AngioDynamics, Inc. — Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three months ended August 31, 2017, AngioDynamics’ fiscal 2018 first quarter; comparisons are with the three months ended August 31, 2016. The company develops, manufactures, and sells medical devices for vascular access, peripheral vascular disease, oncology, and surgery. It reports as one operating segment.
Financial performance and liquidity
| Metric | Q1 FY2018 | Q1 FY2017 |
|---|---|---|
| Net sales | $85.4 million | $88.1 million |
| Gross profit / margin | $41.2 million / 48.3% | $45.0 million / 51.1% |
| Operating income | $0.1 million | $3.6 million |
| Net income (loss) | ($0.04) million | $1.3 million |
| Diluted EPS | $0.00 | $0.04 |
| Operating cash flow | $3.0 million | $7.4 million |
Cash and cash equivalents were $48.2 million at August 31, 2017, versus $47.5 million at May 31, 2017; marketable securities were $1.2 million. Total principal debt was $96.3 million, comprising a term loan; the $150 million revolving facility had no balance outstanding. The term-loan rate was 2.74%, and the company reported compliance with credit covenants. Current assets were $150.7 million and current liabilities $64.3 million. Management said cash, expected operating cash flow, and revolver capacity should be sufficient for anticipated needs for at least 12 months.
Material changes versus prior year
- Sales fell 3%. Peripheral Vascular declined 4% to $49.9 million and Vascular Access declined 7% to $23.2 million; Oncology/Surgery grew 11% to $12.3 million.
- U.S. sales declined 5% to $68.9 million, while international sales rose 4% to $16.5 million.
- Management attributed weaker sales mainly to Venous and Angiographic products and non-BioFlo Vascular Access products. Prior-year Angiographic sales benefited from competitor-recall-related customer inventory build, including about $4.0 million of additional sales.
- Gross margin contracted 2.8 percentage points. Management cited the Acculis capital-system withdrawal ($0.5 million impact), lower plant volume ($1.0 million), and pricing and product mix headwinds ($0.9 million).
- Operating income declined by $3.4 million. Acquisition, restructuring and other charges increased to $3.0 million, including $1.2 million for manufacturing consolidation; legal expense was $1.8 million, broadly comparable to the prior year.
- Operating cash flow decreased $4.4 million, including a $7.2 million cash use from lower accounts payable and accrued liabilities, partly offset by a $3.1 million accounts-receivable working-capital improvement.
Outlook, commentary, risks, and unusual items
- No specific revenue or earnings guidance is provided. Management described plans to pursue growth through new products, geographic expansion, and market penetration, and reported FDA clearance for the Solero Microwave Tissue Ablation System in the quarter. It also announced a shift toward a global sales strategy.
- A manufacturing consolidation is expected to be completed in fiscal 2018 Q3. Estimated total costs are $6.25 million to $7.75 million; $1.2 million was recorded in this quarter.
- The Acculis probe recall, announced in fiscal 2017 Q4, resulted in an inventory reserve of $1.2 million at quarter-end and a $1.0 million related liability/revenue deferral. The company also cited a $0.5 million gross-profit impact from withdrawal of Acculis capital systems.
- In August 2017, the company agreed in principle with the government to resolve two DOJ investigations for approximately $12.5 million; that amount had been accrued. The investigations concern LC Bead distribution and alleged promotion of certain VenaCure EVLT products for uncleared indications.
- Pending Bard patent-infringement litigation in Utah and Delaware seeks unspecified damages and other relief. The company says it intends to defend the claims and has not accrued a loss because probability and amount cannot be reasonably determined. The company’s antitrust case against Bard faced a motion to dismiss.
- Other disclosed risks include product development and regulatory outcomes, litigation, competition and pricing, foreign-exchange movements, and integration of acquired businesses. Approximately 7% of first-quarter sales were denominated in foreign currencies. Management reported no material change in previously disclosed risk factors.
- The company maintains a full U.S. valuation allowance on net deferred tax assets. Management said a future release, if warranted, could materially benefit results, but timing and amount are uncertain.
Important facts for investors to verify
- Whether product-level sales trends—particularly Peripheral Vascular and Vascular Access weakness and BioFlo growth—continue in subsequent quarters.
- Whether Solero and other Oncology/Surgery products sustain growth and offset declines elsewhere.
- Actual restructuring costs, savings, timing, and operational effects of the manufacturing consolidation.
- Payment and final resolution of the approximately $12.5 million DOJ matter, and developments in Bard litigation and the company’s antitrust action.
- Cash generation, working-capital needs, debt repayments, covenant compliance, and availability under the revolving facility.
- Effects of the Acculis recall, foreign-exchange changes, and the high estimated annual effective tax rate (52.9% before discrete items).