AngioDynamics, Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended May 31, 2018. The filing includes fourth-quarter FY2018 results; it is not a 2017 Q4 filing, despite the request metadata.
Business context and key financial metrics
AngioDynamics designs, manufactures and sells medical devices for peripheral vascular care, vascular access, oncology and surgery. The company reports one operating segment and sells primarily through a U.S. direct sales force and international distributors.
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $344.3 million | $349.6 million |
| Gross profit / margin | $176.9 million / 51.4% | $176.2 million / 50.4% |
| Operating income | $10.6 million | $13.0 million |
| Net income | $16.3 million | $5.0 million |
| Diluted EPS | $0.44 | $0.14 |
| Cash from operations | $41.3 million | $55.7 million |
At year-end, cash and cash equivalents were $74.1 million, marketable securities $1.3 million, working capital $110.7 million and total debt principal $92.5 million. Net debt to Consolidated EBITDA under the credit agreement was 1.4x. The company reported compliance with its credit covenants and said available cash, operating cash flow and its revolving facility should cover anticipated needs for at least 12 months.
Material changes versus the prior comparable year
- Revenue declined 1.5%. Peripheral Vascular sales fell 3% to $202.3 million and Vascular Access fell 4% to $92.8 million; Oncology/Surgery grew 10% to $49.2 million.
- U.S. revenue decreased 3% to $273.3 million, while international revenue increased 5% to $71.0 million, or 21% of sales.
- Venous sales were pressured after the company’s largest customer discontinued exclusive use of its EVLT product. Growth in Fluid Management, AngioVac and Oncology/Surgery products partly offset declines.
- Gross margin improved by 100 basis points, including benefits from an expired royalty agreement, productivity and mix. Operating income nevertheless decreased by $2.4 million.
- Operating cash flow declined $14.5 million, despite improved receivables and inventory balances; accounts payable and accrued liabilities were a cash use.
- Net income included an $8.9 million income-tax benefit, primarily associated with U.S. tax reform and deferred-tax accounting. The company continued to maintain a valuation allowance on most deferred tax assets; FY2018 earnings therefore were not solely an indicator of operating improvement.
Outlook, commentary, risks and unusual items
- No specific revenue, earnings or cash-flow guidance was provided. Management cited geographic expansion, market penetration, product launches and international growth as priorities, and expected approximately $4–$5 million of additional cost savings in FY2019 from the completed manufacturing consolidation.
- Operations at the Manchester, Georgia and Denmead, U.K. facilities were consolidated into New York facilities during FY2018. The company recorded $4.7 million of related FY2018 restructuring costs; total plan charges were approximately $6.0 million.
- FY2018 acquisition, restructuring and other costs totaled $15.4 million, including $10.1 million of legal expense. The $12.5 million DOJ settlement accrual related to investigations involving LC Beads and alleged promotion of certain VenaCure products; it was paid in the first quarter of FY2019.
- The Acculis probe recall was announced in FY2017; replacement with Solero probes was completed in FY2018. The company recognized $2.3 million of deferred revenue related to the recall in FY2018 and recorded a $1.6 million remaining Acculis inventory reserve at year-end.
- Bard patent litigation concerning implantable ports remained unresolved, with no loss accrual recorded because a loss was not considered both probable and reasonably estimable. The company’s separate antitrust action against Bard was also pending.
- Key risks include price and reimbursement pressure, intense competition, dependence on regulatory clearances and clinical acceptance, product liability and patent disputes, supplier and distributor reliance, foreign-exchange exposure, and execution of the manufacturing consolidation. Floating-rate debt exposes the company to higher interest expense.
Important facts for investors to verify
- Whether FY2019 growth and the stated $4–$5 million consolidation savings materialized, and whether margin gains can persist.
- Underlying operating earnings and cash generation excluding the FY2018 tax benefit and restructuring, legal and other unusual costs.
- Current status and financial exposure of the DOJ matters and Bard litigation, including any developments after the filing date.
- Revenue trends in EVLT, BioFlo, Solero, NanoKnife and AngioVac, including customer concentration and international distributor performance.
- Debt repayment, interest-rate sensitivity, covenant headroom and availability of the revolving credit facility.