AngioDynamics, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended November 30, 2019. Amounts below are in U.S. dollars; financial figures are rounded to millions unless otherwise noted.
Business context and reporting period
AngioDynamics develops and sells medical devices for vascular access, peripheral vascular disease, oncology and surgical settings. It reports as one operating segment. The Fluid Management business was sold to Medline on May 31, 2019; its prior-year results are presented as discontinued operations, affecting comparisons of total net income.
Financial performance and liquidity
| Metric | Three months ended Nov. 30, 2019 | Prior-year quarter | Six months ended Nov. 30, 2019 | Prior-year six months |
|---|---|---|---|---|
| Net sales | $70.0 million | $70.0 million | $136.0 million | $133.9 million |
| Gross profit / margin | $41.5 million / 59.3% | $40.6 million / 57.9% | $79.8 million / 58.6% | $76.5 million / 57.1% |
| Operating loss | $3.4 million | $2.5 million | $4.3 million | $8.7 million |
| Net income (loss) | $(2.7) million | $2.1 million | $(4.0) million | $1.7 million |
| Loss from continuing operations per diluted share | $(0.07) | $(0.10) | $(0.11) | $(0.25) |
Quarterly sales were essentially flat; six-month sales increased 1.6%. The quarter’s operating loss widened despite higher gross profit, while the six-month operating loss improved. Prior-year net income included discontinued Fluid Management operations ($5.7 million for the quarter and $11.0 million for six months).
- Segment and geographic trends: Six-month Oncology sales rose 11.9% to $30.0 million, while Vascular Access declined 3.3% to $45.9 million and Vascular Interventions and Therapies grew 0.8% to $60.1 million. International sales rose 5.4% for the six-month period; U.S. sales rose 0.6%.
- Cash flow: Operating activities used $0.6 million in the first six months, versus $4.1 million provided a year earlier. Investing activities used $50.1 million, including $45.8 million paid for Eximo. Financing activities used $135.7 million, principally reflecting $132.5 million of debt repayments.
- Balance sheet and debt: Cash was $41.2 million at November 30, versus $227.6 million at May 31. No debt was outstanding at November 30. The company had a $125 million secured revolving facility and was covenant-compliant. Stockholders’ equity was $613.8 million; contingent consideration liabilities totaled $26.9 million.
- Liquidity: Management stated that cash, operating cash generation and access to the revolver should meet anticipated capital needs for at least 12 months. On December 17, 2019, the company drew $15 million on the revolver in connection with a subsequent acquisition.
Material changes, outlook and risks
- On October 2, 2019, AngioDynamics acquired pre-commercial Eximo Medical for $60.7 million, including $45.8 million upfront and $14.9 million estimated contingent consideration. The acquired laser atherectomy technology targets peripheral artery disease.
- Gross margin improved year over year, supported by product mix and volume, productivity and pricing. Vascular Access faced competitive pressure in PICCs and lower port sales. The termination of the Asclera distribution agreement reduced comparative sales and gross profit.
- Operating expenses included elevated litigation-related costs; quarterly general and administrative expense increased 18.7%. The company also incurred costs related to the Fluid Management divestiture and manufacturing transitions, partly offset by fees billed under its transition services agreement with Medline.
- No specific revenue or earnings guidance is provided in the supplied filing text. Management cited new product development, geographic expansion, market penetration and increased international presence as growth priorities, and expects to continue investing in R&D and business development.
- Management identified risks including product development and market acceptance, FDA and other regulatory actions, clinical trial outcomes, litigation, competition and pricing, foreign-exchange movements, economic conditions and integration of acquisitions. The filing reported no material changes to the risk factors in the fiscal 2019 Form 10-K.
- Material legal matters include Bard patent litigation: a favorable district-court judgment in one action was on appeal, while a separate Utah action continued. The company also has an antitrust action against Bard in discovery. Management said it had not accrued a loss for the Bard cases because a loss was not yet probable or reasonably estimable. A separate Merz contract case was settled for $2.5 million in the first quarter.
- The company maintained a valuation allowance against certain deferred tax assets because it had not established sustained profitability. A release, if supported by future evidence, could materially affect results.
- Subsequent to quarter-end, AngioDynamics acquired the C3 Wave tip-location asset for $10 million plus up to $5 million in contingent consideration and drew $15 million under its revolver.
Most important facts for investors to verify
- Whether Oncology growth and AngioVac and NanoKnife performance can offset continued Vascular Access weakness.
- Whether operating cash flow improves, particularly as inventory rose by $10.0 million and accrued and other liabilities declined during the six-month period.
- The cash impact and progress of Eximo and C3 Wave integration, including the potential contingent payments and the post-quarter revolver draw.
- Developments in the Bard patent appeals and Utah case, the company’s antitrust case, and any resulting financial exposure.
- Whether the company achieves sustained profitability sufficient to support changes in its deferred-tax valuation allowance.