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Item 7. Management’s Discussion and Analysis

2021-07-27 compared with 2020-08-10 · 154 added, 336 removed, 219 unchanged (69% of the section changed)

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The following information should be read together with the audited consolidated financial statements and the notes thereto and other information included elsewhere in this annual report on Form 10-K.

This discussion may contain forward-looking statements related to future events and our future financial performance that are based on current expectation and are subject to risks and uncertainties.

Our actual results may differ materially from those anticipated in any forward-looking statements as a result of many factors, including those set forth in Part I, Item 1A, "Risk Factors" and "Disclosure Regarding Forward-Looking Statements" included in this Annual Report on Form 10-K.

For all periods presented in Management's Discussion and Analysis of Financial Conditions and Results of Operations, all sales, cost of sales, expenses, gains and income taxes are exclusive of Fluid Management.

Forward-Looking Statements

This annual report on Form 10-K, including the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

All statements regarding AngioDynamics’ expected future financial position, results of operations, cash flows, business strategy, budgets, projected costs, capital expenditures, products, competitive positions, growth opportunities, plans and objectives of management for future operations, as well as statements that include the words such as “expects,” “reaffirms,” “intends,” “anticipates,” “plans,” “believes,” “seeks,” “estimates,” or variations of such words and similar expressions, are forward-looking statements.

These forward looking statements are not guarantees of future performance and are subject to risks and uncertainties.

Investors are cautioned that actual events or results may differ from our expectations.

Factors that may affect our actual results achieved include, without limitation, our ability to develop existing and new products, future actions by FDA or other regulatory agencies, results of pending or future clinical trials, the results of ongoing litigation, overall economic conditions, general market conditions, market acceptance, foreign currency exchange rate fluctuations, the effects on pricing from group purchasing organizations and competition, our ability to integrate purchased businesses and other factors including natural disasters and pandemics (such as the scope, scale and duration of the impact of the novel coronavirus, COVID-19).

Other risks and uncertainties include, but are not limited to, the factors described from time to time in our reports filed with the SEC.

Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this annual report on Form 10-K will prove to be accurate.

In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved.

Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made.

AngioDynamics disclaims any obligation to update the forward-looking statements.

Investors are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date stated, or if no date is stated, as of the date of this document.

EXECUTIVE OVERVIEW

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Our devices are generally used in minimally invasive, image-guided procedures.

Most of our products are intended to be used once and then discarded, or they may be implanted for short or long term use.

Many of our products are intended to be used once and then discarded, or they may be temporarily implanted for short- or longer-term use.

Our business operations cross a variety of markets.

Our financial performance is impacted by changing market dynamics, which have included an emergence of value-based purchasing by healthcare providers, consolidation of healthcare providers, the increased role of the consumer in health care decision-making and an aging population, among others.

In addition, our

growth is impacted by changes within our sector, such as the merging of competitors to gain scale and influence;

In addition, our growth is impacted by changes within our sector, such as the merging of competitors to gain scale and influence;

changes in the regulatory environment for medical device;

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Our sales and profitability growth also depends, in part, on the introduction of new and innovative products, together with ongoing enhancements to our existing products.

Expansions to our product offerings are created through internal product development, technology licensing and strategic alliances.

We recognize the importance of, and intend to continue to make investments in research and development activities and business development opportunities and feel confident that our existing capital structure and free cash flow generation will allow us to properly fund those activities.

On August 14, 2018, the Company acquired the BioSentry Tract Sealant System (BioSentry) technology from Surgical Specialties, LLC, a medical device company headquartered in Westwood, Massachusetts for a total purchase price of $39.8 million of which $37.0 million was paid on August 14, 2018 and $2.8 million was recorded as contingent consideration.

The contingent consideration liability was recorded at fair value and was paid upon fulfillment of hydrogel orders during the fourth quarter of fiscal year 2019.

This is part of the Company’s strategic focus on building a continuum of care within the oncology space.

Refer to Note 2 for further disclosure on the acquisition.

On September 21, 2018, the Company acquired RadiaDyne, a privately held medical diagnostic and device company that designs and develops patient dose monitoring technology to improve cancer treatment outcomes.

The aggregate purchase price of $75.0 million included an upfront payment of $47.9 million, contingent consideration with an estimated fair value of $22.3 million, an indemnification holdback of $4.6 million and a purchase price holdback of $0.2 million.

This acquisition expands the Company’s growing Oncology business by adding RadiaDyne’s early-stage, proprietary OARtrac® real-time radiation dose monitoring platform and other market-leading oncology solutions, including the IsoLoc®/ImmobiLoc® and Alatus® balloon stabilizing technologies.

During fiscal year 2020, the Company revised the sales projections for RadiaDyne products as a result of reviews performed by executive management.

The adjustments to the sales projections over the contractual earn-out period resulted in a $9.2 million reduction in the fair value of the contingent liability.

It was also determined that one of the technical milestones would not be achieved, which resulted in an additional reduction in the liability of $2.7 million.

In addition, an inventory reserve of $1.0 million was recorded for raw materials and existing dosimetry inventory associated with OARtrac that was purchased pursuant to the Company's acquisition of RadiaDyne, as these inventory items were deemed unmarketable absent subsequent design and development activities.

On March 7, 2019, the United States District Court for the District of Delaware granted judgment as a matter of law under rule 50(a) in favor of the Company.

This judgment dismissed Bard's suit claiming certain of the Company's implantable port products infringe on three U.S.

patents held by Bard.

See Note 17 for additional disclosure.

On March 14, 2019, the Company entered into a settlement agreement with Biolitec, Inc.

related to the action commenced in the United States District Court for the Northern District of New York in January 2008.

The Company sought judgment against Biolitec for defense and indemnification in two lawsuits which were previously settled.

As a result of the settlement, Biolitec paid the Company $3.4 million during fiscal year 2019 and $0.5 million during fiscal year 2020.

On May 31, 2019, the Company completed the sale of the NAMIC Fluid Management business (the “Divestiture”) and all of the assets used primarily in connection with the Fluid Management business to Medline Industries, Inc.

