AngioDynamics(ANGO) - 2022 Q4 - Annual Report

Part I Item 1. Business AngioDynamics is a medical technology company specializing in vascular health and cancer treatment, emphasizing high-growth Med Tech Overview, History, and Strategy AngioDynamics, founded in 1988, is strategically transforming to prioritize high-growth 'Med Tech' products - AngioDynamics is a medical technology company focused on restoring healthy blood flow, expanding cancer treatment options, and improving patient quality of life[12] - The company was founded in 1988 and has expanded its product lines through numerous acquisitions, including RITA Medical Systems (2007), Eximo Medical (2019), and the Camaro Support Catheter asset (2021)[13][14][15] - The company is strategically focusing on its high-growth 'Med Tech' business (Auryon, Thrombectomy, NanoKnife) to drive near to mid-term growth, distinguishing it from the rest of its 'Med Device' portfolio[16] Products The company's products are organized into three Global Business Units, with key growth driven by its Med Tech portfolio - The Auryon Atherectomy System is a key product for treating Peripheral Artery Disease (PAD), including in-stent restenosis[17] - The Thrombus Management portfolio includes the AlphaVac and AngioVac Mechanical Thrombectomy Systems for removing thrombi and emboli from the vasculature[18][19][21] - The NanoKnife System uses low-energy direct current electrical pulses for the surgical ablation of soft tissue, avoiding thermal energy[23] - The Vascular Access portfolio features BioFlo catheters with Endexo Technology, designed to be more resistant to thrombus accumulation, available in PICCs, midlines, ports, and dialysis catheters[27][29][30] Operations and Market AngioDynamics invests in R&D, faces intense competition, sells globally, and manufactures primarily in New York - The company faces significant competition from large manufacturers such as Boston Scientific, Medtronic, Johnson & Johnson, and Inari Medical, competing on quality, clinical outcomes, ease of use, and price[43][44] - Products are sold in the U.S. primarily through a direct sales force and internationally through a combination of direct sales and distributor relationships[45] - Manufacturing is centered in two owned facilities in New York, with a new supply agreement with Precision Concepts in Costa Rica established in Q4 FY2022[47][48] - In fiscal year 2022, COVID-19 related issues, including supply chain challenges and labor shortages, resulted in a product backlog of $8.4 million at year-end[49] Regulatory and Legal Environment The company's products are subject to extensive FDA and international regulations, requiring clearances and third-party reimbursement - Products are regulated by the FDA and require either 510(k) clearance or a more comprehensive Premarket Approval (PMA); historically, the company's products have used the 510(k) pathway[53][54][57] - International sales require regulatory compliance, such as the CE Mark under the new Medical Device Regulation (MDR) in the European Union, which has more stringent requirements[61][62] - The business is subject to U.S. federal healthcare laws, including the Anti-kickback Statute and the False Claims Act, which govern relationships with physicians and reimbursement claims[66] - The company maintains product liability insurance with a limit of $10 million per claim and a $10 million annual aggregate, subject to a self-insured retention[68] Human Capital and Corporate Information AngioDynamics had approximately 760 employees as of May 31, 2022, led by CEO James C. Clemmer and CFO Stephen A. Trowbridge - As of May 31, 2022, the company had approximately 760 full-time employees, with none represented by a labor union[71] - The company's executive team is led by James C. Clemmer, President and CEO since April 2016, and Stephen A. Trowbridge, Executive Vice President and CFO since February 2020[73][74] - The company makes its financial reports (10-K, 10-Q, 8-K) available free of charge on its corporate website, www.angiodynamics.com[83](index=83&type=chunk) Item 1A. Risk Factors The company faces numerous risks including intense competition, supply chain reliance, regulatory hurdles, and intellectual property disputes - Business & Industry Risks: The company faces intense competition, potential inability to develop new products, reliance on the NanoKnife system's expanded approvals, dependence