AngioDynamics, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended February 29, 2020; filed April 8, 2020. Amounts are in U.S. dollars. The company develops and sells medical devices for vascular access, vascular interventions and oncology. Prior-period results classify the Fluid Management business, sold May 31, 2019, as discontinued operations.
Financial performance
| Metric | Three months ended Feb. 29, 2020 | Year-over-year comparison | Nine months ended Feb. 29, 2020 | Year-over-year comparison |
|---|---|---|---|---|
| Net sales | $69.8 million | Up 6.5% | $205.8 million | Up 3.2% |
| Gross profit / margin | $40.3 million / 57.8% | Margin down 0.4 percentage points | $120.1 million / 58.3% | Margin up 0.8 percentage points |
| Operating loss | $6.2 million | Widened from $3.7 million | $10.5 million | Narrowed from $12.3 million |
| Continuing-operations net loss | $5.7 million; $0.15 per diluted share | Prior-year loss was $4.6 million; $0.12 per diluted share | $9.7 million; $0.26 per diluted share | Improved from $13.9 million; $0.37 per diluted share |
| Operating cash flow | Not provided for the quarter | — | Used $18.4 million | Compared with $12.4 million provided |
For the nine-month period, sales rose across all three business units: Vascular Interventions & Therapies to $90.6 million (up 2.0%), Vascular Access to $70.6 million (up 1.0%), and Oncology to $44.6 million (up 9.6%). International sales grew 10.9%, compared with 1.4% growth in the United States. In the quarter, Vascular Access grew 10.3%; international sales increased 22.8%.
Balance sheet and liquidity at February 29, 2020
- Cash and cash equivalents were $27.2 million, down from $227.6 million at May 31, 2019. Total current assets were $129.0 million and current liabilities were $48.7 million.
- Long-term debt was $15.0 million principal outstanding on a $125 million secured revolving facility; its reported carrying value, net of financing costs, was $14.3 million. The company was in compliance with its financial covenants.
- Contingent consideration liabilities were $27.3 million; the company estimated $34 million to $54 million of potential undiscounted future payments, subject to acquisition milestones.
- Stockholders’ equity was $610.5 million. Inventories increased to $54.9 million from $40.1 million at fiscal year-end.
Nine-month investing cash outflow was $61.9 million, including $55.8 million paid for acquisitions and $5.8 million of capital additions. Financing cash outflow was $120.2 million, including $132.5 million of debt repayments and $15.0 million of revolver borrowings. Operating cash use reflected, among other items, higher inventory and lower accounts payable and accrued liabilities.
Material changes and notable items
- Compared with the prior-year quarter, sales increased but operating loss widened, as higher R&D, sales and marketing, and general and administrative costs outweighed gross-profit growth. Nine-month operating loss narrowed, supported by higher gross profit and lower acquisition, restructuring and other costs, as well as lower interest expense.
- Growth drivers included AngioVac and NanoKnife capital sales. The company reported AngioVac case volumes up 33% year over year. Oncology nine-month growth was led by NanoKnife capital sales. Vascular Access faced U.S. PICC competition, partly offset by growth in Midline and Dialysis products.
- The company acquired Eximo Medical for $60.7 million, including $45.8 million upfront and $14.9 million estimated contingent consideration, adding laser atherectomy technology. It also acquired the C3 Wave tip-location asset for $10.0 million, with up to $5.0 million of potential technical-milestone consideration.
- The Fluid Management sale generated $169.2 million in cash proceeds in fiscal 2019. The company used sale proceeds to repay prior debt; the cash balance also reflects subsequent acquisitions and other cash uses.
- Non-recurring and acquisition-related expenses included manufacturing-transition costs, litigation costs, acquisition expenses and other items. Nine-month acquisition, restructuring and other costs were $4.5 million, down from $9.7 million.
Outlook, risks and contingencies
- COVID-19: Management said the pandemic’s impact on fiscal 2020 results could not yet be quantified. It warned that restrictions on elective-like procedures could materially reduce volumes for some products, while travel restrictions on sales staff, hospital workflow changes, supply-chain disruption and manufacturing interruptions could adversely affect sales, earnings and cash flow. The Queensbury facility was operating under a business continuity plan; office staff were working remotely.
- Management stated that cash on hand and revolver availability were expected to provide sufficient liquidity for at least 12 months, while noting it was closely monitoring liquidity and working capital. No numerical sales or earnings guidance is provided in the supplied filing text.
- The company’s market capitalization was below the carrying value of its reporting unit at February 29, 2020. Management considered the decline temporary but said pandemic effects could require a fourth-quarter goodwill impairment test; adverse developments could also impair other long-lived assets.
- Material ongoing litigation includes Bard patent disputes and the company’s antitrust action against Bard. The company recorded no expense for the Bard patent cases because a probable, reasonably estimable loss could not be determined. Bard’s appeal of a favorable Delaware judgment for AngioDynamics remained pending; the Utah case continued through venue discovery. The company says it intends to defend the claims and believes them to be without merit.
- Other risks include product development and regulatory outcomes, clinical-trial delays, competitive and pricing pressures, foreign-exchange exposure, and the financial stability of customers and distributors. The filing also reports a $2.5 million settlement payment to Merz in fiscal 2020.
Important facts for investors to verify
- How COVID-19 affected procedure volumes, customer demand, manufacturing, supply availability and subsequent-period results, and whether management later issued or revised guidance.
- Whether operating cash flow and working capital improved after the nine-month cash use, particularly given inventory growth and the sharp decline in cash.
- Progress integrating Eximo and C3 Wave, product launch and adoption, acquisition-related spending, and the likelihood and timing of contingent payments.
- Any impairment testing or charges related to goodwill and intangible assets, and the assumptions supporting management’s view that the market-capitalization decline was temporary.
- Developments in Bard litigation and any resulting financial exposure; the filing states that potential losses were not reasonably estimable for the patent cases.