AngioDynamics, Inc. — Q1 FY2016 Form 10-Q
Reporting period: Three months ended August 31, 2015; comparisons are with the three months ended August 31, 2014. AngioDynamics develops, manufactures and sells medical devices for vascular access, peripheral vascular disease, oncology and surgery.
Financial results
| Metric | Q1 FY2016 | Q1 FY2015 |
|---|---|---|
| Net sales | $83.7 million | $87.3 million |
| Gross profit / margin | $43.2 million / 51.6% | $45.8 million / 52.5% |
| Operating income | $1.1 million | $3.2 million |
| Net income (loss) | $(0.8) million | $0.5 million |
| Diluted EPS | $(0.02) | $0.01 |
| Cash from operations | $4.7 million | $5.4 million |
Revenue declined 4% reported and 3% on a constant-currency basis, excluding the supply agreement decline; the filing reports a 1% favorable currency impact on total sales. U.S. sales were essentially flat, while international sales fell 11% on a constant-currency basis. By product category, Peripheral Vascular sales were nearly flat, Vascular Access declined 7%, Oncology/Surgery declined 9%, and supply-agreement sales fell 44%.
Gross margin fell 0.9 percentage point. Management attributed pressure to lower sales and unfavorable currency effects, partly offset by Operational Excellence cost reductions. Operating expenses totaled $42.1 million versus $42.6 million: lower R&D and restructuring-related costs were offset in part by higher sales and marketing and intangible amortization. Acquisition, restructuring and other items were $2.1 million, primarily accelerated depreciation and litigation expense.
Balance sheet, liquidity and cash flow
- At August 31, 2015, cash and cash equivalents were $20.3 million; marketable securities were $1.7 million. Cash increased $1.9 million during the quarter.
- Operating cash flow was $4.7 million. Investing used $0.7 million, mainly fixed-asset additions; financing used $2.1 million, including $1.3 million of debt repayment and $2.1 million of contingent-consideration payments.
- Total debt was $136.4 million, comprising $10.0 million current and $126.4 million long-term debt. The company reported $53.6 million of remaining revolving-facility capacity and compliance with both financial covenants.
- Contingent consideration had a fair value of $45.7 million; expected undiscounted future payments were approximately $52.0 million. Inventory rose to $74.3 million from $67.4 million, primarily during manufacturing and distribution facility consolidation.
- Management believes available cash, operating cash generation and revolver capacity are sufficient for anticipated needs for at least 12 months. The $1.7 million in auction-rate securities had failed auctions and may not be readily liquid.
Outlook, developments and risks
- Management said it anticipates a return to U.S. profitability in fiscal 2016 and expects new products, R&D investment and the Operational Excellence Program to support growth and margin improvement. The filing does not provide specific revenue or earnings guidance.
- An EmboMedics agreement would provide an exclusive worldwide license to market and sell its microsphere technology after regulatory clearance, with manufacturing controlled by AngioDynamics. Final terms, including payments and any purchase option, were not settled.
- Legal matters include a $74.9 million judgment against Biolitec entities, affirmed on appeal but subject to a pending U.S. Supreme Court petition; patent litigation brought by C.R. Bard; and DOJ investigations involving LC Beads and VenaCure EVLT. The company says it cannot predict the outcomes of the investigations. Bard claims seek unspecified damages; the company has not accrued litigation expense where loss was not considered probable and estimable.
- Other risks cited include product development and regulatory approvals, clinical trial results, litigation, currency and pricing pressures, competition, and integration of acquired businesses. Management reported disclosure controls were effective and no material change in internal control during the quarter.
Most important facts for investors to verify
- Whether sales declines in Vascular Access, Oncology/Surgery and international markets stabilize, and whether the Morpheus recall continues to affect results.
- Progress toward fiscal 2016 profitability and whether operational savings offset currency and gross-margin pressure.
- Cash conversion, inventory levels, debt and covenant headroom, and the timing and size of contingent-consideration payments.
- Developments in the Biolitec, Bard and DOJ matters, including potential financial or operational consequences.
- Final EmboMedics terms, required regulatory clearances and any associated investment or acquisition commitments.