on single-source suppliers, and risks from international operations and macroeconomic conditions like inflation and supply chain issues[87][91][97][104] - COVID-19 Pandemic Risks: The pandemic has negatively impacted business through decreased elective procedures, restricted access for sales teams to hospitals, and supply chain disruptions, with future impacts remaining uncertain[142][144][145] - Regulatory Risks: The business is subject to a complex system of laws and regulations; failure to comply with FDA's Quality System Regulation (QSR), obtain marketing clearances (e.g., 510(k), PMA), or adhere to rules against off-label promotion could result in recalls, fines, and manufacturing disruptions[149][153][155][162] - Intellectual Property & Stock Price Risks: The company's success depends on protecting its intellectual property and avoiding infringement of others' rights; it faces risks from potential patent litigation, and its stock price may be volatile due to unpredictable quarterly results[167][170][174] Item 1B. Unresolved Staff Comments, Item 2. Properties, Item 3. Legal Proceedings, and Item 4. Mine Safety Disclosures The company reports no unresolved SEC staff comments, details its key properties, and references legal proceedings in financial notes - The company has no unresolved staff comments[177] Key Company Properties | Location | Purpose | Approx. Sq. Ft. | Property Type | | :--- | :--- | :--- | :--- | | Latham, NY | Corporate headquarters | 39,000 | Lease | | Glens Falls, NY | Manufacturing | 41,000 | Owned | | Queensbury, NY | Manufacturing and distribution | 194,000 | Owned | | Marlborough, MA | Research and development | 31,000 | Lease | - Details on legal proceedings are provided in Note 16 to the consolidated financial statements[179] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity AngioDynamics common stock trades on NASDAQ under 'ANGO', with no cash dividends paid or anticipated in the foreseeable future - The company's common stock trades on the NASDAQ Global Select Market under the symbol "ANGO"[181] Fiscal Year 2022 Common Stock Price Range | Quarter | High Price | Low Price | | :--- | :--- | :--- | | Fourth Quarter | $24.50 | $17.98 | | Third Quarter | $29.16 | $20.46 | | Second Quarter | $30.97 | $23.36 | | First Quarter | $28.49 | $22.99 | - The company has not declared any cash dividends in the last three fiscal years and does not anticipate paying them in the foreseeable future[183] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations FY2022 revenue grew 8.7% to $316.2 million, driven by Med Tech, while gross margin declined and net loss narrowed Results of Operations FY2022 net sales increased 8.7% to $316.2 million, led by Med Tech growth, despite a decline in gross margin Net Sales by Segment (FY 2022 vs. FY 2021) | (in thousands) | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Med Tech | $78,717 | $55,731 | 41.2% | | Med Device | $237,502 | $235,279 | 0.9% | | Total Net Sales | $316,219 | $291,010 | 8.7% | Key Financial Metrics (FY 2022 vs. FY 2021) | (in thousands) | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Gross profit | $165,732 | $156,788 | 5.7% | | Gross profit % of sales | 52.4% | 53.9% | -1.5 p.p. | | Research and development | $30,739 | $36,390 | -15.5% | | Selling and marketing | $95,301 | $81,306 | 17.2% | | General and administrative | $38,451 | $35,918 | 7.1% | - The increase in Med Tech sales was primarily driven by a $18.0 million increase in Auryon sales and $3.7 million growth in the thrombectomy platform[223] - Gross margin was negatively impacted by $3.1 million in start-up costs for Auryon and AlphaVac, and $3.4 million from labor shortages, freight, and raw material inflation[227] Liquidity and Capital Resources Cash and equivalents decreased to $28.8 million in FY2022, with $7.2 million cash used in operations, but sufficient liquidity is expected Summary of Cash Flows (in thousands) | Activity | Year ended 2022 | Year ended 2021 | | :--- | :--- | :--- | | Operating activities | $(7,194) | $24,093 | | Investing activities | $(19,307) | $(13,711) | | Financing activities | $7,683 | $(16,986) | | Net change in cash | $(19,336) | $(6,274) | - Cash and cash equivalents decreased to $28.8 million at May 31, 2022, from $48.2 million at May 31, 2021[239] - The company has a $125.0 million secured Revolving Facility, with $25.0 million outstanding as of May 31, 