AngioDynamics, Inc. — Form 10-Q Summary
Period: The filing covers the three and nine months ended February 28, 2019 (fiscal 2019 third quarter), not 2018 Q3 as stated in the request metadata. Amounts are in U.S. dollars unless noted.
Business context
AngioDynamics develops, manufactures and sells medical devices for vascular access, peripheral vascular disease, oncology and surgical procedures. It reports as one operating segment. During the period, it acquired BioSentry and RadiaDyne to expand its oncology portfolio.
Financial results and material changes
| Metric | Three months ended Feb. 28, 2019 | Year-over-year | Nine months ended Feb. 28, 2019 | Year-over-year |
|---|---|---|---|---|
| Net sales | $86.3 million | +3.0% | $263.2 million | +2.8% |
| Gross profit / margin | $46.7 million / 54.1% | +2.7%; margin down 0.1 percentage point | $140.3 million / 53.3% | +8.4%; margin up 2.7 percentage points |
| Operating income | $2.8 million | Down $2.1 million | $7.1 million | Up about $1.0 million |
| Net income | $0.8 million; diluted EPS $0.02 | Prior-year net income $14.0 million; diluted EPS $0.37 | $2.5 million; diluted EPS $0.06 | Prior-year net income $14.2 million; diluted EPS $0.38 |
| Operating cash flow | Not separately reported | — | $12.4 million | Down $5.1 million |
Quarterly revenue growth was led by Oncology (+15.1%) and Vascular Interventions & Therapies (+3.3%); Vascular Access declined 4.0%. For the nine-month period, Oncology grew 9.7%. The filing attributes weaker reported earnings versus the prior-year periods in significant part to the prior-year tax benefit following U.S. tax reform. Quarterly operating income also declined as operating expenses rose, including R&D, sales and marketing, and administration.
For the nine months, the gross-margin improvement reflected productivity, acquired-product contribution, plant-consolidation savings and the prior-year comparison against a product reserve and royalty costs. Higher R&D and other operating expenses, increased amortization and interest expense offset some of those gains.
Cash, debt and liquidity
- Cash and cash equivalents were $41.7 million at February 28, 2019, down from $74.1 million at May 31, 2018; there were no marketable securities at period end.
- Cash flow from operations was $12.4 million; investing used $85.9 million, principally for $84.9 million of acquisition payments; financing provided $41.2 million, including revolver borrowings.
- Principal debt outstanding was $133.8 million, versus $92.5 million at May 31, 2018. This included $45.0 million outstanding on the revolving facility. Net debt based on reported cash and principal debt was approximately $92.0 million.
- The company reported compliance with credit agreement covenants. Management said available cash, expected operating cash flow and revolver capacity were sufficient for anticipated needs for at least 12 months; it estimated capacity for approximately $85 million of additional borrowing under its current leverage ratio.
- Contingent consideration was $27.1 million at fair value. The expected undiscounted potential payments across completed acquisitions were approximately $31.2 million to $41.2 million.
Outlook, commentary and risks
The filing provides no specific revenue or earnings guidance. Management expects growth through geographic expansion, market penetration, new products and expanded international direct presence, and said it intends to continue investing in R&D and business development. These are forward-looking statements, not guarantees.
Risks highlighted include product development and market acceptance, regulatory actions and clinical trials, competition and pricing pressure, reimbursement challenges for Venous products, foreign-exchange exposure, litigation, and the ability to integrate acquisitions. Management reported no material change to the risk factors in its fiscal 2018 Form 10-K. The company had not attained sustained profitability for purposes of assessing deferred tax asset realizability and maintained a valuation allowance; a future release could materially affect results.
Legal and unusual items: In March 2019, after quarter end, a court granted judgment as a matter of law for AngioDynamics in Bard’s Delaware patent case; the filing also reports a March 14 settlement under which Biolitec paid AngioDynamics $3.4 million. A separate Bard patent action in Utah remained stayed, and the company’s antitrust action against Bard continued. A $12.7 million DOJ settlement payment was made in July 2018. The company did not accrue for the patent litigation because loss was not considered probable and reasonably estimable.
Other notable items include the BioSentry acquisition for $39.8 million and RadiaDyne acquisition for $75.0 million, with substantial contingent consideration and purchase-price allocations still subject to measurement-period adjustment. Adoption of ASC 606 had no material financial-statement impact. The company expected adoption of the new lease standard on June 1, 2019, but had not quantified its effect.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing is for fiscal 2019 Q3, ended February 28, 2019.
- Track sales trends and competitive/reimbursement pressures in Vascular Access and Venous products, alongside growth and integration of BioSentry and RadiaDyne.
- Monitor operating cash generation, working-capital needs, debt balances, covenant headroom and acquisition-related contingent payments.
- Follow final court orders and subsequent developments in the Bard patent matters, as well as the status of the Utah action and the company’s antitrust claim.
- Assess the deferred-tax-asset valuation allowance and the possible effect of future changes, and confirm the impact of lease-standard adoption.