(“Medline”) pursuant to an asset purchase agreement dated April 17, 2019 (the “Asset Purchase Agreement”).

Total consideration received by the Company for the Divestiture in the fourth quarter of fiscal year 2019 was $169.2 million in cash and resulted in a gain of $46.6 million after working capital adjustments of $0.6 million.

The gain is recorded in discontinued operations.

A portion of the net proceeds were used on June 3, 2019 to retire the outstanding balance on the Term Loan and Revolving Facility and the remaining net proceeds will continue to be invested in the business.

On October 2, 2019, the Company entered into a share purchase agreement to acquire Eximo Medical, Ltd., a pre-commercial stage medical device company and its proprietary 355nm laser atherectomy technology.

The aggregate purchase price of $60.7 million included an upfront payment of $45.8 million and contingent consideration with an estimated fair value of $14.9 million.

This acquisition expands and complements the Company’s Vascular Interventions and Therapies product portfolio by adding the 355nm laser atherectomy technology which treats Peripheral Artery Disease.

On December 17, 2019, the Company acquired the C3 Wave tip location asset from Medical Components Inc.

for an aggregate purchase price of $10.0 million with $5.0 million of potential future contingent consideration related to technical milestones.

This acquisition fills a gap in the Vascular Access portfolio and supports the Company's strategic plan.

The Company accounted for this acquisition as an asset purchase.

The Company recorded the amount paid at closing as inventory of $0.6 million and intangible assets of a trademark of $0.9 million and product technology of $8.5 million.

As of May 31, 2020, the Company identified a triggering event resulting from the Company’s market capitalization being below its book value of equity for a sustained period of time.

Following the triggering event at May 31, 2020, the Company

determined its fair value using a combination of the income approach and market approach.

This valuation assessment indicated that the Company’s book value exceeded its fair value, resulting in an impairment of goodwill of $158.6 million.

The COVID-19 global pandemic may pose significant risks to our business.

It is too early to quantify the impact this situation will have on fiscal year 2021 or beyond, but the public health actions being undertaken to reduce spread of the virus are causing and may continue to cause significant disruptions with respect to consumer demand, hospital operating procedures and workflow, our ability to continue to manufacture products and the reliability of our supply chain.

Accordingly, management is evaluating the Company’s liquidity position, communicating with and monitoring the actions of our customers and suppliers, and reviewing our near-term financial performance as we manage the Company through the uncertainty related to the coronavirus.

As of the date of this report:

Our field based sales personnel are starting to re-enter the field in a safe and well orchestrated manner in order to once again provide unparalleled service to our physicians.

Our Latham headquarters reopened in accordance with New York State guidelines.

Our other office-based employees continue to work remotely.

Our manufacturing facility in Queensbury, New York is operating under our business continuity plan with precautions including, without limitation, creating small “work pods”, increasing distancing and regularly monitoring temperatures.

We anticipate that guidance and restrictions from the Center for Medicaid Services, hospitals and hospital systems, to reduce “elective-like” procedures and prioritize critical care and coronavirus patients, will have a materially adverse impact on certain procedure volumes to which certain of our products relate.

As discussed in more detail below, we will closely monitor our liquidity and capital resources through the disruption caused by the COVID-19 pandemic.

Expansions of our product offerings are created through internal and external product development, technology licensing and strategic alliances.

We recognize the importance of, and intend to continue to make investments in research and development activities and selective business development opportunities to provide growth opportunities.

We sell our products in the United States primarily through a direct sales force, and outside the U.S.

through a combination of direct sales and distributor relationships.

Our end users include interventional radiologists, interventional cardiologists, vascular surgeons, urologists, interventional and surgical oncologists and critical care nurses.

We expect our businesses to grow in both sales and profitability by expanding geographically, penetrating new markets, introducing new products and increasing our presence internationally.

The COVID-19 global pandemic has impacted our business and may pose future risks.

Even with the public health actions that have been taken to reduce the spread of the virus, there may continue to be disruptions with respect to consumer demand, hospital operating procedures and workflow, our ability to continue to manufacture products, the reliability of our supply chain and inflation.

Accordingly, management continues to evaluate the Company’s liquidity position, communicate with and monitor the actions of our customers and suppliers, and review our near-term financial performance.

In the third quarter of fiscal year 2021, a benefit of $1.9 million was recorded as a result of the employee retention credit that the Company filed for under the provisions of the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act").

In evaluating the operating performance of our business, management focuses on revenue, gross margin, operating income, earnings per share and cash flow from operations.

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Year ended May 31, 2021:

• Revenue decreased by 2.4% to $264.2 million

• Revenue increased by 10.2% to $291.0 million

• Gross margin as a percentage of sales decreased by 300 bps to 53.9%

• Operating loss increased by $157.7 million to $167.1 million

• Cash flow from operations decreased by $52.0 million to cash used in operations of $14.6 million

• Operating loss decreased by $131.8 million to $35.3 million

• Cash flow from operations increased by $38.6 million to cash provided by operations of $24.1 million

The ongoing recovery from the COVID-19 pandemic has had a varying impact on each of our three businesses.

Our Endovascular Therapies and Vascular Access businesses performed the strongest of the businesses during the year.

number of procedures continued to improve from the COVID-19 lows in the second half of last fiscal year.

Our Oncology business continued to face pressure from reductions in procedure volumes due to challenges resulting from the COVID-19 pandemic and the resulting challenging capital spending environment.

During fiscal year 2021, we focused on the following areas in responding to the COVID-19 pandemic:

• Supporting and progressing our key growth initiatives (the AngioVac, Auryon and NanoKnife systems);

• Managing operating expenses;

• Managing our cash and balance sheet.

Strategic Initiatives to Drive Growth

As the Company has previously announced, the Company is focused on its ongoing transformation from a company with a broad portfolio of largely undifferentiated products to a more focused medical technology company that delivers unique and innovative health care solutions.

