AngioDynamics, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended November 30, 2018. The unaudited filing covers the three- and six-month periods; the company develops, manufactures, and sells medical devices for vascular access, vascular interventions, and oncology.
Financial performance
| Metric | Three months ended Nov. 30, 2018 | Six months ended Nov. 30, 2018 |
|---|---|---|
| Net sales | $91.5 million, up 5.5% | $176.8 million, up 2.7% |
| Gross profit / margin | $49.1 million / 53.7%; prior-year margin 49.3% | $93.6 million / 52.9%; prior-year margin 48.8% |
| Operating income | $4.0 million; prior year $1.1 million | $4.3 million; prior year $1.3 million |
| Net income | $2.1 million; prior year $0.2 million | $1.7 million; prior year $0.2 million |
| Diluted EPS | $0.06; prior year $0.01 | $0.04; prior year $0.01 |
| Operating cash flow | Not presented by quarter | $4.1 million; prior year $13.2 million |
Six-month operating expenses included $15.0 million of R&D, $39.7 million of sales and marketing, $17.8 million of general and administrative costs, and $7.2 million of acquisition, restructuring, and other items. Interest expense for the six months was $2.2 million.
At November 30, cash and cash equivalents were $42.8 million, marketable securities $1.4 million, and current assets $143.0 million, compared with cash of $74.1 million and current assets of $168.0 million at May 31. Current liabilities were $49.7 million. Principal debt outstanding was $145.0 million, including $55.0 million drawn on the revolving facility; the carrying value of debt was $144.3 million. The term-loan rate was 3.80%, and the company reported compliance with its credit covenants.
Six-month cash used in investing was $86.3 million, principally reflecting $84.9 million of acquisition payments. Financing provided $51.3 million, including the $55.0 million revolver draw. Cash declined by $31.3 million over the period.
Changes and business drivers
- Quarterly growth was led by Oncology, up 19.8%, including $1.6 million of BioSentry sales and $1.3 million of RadiaDyne sales; Vascular Access rose 5.1% and Vascular Interventions & Therapies rose 2.2%.
- For the six months, Oncology rose 7.1%, Vascular Access 3.7%, and Vascular Interventions & Therapies 1.2%. International sales increased 6.9%; U.S. sales increased 1.7%.
- Management attributed improved gross margin to sales volume and mix, acquired product sales, plant-consolidation savings, and prior-year charges/reserves that did not recur. Higher R&D, G&A, and amortization partially offset the improvement.
- On August 14, the company acquired BioSentry for $39.8 million, including $2.8 million of contingent consideration. On September 21, it acquired RadiaDyne for approximately $75.0 million, including contingent consideration and holdbacks. The acquisitions expand its oncology offerings; acquired-product revenues were described as not material to the financial statements.
Outlook, risks, and unusual items
- No specific revenue, earnings, or margin guidance is provided. Management expects growth from geographic expansion, market penetration, new products, and a larger international direct presence, and says available liquidity should cover anticipated needs for at least 12 months.
- Operating cash flow fell year over year, affected by working-capital movements and the $12.5 million DOJ settlement payment made in July 2018. Management cited higher receivables from sales growth and increased inventory as working-capital uses.
- The company retains a valuation allowance on certain deferred tax assets because it has not yet demonstrated sustained profitability. A future release could materially affect results, but timing and amount are uncertain.
- Patent disputes with C.R. Bard remain unresolved. The Utah case is stayed pending USPTO proceedings; the Delaware patent trial was scheduled for March 2019. The company has not accrued losses because outcomes are not considered probable and reasonably estimable. Separately, the company’s antitrust case against Bard survived a motion to dismiss.
- The DOJ investigations were settled for approximately $12.7 million, paid in July 2018. The filing also identifies currency and interest-rate exposure, product-market and regulatory risks, reimbursement challenges for Venous products, and competitive pressure in PICCs.
- Contingent consideration liabilities were $26.5 million at November 30; estimated undiscounted future payments across acquisitions were approximately $31.1 million to $41.1 million, dependent on milestones. The Acculis recall-related inventory reserve was $0.4 million at period end.
Important facts for investors to verify
- Whether operating cash flow improves and whether working capital normalizes after acquisition and settlement-related cash uses.
- Acquisition integration, performance against BioSentry and RadiaDyne milestones, and the potential cash cost of contingent consideration.
- Progress in gross margins and underlying sales growth apart from acquired products and prior-year comparison effects.
- Developments in the Bard patent and antitrust proceedings, including trial and USPTO outcomes, and any resulting financial exposure.
- Debt capacity, covenant headroom, interest costs, and management’s assessment of liquidity needs.
- Tax valuation-allowance judgments and any material changes in expected realization of deferred tax assets.