AngioDynamics, Inc. — Form 10-Q Summary
Reporting period: Three months ended August 31, 2020, the first quarter of fiscal 2021. Comparisons are with the three months ended August 31, 2019 unless noted. Amounts below are in U.S. dollars.
Business context and key financial metrics
AngioDynamics develops, manufactures and sells medical devices for vascular access, peripheral vascular disease, oncology and surgical settings. It reports one operating segment. Revenue was $70.2 million, up 6.3%, but the company remained unprofitable.
| Metric | Q1 FY2021 | Prior-year quarter |
|---|---|---|
| Net sales | $70.2 million | $66.0 million |
| Gross profit / gross margin | $35.8 million / 50.9% | $38.2 million / 57.9% |
| Operating loss | $5.1 million | $0.8 million |
| Net loss | $4.3 million | $1.3 million |
| Diluted loss per share | $0.11 | $0.03 |
| Cash used in operating activities | $5.4 million | $6.5 million |
| Capital expenditures | $1.8 million | $1.4 million |
Gross margin declined 7.0 percentage points. Cash and cash equivalents were $47.9 million at August 31, 2020, down from $54.4 million at May 31, 2020. The company had $40.0 million outstanding on its $125 million secured revolving facility, with a 1.41% interest rate, and reported compliance with its covenants. Current assets were $142.2 million and current liabilities were $39.8 million. Contingent consideration was $15.0 million; lease liabilities totaled $10.4 million.
Material changes versus the prior comparable period
- Revenue mix: Vascular Access sales rose 21.4% to $28.1 million, Vascular Interventions & Therapies rose 3.3% to $29.9 million, and Oncology fell 12.3% to $12.3 million. International sales increased 22.9% to $16.1 million; U.S. sales increased 2.2% to $54.1 million.
- A $5.2 million U.K. Vascular Access order related to COVID-19, alongside MedComp distribution sales, contributed to the segment’s growth. AngioVac case volumes increased 40% year over year; Auryon contributed $1.1 million in sales. Oncology was pressured by lower NanoKnife capital, radiofrequency ablation and balloon product sales.
- Management attributed the gross-margin decline to manufacturing under-absorption ($2.2 million), adverse product mix (including the lower-margin U.K. order and reduced NanoKnife capital sales), COVID-related costs, a $0.5 million recalled-product reserve and capitalized manufacturing variances.
- Research and development expense increased 43.2% to $9.0 million, reflecting investment in AngioVac, NanoKnife, Tip Location and Auryon. Sales and marketing expense declined 8.6% to $17.7 million, principally due to reduced travel and canceled events during the pandemic.
- Cash used in operations improved by $1.1 million year over year. Working capital included a $7.2 million cash benefit from lower inventory, offset by increased receivables and lower payables and accrued liabilities. The prior-year financing cash outflow included $132.5 million of debt repayment and is not directly comparable.
Outlook, risks and unusual items
The company provided no specific revenue or earnings guidance in this filing. Management said cash on hand and access to the revolving facility should be sufficient for anticipated capital needs for at least the next 12 months, while noting that significant cash acquisitions could require external financing. It expects growth to be driven in the near to medium term by AngioVac, Auryon and NanoKnife, and intends to continue investing in product development and business opportunities.
Management said procedure volumes had improved from the COVID-19 lows but remained below pre-pandemic levels. It identified potential disruption to customer demand, hospital workflows, manufacturing and supply chains; the fiscal 2021 impact remained too uncertain to quantify. Oncology faced procedure-related headwinds and a difficult capital-spending environment. The company also cited product development, regulatory, clinical-trial, litigation, market, competition and foreign-exchange risks.
Notable items include the $0.5 million recalled-product reserve and a $0.7 million favorable change in contingent-consideration fair value, primarily reflecting the decision not to pursue a RadiaDyne technical milestone. The company had recorded a $158.6 million goodwill impairment in fiscal 2020; no material goodwill adjustment was reported for this quarter apart from currency translation. A full valuation allowance remained on specified deferred tax assets because management said sustained profitability had not been attained.
Significant litigation includes Bard patent cases, including a pending Federal Circuit appeal and a separate Utah action for which the company renewed a motion to dismiss or transfer. The company said potential losses were not yet probable or reasonably estimable and recorded no expense for those litigation outcomes. Its antitrust case against Bard was progressing toward trial. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether revenue growth, particularly the large pandemic-related U.K. order, is repeatable and how procedure volumes recover.
- Whether gross margins recover from under-absorption, product mix and recall-related costs, and whether R&D investment produces expected product growth.
- Cash conversion, working-capital trends, revolver availability and continued compliance with credit-facility covenants.
- Developments in Bard litigation and any resulting financial exposure, along with contingent-consideration milestone outcomes.
- Potential future changes to the deferred-tax valuation allowance and any further goodwill or intangible-asset impairment indicators.