AngioDynamics(ANGO) - 2023 Q4 - Annual Report

Part I Business AngioDynamics is a medical technology company specializing in devices for vascular health, cancer treatment, and patient quality of life - The company is structured into two business segments: Med Tech, which includes high-growth platforms like Auryon, Thrombectomy, and NanoKnife, and Med Device, which comprises a broader portfolio of established products[16][196] - AngioDynamics sells its products in the U.S. primarily through a direct sales force and internationally through a combination of direct sales and distributor relationships, targeting various medical specialists[44] - The company faces significant competition from major medical device manufacturers and is subject to comprehensive regulation by the FDA in the U.S. and similar bodies internationally, including the European Union's MDR[42][53][61] Overview and History Founded in 1988, AngioDynamics is a medical technology company focused on vascular health and cancer treatment - AngioDynamics was founded in 1988 and is headquartered in Latham, N.Y. It is publicly traded on NASDAQ under the symbol ANGO[13][15] - The company's growth has been fueled by key acquisitions, such as RITA Medical Systems (ablation), Oncobionic (NanoKnife), and Eximo Medical (Auryon laser atherectomy technology)[13][15] Products The company's products are divided into two segments, Med Tech and Med Device, offering advanced technologies for peripheral artery disease, thrombus management, soft tissue ablation, and a broad range of vascular access devices - The Med Tech segment features high-growth products: the Auryon Atherectomy System, the AlphaVac and AngioVac Mechanical Thrombectomy Systems, and the NanoKnife Ablation System[16][17][22] - The Med Device segment includes a comprehensive portfolio of core peripheral products, vascular access devices featuring BioFlo with Endexo Technology (a polymer blend resistant to thrombus accumulation), and various ablation technologies[23][25][35] Operations and Strategy AngioDynamics' strategy relies on continuous innovation, strategic acquisitions, and physician collaboration, competing on quality, clinical outcomes, and cost-effectiveness with manufacturing primarily in-house - The company's growth depends on continuous innovation through internal R&D, technology licensing, and strategic acquisitions[41] - Primary competitors include Boston Scientific, Medtronic, Johnson & Johnson, and Inari Medical. Competition is based on quality, clinical outcomes, and increasingly, price[42][43] - Manufacturing is conducted at owned facilities in New York and through a third-party supplier in Costa Rica. The company experienced a backlog of $2.7 million at the end of fiscal 2023 due to manufacturing and supply chain issues[46][48][49] Regulation and Reimbursement The company's products are subject to extensive regulation by the FDA and international bodies, requiring clearances and compliance with quality systems, with commercial success dependent on third-party reimbursement - Products are regulated by the FDA, generally requiring 510(k) clearance or, more rarely, a PMA. Manufacturing facilities are subject to periodic FDA inspections for compliance with Quality System Regulation (QSR)[53][54][58] - For sales in the European Union, products must comply with the Medical Device Regulation (MDR), which has increased clinical data requirements and extended certification timeframes to 12-18 months or longer[61] - The business is subject to healthcare laws like the Anti-kickback Statute and the False Claims Act. Commercial success is highly dependent on obtaining adequate reimbursement from governmental and private third-party payors[64][65] Risk Factors The company faces numerous risks, including intense competition, reliance on new technologies, single-source suppliers, and extensive government regulation Business and Industry Risks Key business risks include intense competition, reliance on new product development and clinical trial success, supply chain vulnerabilities, and the impact of recent divestitures and macroeconomic factors - The company faces intense competition and pricing pressure, and its growth relies heavily on the successful market development and clinical trial results of its high-growth products (NanoKnife, AlphaVac, Auryon)[86][91] - The company is dependent on single-source suppliers and third-party international distributors, which accounted for approximately 72% of international revenues in fiscal 2023[101][104] - The recent divestiture of the dialysis and BioSentry businesses to Merit Medical for $100.0 million presents a risk if the company cannot successfully replace the associated revenue and cash flow with higher-growth initiatives[112][113] - Labor shortages in fiscal years 2022 and 2023 significantly contributed to production backlogs[120] Regulatory and Legal Risks The company operates under a complex system of laws and regulations, where non-compliance can lead to severe penalties, recalls, and operational suspensions, with lengthy and costly approval processes - The company is subject to extensive federal, state, and international laws (FDCA, FCPA, HIPAA, GDPR), and failure to comply can result in significant fines, penalties, and business