The Company believes that this transformation will enable the Company to shift the portfolio from the mature, lower-growth markets where we have competed in the past by investing in technology and products that provide access to larger and faster growing markets.

As such, we believe the growth in the near to mid-term will be driven by our high technology products including Auryon, Mechanical Thrombectomy (which includes AngioVac and thrombolytics) and NanoKnife.

We will refer to these high technology product lines as our Med Tech business and we will refer to the remainder of the portfolio as our Med Device business.

Throughout the year, we introduced strategic moves designed to streamline our business, improve our overall business operations and position ourselves for growth.

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• Product development process.

The Company continued its robust product development process which is intended to improve the Company’s ability to bring new products to market.

The Company continued its disciplined product development process which is intended to improve the Company’s ability to bring new products to market.

This included the launch of Auryon and SmartPort+, along with continued research and development activities to expand on our Mechanical Thrombectomy portfolio.

• Value Creation.

To create value and drive future growth, the Company plans to practice dispassionate portfolio optimization and continue to focus on areas of compelling unmet needs including those that are patient-centric and evidenced-based.

This was evident through the Auryon and C3 Wave tip location acquisitions noted.

In addition, the Company is pursuing targeted global expansion opportunities.

Critical Accounting Policies and Use of Estimates

Our significant accounting policies are summarized in Note 1 to Notes to Consolidated Financial Statements included in our Form 10-K.

Our significant accounting policies are summarized in Note 1 "Basis of Presentation, Business Description and Summary of Significant Accounting Policies" in the Consolidated Financial Statements included in our Form 10-K.

While all of these significant accounting policies affect the reporting of our financial condition and results of operations, we view certain of these policies as critical.

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and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

The Company's products consist of a wide range of medical, surgical and diagnostic devices used by professional healthcare providers for vascular access, for the treatment of peripheral vascular disease and for use in oncology and surgical settings.

The Company's devices are generally used in minimally invasive, image-guided procedures.

Most of the Company's products are intended to be used once and then discarded, or they may be temporarily implanted for short- or longer-term use.

The Company sells its products to its distribution partners and to end users, such as interventional radiologists, interventional cardiologists, vascular surgeons, urologists, interventional and surgical oncologists and critical care nurses.

The Company contracts with its customers based on customer purchase orders, which in many cases are governed by master purchasing agreements.

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If a contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.

Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products underlying each performance obligation.

Contracts that contain multiple performance obligations require an allocation of the transaction price based on the

estimated relative standalone selling prices of the promised products underlying each performance obligation.

The Company has standard pricing for its products and determines standalone selling prices based on the price at which the performance obligation is sold separately.

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Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue.

The Company enters into agreements to place placement and evaluation units (“units”) at customer sites, but the Company retains title to the units.

The duration of these agreements are typically a year and the customer has the right to use the unit at no upfront charge in connection with the customer’s ongoing purchase of disposables.

These types of agreements include an embedded operating lease for the right to use the units.

In these arrangements, revenue recognized for the sale of the disposables is not allocated between the disposal revenue and lease revenue due to the insignificant value of the units in relation to the total agreement value.

Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established for discounts, returns, rebates and allowances that are offered within contracts between the Company and its customers.

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The Company provides certain customers with rebates and allowances that are explicitly stated in the Company’s contracts and are recorded as a reduction of revenue in the period the related product revenue is recognized.

The Company establishes a liability for such amounts, which is included in accrued expenses in the accompanying consolidated balance

The Company establishes a liability for such amounts, which is included in accrued expenses in the accompanying consolidated balance sheets.

These rebates and allowances result from performance-based offers that are primarily based on attaining contractually specified sales volumes and administrative fees the Company is required to pay to group purchasing organizations.

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During the year ended May 31, 2021, such product returns were not material.

Inventories are stated at the lower of cost or net realizable value based on the first-in, first-out cost method and consist of raw materials, work in process and finished goods.

Appropriate consideration is given to deterioration, obsolescence, expiring and other factors in evaluating net realizable value.

When we evaluate inventory for excess quantities and obsolescence, we utilize historical product usage experience and expected demand for establishing our reserve estimates.

Our actual product usage may vary from the historical experience and estimating demand is inherently difficult which may result in us recording excess and obsolete inventory amounts that do not match the required amounts.

An increase to inventory reserves results in a corresponding increase in cost of revenue.

Inventories are written off against the reserve when they are physically disposed.

Acquisitions and Contingent Consideration

The Company allocates the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values.

The estimates used to value the net assets acquired are based in part on historical experience and information obtained from the management of the acquired company.

The estimates used to value the net assets acquired are based in part on

historical experience and information obtained from the management of the acquired company.

The Company generally values the identifiable intangible assets acquired using a discounted cash flow model.

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Goodwill and Intangible Assets

Intangible assets other than goodwill, indefinite lived intangible assets and in process research and development ("IP R&D") are amortized over their estimated useful lives, which range between two to eighteen years, on either a straight-line basis over the expected period of benefit or as revenues are earned from the sales of the related product.

The Company periodically reviews the estimated useful lives of intangible assets and reviews such assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.

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Changes in assumptions or estimates could materially affect the estimated fair value, and therefore could affect the likelihood and amount of a potential impairment.

In the fourth quarter of fiscal year 2020, the Company concluded that the sustained decline in its market capitalization represented an impairment indicator that required the Company to perform an interim test for goodwill impairment as of May 31, 2020.

To determine the fair value of the single reporting unit as of May 31, 2020, the Company utilized a weighting of fair values derived from the income approach and the market approach.

The income approach is based on the projected cash flows that are discounted to their present value using discount rates that consider the timing and risk of the forecasted cash flows.

Fair value is estimated using internally developed forecasts and assumptions.

The discount rate used is the average estimated value of a market participant’s cost of capital and debt, derived using customary market metrics and includes an additional risk premium to account for additional forecast and company specific risk.

Other significant assumptions include revenue growth rates, profitability projections, and terminal value growth rates.

