 
Total Operating
Expenses
 
2019 Expenses
  $
  3,816
    $
  6,911
    $
7,388
    $
1,388
    $
  19,503
 
                                         
% of Revenues
   
8
%    
14
%    
15
%    
3
%    
39
%
Fiscal 2020 Increases/(Decreases):
   
     
     
     
     
 
Diagnostics
   
1,619
     
(107
)    
2,027
     
(1,265
)    
2,274
 
Life Science
   
(49
)    
(290
)    
467
     
78
     
206
 
Corporate
   
—  
     
—  
     
598
     
82
     
680
 
                                         
2020 Expenses
  $
5,386
    $
6,514
    $
10,480
    $
283
    $
22,663
 
                                         
% of Revenues
   
9
%    
11
%    
18
%    
1
%    
40
%
% Increase (Decrease)
   
41
%    
(6
)%    
42
%    
(80
)%    
16
%
Page 26
                                                                                                                                           
 
Six Months Ended March 31, 2020
 
 
Research &
Development
 
 
Selling &
Marketing
 
 
General &
Administrative
 
 
Other
 
 
Total Operating
Expenses
 
2019 Expenses
  $
7,700
    $
  14,474
    $
  16,286
    $
  2,064
    $
  40,524
 
                                         
% of Revenues
   
8
%    
14
%    
16
%    
2
%    
40
%
Fiscal 2020 Increases/(Decreases):
 
Diagnostics
   
2,731
     
(810
)    
2,814
     
(35
)    
4,700
 
Life Science
   
(221
)    
(466
)    
537
     
173
     
23
 
Corporate
   
—  
     
—  
     
(401
)    
(137
)    
(538
)
                                         
2020 Expenses
  $
  10,210
    $
  13,198
    $
  19,236
    $
  2,065
    $
  44,709
 
                                         
% of Revenues
   
10
%    
13
%    
18
%    
2
%    
43
%
% Increase (Decrease)
   
33
%    
(9
)%    
18
%    
-
%    
10
%
The changes in operating expenses primarily reflect the following:
  • Increased Research & Development costs, primarily for the development of the Revogene system GI and RI panel assays for the Diagnostics operating segment;
  • Decreased Selling & Marketing costs, primarily reflecting the effects of reorganization and streamlining initiatives;
  • Increased General & Administrative costs, primarily reflecting additional investment in incentive compensation, along with the purchase accounting amortization from the acquisition of the GenePOC business; and
  • Increased acquisition and restructuring costs, along with a decrease in fair value of the contingent consideration obligation for the GenePOC business, all of which are reflected within “Other” in the above tables.
Operating Income
Operating income increased 20% to $11,791 for the second quarter of fiscal 2020 and decreased 16% to $17,185 for the first six months of fiscal 2020, as a result of the factors discussed above.
Income Taxes
The effective rate for income taxes was 26% and 27% for the second quarter and first six months of fiscal 2020, respectively, compared to 23% for both corresponding periods in fiscal 2019. This higher fiscal 2020 tax rate results largely from the
non-deductibility
of the acquisition-related costs related to Exalenz, along with the tax impact of restricted share units lapsing on a date when the share price was significantly lower than the share price on the date the restricted share units were granted. In accordance with current applicable guidance, the tax effect of this difference is recorded directly to income tax expense. We expect our effective tax rate for the full fiscal year to approximate 25.5% to 26.5%.
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
Page 27
are to: (i) preserve capital; (ii) provide sufficient liquidity to meet working capital requirements and fund strategic objectives such as acquisitions; and (iii) capture a market rate of return commensurate with market conditions and our policy’s investment eligibility criteria. As we look forward, we will continue to manage the holdings of our investment portfolio with preservation of capital being the primary objective.
We intend to continue to fund our working capital requirements from current cash flows from operating activities and cash on hand. If needed, we also have an additional source of liquidity through the amount remaining available on our $160,000 bank revolving credit facility, which totaled approximately $61,200 as of April 30, 2020, following the additional $50,000 drawn on the credit facility in April to complete the acquisition of Exalenz. 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, 2020, our cash and equivalents balance was $49,550 or $17,547 lower than at the end of the fiscal 2019 second quarter, and $12,847 lower than at the end of fiscal 2019, resulting in large part from the $27,000 revolving credit facility payment in January 2020. As a result of the cash generated during the first six months of fiscal 2020, since the beginning of fiscal 2020, our balance of net debt (defined as bank debt and total contingent obligations related to the acquisition of the GenePOC, net of cash and equivalents
on-hand)
has decreased approximately $15,500 to approximately $30,200 at March 31, 2020. Net cash flows from operating activities and cash on hand are anticipated to be adequate to fund working capital requirements, capital expenditures and debt service during the next twelve months.
The impacts of COVID-19 have adversely affected the capital markets and the ability of many companies to access capital and liquidity on favorable terms or at all. The Company expects to be in compliance with its financial covenants for at least the next twelve months. However, the Company is currently unable to predict the impact that COVID-19 will have on its ability to access capital in the future. If the Company is unable to access additional capital and liquidity on acceptable terms, it could adversely impact the Company’s results of operations and ability to meet its future obligations beyond the next twelve months.
In April 2019, we suspended the payment of our quarterly cash dividend. The dividend was suspended as part of our regular evaluation of capital allocation, with the action taken in order to deploy cash into new product development activities for the Revogene molecular diagnostic platform, as well as the Curian and Pediastat
®
platforms, among other investments, and to preserve capital resources and liquidity for general corporate purposes.
Capital Resources
As described in Note 9,
“Bank Credit Arrangements”
of the accompanying Condensed Consolidated Financial Statements and above, the Company maintains a $160,000 credit facility, which is secured by substantially all of our assets and includes certain restrictive financial covenants.
Our capital expenditures are estimated to range between approximately $3,000 to $4,000 for fiscal 2020, 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 $160,000 revolving credit facility discussed above.
We do not utilize any special-purpose financing vehicles or have any undisclosed
off-balance
sheet arrangements.
Page 28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Other than the impact of the recent outbreak of
COVID-19
on our business and results of operations as discussed elsewhere in this report, there have been no material changes in the Company’s exposure to market risk since September 30, 2019.
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 March 31, 2020. 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, 2020.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as that term is defined in Rules
13a-15(f)
and
15d-15(f)
under the Exchange Act) during the quarter ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 11,
“Litigation Matters”
of the accompanying Condensed Consolidated Financial Statements.
ITEM 1A. RISK FACTORS
There have been no material changes from risk factors as previously disclosed in the Company’s fiscal 2019 Annual Report on Form
10-K
in response to Item 1A to Part I of Form
10-K,
except that we are adding the following risk factor discussion relating to coronavirus
COVID-19.
Our financial condition, results of operations and cash flows could be adversely affected by the ongoing coronavirus
(COVID-19)
outbreak.
Any outbreak of contagious diseases, such as
COVID-19,
or other adverse public health developments, could have material and adverse effects on our business operations. Such adverse effects could include diversion or prioritization of health care resources away from the conduct of diagnostic testing, disruptions of or restrictions on the ability of laboratories to process our tests, and delays with respect to or difficulties in patients accessing our tests, including those resulting from an inability to travel as a result of quarantines or other restrictions resulting from
COVID-19.
As
COVID-19
continues to affect individuals and businesses around the globe, we may experience disruptions that could severely impact our business, including:
  • decreased volume of testing and related sales of certain of our Diagnostics products as a result of disruptions to health care providers and limitations on the ability of providers to administer tests;
 
