ANGO Beats on EPS, Tweaks View

AngioDynamics Inc. ( ANGO - Analyst Report ) reported adjusted earnings of 10 cents per share for the second quarter of fiscal 2013 ended November 30, 2012, beating the Zacks Consensus Estimate by a penny but falling short of the year-ago earnings by the same magnitude. Adjusted earnings exclude one-time expenses related to the Quality Call to Action program (QCAP), and acquisition and restructuring associated with Navilyst.

The New York-based therapeutic and diagnostic devices maker’s reported earnings declined 33.3% year over year to 6 cents a share from 9 cents a year ago. Results include the Navilyst Medical acquisition, which was completed on May 22, 2012. The company also completed the takeover of Vortex and its AngioVac venous drainage system in the reported quarter.

Revenue Analysis

Revenues increased 3% to $87 million on a pro forma basis, in line with the Zacks Consensus Estimate. Pro forma results include the Navilyst acquisition and exclude the LC Beads sales. The growth reflects successful sales force productivity after the merger. However, the company’s sales were affected by Hurricane Sandy and an overall softness in the U.S. market.

Geographically, U.S. revenues inched down 1% on a pro-forma basis to $69.7 million and accounted for roughly 80% of total sales. International sales increased 21% to $17.4 million, backed by healthy growth across Canada and strong adoption of the company’s Microwave ablation offerings.

Segment Results

The company’s larger Vascular business remained somewhat soft with revenues growing just 1% on a pro forma basis to $72.5 million in the quarter. The division continued to face strong competition and sustained pricing pressure.

Revenues from the VenaCure EVLT laser vein therapy system climbed 10% on the back of higher global sales of NeverTouch laser fiber kits. Revenues from Peripheral Vascular rose 3% to $45.8 million, while Vascular Access revenues declined 3% to $26.7 million.

Revenues from the Oncology/Surgery division (14% of total revenue) rose 12% to $12.0 million on a pro forma basis (excluding LC Beads). NanoKnife product revenues were flat at $3.2 million, while thermal ablation revenues grew 19% on the back of solid international sales of Microwave ablation offerings. Supply Agreement revenues were $2.5 million in the reported quarter, up 14% on a pro forma basis.

Margins

Gross margin fell to 50.7% from 57.2% a year ago. However, operating margin (on an adjusted basis) in the quarter was 8.6% versus 7.9% in the year-ago quarter, reflecting significant operational leverage.

Financial Health

AngioDynamics ended the quarter with cash and cash equivalents and marketable securities of $21.5 million, down 84.2% from the year-ago level. Total long-term debt was $146.3 million as of November 30, 2012, which is 23 times higher than the year-ago level due to the Navilyst acquisition. The company generated healthy cash from operations of $11.1 million in the quarter compared with $2.7 million in the previous-year quarter.

Guidance

AngioDynamics lowered its full-year fiscal 2013 guidance. Adjusted revenues guidance for the fiscal year is expected between $355 million and $360 million compared with the earlier projection of $361 million–$364 million. Pro forma sales growth is now projected to be 4% instead of the earlier view of 5%. The company, however, reiterated its adjusted earnings per share in the range of 40–42 cents for the year.

Adjusted gross margin is expected in the range of 50%–51% for fiscal 2013. Adjusted operating income is expected between $29 million and $31 million. Earnings before interest, taxes, depreciation and amortization (EBITDA), on an adjusted basis, are projected in the range of $56–$57 million, down from the earlier view of $60–$61 million.

The current Zacks Consensus Estimates for revenues and earnings per share for fiscal 2013 are $360 million and 40 cents, respectively.

AngioDynamics should continue to benefit from the ongoing shift from open surgery to less invasive interventional procedures. Further, acquisitions, GPO contracts and new products are expected to generate incremental opportunities for the company. The company is aggressively investing in restructuring and integration activities as well as cutting jobs to achieve cost synergies and operational leverage.

However, AngioDynamics is exposed to pricing headwinds, stemming from lower selling prices of some access vascular products. Additionally, we remain concerned about the setback in NanoKnife sales and strong challenges from the competitive offerings of its larger rivals such as Boston Scientific ( BSX - Analyst Report ) and CR Bard ( BCR - Analyst Report ) .

Currently, AngioDynamics retains a Zacks #3 Rank (Hold) for the short term, which supports its Neutral recommendation for the long-term.