The market approach estimates fair values based on the determination of appropriate publicly traded market comparison companies and market multiples of revenue and earnings derived from those companies with similar operating and investment characteristics as the Company being valued.

Finally, the Company compared and reconciled the Company’s overall fair value to its market capitalization in order to assess the reasonableness of the calculated fair values of the reporting unit.

As detailed in Note 9, "Goodwill and Intangible Assets," the Company recorded a goodwill impairment loss of $158.6 million for the year ended May 31, 2020 as the fair value of the reporting unit was less than its carrying value.

As detailed in Note 9, "Goodwill and Intangible Assets" in the Consolidated Financial Statements including on our Form 10-K, during the fourth quarter of fiscal year 2021, the Company made the decision to abandon the OARtrac product technology and trademark.

This resulted in an impairment charge of $14.0 million.

In the fourth quarter of fiscal year 2020, the Company recorded a goodwill impairment loss of $158.6 million as the fair value of the reporting unit was less than its carrying value.

There were no adjustments to goodwill for the year ended May 31, 2021 other than foreign currency translation adjustments.

Results of Operations for the years ended May 31, 2021 and 2020

For the fiscal year ended May 31, 2021, we reported net loss from continuing operations of $31.5 million, or $0.82 loss per diluted share, on net sales of $291.0 million compared to a fiscal year 2020 net loss of $166.8 million, or $4.39 loss per diluted share, on net sales of $264.2 million.

Net sales - Net sales are derived from the sale of our products and related freight charges, less discounts and returns.

Net sales - Net sales are derived from the sale of our products and related freight charges, less discounts, rebates and returns.

Net sales for the year ended May 31, 2021 and 2020 were:

Year ended May 31,

(in thousands) 2020 2019 % Growth

(in thousands) 2021 2020 % Change

Net Sales by Product Category

Vascular Interventions & Therapies $ 112,706 $ 119,901 (6)%

Endovascular Therapies $ 135,079 $ 112,706 19.9 %

Vascular Access 101,310 94,299 7.4 %

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Total $ 291,010 $ 264,157 10.2 %

For year ended May 31, 2020, net sales decreased $6.5 million to $264.2 million compared to the year ended May 31, 2019.

Vascular Interventions & Therapies

• Total Vascular Interventions & Therapies sales decreased $7.2 million primarily attributable to decreased sales of Venous and Core products of $10.4 million and $2.3 million, respectively.

The decrease in Venous products is due to the impact from COVID-19, as this is considered an elective procedure, along with the termination of the Asclera distribution agreement which contributed $5.9 million in the prior year.

The decrease in Core products is a direct result of COVID-19 as Core product sales were up year-over-year through the end of the third quarter.

These decreases were partially offset by continued strong performance in AngioVac, where case volumes were up 19% year-over-year.

There was $0.7 million in sales of Auryon that was acquired as part of the Eximo acquisition in the second quarter of fiscal year 2020.

Vascular Interventions & Therapies sales decreased $7.8 million due to decreased sales volume in Venous and Core products as discussed above.

This was partially offset by increased case volume in AngioVac and $0.7 million in sales of Auryon.

• International Vascular Interventions & Therapies sales increased $0.6 million due to increased volume in Angiographic catheters primarily in EMEA (Europe, the Middle East and Africa).

For the year ended May 31, 2021, net sales increased $26.9 million to $291.0 million compared to the year ended May 31, 2020.

The prior year net sales numbers, specifically in the fourth quarter, were significantly impacted by the COVID-19 global pandemic.

Endovascular Therapies

• Total Endovascular Therapies sales increased $22.4 million or 19.9%.

Auryon, which was acquired as part of the Eximo acquisition in the second quarter of fiscal year 2020, contributed $11.1 million in disposable sales.

The AngioVac business grew $8.0 million as the Company continued to see increased case volumes in AngioVac, which increased 39% from the prior year.

Additionally, Core Peripheral product sales increased $5.6 million.

EVLT remained consistent with the prior year.

Endovascular Therapies net sales increased $22.5 million due to increased case volume in AngioVac, increased Core Peripheral product sales and $11.1 million in sales of Auryon.

These increases were partially offset by decreased sales volume in EVLT.

• International Endovascular Therapies net sales decreased $0.1 million.

Vascular Access

• Total Vascular Access sales decreased $0.4 million primarily due to lower port sales.

This was partially offset by increased PICC and Midline sales as a result of the new distribution agreement with MedComp and the C3 Wave tip location acquisition.

The Company's BioFlo portfolio comprises 51% of overall Vascular Access sales, consistent with prior year.

Vascular Access sales decreased by $2.8 million due to competitive pressures in the PICC and Port product lines.

This was partially offset by growth in Midlines and BioFlo Dialysis which continue to gain traction in the marketplace along with the C3 Wave tip location acquisition.

• International Vascular Access sales increased by $2.4 million as the Company continues to expand its global reach of its Vascular Access product offerings.

• Total Vascular Access sales increased $7.0 million due to increased sales of PICCs, Ports, Midlines and Dialysis of $2.5 million, $1.3 million, $3.1 million and $0.1 million, respectively.

These increases are partially the result of a large order in the United Kingdom related to the COVID-19 pandemic for $5.2 million in the first quarter of fiscal year 2021 along with the distribution agreement with MedComp for the sale of certain PICC products.

BioFlo product lines comprised 52% of overall Vascular Access sales compared to 51% in the prior year.

Vascular Access net sales increased $4.3 million primarily due to increased PICCs, Ports and Midline sales of $1.1 million, $1.4 million and $1.5 million, respectively.

These increases are attributed to a group purchasing

organization agreement that was signed in the third quarter of the prior fiscal year, new strategic relationships and the launch of SmartPort+.

• International Vascular Access net sales increased by $2.7 million primarily as a result of a large order in the United Kingdom related to the COVID-19 pandemic for $5.2 million.

This was partially offset by decreased PICC sales in Latin America of $1.6 million.

Oncology/Surgery

• Total Oncology/Surgery sales increased $1.1 million year over year primarily due to $4.8 million in NanoKnife capital sales and increased sales of BioSentry and Balloon products of $0.4 million and $1.4 million, respectively.

