AngioDynamics, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter of 2012, the three months ended August 31, 2011. Comparisons are with the three months ended August 31, 2010, unless noted. AngioDynamics develops and sells medical devices for minimally invasive vascular, oncology and surgical procedures. Its reportable segments are Vascular and Oncology/Surgery.
Financial performance
| Metric | Q1 FY2012 | Q1 FY2011 | Change |
|---|---|---|---|
| Net sales | $54.4 million | $51.5 million | +5.7% |
| Gross profit / margin | $32.1 million / 59.1% | $30.0 million / 58.3% | Margin +0.8 percentage points |
| Operating income / margin | $2.7 million / 5.0% | $3.5 million / 6.8% | Income down 21.9% |
| Net income | $1.4 million | $1.9 million | Down 27.3% |
| Diluted EPS | $0.05 | $0.08 | Down $0.03 |
| Operating cash flow | $3.0 million | $1.7 million | Up $1.3 million |
- Sales increased mainly on higher unit sales of LC Bead, Venacure/EVLT procedure kits, vascular access ports and NanoKnife. Overall average selling prices fell 2%; Vascular pricing fell 5%, while Oncology/Surgery pricing rose 4%.
- Vascular sales were $36.6 million, up 2%; Oncology/Surgery sales were $17.9 million, up 15%. NanoKnife sales were $2.3 million, versus $1.1 million a year earlier.
- Gross margin improved with material-cost reductions, better factory utilization and stronger Oncology/Surgery pricing. Operating income declined as sales and marketing costs rose 13% and the quarter included $923,000 of net restructuring and other costs.
- R&D expense was $5.6 million, or 10.3% of sales; sales and marketing was $16.3 million, or 30.0%; G&A was $4.3 million, or 7.9%. The effective tax rate was 35%, compared with 36%.
Cash, debt and liquidity
- At August 31, 2011, cash, cash equivalents and marketable securities totaled $136.7 million, compared with $131.5 million at May 31, 2011. Cash and cash equivalents alone were $50.5 million.
- Total debt was approximately $6.5 million, down from $6.6 million at May 31; current and long-term debt on the balance sheet totaled $6.5 million. The company stated that available cash, investments and operating cash flows should meet anticipated capital needs for at least 12 months. Significant cash acquisitions could require external financing.
- Quarterly cash flows: operating activities provided $3.0 million; investing activities used $0.3 million; financing activities provided $1.7 million. Cash increased $4.5 million during the quarter.
- Two auction-rate securities totaling $1.85 million remained illiquid after failed auctions; the issuers were current on interest payments. Interest-rate swaps had a fair-value liability of $1.2 million.
Material developments, outlook and risks
- Costs and leadership: The former CEO’s separation agreement generated about $1.0 million of first-quarter expense. A new CEO began September 7, 2011; the interim CEO subsequently resigned effective October 14.
- Restructuring: The company plans to close its Cambridge, UK facility and transfer laser production to Queensbury, New York. Completion was anticipated by February 2012, at an estimated total cost of $1.6 million; $295,000 was charged in the quarter.
- Product and distribution: AngioDynamics sold the Centros product assets in August, recognizing a $201,000 gain. Its exclusive U.S. LC Bead distribution agreement expires December 31, 2011. LC Bead sales were $8.0 million in the quarter, versus $6.8 million a year earlier.
- R&D outlook: Management expected R&D expense to run at 10%–11% of sales in fiscal 2012, reflecting vascular process engineering and NanoKnife investment; it noted spending could be reduced if business conditions deteriorate. The filing gives no specific revenue or EPS forecast.
- Litigation: On September 27, 2011, the court granted key portions of AngioDynamics’ summary-judgment motion against biolitec and dismissed biolitec’s counterclaims. The damages order was not yet a judgment, and recovery of any amount was uncertain; no gain or receivable was recognized. One recovery issue remained for trial.
- Other risks: The filing identifies product development and acceptance, regulatory actions and clinical trials, litigation, competition and pricing pressure, economic conditions, foreign exchange and acquisition integration as risks. The company reported no material change to the risk factors in its fiscal 2011 Form 10-K. Goodwill impairment testing depends on assumptions about growth, margins, discount rates and market conditions; prior tests found no impairment, but adverse developments could require reassessment.
Important facts for investors to verify
- Whether the LC Bead distribution agreement was renewed or replaced before its December 31, 2011 expiration, and the resulting sales and margin effects.
- Actual closure costs and timing for the UK facility, alongside the company’s ability to realize expected operating savings.
- Progress and potential damages in the biolitec litigation; no recovery was included in reported results.
- NanoKnife growth and its ongoing earnings impact: the quarter’s investment reduced pretax income by $1.8 million and after-tax income by $1.2 million, or $0.05 per share.
- Liquidity and investment risks, including the $1.85 million in failed-auction securities, and execution of the stated R&D and 12-month liquidity expectations.