AngioDynamics, Inc. — Form 10-Q Summary
Reporting period: Three months ended August 31, 2019, the first quarter of fiscal 2020. Amounts below are in U.S. dollars; financial figures are rounded to millions unless otherwise stated.
Business context and results
AngioDynamics develops and sells medical devices for vascular access, peripheral vascular disease, oncology and surgical applications. The company operates as one reportable segment. Its Fluid Management business was sold to Medline on May 31, 2019 and is presented as discontinued operations in prior-period results.
| Metric | Q1 FY2020 | Prior-year quarter |
|---|---|---|
| Net sales | $66.0 million | $63.9 million |
| Gross profit / margin | $38.2 million / 57.9% | $36.0 million / 56.2% |
| Operating loss | $(0.8) million | $(6.1) million |
| Loss from continuing operations | $(1.3) million | $(5.7) million |
| Net loss | $(1.3) million | $(0.5) million |
| Basic and diluted loss per share | $(0.03) | $(0.01) |
| Cash used in operating activities | $6.5 million | $8.9 million |
Revenue, margins and material changes
- Sales rose 3.3%. Oncology increased 20.9% to $14.0 million, including contributions from RadiaDyne and BioSentry. Vascular Interventions & Therapies grew 1.1% to $28.9 million; Vascular Access declined 2.7% to $23.2 million.
- U.S. sales increased 2.8% to $52.9 million; international sales increased 5.3% to $13.1 million.
- Gross margin improved 170 basis points. Management attributed the improvement to acquired-product sales, favorable sales mix and productivity, partly offset by pricing and currency headwinds and the termination of the Asclera distribution agreement.
- Operating expenses included $3.9 million of intangible amortization, $1.5 million of acquisition, restructuring and other items, and a $0.4 million gain from the change in fair value of contingent consideration. R&D expense fell 14.7%; sales and marketing expense rose 5.3%; G&A was approximately flat.
- The prior-year quarter included $5.2 million of after-tax income from discontinued operations. Accordingly, the year-over-year change in total net loss is not directly comparable; continuing-operations loss improved.
Cash, debt and liquidity
- Cash and cash equivalents were $83.6 million at August 31, 2019, versus $227.6 million at May 31, 2019. The decrease primarily reflects $132.5 million of debt repayment and other financing cash outflows.
- Operating activities used $6.5 million of cash. The filing cites increased inventory and lower accounts payable and accrued liabilities as working-capital uses.
- No debt was outstanding at quarter-end. A new five-year, secured $125 million revolving credit facility was established; it was undrawn at August 31, 2019. The company reported compliance with its financial covenants.
- Management stated that cash, operating cash generation and revolver access should meet anticipated capital needs for at least 12 months. Significant cash acquisitions could require external financing.
- The Fluid Management sale generated $169.2 million in cash in the prior quarter and a $46.6 million gain. Proceeds were used in part to repay debt; remaining net proceeds were to be invested in the business.
Outlook, risks and unusual items
- The filing provides no quantified revenue or earnings guidance. Management described growth opportunities in geographic expansion, market penetration and new products, and plans to continue investing in R&D and business development.
- On October 2, 2019, after the quarter, the company acquired Eximo Medical for $45.8 million, with up to $20.0 million of additional contingent consideration.
- Key stated risks include product development and market acceptance, regulatory actions and clinical-trial outcomes, competition and pricing, foreign-exchange movements, integration of acquisitions, and litigation.
- Patent disputes with C.R. Bard remained unresolved: Bard appealed a judgment in AngioDynamics’ favor in the Delaware action, while the Utah action awaited a court decision on a motion to lift a stay. The company said potential losses could not yet be determined as probable and reasonably estimable. Its separate antitrust action against Bard remained in discovery.
- The company paid Merz $2.5 million to settle a contract dispute during the quarter. It also reported a full valuation allowance on specified deferred tax assets, citing lack of sustained profitability. Adoption of the new lease standard added approximately $5.6 million in lease assets and liabilities.
- The company reported no material changes to risk factors from its latest Form 10-K. Management concluded disclosure controls were effective and reported no material quarter-end change in internal control over financial reporting.
Important facts for investors to verify
- Whether Oncology growth, including acquired-product contributions, can continue and whether Vascular Access competitive pressures persist.
- Cash conversion and working-capital trends, especially inventory and payments to suppliers and accrued liabilities.
- Liquidity following the debt repayment, covenant headroom and the cash impact of the Eximo acquisition and contingent consideration.
- Progress and potential financial exposure from the Bard litigation, and the accounting treatment of legal and divestiture-related costs.
- Whether the company achieves sustained profitability that could support a future release of deferred-tax valuation allowances.