This was partially offset by decreased sales in Radiofrequency Ablation, Microwave and NanoKnife disposables.

Oncology sales increased by $1.7 million primarily due to $2.4 million in NanoKnife capital sales and increased sales of BioSentry and Balloon products of $0.2 million and $1.4 million, respectively.

This was partially offset by a $1.5 million decrease in RadioFrequency Ablation and Microwave sales and a $0.4 decrease in NanoKnife disposable sales.

• International Oncology sales decreased by $0.6 million due to decreased RadioFrequency Ablation and Microwave sales of $2.4 million and decreased NanoKnife disposables of $0.8 million.

This was partially offset by increased NanoKnife capital sales of $2.4 million.

• Total Oncology/Surgery sales decreased $2.5 million year over year.

The sales were significantly impacted by the challenging capital spending environment as a result of the COVID-19 pandemic, as Microwave and NanoKnife capital sales decreased $4.2 million.

Of this decrease, $2.1 million is due to a large NanoKnife distributor order in the Asia-Pacific region ("APAC") in the prior year.

Radiofrequency Ablation sales also decreased $1.6 million, Balloon product sales decreased by $1.1 million and other sales decreased $0.7 million.

These decreases were partially offset by increased Microwave and NanoKnife disposable sales of $2.1 million and $1.2 million, respectively, and increased BioSentry sales of $2.0 million.

Oncology net sales increased by $2.3 million primarily due to increased NanoKnife disposable sales of $1.5 million, BioSentry sales of $2.0 million and Microwave disposable sales of $1.3 million.

The increased NanoKnife disposable sales is the result of the increased capital base that was developed in the prior year along with increased case volumes as hospitals have begun to lift restrictions on procedures.

This was partially offset by decreased NanoKnife capital sales of $1.1 million and Balloon product sales of $1.1 million.

• International Oncology sales decreased $4.8 million year over year.

The decrease was driven by lower NanoKnife capital and disposable sales of $3.0 million and decreased Radiofrequency Ablation sales of $2.1 million as a result of market pressures and hospital restrictions due to the COVID-19 pandemic.

Of the $3.0 million decrease in NanoKnife capital and disposable sales, $2.1 million was related to a NanoKnife distributor order in APAC in the prior year.

Gross Profit, Operating expenses, and Other income (expense)

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Gross profit - Gross profit consists of net sales less the cost of goods sold, which includes the costs of materials, products purchased from third parties and sold by us, manufacturing personnel, royalties, freight, business insurance, depreciation of property and equipment and other manufacturing overhead, exclusive of intangible amortization.

Gross profit decreased by $5.7 million compared to the prior year.

The decrease is attributable to the following:

• Sales volume negatively impacted gross margin by $1.9 million, while price positively impacted gross margin by $3.0 million.

• Net productivity negatively impacted gross margin by $1.0 million as a result of under absorption in manufacturing operations as the Company maintained staffing levels and continued producing product in the plant to provide flexibility during the severe uncertainty brought about by the COVID-19 global pandemic.

• Inventory reserve of $1.0 million for raw materials and existing dosimetry inventory associated with OARtrac that was purchased pursuant to the Company's acquisition of RadiaDyne as these inventory items were deemed unmarketable absent subsequent design and development activities.

• Mix negatively impacted gross margin by $0.7 million as a result of higher Vascular Access sales, which are lower margin products.

• Other items, including a royalty step-up and a prior year supplier reimbursement, negatively impacted gross margin by $0.8 million.

• The termination of the Asclera distribution agreement negatively impacted gross margin by $3.4 million.

Research and development expenses - Research and development (“R&D”) expenses include internal and external costs to develop new products, enhance existing products, validate new and enhanced products, manage clinical, regulatory and medical affairs.

While gross profit increased by $6.5 million compared to the prior year, gross profit as a percentage of sales decreased 300 basis points.

The change is primarily attributable to the following:

• Sales volume positively impacted gross profit by $16.6 million year over year;

• Net productivity negatively impacted gross profit by $10.0 million primarily as a result of under absorption, and to a lesser extent inflation, of $5.1 million and start-up costs of $4.0 million related to the Auryon launch.

The under absorption in manufacturing operations was due to the Company maintaining staffing levels during the COVID-19 global pandemic to mitigate risk, along with a focus on working capital management through inventory reduction;

• Mix negatively impacted gross margin by $0.8 million as a result of the large order in the United Kingdom for lower gross margin products and decreased NanoKnife capital sales.

This was partially offset by increased AngioVac sales;

• A benefit of $0.7 million was recorded to gross profit which represents a portion of the employee retention credit that the Company filed for under the provisions of the CARES Act in the third quarter of the current year.

Research and development expense - Research and development (“R&D”) expense includes internal and external costs to develop new products, enhance existing products, validate new and enhanced products, manage clinical, regulatory and medical affairs.

R&D expense increased $6.7 million compared to the prior year.

The increase is attributable to the following:

• Compensation and benefits increased approximately $0.4 million due to increased variable compensation along with increased headcount as a result of the Eximo acquisition.

• Research and development spend related to the Eximo acquisition contributed $2.3 million along with $1.2 million in other project spend.

• Outside consultant and other spend decreased $2.2 million.

Sales and marketing expenses - Sales and marketing (“S&M”) expenses consist primarily of salaries, commissions, travel and related business expenses, attendance at medical society meetings, product promotions and marketing activities.

The increase is primarily attributable to the following:

• AngioVac platform expansion, the NanoKnife DIRECT © study and the Pathfinder study increased $3.6 million and Auryon related expenses increased by $2.7 million;

• Outside consultant expense and other expense increased $0.5 million and travel expenses decreased $0.5 million;

• Compensation and benefits increased $0.7 million, of which $0.4 million related to variable compensation;

• A benefit of $0.3 million was recorded to R&D expense which represents a portion of the employee retention credit that the Company filed for under the provisions of the CARES Act in the third quarter of the current year.