 
  • disruptions or restrictions on the ability of our, our collaborators’, or our suppliers’ personnel to travel, and temporary closures of our facilities or the facilities of our collaborators or suppliers;
 
 
  • limitations on employee resources that would otherwise be focused on the development of our products, processing our diagnostic tests, and the conduct of our clinical trials, including because
 
 
Page 29
    of sickness of employees or their families or requirements imposed on employees to avoid contact with large groups of people; and
 
 
  • delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees.
 
 
In addition, the continued spread of
COVID-19
globally could adversely affect our manufacturing and supply chains. Parts of our direct and indirect supply chains are located overseas, including in China, and may accordingly be subject to disruption. Additionally, our results of operations could be adversely affected to the extent that
COVID-19
or any other epidemic harms our business or the economy in general either domestically or in any other region in which we do business. The extent to which
COVID-19
affects our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of
COVID-19,
and the actions to contain
COVID-19
or treat its impact, among others, which could have an adverse effect on our business, results of operations and financial condition.
To date, we are seeing that the outbreak has slowed our assay instrument placements and sales of related test kits as diagnostic testing sites have turned their attention to critical care testing. We are unable to predict when expected sales volume levels for our instruments and related test kits will return. Also, as a result of the pandemic, certain clinical trials related to our products which were underway or scheduled to begin have been temporarily placed on hold. Such delays will impact our timing for filing applications for product clearances with the FDA, as well as related timing of FDA clearances of such filings. Additionally, the pandemic could slow down our efforts to expand our product portfolio through acquisitions and distribution opportunities, impacting the speed with which we are able to bring additional products to market.
Page 30
ITEM 6. EXHIBITS
The following exhibits are being filed or furnished as a part of this Quarterly Report on Form
10-Q:
         
         
 
2.1
   
         
 
10.1
   
         
 
10.2
   
         
 
31.1
   
         
 
31.2
   
         
 
32
   
         
 
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 31
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 8, 2020
 
 
By:
 
/s/ Bryan T. Baldasare
 
 
 
Bryan T. Baldasare
 
 
 
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
 
 
Page 32
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