Business context and reporting period
AngioDynamics, Inc. designs and sells medical devices for peripheral vascular care, vascular access, oncology and surgery. This Form 10-K covers the fiscal year ended May 31, 2016, including the fourth quarter; the filing is not a 2015 fiscal-year report. Unless otherwise stated, amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | FY2016 | FY2015 |
|---|---|---|
| Net sales | $353.9 million | $356.5 million |
| Gross profit / margin | $174.3 million / 49.3% | $175.8 million / 49.3% |
| Operating income (loss) | $1.0 million | $(3.4) million |
| Net income (loss) | $(43.6) million | $(3.4) million |
| Diluted loss per share | $(1.21) | $(0.09) |
| Cash provided by operating activities | $45.2 million | $25.7 million |
Reported sales declined 1%; management reported flat growth excluding the planned supply-agreement wind-down and currency effects. Peripheral Vascular sales rose 5% to $202.8 million, while Vascular Access fell 8% to $99.4 million and Oncology/Surgery fell 6% to $48.9 million. U.S. sales rose 1%; international sales declined 2% on a constant-currency basis.
The net loss primarily reflects a $40.4 million income-tax charge to establish a full valuation allowance on U.S. deferred tax assets. Before tax, the company recorded a loss of $3.3 million. Cash and marketable securities totaled $34.0 million at year-end; working capital was $79.5 million. Total debt was $121.4 million, down from $137.7 million, and contingent consideration was $38.3 million. The company reported $63.6 million of remaining revolving-credit capacity and compliance with its financial covenants.
Material changes versus the prior comparable period
- Net sales decreased $2.6 million, with Peripheral Vascular growth offset by declines in Vascular Access, Oncology/Surgery and the supply agreement.
- Operating results improved to $1.0 million of operating income from a $3.4 million operating loss, but the tax valuation allowance drove the substantially larger net loss.
- Operating cash flow increased $19.5 million, which management attributed in part to improved days sales outstanding and inventory management. Inventory fell to $55.4 million from $67.4 million.
- Debt declined by $16.3 million. Cash increased by $13.9 million during the year.
- FY2015 comparative financial information was revised for immaterial errors, including expense classifications and foreign-exchange items; the company stated the corrections were not material to previously issued statements.
Outlook, management commentary, risks and unusual items
No numerical revenue or earnings guidance is provided. Management cited BioFlo, AngioVac and NanoKnife as potential growth drivers and described plans to improve margins through innovative products, operational efficiencies and expense growth below sales growth. Management said available cash, operating cash generation and revolver capacity were expected to meet anticipated capital needs for at least 12 months.
- The company discontinued its Celerity tip-location product after performance and quality issues, recording approximately $5.8 million of inventory write-offs and $0.1 million of hardware write-offs in the fourth quarter. The inventory charge contributed to lower gross profit.
- A two-year moratorium on the 2.3% medical-device excise tax began January 1, 2016; absent further legislation, the tax was scheduled to resume January 1, 2018. The company reported $12.0 million of cumulative tax expense through May 31, 2016.
- The Department of Justice is investigating matters concerning the historical distribution of LC Beads and purported promotion of certain VenaCure EVLT products for uncleared indications. The company is cooperating; potential losses could be material but were not estimable, and no liability was accrued.
- Bard patent-infringement suits concerning implantable ports remained pending. The company had not accrued a loss because it could not determine whether a loss was probable or reasonably estimable.
- AngioDynamics holds judgments against Biolitec entities totaling $74.9 million in one action, in addition to a separate $23.2 million judgment. Collection proceedings and related disputes remained ongoing; the filing does not establish how much, if any, will be collected.
- Other key risks include pricing and reimbursement pressure, intense competition, reliance on certain suppliers, regulatory compliance, foreign-currency exposure, product liability and acquisition-related contingent payments. The company held $1.7 million of auction-rate securities with failed auctions, limiting near-term liquidity of those investments.
- The CEO and CFO roles changed during or shortly after the fiscal year. The FDA closed out all outstanding warning letters in November 2015. Management and the auditor reported effective internal control over financial reporting as of year-end.
Important facts for investors to verify
- Whether U.S. operations return to profitability and whether the $42.2 million valuation allowance can be reduced or released.
- Sales trends and margins in Vascular Access and Oncology/Surgery, and sustained growth in Peripheral Vascular and BioFlo.
- Cash conversion, inventory levels, debt repayment, covenant headroom and timing or amount of contingent-consideration payments.
- Developments and potential financial exposure from the DOJ investigations and Bard litigation, as well as actual collection of the Biolitec judgments.
- Whether the medical-device excise tax moratorium is extended and how currency movements affect reported sales and profitability.