Sales and marketing expense - Sales and marketing (“S&M”) expense consists primarily of salaries, commissions, travel and related business expenses, attendance at medical society meetings, product promotions and marketing activities.

S&M expense increased by $2.7 million compared to the prior year.

The increase is attributable to the following:

• Compensation and benefits increase of approximately $0.7 million which is primarily attributed to increased variable compensation and increased commissions as a result of NanoKnife capital sales.

• Expenses related to the build-out of the Eximo sales and marketing teams to prepare for full product launch of $3.1 million.

• Travel expenses decreased $1.6 million directly as a result of the COVID-19 pandemic and the fact that the sales force could not travel in the fourth quarter of fiscal year 2020.

• Outside service and other fees decreased $1.3 million which was partially offset by other sales and marketing expenses of $1.1 million to support company-wide initiatives.

General and administrative expenses - General and administrative (“G&A”) expenses include executive management, finance, information technology, human resources, business development, legal, and the administrative and professional costs associated with those activities.

G&A expense increased by $3.0 million compared to the prior year.

The increase is attributable to the following:

• Legal and professional fees relating to ongoing litigation that is within the normal course of business increased $3.7 million, primarily related to the Company's suit against C.R.

• Compensation and benefits decreased approximately $2.9 million primarily as a result of reversal of share based compensation expense of $1.8 million for employees who are no longer with the Company and favorable benefits expense of $0.9 million.

• Increased consultant spend of $0.4 million, increased expenses related to the Eximo acquisition to integrate the business of $0.8 million and other expenses of $0.9 million.

The increase is primarily attributable to the following:

• Expense related to the build-out of the Auryon sales and marketing teams to prepare for full product launch of $7.7 million;

• Travel expense decreased $2.4 million due to less travel as a result of the COVID-19 pandemic.

In addition, tradeshow and other expense decreased $1.2 million primarily due to the cancellation of events;

• Compensation and benefits decreased $0.7 million due to decreased salaries as a result of open roles partially offset by increased variable compensation and commissions;

• A benefit of $0.9 million was recorded to sales and marketing expense which represents a portion of the employee retention credit that the Company filed for under the provisions of the CARES Act in the third quarter of the current year.

General and administrative expense - General and administrative (“G&A”) expense includes executive management, finance, information technology, human resources, business development, legal, and the administrative and professional costs associated with those activities.

G&A expense decreased by $2.0 million compared to the prior year.

The decrease is primarily attributable to the following:

• Legal and professional fees relating to ongoing litigation that is within the normal course of business decreased $3.7 million;

• Compensation and benefits increased approximately $2.1 million primarily as a result of increased variable compensation and stock based compensation expense;

• Decreased consulting and other expense of $0.1 million and decreased travel expense of $0.2 million as a result of the COVID-19 pandemic.

Year ended May 31,

6 unchanged sentences

Amortization of intangibles - Represents the amount of amortization expense that was taken on intangible assets held by the Company.

• Amortization expense increased $1.1 million compared to the prior year.

The Eximo Medical and C3 Wave tip location acquisitions increased intangible assets by $60.3 million and $9.4 million, respectively.

These additions resulted in additional amortization expense of $2.9 million.

This was partially offset by the write-off of the Merz intangible in the fourth quarter of fiscal year 2019 and other intangibles that became fully amortized.

• Amortization expense remained consistent compared to the prior year.

Goodwill Impairment - Represents the impairment charge taken on goodwill.

• The Company recorded a non-cash goodwill impairment charge of $158.6 million for the year ended May 31, 2020 as the fair value of the reporting unit was less than its carrying value.

There were no adjustments to goodwill for the year ended May 31, 2021 other than foreign currency translation adjustments.

Change in fair value of contingent consideration - Represents changes in contingent consideration driven by changes to estimated future payments on earn-out liabilities created through acquisitions and amortization of present value discounts on long-term contingent consideration.

• The change from the prior year is primarily due to revised sales projections for RadiaDyne products as a result of reviews performed by executive management.

The adjustments to the sales projections over the contractual earn-out period resulted in a $9.2 million reduction in the fair value of the contingent liability.

It was also determined that one of the technical milestones would not be achieved, which resulted in an additional reduction in the liability of $2.7 million.

These reductions in the fair value were offset by normal amortization of the present value of the remaining contingent consideration, including the Eximo contingent consideration that was recorded for $14.9 million in the second quarter of fiscal year 2020.

In addition, the final minimum payment of $1.2 million was paid for the Microsulis contingent consideration during the first quarter of fiscal year 2020.

• The change is primarily due to RadiaDyne revised sales projections and a technical milestone that would not be achieved.

This resulted in a $9.2 million and $2.7 million reduction in the fair value of the contingent liability in the prior year.

• During the current year, a decision was made to no longer pursue the final RadiaDyne technical milestone, which resulted in a reduction in the liability of $0.8 million.

This reduction in the fair value was offset by normal amortization of the present value of the Eximo contingent consideration recorded in the second quarter of fiscal year 2020.

Acquisition, restructuring and other items, net - Acquisition, restructuring and other items, net represents costs associated with mergers and acquisitions, restructuring expenses, legal costs that are related to litigation that is not in the ordinary course of business, legal settlements and other one-time items.

Acquisition, restructuring and other items, net decreased by $9.1 million compared to the prior year.

The decrease is attributable to the following:

• M&A expense of $0.8 million was incurred in fiscal year 2020 compared to $4.0 million in the prior year.

• Legal expense, related to litigation that is outside of the normal course of business, of $2.7 million was recorded in fiscal year 2020, which includes an offset of $0.5 million from the Biolitec bankruptcy settlement, compared to $7.8 million in the prior year.

Included in the $7.8 million from prior year, is a $3.4 million settlement received for the Biolitec litigation and a $2.5 million accrual for the settlement of the Merz contract termination.

• In fiscal year 2020, the Company incurred $2.8 million of expense to move manufacturing facilities as a result of the sale of the Fluid Management business.

