Business context and reporting period
AngioDynamics designs and sells medical devices used in vascular access, peripheral vascular disease treatment, oncology and surgical settings. This Form 10-Q covers the quarter and nine months ended February 28, 2022 (fiscal 2022 Q3); the filing’s dates do not correspond to calendar 2021 Q3.
Management is shifting toward higher-technology products, including Auryon, thrombectomy products and NanoKnife (“Med Tech”), while the rest of the portfolio is classified as “Med Device.”
Financial results
| Metric | Three months ended Feb. 28, 2022 | Nine months ended Feb. 28, 2022 |
|---|---|---|
| Net sales | $74.0 million, up 3.9% | $229.2 million, up 7.0% |
| Gross profit / margin | $38.6 million / 52.2%, versus 54.1% | $119.3 million / 52.0%, versus 53.4% |
| Operating loss | $5.3 million | $22.1 million |
| Net loss / diluted loss per share | $5.0 million / $0.13 | $20.3 million / $0.52 |
| Cash from (used in) operations | Not provided for the quarter | $(15.8) million, versus $11.9 million provided |
For the nine months, operating expenses rose to $141.4 million from $128.2 million. Sales and marketing expense increased 19.1%, including investment in Auryon’s sales organization; R&D expense declined 16.2%. The filing reports no positive operating or net profit.
Revenue trends and material changes
- Q3 Med Tech sales rose 28.6% to $19.6 million; Med Device sales fell 2.8% to $54.4 million. For the nine months, Med Tech grew 41.8% and Med Device declined 0.8%.
- Endovascular Therapies sales increased 14.5% in Q3 and 19.4% year to date. Vascular Access declined 5.6% and 4.4%, respectively; Oncology declined 5.0% and 0.9%.
- U.S. sales grew 6.5% in Q3 and 10.8% year to date, while international sales fell 8.0% and 9.2%.
- Management attributed Med Tech growth mainly to Auryon and mechanical thrombectomy. Med Device sales were affected by a $9.6 million backlog, particularly in Core, Venous and Vascular Access products; Oncology also faced lower procedure volumes amid COVID-19 challenges.
- Q3 gross margin contracted 190 basis points. Management cited labor shortages, raw-material inflation and production volume pressures, partly offset by sales volume and an employee retention credit benefit.
Cash, debt and liquidity
At February 28, 2022, cash and cash equivalents were $23.9 million, down from $48.2 million at May 31, 2021. Current assets were $127.7 million and current liabilities $49.4 million. Long-term debt was $25.0 million, up from $20.0 million; the company had drawn $5.0 million on its revolving facility to help fund the QX Medical asset acquisition. The facility provides $125.0 million of commitments. The reported interest rate was 1.36%, and the company said it was in compliance with its covenants.
Nine-month investing cash use was $15.5 million, including $8.7 million for placement and evaluation units, $3.3 million for fixed assets and $3.6 million for the QX Medical acquisition. Management believes cash, operating cash generation and facility availability will meet anticipated capital needs for at least 12 months.
Outlook, risks and unusual items
- The filing provides no specific numerical sales, earnings or margin guidance. Management expects growth from geographic expansion, new products and greater market penetration, with high-technology products expected to drive near- to mid-term growth.
- Management cited continuing COVID-19 disruption, supply-chain constraints, labor shortages, backlog, inflation and the cost and availability of raw materials, direct labor and shipping. Foreign exchange, competition, pricing, regulatory actions, clinical results and product acceptance are also risks.
- A $4.2 million employee retention credit benefit was recorded in Q3. Management says the credit contributed to results across expense categories; investors should distinguish this benefit from recurring performance.
- Acquisition, restructuring and other items were $7.1 million for the nine months, primarily including $5.8 million of legal costs outside the ordinary course and manufacturing-relocation costs. The filing also reports a $1.0 million year-to-date expense from changes in contingent consideration fair value.
- Several C.R. Bard patent disputes remained unresolved; certain cases were stayed pending appeal, and a separate patent trial was scheduled for May 2022. The company recorded no litigation expense for these outcomes because a loss was not considered both probable and reasonably estimable. Its antitrust case against Bard had a July 2022 trial scheduled.
- The company maintained a valuation allowance against certain deferred tax assets, citing the lack of sustained profitability. It said a future release, if supported by evidence, could materially affect results.
Important facts for investors to verify
- Whether the $9.6 million backlog and supply-chain and labor constraints eased after quarter-end, and whether this translated into sales and margin improvement.
- Whether Med Tech growth continued and offset softness in Med Device, including the effects of procedure volumes and product launches.
- How operating cash flow and cash balances develop, including investment in placement units, working-capital needs and use of the revolving facility.
- Subsequent developments in Bard litigation, contingent consideration obligations and other legal exposures.
- The recurring earnings impact of the employee retention credit and the company’s progress toward sustained profitability and possible valuation-allowance changes.