disruption[149][151] - Obtaining and maintaining regulatory approvals like FDA 510(k) or PMA is costly and time-consuming. The transition to the EU's new Medical Device Regulation (MDR) has increased the time and resources required for certification[155][157][159] - In fiscal year 2023, the company generated $1.2 million in revenue from sales to distributors doing business in Iran, which is subject to changing U.S. laws and regulations[166] Intellectual Property and Stock Price Risks The company's success depends on protecting its intellectual property and navigating patent litigation, while its stock price is subject to volatility from market fluctuations and unpredictable results - The company's success depends on protecting its intellectual property. It faces risks from patent litigation, which could result in significant costs, royalty payments, or injunctions against selling products[168][171] - The company's stock price may be volatile due to factors like fluctuating operating results, competition, and market conditions, which are often beyond its control[173][174] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[177] Properties AngioDynamics operates from several locations, including a leased corporate headquarters in Latham, NY, and two owned manufacturing facilities in Glens Falls and Queensbury, NY | Location | Purpose | Approx. Sq. Ft. | Property Type | | :--- | :--- | :--- | :--- | | Latham, NY | Corporate headquarters | 39,000 Sq. Ft. | Lease | | Glens Falls, NY | Manufacturing | 21,000 Sq. Ft. | Owned | | Queensbury, NY | Manufacturing | 135,000 Sq. Ft. | Owned | | Queensbury, NY | Distribution | 58,000 Sq. Ft. | Lease | | Marlborough, MA | Research and development | 8,400 Sq. Ft. | Lease | | Amsterdam, NL | Selling, marketing and administrative | 8,100 Sq. Ft. | Lease | | Rehovot, IL | Research and development | 4,300 Sq. Ft. | Lease | Legal Proceedings The company is involved in multiple patent infringement lawsuits with C.R. Bard, Inc. concerning its implantable port products, with ongoing trials and appeals - The company is engaged in ongoing, multi-case patent litigation with C.R. Bard, Inc. regarding its implantable port products[439][440] - In one case, a jury found infringement in November 2022, but the Court issued a judgment in favor of AngioDynamics in June 2023, invalidating the patent claims. Bard has appealed this decision[440] - Due to the uncertainty of the litigation outcomes, the company has not recorded any financial accrual for potential losses[439][440][441] Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[180] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities AngioDynamics' common stock trades on the NASDAQ under the symbol "ANGO", experiencing significant volatility in fiscal year 2023, with no cash dividends paid in the last three fiscal years - The company's common stock is traded on the NASDAQ under the symbol "ANGO"[181] | Fiscal Year 2023 | High | Low | | :--- | :--- | :--- | | Fourth Quarter | $12.65 | $8.29 | | Third Quarter | $15.48 | $12.06 | | Second Quarter | $22.81 | $12.51 | | First Quarter | $24.30 | $17.83 | - The company has not paid cash dividends for the last three fiscal years and does not plan to in the foreseeable future[183] Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal year 2023, AngioDynamics' revenue grew 7.1% to $338.8 million, driven by Med Tech, but gross margin declined to 51.4% due to inflation and product mix, resulting in a net loss of $52.4 million Overview and Strategic Initiatives AngioDynamics is transforming into a focused medical technology company by prioritizing high-growth Med Tech platforms and streamlining its portfolio through strategic divestitures and product pipeline advancements - The company is transforming to focus on high-growth medical technology, shifting away from mature, lower-growth markets[200] - A significant strategic action was the sale of the dialysis product portfolio and BioSentry system to Merit Medical for $100.0 million, which was finalized on June 8, 2023[197] - Key growth initiatives include expanding the Auryon platform, gaining FDA clearance for the AlphaVac F18 thrombectomy system, and advancing clinical studies for AlphaVac (APEX) and NanoKnife (PRESERVE)[201] Results of Operations (FY2023 vs. FY2022) For fiscal year 2023, total net sales increased 7.1% to $338.8 million, with Med Tech growing 22.8%, but gross margin declined to 51.4% and the company reported a net loss of $52.4 million | (in thousands) | FY 2023 | FY 2022 | $ Change | | :--- | :--- | :--- | :--- | | Net Sales | | | | | Med Tech | $96,687 | $78,717 | $17,970 | | Med Device | $242,065 | $237,502 | $4,563 | | Total | $338,752 | $316,219 | $22,533 | | (in thousands) | FY 2023 | FY 2022 | $ Change | | :--- | :--- | :--- | :--- | | Gross Profit | $174,246 | $165,732 | $8,514 | | Gross Margin % | 51.4% | 52.4% | -1.0 p.p. | - The company recorded a goodwill impairment charge of $14.5 million in FY2023 related to the Med Device reporting unit[234][235] | (in thousands, except per share) | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Operating Loss | $(51,181) | $(28,471) | | Net Loss | $(52,442) | $(26,547) | | Loss Per Share (Diluted) | $(1.33) | $(0.68) | Liquidity and Capital Resources As of May 31, 2023, AngioDynamics had $44.6 million in cash and $50.0 million in debt, with positive cash from operations and subsequent debt extinguishment from asset sale proceeds | (in thousands) | May 31, 2023 | May 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $44,620 | $28,825 | | Total Debt | $50,000 | $25,000 | | (in thousands) | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Cash from Operating Activities | $78 | $(7,194) | | Cash used in Investing Activities | $(9,746) | $(19,307) | | Cash from Financing Activities | $25,420 | $7,683 | - Subsequent to fiscal year-end, on June 8, 2023, the company used proceeds from the sale of its dialysis and BioSentry businesses to repay all amounts owed under its Credit Agreement, extinguishing the facility[246][454] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from foreign currency exchange rates, interest rate fluctuations on its variable-rate debt, and credit concentration, with trade receivables credit risk limited by a diverse customer base - The company is exposed to foreign currency risk, as approximately 4.7% of FY2023 sales were in foreign currencies. A stronger U.S. dollar negatively impacts sales and gross profit[253] - Interest rate risk stems from the variable-rate Credit Agreement. As of May 31, 2023, the interest rate on the $50.0 million outstanding debt was 6.73%[254] - Credit risk from trade receivables is considered limited as no single customer accounts for more than 10% of total sales[256] Financial Statements and Supplementary Data This section incorporates by reference the company's audited consolidated financial statements and supplementary data, which are included in Part IV of the report - This item refers to the full financial statements and supplementary data indexed under Item 15[257] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and internal control over financial reporting were effective as of May 31, 2023, with an unqualified audit opinion from Deloitte & Touche LLP - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of May 31, 2023[259] - Management concluded that the company's internal control over financial reporting was effective as of May 31, 2023, based on the COSO framework[261] - The independent auditor, Deloitte & Touche LLP, provided an unqualified opinion on the effectiveness of the company's internal control over financial reporting[262][266] Part III Part III of the Form 10-K, covering Items 10 through 14, incorporates information by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders Directors, Executive Officers, Compensation, Security Ownership, and Accountant Fees Information required for Items 10 through 14 is incorporated by reference from the company's Proxy Statement, to be filed within 120 days of the fiscal year-end - Information regarding directors, executive compensation, security ownership, and other governance matters is incorporated by reference from the forthcoming 2023 Proxy Statement[273][274][275] Part IV Exhibits, Financial Statement Schedules This part contains the company's consolidated financial statements, the report of the independent registered public accounting firm (Deloitte & Touche LLP), and financial statement schedules, with an unqualified opinion and identified Critical Audit Matters - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the consolidated financial statements for the three years ended May 31, 2023[285] - The audit identified two Critical Audit Matters: the reserve for excess and obsolete inventory due to significant estimation of future demand, and the valuation of goodwill for the Med Device reporting unit following a divestiture-related triggering event[289][292] Consolidated Statements of Operations For the fiscal year ended May 31, 2023, AngioDynamics reported net sales of $338.8 million, a gross profit of $174.2 million, and a net loss of $52.4 million or ($1.33) per diluted share | (in thousands, except per share) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net sales | $338,752 | $316,219 | $291,010 | | Gross profit | $174,246 | $165,732 | $156,788 | | Operating loss | $(51,181) | $(28,471) | $(35,283) | | Net loss | $(52,442) | $(26,547) | $(31,548) | | Loss per share (Diluted) | $(1.33) | $(0.68) | $(0.82) | Consolidated Balance Sheets As of May 31, 2023, AngioDynamics had total assets of $532.6 million, total liabilities of $154.3 million, and total stockholders' equity of $378.3 million | (in thousands) | May 31, 2023 | May 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $163,542 | $143,345 | | Total Assets | $532,637 | $552,751 | | Total Current Liabilities | $83,825 | $74,324 | | Total Liabilities | $154,341 | $128,262 | | Total Stockholders' Equity | $378,296 | $424,489 | Consolidated Statements of Cash Flows For the fiscal year ended May 31, 2023, net cash provided by operating activities was $0.1 million, with a net increase in cash and cash equivalents of $15.8 million, ending the year with $44.6 million | (in thousands) | Year Ended May 31, 2023 | | :--- | :--- | | Net cash provided by (used in) operating activities | $78 | | Net cash used in investing activities | $(9,746) | | Net cash provided by (used in) financing activities | $25,420 | | Net increase in cash and cash equivalents | $15,795 | | Cash and cash equivalents at end of year | $44,620 |