AngioDynamics, Inc. — FY2020 Form 10-K
Period: Fiscal year ended May 31, 2020; filed August 7, 2020. Although the request identifies “2019 Q4,” this filing reports full-year FY2020 results, not a standalone 2019 quarter. Unless noted, comparisons are with FY2019 continuing operations; Fluid Management is reported as discontinued operations.
Business context and performance
AngioDynamics designs, manufactures and sells medical devices for vascular access, peripheral vascular disease, oncology and surgical procedures. It operates as one reportable segment across three product groups: Vascular Interventions & Therapies (VIT), Vascular Access (VA), and Oncology/Surgery (OS). The company sold its Fluid Management business to Medline in May 2019 and acquired Eximo Medical and its Auryon atherectomy technology in October 2019, and the C3 Wave tip-location asset in December 2019.
Key financial metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $264.2 million | $270.6 million |
| Gross profit; gross margin | $150.3 million; 56.9% | $156.0 million; 57.6% |
| Operating loss | $167.1 million | $9.4 million |
| Net loss from continuing operations | $166.8 million; $4.39 loss per diluted share | $11.1 million; $0.30 loss per diluted share |
| Net income (loss), including discontinued operations | $(166.8) million | $61.3 million |
| Cash from (used in) operating activities | $(14.6) million | $37.4 million |
| Cash and cash equivalents | $54.4 million | $227.6 million |
| Debt outstanding | $40.0 million | $131.9 million |
FY2019 net income included $72.5 million from discontinued operations, including a $46.6 million gain on the Fluid Management sale; it is therefore not directly comparable to FY2020 net loss. FY2020 gross margin fell 70 basis points. The $158.6 million goodwill impairment was the principal driver of the sharply higher reported operating loss; it was non-cash.
Changes and operating drivers
- Sales declined 2.4%. VIT sales fell 6% to $112.7 million, VA was approximately flat at $94.3 million, and OS rose 2% to $57.2 million.
- U.S. sales decreased 4% to $208.0 million; international sales increased 5% to $56.2 million. International sales represented about 21% of total sales.
- COVID-19 and reduced elective procedures affected VIT venous and core products and contributed to lower fourth-quarter sales. VIT also faced the prior-year comparison from termination of the Asclera distribution agreement. AngioVac case volumes increased 19% year over year.
- Gross profit declined $5.7 million. Management cited lower volume, manufacturing under-absorption, product mix, OARtrac inventory reserves and the loss of Asclera-related gross profit, partly offset by pricing.
- Operating cash flow fell by $52.0 million to a use of $14.6 million. Working capital was pressured by an $18.8 million inventory increase and a $15.5 million decrease in accounts payable and accrued liabilities.
Liquidity, debt and commitments
At year-end, AngioDynamics had $54.4 million in cash and $40.0 million drawn under a $125 million secured revolving credit facility with a five-year maturity. The company reported compliance with its financial covenants at May 31, 2020 and said cash, operating cash generation and facility access were expected to cover anticipated needs for at least 12 months. Availability remains subject to facility terms and covenants. Contractual obligations totaled $132.3 million, including $51.5 million of future royalty commitments and $21.0 million of acquisition-related obligations.
Outlook, risks and unusual items
- Outlook: No quantified FY2021 revenue or earnings guidance is provided. Management said the duration and financial effects of COVID-19 were uncertain and could materially affect procedure volumes, manufacturing, supply chains, sales activity and clinical-study enrollment. Management planned to monitor liquidity and operations; it did not anticipate needing additional capital at the report date.
- Goodwill impairment: A sustained decline in market capitalization prompted an interim impairment test at May 31, 2020 and a $158.6 million charge. The valuation depends on forecasts and other assumptions; further impairment is possible if conditions or estimates change.
- Acquisitions and contingent consideration: Eximo’s purchase price was $60.7 million, including $14.9 million of estimated contingent consideration. C3 Wave cost $10.0 million at closing, with up to $5.0 million more potentially payable for milestones. The company reduced RadiaDyne contingent consideration by $11.9 million after revising sales forecasts and determining a technical milestone would not be met.
- Product and regulatory matters: The company voluntarily recalled OARtrac in FY2020 to address field installation issues. Clinical outcomes and regulatory approvals for growth products, including NanoKnife and Auryon, remain important execution risks.
- Litigation: Patent litigation with C.R. Bard remains ongoing, including Bard’s appeal of a favorable district-court judgment for AngioDynamics in one case. The company reported that potential losses in the Bard matters were not probable or reasonably estimable and recorded no related expense. Separately, it paid $2.5 million to settle a Merz contract dispute.
- Other risks: The filing highlights competitive and pricing pressure, reimbursement uncertainty, reliance on distributors and certain suppliers, product liability, foreign-exchange exposure and possible interruption at its concentrated manufacturing locations.
Most important facts for investors to verify
- Whether post-year-end results show a recovery in procedure volumes and sales after COVID-related disruption, particularly in VIT and elective-procedure products.
- Whether operating cash flow improves and inventory levels convert to sales; FY2020 operating cash use and the inventory build merit monitoring.
- Liquidity and covenant headroom under the revolving facility, including the amount actually available to borrow under its terms.
- Commercial adoption, clinical evidence and regulatory progress for Auryon, NanoKnife and other growth platforms, alongside the performance of the acquired businesses.
- Updates on the Bard litigation and any change in the assessment of potential loss or required accruals.
- Whether the assumptions supporting the $158.6 million goodwill impairment and remaining goodwill and intangible-asset values remain appropriate.