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Mixed 1Q13 for AngioDynamics

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AngioDynamics Inc. (ANGO - Free Report) reported first-quarter fiscal 2013 (ended August 31) adjusted earnings of 10 cents per share, beating the Zacks Consensus Estimate by a penny. The year-ago earnings were 8 cents per share. Adjusted earnings exclude one-time expenses such as the Quality Call to Action program (QCAP) expenses, acquisition and restructuring charges as well as inventory step-up charges.

Results include the Navilyst Medical acquisition, which was completed on May 22, 2012. In the first-quarter fiscal 2013, the company reported a loss of $7.21 million (or a loss of 2 cents a share) compared with a net income of $1.4 million (or 5 cents a share) in the year-ago quarter. The loss was mainly driven by higher operating costs associated with the Navilyst acquisition and the company’s restructuring program as well as the QCAP expenses.
Revenue Analysis
Revenues reported for the fiscal first quarter increased 53% on a year-over-year basis to $83.4 million, slightly trailing the Zacks Consensus Estimate of $84 million. However, on a pro forma basis (including Navilyst and excluding LC Beads sales), revenues decreased 1%, as higher Oncology sales were offset by declining Vascular sales. The Navilyst integration process is generating significant cost savings.
On a geographic basis, pro forma revenues in the U.S. dropped 4% year over year to $67.9 million. However, international pro forma sales climbed 16% (or 18% on a constant currency basis) to $15.6 million. Double digit growth was driven by strong sales in Canada, a recent group purchasing organizations (GPO) contract win, healthy BioFlo PICC sales and higher microwave product sales under Microsulis.
Segment Analysis
On a pro forma basis, revenues from the core Vascular segment (84% of total revenue) declined 2% to $69.8 million. Within Vascular, pro forma sales from the Peripheral Vascular sub-segment remained nearly flat year over year at $43.2 million and pro forma sales from the Vascular Access sub-segment decreased 6% to $26.6 million.
Revenues from the Oncology/Surgery division (14% of total revenue) jumped 15% year over year to $11.3 on a pro forma basis (excluding LC Beads). NanoKnife product sales soared 31% to 3 million and thermal ablation grew 14% on the back of solid international sales of Microwave ablation offerings.
Supply Agreement (2% of total revenue) was 2.3 million in the reported quarter.
In the first quarter of fiscal 2013, on a reported basis, gross margin fell to 47.3% from 59.1% in the year-ago period, on account of amortization costs related to the step-up of Navilyst’s inventory and expenses for its quality efforts. Sales and marketing along with general and administrative expenses (as a percentage of sales) decreased to 30.5% from 37.9% in the year-ago period.
Research and development expenses (as a percentage of sales) edged down to 8.5% from 10.3%. Adjusted operating income in the quarter was $7.4 million, more than two folds higher than the year-ago quarter.
Balance Sheet
AngioDynamics ended the quarter with cash and cash equivalents of $18.9 million, down 62.6% year over year. Total long-term debt was $150 million, 23 times higher than the year-ago quarter due to the Navilyst acquisition.
AngioDynamics revised its full year fiscal 2013 guidance due to a change in the phasing of the annual sales guidance as well as to accommodate the pending Vortex Medical acquisition. The company revised its revenues guidance (both on reported and adjusted basis) in the band of $361 million and $364 million (earlier $360 million and $363 million) for fiscal 2013. Pro forma sales growth is expected to be 5% both on reported and adjusted basis.
Earnings per share (on a reported basis) for fiscal 2013 are expected in the range of 12cents to 14 cents (earlier 21 cents – 23 cents). Adjusted earnings per share are projected in the range of 40cents – 42 cents (earlier 49cents – 51 cents). 
Gross margin is forecast to be in the range of 50% to 51% (earlier 52% to 53%) for fiscal 2013. Adjusted operating income is expected to be $29 million to $31 million (earlier $34 million to $36 million). Earnings before interest, taxes, depreciation and amortization (EBITDA), on an adjusted basis, has been forecast in the range of $60 million to $61 million.
Recent Developments
AngioDynamics announced a definitive agreement to purchase privately-held medical devices company Vortex Medical for $15 million in cash, plus future earn out payments based on AngioVAc system sales over a 10 year period and payable in cash. The acquisition will boost AngioDynamics’ peripheral vascular product portfolio. The company expects to close the deal by end October. 
The acquisition will enhance revenues by roughly $1 million but lower earnings (both reported and adjusted) by around 9 cents. Additionally, operating income is expected to reduce by $5 million but impact on EBITDA is expected to be minimal. In fiscal 2014, the acquisition is expected to contribute $10 million to total sales as well as boost reported net income and earnings.
AngioDynamics also received 510(k) approval from the U.S. Food and Drug Administration for its BioFlo peripherally inserted catheters (PICCs) with Endexo technology. Moreover, HealthTrust Purchasing Group (HealthTrust), a GPO, awarded the company a contract covering vascular access products.
However, AngioDynamics’ product lines face strong challenges from the competitive offerings of its larger rivals such as Boston Scientific Corporation (BSX - Free Report) and CR Bard Inc. . We are currently Neutral on AngioDynamics, which carries a short-term Zacks #2 Rank (Buy rating).

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