Acquisition, restructuring and other items, net increased by $14.2 million compared to the prior year.

The increase is attributable to the following:

• Legal expense, related to litigation that is outside of the normal course of business, of $6.2 million was recorded in fiscal year 2021 compared to $2.7 million in the prior year.

Included in legal for fiscal year 2021, is a $1.0 million settlement expense;

• There was no M&A expense incurred in fiscal year 2021 compared to $0.8 million in the prior year;

• In fiscal year 2021, the Company incurred $0.4 million of expense to move manufacturing facilities as a result of the sale of the Fluid Management business compared to $2.8 million in the prior year;

• As part of the sale of the Fluid Management business, the Company entered into a transition services agreement with Medline for certain legal, human resource, tax, accounting and information technology services from the Company for a period not to exceed 24 months.

Income of $1.8 million for these services was recognized in fiscal year 2020.

• The prior year had a $1.7 million asset impairment charge.

• Other expenses of $1.5 million in fiscal year 2020 compared to $1.3 million in the prior year consists of expenses to move the manufacturing of BioSentry products and severance associated with the sale of the Fluid Management business.

Other expenses - Other expenses include interest expense, foreign currency impacts, bank fees, and amortization of deferred financing costs.

• The decrease in other expenses from the prior year of $4.3 million is due to decreased interest expense of $4.6 million as the Credit Facility was paid down in full at the beginning of the first quarter of fiscal year 2020.

In addition to the decrease in interest expense, interest income increased $0.3 million from the prior year as a result of increased cash due to proceeds from the sale of the Fluid Management business.

These increases are partially offset by the write-off of the deferred financing fees that were associated with the old Credit Facility of $0.5 million.

Other expenses also include foreign currency fluctuations which increased by $0.2 million.

Income Tax Provision (Benefit)

As a result of the transition services agreement, the Company invoiced Medline $1.0 million in fiscal year 2021 compared to $1.8 million in the prior year;

• Other expenses of $0.8 million consists of severance associated with organizational changes, compared to $1.5 million in the prior year;

• A $14.0 million impairment charge was recorded in fiscal year 2021 as a result of the decision to abandon the OARtrac product technology and trademark.

Other expense - Other expense includes interest expense, foreign currency impacts, bank fees, and amortization of deferred financing costs.

• The decrease in other expense from the prior year of $0.3 million is primarily due to foreign currency unrealized gains of $0.4 million and the prior year write-off of deferred financing fees associated with the old Credit Facility of $0.6 million.

This was partially offset by increased interest expense of $0.2 million for the $20.0 million outstanding on the Revolving Facility at the end of fiscal year 2021 compared to $40.0 million outstanding in the prior year.

In addition, interest income decreased by $0.3 million.

Income Tax Benefit

Year ended May 31,

(in thousands) 2021 2020

Income tax expense (benefit) $ (1,348) $ (3,556)

Income tax benefit $ (4,504) $ (1,348)

Effective tax rate 12 % 1 %

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The current year effective tax rate differs from the U.S.

statutory rate primarily due to the impact of the valuation allowance, foreign taxes, and other non-deductible permanent items (such as non-deductible meals and entertainment, Section 162(m) excess compensation and non-deductible share-based compensation).

The prior year effective tax rate differs from the U.S.

Federal statutory tax rate of 21% primarily due to no tax benefit being recorded on the goodwill impairment of $158.6 million.

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If sufficient positive evidence exists in future periods to support a release of some or all of the valuation allowance, such a release would likely have a material impact on the Company’s results of operations.

Results of Operations for the years ended May 31, 2019 and 2018

For the fiscal year ended May 31, 2019, we reported net loss from continuing operations of $11.1 million, or $0.30 loss per basic and diluted common share, on net sales of $270.6 million compared to a fiscal year 2018 net loss of $6.2 million, or $0.17 loss per basic and diluted common share, on net sales of $261.7 million.

Net sales - Net sales are derived from the sale of our products and related freight charges, less discounts and returns.

Net sales for the year ended May 31, 2019 and 2018 were:

Year ended May 31,

(in thousands) 2019 2018 % Growth

Net Sales by Product Category

Vascular Interventions & Therapies $ 119,901 $ 119,704 0%

Vascular Access 94,730 92,760 2%

Oncology/Surgery 56,003 49,191 14%

Total $ 270,634 $ 261,655 3%

Net Sales by Geography

United States $ 216,957 $ 213,727 2%

International 53,677 47,928 12%

Total $ 270,634 $ 261,655 3%

For year ended May 31, 2019, net sales increased $9.0 million to $270.6 million compared to the year ended May 31, 2018.

Vascular Interventions & Therapies

• Total Vascular Interventions & Therapies sales increased $0.2 million primarily attributable to strong performance in AngioVac and Core Peripheral products.

The Company continues to see strong case volumes in AngioVac, which increased 20% percent from the prior year due to increased adoption of the Company's unique technology.

This was partially offset by decreases in Venous products due to reimbursement challenges and the termination of the Asclera distribution agreement.

Vascular Interventions & Therapies sales decreased $1.1 million due to decreased sales volume in Venous products and the termination of the Asclera distribution agreement.

This was partially offset by increased case volume in AngioVac and increased sales volume of Core Peripheral products.

• International Vascular Interventions & Therapies sales increased $1.3 million due to increased volume in Venous and Angiographic catheters in EMEA and China.

Vascular Access

• Total Vascular Access sales increased $2.0 million due to growth in BioFlo which increased $2.8 million year over year.

The increase in sales is also due to the launch of the BIIM ultrasound product in fiscal year 2019 which had $0.5 million in sales.

This was partially offset by a decline in non-BioFlo PICCs of $1.8 million.

The Company's BioFlo portfolio now comprises 51% of overall Vascular Access sales, compared to 49% a year ago.

Vascular Access sales decreased by $1.2 million due to competitive pressures in the PICC product line.

This was partially offset by growth in Midlines and BioFlo Dialysis and Ports which continue to gain traction in the marketplace.

