AngioDynamics, Inc. — Form 10-Q Summary
Business and period: AngioDynamics designs, manufactures, and sells medical devices for vascular access, peripheral vascular disease, oncology, and surgery. This unaudited report covers the fiscal second quarter and six months ended November 30, 2016; comparisons are with the corresponding 2015 periods. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Three months ended Nov. 30, 2016 | Prior-year quarter | Six months ended Nov. 30, 2016 | Prior-year six months |
|---|---|---|---|---|
| Net sales | $89.0 | $89.3 | $177.1 | $173.0 |
| Gross profit / gross margin | $45.0 / 50.6% | $45.9 / 51.4% | $90.0 / 50.8% | $89.3 / 51.6% |
| Operating income | $15.6 | $0.6 | $19.2 | $0.8 |
| Net income (loss) | $13.7 | $(0.3) | $15.0 | $(1.1) |
| Diluted EPS | $0.37 | $(0.01) | $0.41 | $(0.03) |
| Cash from operations | Not separately presented for the quarter | $22.4 | $14.3 |
- Quarterly sales were essentially flat; constant-currency sales declined 1%. Six-month sales rose 2% reported and 3% on a constant-currency basis.
- Peripheral Vascular sales grew 4% in the quarter and 6% for six months. Vascular Access fell 6% and 2%, respectively; Oncology/Surgery fell 6% and 4%.
- Quarterly operating income included a $16.0 million gain from reducing the fair value of contingent consideration. The filing attributes $13.4 million to revised AngioVac sales forecasts and $3.1 million to TiLo milestones no longer expected to be achieved, partly offset by normal amortization. The gain is a significant driver of the year-over-year earnings improvement.
- Operating expenses also included $7.9 million of acquisition, restructuring, and other items in the quarter, including a $3.6 million TiLo intangible write-off, a $2.0 million EmboMedics investment write-off, and $1.8 million of legal expense. Six-month expense was $10.3 million.
- Cash and cash equivalents were $35.7 million at Nov. 30, 2016, versus $32.3 million at May 31, 2016; marketable securities were $1.2 million. Total debt was $116.5 million. Operating cash flow was $22.4 million; investing activities used $1.4 million and financing activities used $17.4 million.
- Current assets were $147.8 million and current liabilities $50.8 million. The company reported $134.0 million of remaining revolving-credit capacity at quarter-end.
Material changes, liquidity, and outlook
- AngioDynamics refinanced its prior credit agreement on Nov. 7, 2016 with a five-year facility comprising a $100 million senior secured term loan and a $150 million senior secured revolver. Borrowings under the new facility repaid the prior facility. The reported interest rate was 2.39%; the company was in compliance with its leverage and fixed-charge-coverage covenants at Nov. 30.
- The Board authorized up to $25 million of share repurchases through Nov. 6, 2018. The company repurchased 500,000 shares for $7.8 million during the quarter; $17.2 million remained authorized.
- Management said current cash and investments, operating cash generation, and available revolver capacity should meet anticipated capital needs for at least 12 months. Significant future acquisitions could require additional financing. No specific revenue or earnings guidance is provided in the filing.
- Management cited Peripheral Vascular growth, including opportunities related to a Cook Medical recall, and BioFlo Midline and Dialysis performance as favorable trends. It cited softness in PICCs and ports, timing of capital-product sales, pricing pressure, and product mix as offsets. Management stated it intends to continue investing in product development and business development.
Risks, contingencies, and unusual items
- The contingent-consideration liability declined to $12.5 million from $38.3 million at May 31, 2016, primarily reflecting management’s revised estimates. The valuation uses Level 3 inputs, including sales forecasts; actual results could differ.
- The company is cooperating with DOJ investigations concerning LC Beads and alleged promotion of certain VenaCure EVLT products for uncleared indications. Potential losses could be material, but the company said it could not estimate a range and had recorded no accrual.
- C.R. Bard patent litigation concerning implantable ports remains unresolved. The company had not accrued a loss because it could not determine whether a loss was probable or reasonably estimable.
- AngioDynamics has substantial judgments against Biolitec entities, but collection remains subject to ongoing proceedings and discovery. A further Supreme Court petition was pending at the filing date.
- Approximately 7% of fiscal-year-to-date sales were denominated in foreign currencies; a stronger U.S. dollar can adversely affect sales and gross profit. The company also carries an auction-rate security with limited near-term liquidity and maintains a full U.S. valuation allowance on net deferred tax assets.
Key facts for investors to verify
- How much of reported operating-income and EPS improvement reflects the noncash contingent-consideration revaluation rather than recurring operating performance?
- Whether AngioVac sales forecasts, contingent-payment assumptions, and the remaining $12.5 million liability prove reasonable.
- Future sales and margin trends in Peripheral Vascular, Vascular Access, and Oncology/Surgery, including the sustainability of BioFlo growth and the effect of the Cook recall-related opportunity.
- Debt balances, interest costs, covenant headroom, and liquidity following the refinancing and share repurchases.
- Developments and potential financial exposure in the DOJ investigations, Bard litigation, and Biolitec judgment collection proceedings.