AngioDynamics Inc. (ANGO) reported adjusted earnings of 8 cents per share for the third quarter of fiscal 2013, ended Feb 28, 2013, beating the Zacks Consensus Estimate of 5 cents. Adjusted earnings exclude one-time expenses such as Quality Call to Action program expenses, acquisition and restructuring charges.
Adjusted earnings grew 60% year over year and were above the company’s expectation of 4–6 cents. Management believes that benefit from the lowering of accrued compensation along with the company’s ongoing cost saving initiative has led to the increase.
The N.Y.-based therapeutic and diagnostic devices maker reported net loss of $1 million (or 3 cents per share) compared with a net loss of $1.8 million (or 7 cents per share) in the year-ago quarter.
Revenue Analysis
Revenues declined 2% to $81.6 million on a pro forma basis, lower than the Zacks Consensus Estimate of $86 million. Pro forma results include the Navilyst acquisition and exclude the LC Beads sales. Disruption in the U.S. sales force has led to the year-over-year shortfall.
Geographically, U.S. revenues dropped 5% on a pro-forma basis to $65.9 million and accounted for roughly 80% of total sales. International sales increased 10% to $15.7 million. International results were below the company’s expectations due to capital delays but are expected to improve going forward.
Segment Results
The company’s larger Vascular business remained soft with revenues dipping 4% on a pro forma basis to $69 million in the quarter. Within Vascular, revenues from the Peripheral Vascular sub-segment decreased 4% to $42.6 million due to lower cardiology and elective procedures as well as competitive pressure in Fluid Management and Venacure EVLT sales. Vascular Access revenues also declined 4% to $26.4 million in the quarter.
Revenues from the Oncology/Surgery division (13% of total revenue) rose 10% to $10.5 million on a pro forma basis. Capital delays led to the lower-than-expected sales growth. Supply Agreement revenues were $2.1 million in the reported quarter, up 15% on a pro forma basis.
Margins
Gross margin fell to 50.5% from 57% a year ago. However, operating margin (on an adjusted basis) in the quarter was 7.8% versus 5.6% in the year-ago quarter, reflecting significant operational leverage.
Financial Health
AngioDynamics ended the quarter with cash and cash equivalents and marketable securities of $18.8 million, down 86.9% from the year-ago level. Total long-term debt was $144.4 million, which is 23 times higher than the year-ago level due to the Navilyst acquisition. The company generated healthy cash from operations of $10 million in the quarter compared with $6.8 million in the previous-year quarter.
Guidance
AngioDynamics lowered its fiscal 2013 guidance. Adjusted revenues guidance for the fiscal year is expected between $337 million and $341 million compared with the earlier projection of $355 million–$360 million. Pro forma sales growth is now projected to be 2% instead of the earlier view of 4%.
Earnings before interest, taxes, depreciation and amortization (EBITDA), on an adjusted basis, are projected in the range of $50–$52 million, down from the earlier view of $56–$57 million. Adjusted earnings per share have been lowered to the range of 32–35 cents for the year from 40–42 cents guided earlier.
The current Zacks Consensus Estimates for revenues and earnings per share for fiscal 2013 are $344 million and 35 cents, respectively.
Recent Developments
In Feb 2013, the AngioDynamics completed the acquisition of certain assets of Mircosulis Medical Ltd. for $15 million, including the Acculis MTA microwave ablation technology. The company has gained the exclusive worldwide distribution rights for this advanced technology. AngioDynamics now serves a market size of $250 million for tissue ablation systems. The company expects to emerge as a pioneer in the global tissue ablation market.
The acquisition is expected to be neutral to AngioDynamics’ adjusted earnings for fiscal 2013. However, the deal will create value for the company’s shareholders with considerable accretion to fiscal 2014 adjusted earnings.
The company has also entered into a sole source contract with an Integrated Delivery Network (IDN) in the quarter. As per the contract, the company will sell its vascular access offerings, including ports and peripherally inserted central catheters (PICCs) to the members. The agreement is expected to be accretive to total sales by $2 million annually.
Our Take
In spite of AngioDynamics beating the bottom line, we remain unimpressed with its third-quarter sales results as well as the lower guidance for fiscal 2013. Although the company has acquired a number of entities in the recent past, it is facing headwinds in restructuring its business and disruptions in integrating its sales force in the U.S. Further, softness in elective procedures, delayed capital spending and persisting austerity measures in the market continue to affect its top line. Competition is stiff and gross margin is under pressure.
However, we believe that despite these near-term operational glitches, the company is capable of growing in the long-term on the back of higher international sales, new products, acquisitions, as well as operational synergies from its cost saving measures. AngioDynamics should continue to benefit from the ongoing shift from open surgery to less invasive interventional procedures.
The company currently carries a Zacks Rank #4 (Sell). While we prefer to remain on the sidelines on AngioDyanmics, other medical stocks such as Given Imaging Ltd. (GIVN), Cepheid (CPHD) and Cyberonics (CYBX) with a Zacks Rank #1 (Strong Buy) are worth considering.
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