AngioDynamics, Inc. — Form 10-Q Summary
Business context and reporting period
This filing reports the third quarter and first nine months of fiscal 2018, ended February 28, 2018; the filing period differs from the “2017 Q3” request metadata. AngioDynamics develops, manufactures, and sells medical devices for vascular access, peripheral vascular disease, oncology, and surgery. Figures below are unaudited; dollar amounts are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Three months ended Feb. 28, 2018 | Nine months ended Feb. 28, 2018 |
|---|---|---|
| Net sales | $83.9, down 2.0% | $256.0, down 2.6% |
| Gross profit / margin | $45.4 / 54.2% (51.2% prior year) | $129.4 / 50.6% (50.9% prior year) |
| Operating income | $4.9, versus $5.1 | $6.1, versus $24.3 |
| Net income | $14.0, versus $2.9 | $14.2, versus $17.9 |
| Diluted EPS | $0.37, versus $0.08 | $0.38, versus $0.48 |
Nine-month operating cash flow was $17.5, down from $36.8. Investing activities used $2.9 and financing activities used $10.7; cash increased $4.7 to $52.3. At February 28, cash and marketable securities totaled $53.6. Principal debt was $93.8 (carrying value $92.8); the term-loan rate was 3.07%, and the company reported compliance with credit covenants. No revolving-facility borrowings were outstanding. Management said cash, operating cash generation, and available revolving capacity should meet anticipated needs for at least 12 months.
Changes versus prior comparable periods
- Quarterly sales declined $1.8; nine-month sales declined $6.8. U.S. sales weakened, while international sales rose 1% for the quarter and 3% year to date.
- Quarterly sales fell in Peripheral Vascular (1%), Vascular Access (2%), and Oncology/Surgery (7%). Year to date, Peripheral Vascular fell 3% and Vascular Access 4%, while Oncology/Surgery grew 4%.
- Venous sales were pressured by reimbursement challenges. Growth in Fluid Management, Solero microwave ablation, and some BioFlo products partly offset declines. Radiofrequency Ablation sales were affected by discontinuation in Japan and a prior-year Japanese launch sale.
- Quarterly gross margin improved 300 basis points, helped by productivity, currency, and expiration of a royalty agreement, partly offset by volume, mix, and freight. Year-to-date gross margin declined 30 basis points, including a $1.7 inventory provision following the Japan product discontinuation.
- Nine-month operating income fell substantially, including because the prior-year period recorded a $15.4 gain from contingent-consideration revaluation; the current-year period recorded $0.2 of expense instead. Current-year legal and restructuring charges also remained significant.
Outlook, commentary, risks, and unusual items
- Net income benefited materially from Tax Reform Act accounting: the company recorded a $9.3 discrete tax benefit from revaluing a deferred tax liability and an estimated $0.8 benefit related to net operating loss rules. The nine-month income tax benefit was $10.1. Tax calculations were provisional, and the company maintained a full U.S. valuation allowance on net deferred tax assets.
- No specific revenue or earnings guidance is provided in the supplied filing text. Management described continued investment in product development and business development and identified geographic expansion, market penetration, and new products as growth opportunities.
- The manufacturing consolidation was expected to be completed in fiscal Q4 2018. Estimated total plan costs were $6.25–$7.75; $5.5 had been recorded to date, including $4.2 in the first nine months of fiscal 2018.
- The company completed replacement of recalled Acculis probes with Solero probes during the quarter. The inventory reserve included $1.5 related to Acculis and $0.7 related to termination of a Japanese distributor agreement.
- DOJ investigations concern LC Beads distribution and alleged promotion of certain VenaCure EVLT products for uncleared indications. The company had accrued $12.5 and agreed in principle in August 2017 to resolve the matters for approximately that amount; it continued to cooperate with the investigations.
- Bard patent litigation over implantable ports remained unresolved, with no loss accrued because a potential loss was not considered probable and reasonably estimable. A separate company antitrust action against Bard was pending. The company also cited foreign-exchange, interest-rate, regulatory, product-development, reimbursement, competition, and litigation risks.
Important facts for investors to verify
- Confirm the reporting-period mismatch: this is the quarter ended February 28, 2018, not a 2017 calendar-year third quarter.
- Assess the sustainability of earnings apart from the $10.1 nine-month tax benefit and the effect of contingent-consideration gains in the prior-year comparison.
- Track sales trends in Venous, Vascular Access, and Radiofrequency Ablation, and whether Solero and other growth products can offset declines.
- Review operating cash flow, working-capital movements, debt amortization, and access to the $150 million revolving facility.
- Monitor the final Tax Reform Act accounting, manufacturing-consolidation costs, and outcomes of the DOJ matters and Bard litigation.