AngioDynamics, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended May 31, 2013; the filing was signed August 14, 2013. The request references 2012 Q4, but this filing reports FY2013 and includes unaudited quarterly data, including Q4 FY2013. AngioDynamics develops, manufactures and sells minimally invasive medical devices for vascular access, peripheral vascular disease, oncology and surgery. Effective June 1, 2012, it began reporting as a single operating segment.
Financial performance
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net sales | $342.0 million | $221.8 million |
| Gross profit / margin | $169.0 million / 49.4% | $126.0 million / 56.8% |
| Operating income (loss) | $7.1 million | ($3.0 million) |
| Net income (loss) | ($0.6 million); ($0.02) per share | ($5.1 million); ($0.20) per share |
| Cash from operating activities | $26.9 million | $11.5 million |
| Cash, cash equivalents and marketable securities | $24.0 million | $40.1 million |
| Working capital / current ratio | $78.1 million / 2.2 | $103.8 million / 2.9 |
| Outstanding bank debt | $142.5 million | $150.0 million |
FY2013 revenue rose 54%, principally due to the Navilyst acquisition and microwave product sales. Peripheral Vascular sales increased 98% to $188.2 million and Access sales increased 67% to $106.7 million. Oncology/Surgery sales declined 25% to $47.2 million, chiefly reflecting the end of LC Beads distribution; FY2012 LC Beads sales were $21.3 million. International sales doubled to $67.2 million, or 20% of total sales.
Gross margin fell 7.4 percentage points. Management attributed the decline primarily to lower-margin Navilyst products and $3.8 million of acquired inventory step-up costs; approximately $0.9 million of Quality Call to Action costs also affected FY2013 gross margin. Operating results included $13.8 million of acquisition, restructuring and other costs, $1.6 million of medical-device excise tax, and $1.6 million expense from the change in fair value of acquisition earn-outs. Interest expense rose to $5.3 million from $0.5 million, mainly due to debt incurred for Navilyst.
Q4 FY2013 sales were $90.0 million, gross profit $44.2 million and net loss $0.9 million, or $0.03 per share. Q4 FY2012 sales were $57.7 million, gross profit $31.2 million and net loss $7.0 million, or $0.27 per share.
Liquidity, debt and material changes
- Operating cash flow was $26.9 million; investing activities used $22.2 million and financing activities used $6.3 million. Cash and cash equivalents ended the year at $21.8 million.
- The company had a $150 million senior secured term loan and an undrawn $50 million revolving facility. It repaid $7.5 million of principal during FY2013 and reported compliance with its financial covenants at year-end. A $100 million interest-rate swap was in place to reduce rate exposure.
- Navilyst, acquired in May 2012 for an estimated $361 million, materially expanded revenue and vascular access and fluid-management products. The acquisition was financed with stock, $150 million of debt and $97 million of cash; former owners held approximately 27% of shares at May 31, 2013.
- FY2013 acquisitions included Vortex Medical, with estimated consideration of $75.3 million, including $60.3 million fair value of contingent consideration (of which $40 million was guaranteed), and Microsulis assets, with estimated consideration of $33.6 million. The acquisition earn-out liability for Vortex and Microsulis was $75.0 million at year-end; total estimated undiscounted future earn-out payments for completed acquisitions were approximately $94 million.
- Goodwill and intangible assets totaled approximately $570 million, about 72% of total assets. The annual goodwill impairment test found no impairment, but fair value exceeded carrying value by only 5%.
Outlook, commentary and risks
- The filing provides no formal revenue or earnings guidance. Management said current cash and investment balances and operating cash generation were expected to cover anticipated capital needs for at least 12 months; significant future acquisitions could require additional financing.
- Management estimated the medical-device excise tax at approximately $4.1 million for FY2014, compared with $1.6 million recorded in FY2013. It anticipated starting NanoKnife focal-prostate-cancer trial enrollment in FY2014’s second quarter, subject to institutional review board submissions.
- FDA compliance remains a material risk. The company disclosed a prior Warning Letter and multiple Form 483 observations involving quality systems, complaint handling, reporting, design controls and training. Further enforcement could include product recalls, fines, injunctions or facility restrictions. The filing says the company would continue working with FDA to resolve outstanding matters.
- Other key risks include acquisition integration and execution, contingent earn-out payments, debt service and covenant restrictions, product reimbursement and pricing pressure, competition, supply interruptions, product liability and patent disputes. C.R. Bard’s patent case concerning implantable ports remained stayed pending patent reexamination; the company reported that 40 of 41 asserted claims had been rejected in that proceeding. The company also reported a $23.2 million partial judgment in its favor against biolitec, while related recovery proceedings remained ongoing.
- The company held $1.85 million in auction-rate securities with failed auctions, limiting near-term liquidity for those investments. Management stated that interest payments remained current.
Most important facts for investors to verify
- Whether acquisition-driven growth can be sustained and translated into improved gross margins, given the FY2013 margin decline and Oncology/Surgery sales contraction.
- Actual cash payments and sales performance under the Vortex and Microsulis earn-outs, including the guaranteed component and the potential for payments beyond current fair-value estimates.
- Progress toward resolving FDA quality-system observations and any subsequent regulatory actions, recalls or restrictions.
- Debt repayment capacity, covenant headroom and liquidity after scheduled principal payments, acquisition obligations and the estimated FY2014 excise tax.
- Whether Navilyst integration benefits and projected cost savings and tax benefits are realized; management’s disclosed projections are uncertain and not guarantees.
- Outcomes and potential financial exposure from the Bard, Cardinal Health and other pending legal matters, and collectability of the biolitec judgment.