2022; the company was in compliance with all debt covenants[239][243] Contractual Obligations Summary (in thousands) | Contractual Obligations | Total | Less than One Year | 1-3 Years | 3-5 Years | After 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Long term debt and interest | $25,778 | $778 | $25,000 | $— | $— | | Operating leases | $7,980 | $3,006 | $3,671 | $1,303 | $— | | Purchase obligations | $6,170 | $6,170 | $— | $— | $— | | Acquisition-related future obligations | $20,000 | $10,000 | $10,000 | $— | $— | | Royalties | $44,480 | $3,840 | $7,680 | $7,680 | $25,280 | | Total | $104,408 | $23,794 | $46,351 | $8,983 | $25,280 | Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency fluctuations, variable interest rates, and manages credit concentration - The company is exposed to foreign currency risk, as approximately 6.2% of FY2022 sales were denominated in currencies other than the U.S. Dollar[250] - Interest rate risk stems from the $125.0 million Revolving Facility, which has a variable interest rate based on LIBOR or an alternate base rate; as of May 31, 2022, $25.0 million was outstanding at an interest rate of 2.31%[251] - Concentration of credit risk is limited, as no single customer represents more than 10% of total sales[253] Item 9A. Controls and Procedures Management and independent auditors concluded the company's disclosure controls and internal financial reporting controls were effective - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report (May 31, 2022)[256] - Based on the COSO framework, management concluded that the company's internal control over financial reporting was effective as of May 31, 2022[258] - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of May 31, 2022[259][263] Part III Items 10-14. Directors, Executive Compensation, Security Ownership, and Principal Accounting Fees Information for these items is incorporated by reference from the company's definitive proxy statement to be filed later - Information for Items 10 through 14 is incorporated by reference from the registrant's Proxy Statement for its 2022 Annual Meeting of Stockholders[271] Part IV Item 15. Exhibits, Financial Statement Schedules This section includes consolidated financial statements, auditor's report, schedules, and a list of filed exhibits - This part includes the consolidated financial statements, supplementary data, and financial statement schedules required by Item 8[279] - Schedule II—Valuation and qualifying accounts is included in the report[280] Financial Statements and Notes The consolidated financial statements present AngioDynamics' financial position, results, and cash flows for the three years ended May 31, 2022 Consolidated Financial Statements FY2022 net sales were $316.2 million, resulting in a $26.5 million net loss, with total assets of $552.8 million Consolidated Statement of Operations Highlights (Year ended May 31, 2022, in thousands) | Metric | Amount | | :--- | :--- | | Net sales | $316,219 | | Gross profit | $165,732 | | Operating loss | $(28,471) | | Net loss | $(26,547) | | Diluted loss per share | $(0.68) | Consolidated Balance Sheet Highlights (As of May 31, 2022, in thousands) | Metric | Amount | | :--- | :--- | | Cash and cash equivalents | $28,825 | | Total current assets | $143,345 | | Goodwill | $201,058 | | Total Assets | $552,751 | | Total current liabilities | $74,324 | | Long-term debt | $25,000 | | Total Liabilities | $128,262 | | Total Stockholders' Equity | $424,489 | Notes to Consolidated Financial Statements Notes detail accounting policies, acquisitions, revenue, goodwill, taxes, debt, and ongoing patent litigation with C.R. Bard - Acquisitions (Note 2): The company acquired the Camaro support catheter asset from QX Medical for $4.0 million in July 2021, accounting for it as an asset purchase[334] - Revenue (Note 3): Revenue is disaggregated by Global Business Unit and by Med Tech/Med Device categories, highlighting the strategic shift towards higher-growth Med Tech products[343][345][346] - Goodwill (Note 8): The annual goodwill impairment tests performed as of December 31, 2021, and April 30, 2022, indicated no impairment[379] - Legal Proceedings (Note 16): The company is involved in ongoing patent infringement litigation with C.R. Bard, Inc; the company believes the claims are without merit and has not recorded an expense as a loss is not yet probable or reasonably estimable[438][439]