AngioDynamics, Inc. — Form 10-Q Summary
Business context and reporting period
The filing covers the fiscal third quarter and first nine months ended February 28, 2017; the “2016 Q3” request metadata does not match the filing period. AngioDynamics develops, manufactures and sells medical devices for vascular access, peripheral vascular disease, oncology and surgery. Its business is reported as one operating segment.
Financial performance and liquidity
| Metric | Three months ended Feb. 28, 2017 | Three months ended Feb. 29, 2016 | Nine months ended Feb. 28, 2017 | Nine months ended Feb. 29, 2016 |
|---|---|---|---|---|
| Net sales | $85.6 million | $87.4 million | $262.7 million | $260.5 million |
| Gross profit | $43.8 million | $43.5 million | $133.8 million | $132.8 million |
| Gross margin | 51.2% | 49.8% | 50.9% | 51.0% |
| Operating income | $5.1 million | $2.0 million | $24.3 million | $2.7 million |
| Net income (loss) | $2.9 million | $0.6 million | $17.9 million | $(0.5) million |
| Diluted earnings (loss) per share | $0.08 | $0.02 | $0.48 | $(0.01) |
For the nine months, operating cash flow was $36.8 million, up from $26.7 million. Investing used $1.8 million and financing used $31.4 million; cash increased $3.2 million to $35.6 million. At February 28, 2017, marketable securities were $1.2 million, current assets $145.1 million and current liabilities $50.6 million.
Principal debt outstanding was $98.8 million, all under the term loan; the revolving facility was paid off. Long-term debt, net of issuance costs and current portion, was $92.5 million. The stated interest rate was 2.29%; the company reported compliance with its credit covenants. Contingent consideration liabilities were $12.6 million.
Material changes versus the prior comparable period
- Third-quarter sales declined 2.1% year over year; constant-currency sales declined 1.9%. Oncology/Surgery grew 8%, while Peripheral Vascular fell 3% and Vascular Access fell 5%.
- Nine-month sales grew 0.9% as reported and 1.1% on a constant-currency basis. Peripheral Vascular increased 3%, Vascular Access declined 3%, and Oncology/Surgery was flat.
- Quarterly operating income improved by about $3.2 million despite lower sales. Management attributed this mainly to manufacturing operational improvements and expense controls; gross margin rose to 51.2%, and lower sales and marketing costs also helped.
- Nine-month results included a $15.4 million gain from reduced contingent consideration fair value, primarily reflecting revised AngioVac sales projections and discontinuation of TiLo milestones. The period also included $5.6 million of intangible and other asset impairment, including the TiLo write-off, and a $2.0 million EmboMedics investment write-off. These items make the year-over-year earnings improvement less representative of underlying operating trends.
Outlook, management commentary, risks and unusual items
Management cited soft overall third-quarter sales, partly offset by Japanese thermal-ablation launch growth and strength in selected core products, BioFlo Midlines and Dialysis. It highlighted pricing pressure and competition in U.S. Peripheral Vascular and Vascular Access markets. The company obtained CE Mark certification for its Solero microwave thermal ablation system during the quarter. No specific revenue or earnings guidance was provided.
An operational consolidation will move manufacturing from Manchester, Georgia, and Denmead, UK, to Glens Falls and Queensbury, New York. Estimated total costs are $6.25–$7.75 million; completion is expected in the third quarter of fiscal 2018. The company recorded $0.2 million of related charges through the reporting date.
Management said cash, expected operating cash generation and up to $150 million of revolving-credit capacity were sufficient for anticipated needs for at least 12 months; significant acquisitions could require additional financing. Foreign-currency exposure remains a risk: approximately 7% of year-to-date sales were denominated in foreign currencies, and a stronger U.S. dollar can reduce sales and gross profit.
Material contingencies include DOJ investigations relating to LC Beads and VenaCure EVLT. The company said outcomes and potential losses could not be estimated and that no liability was accrued; a material loss is possible. Bard patent litigation involving implantable ports continues, with the company defending the claims and no loss accrual because the outcome was not estimable as probable. AngioDynamics also continues efforts to collect judgments against biolitec defendants; collection is not assured. The company reported no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- How much of the nine-month earnings improvement reflects recurring operations versus the $15.4 million contingent-consideration gain and other unusual charges.
- Whether the sales softness in U.S. Peripheral Vascular and Vascular Access persists, and whether Oncology/Surgery and international growth can offset it.
- Actual costs, timing and expected savings from the manufacturing consolidation compared with the estimated $6.25–$7.75 million cost range.
- Cash generation, debt repayment capacity, covenant headroom and the availability of the revolving facility.
- Developments and potential financial exposure in the DOJ investigations, Bard litigation and biolitec collection proceedings.