AngioDynamics, Inc. — FY2019 Form 10-K Summary
Reporting period: Fiscal year ended May 31, 2019. The request identifies “2018 Q4,” but this filing is the FY2019 annual report; fourth-quarter figures are noted separately. Continuing-operations results exclude Fluid Management, which is presented as discontinued operations after its sale.
Business context
AngioDynamics designs, manufactures and sells medical devices for vascular access, peripheral vascular disease, oncology and surgery. Its products are generally used in minimally invasive, image-guided procedures. The company acquired BioSentry and RadiaDyne during FY2019 and sold its Fluid Management business to Medline on May 31, 2019, shifting its portfolio toward oncology, vascular interventions and vascular access.
Financial performance
| Metric | FY2019 | FY2018 |
|---|---|---|
| Net sales from continuing operations | $270.6 million | $261.7 million |
| Gross profit | $156.0 million | $143.9 million |
| Gross margin | 57.6% | 55.0% |
| Operating loss | $(9.4) million | $(14.2) million |
| Net loss from continuing operations | $(11.1) million | $(6.2) million |
| Net income, including discontinued operations | $61.3 million | $16.3 million |
| Cash provided by operating activities | $37.4 million | $41.3 million |
| Cash and cash equivalents at year-end | $227.6 million | $74.1 million |
| Debt at May 31 | $132.5 million | $91.6 million |
FY2019 diluted loss per share from continuing operations was $0.30, versus a $0.17 loss in FY2018. Total diluted earnings per share, including discontinued operations, were $1.64 versus $0.44. FY2019 net income included $72.5 million from discontinued operations, including a $46.6 million pretax gain on the Fluid Management sale; it therefore does not represent earnings from the continuing business alone.
By product group, Vascular Interventions & Therapies revenue was $119.9 million (flat year over year), Vascular Access was $94.7 million (up 2%), and Oncology/Surgery was $56.0 million (up 14%). International revenue rose 12% to $53.7 million; U.S. revenue increased 2% to $217.0 million. Gross margin improved 260 basis points, helped by BioSentry and RadiaDyne sales, plant productivity, and the expiration of a royalty agreement; pricing and currency were headwinds.
FY2019 operating cash flow declined $3.8 million year over year. Investing cash flow was positive $82.6 million, reflecting $169.2 million in divestiture proceeds and $84.9 million of net acquisition payments. Financing cash flow was positive $33.9 million, including $55.0 million of revolver borrowings. The company reported $13.5 million of contingent consideration at year-end.
Fourth-quarter results
FY2019 fourth-quarter sales were $71.2 million. Continuing operations recorded $2.8 million of net income, while discontinued operations contributed $56.1 million; total quarterly net income was $58.9 million, primarily reflecting the Fluid Management sale gain.
Material changes, outlook and risks
- Portfolio change: Fluid Management generated $88.9 million of FY2019 sales and $27.6 million of operating income before the sale gain, but is reported as discontinued operations. Management said the divestiture supports a strategy to build a higher-growth, more profitable medical technology business, while warning that replacing the divested business’s revenue, earnings and cash flow is not assured.
- Acquisitions and investment: BioSentry was acquired for $39.8 million and RadiaDyne for approximately $75.0 million. The company continued investment in product development and clinical work, including NanoKnife, thrombus management and BioFlo.
- Liquidity and debt after year-end: On June 3, 2019, AngioDynamics repaid its existing term loan and revolver using divestiture proceeds and entered a new $125 million revolving facility. The filing states no debt was outstanding as of July 25, 2019. Management said available cash, operating cash flow and revolver access should meet anticipated capital needs for at least 12 months.
- Key operating risks: Competition and pricing pressure, reimbursement constraints, regulatory approval and compliance, clinical-trial outcomes and adoption of newer products, dependence on suppliers and international distributors, and execution of the Fluid Management transition. NanoKnife growth depends in part on expanded indications; the FDA authorized initiation of the DIRECT trial for Stage III pancreatic cancer in Q4.
- Legal and unusual items: Bard appealed a favorable judgment for AngioDynamics in a separate implantable-port patent case; a related Utah patent action remained stayed. The company’s antitrust case against Bard was in discovery. A $2.5 million accrual for settling the Merz contract dispute was included in FY2019 special legal costs; the company also received $3.4 million in the Biolitec settlement. Potential losses in Bard matters were not recorded because they were not considered reasonably estimable.
- Tax and accounting: The company maintained a valuation allowance on certain deferred tax assets because it had not established sustained profitability. FY2019 adoption of revenue-recognition guidance did not materially affect the financial statements. Management and Deloitte reported effective internal control over financial reporting, and Deloitte issued an unqualified opinion on the financial statements.
- Guidance: The filing provides no specific numerical revenue or earnings guidance.
Important facts for investors to verify
- How continuing-business revenue, margins and cash generation perform after the removal of Fluid Management.
- Whether growth and clinical adoption of BioSentry, RadiaDyne, NanoKnife, AngioVac and BioFlo can offset the divested business’s contribution.
- Actual post-transaction cash, revolver usage, contingent consideration payments and covenant compliance.
- Progress and results of the NanoKnife DIRECT trial and any regulatory decisions on expanded indications.
- Developments in the Bard appeals and the company’s antitrust action, as well as any eventual financial exposure.