• International Vascular Access sales increased by $3.2 million as the Company continues to expand its global reach of its Vascular Access product offerings.

Oncology/Surgery

• Total Oncology/Surgery sales increased $6.8 million year over year primarily due to $4.9 million in sales of BioSentry products and $4.8 million in sales of RadiaDyne products along with increased sales of NanoKnife disposables of $0.5 million.

This was partially offset by decreased sales in Radiofrequency Ablation, Microwave and NanoKnife capital.

Microwave sales were negatively impacted by the timing of the Company's prior year replacement shipments of $2.6 million which took place primarily in the first and second quarters of the prior year as a result of the market withdrawal of Acculis.

NanoKnife capital decreased $0.9 million due to the timing of capital sales.

Oncology sales increased by $6.9 million primarily due to $4.8 million in sales of BioSentry products and $4.8 million in sales of RadiaDyne products.

This was partially offset by a $1.5 million decrease in NanoKnife capital and disposable sales and a $0.6 million decrease in RadioFrequency Ablation and Microwave sales.

• International Oncology sales decreased by $0.1 million due to decreased RadioFrequency Ablation and Microwave sales of $0.7 million, partially offset by increased NanoKnife capital and disposable sales of $0.8 million.

Gross Profit, Operating expenses, and Other income (expense)

Year ended May 31,

(in thousands) 2019 2018 % Change

Gross profit $ 156,000 $ 143,856 8.4 %

Gross profit % of sales 57.6 % 55.0 %

Research and development $ 28,258 $ 24,338 16.1 %

% of sales 10.4 % 9.3 %

Selling and marketing $ 76,829 $ 73,109 5.1 %

% of sales 28.4 % 27.9 %

General and administrative $ 34,902 $ 30,991 12.6 %

% of sales 12.9 % 11.8 %

Gross profit increased by $12.1 million compared to the prior year.

The increase is attributable to the following:

• Net productivity of $2.5 million, where plant consolidation contributed $3.3 million of favorability partially offset by increased freight expense of $0.8 million.

• Sales volume and mix positively contributed $1.5 million year over year.

• Currency and pricing headwinds negatively impacting gross margin by $2.0 million year over year.

• Sales of BioSentry and RadiaDyne products contributed $6.9 million to gross profit.

• Prior year reserve of $1.7 million related to the discontinuation of our RadioFrequency Ablation product in Japan.

• The expiration of a royalty agreement in fiscal year 2018 resulted in $1.5 million of favorability compared to the prior year.

R&D expense increased $3.9 million compared to the prior year.

The increase is attributable to the following:

• New product development and clinical efforts related to the Company’s investment areas of NanoKnife, Thrombus Management and BioFlo increased $3.5 million.

• Increased compensation and benefits of $0.5 million primarily as a result of increased variable compensation.

S&M expense increased by $3.7 million compared to the prior year.

The increase is attributable to the following:

• Compensation and benefits increase of approximately $3.7 million which is primarily attributed to increased headcount as a result of the BioSentry and RadiaDyne acquisitions along with higher variable compensation.

G&A expense increased by $3.9 million compared to the prior year.

The increase is attributable to the following:

• Compensation and benefits increase of approximately $2.8 million primarily as a result of increased variable compensation, salaries and benefits and stock based compensation.

• Increased legal fees related to ongoing litigation that is within the normal course of business of $0.6 million.

• Increased other expenses for technology investments of $0.3 million and lease expense of $0.2 million.

Year ended May 31,

(in thousands) 2019 2018 $ Change

Amortization of intangibles $ 17,056 $ 13,906 $ 3,150

Change in fair value of contingent consideration $ (6,776) $ 250 $ (7,026)

Acquisition, restructuring and other items, net $ 15,127 $ 15,432 $ (305)

Other expense $ (5,306) $ (3,093) $ (2,213)

Amortization of intangibles - Represents the amount of amortization expense that was taken on intangible assets held by the Company.

• The change in amortization expense from the prior year is due to intangible asset additions as a result of the BioSentry and RadiaDyne acquisitions.

The BioSentry acquisition increased intangible assets by $26.0 million and resulted in additional amortization expense of $1.5 million.

The RadiaDyne acquisition increased intangible assets by $25.6 million and resulted in additional amortization expense of $1.7 million.

• The increase from the prior year is due to contingent considerations that were recorded as part of the BioSentry and RadiaDyne acquisitions of $2.8 million and $22.3 million, respectively.

In the fourth quarter, adjustments to the sales projections for RadiaDyne products resulted in an $8.4 million gain.

The remaining change in the fair value in contingent consideration is the result of amortization of the present value discount of $1.6 million.

In addition, in the

second quarter of fiscal year 2018, the final minimum payment was made on the AngioVac product contingent consideration and a $2.1 million payment was made on the Microsulis contingent consideration during the first quarter of fiscal 2019.

Only one minimum payment is remaining on the Microsulis contingent consideration.

Acquisition, restructuring and other items, net decreased $0.3 million compared to the prior year.

The decrease is attributable to the following:

• M&A expense of $4.0 million was incurred in fiscal year 2019 compared to $1.7 million in the prior year.

• Legal expense, related to litigation that is outside of the normal course of business, of $7.8 million was recorded in fiscal year 2019 compared to $8.4 million in fiscal year 2018.

Included in the $7.8 million, is a $3.4 million settlement received for the Biolitec litigation and a $2.5 million accrual for the settlement of the Merz contract termination.

• For the year ended 2018, the Company incurred $4.7 million of expense which consisted of $1.4 million of severance, $2.9 million of costs to move the product lines and $0.2 million in contract termination expenses related to the plant consolidation that was announced in the third quarter of fiscal year 2017.

The plant consolidation was completed in the fourth quarter of fiscal year 2018;

therefore, only $0.3 million of expense was incurred for the year ended 2019.

Other expenses - Other expenses include interest expense, foreign currency impacts, bank fees, and amortization of deferred financing costs and remained consistent with the prior year.

• The increase in other expenses from the prior year of $2.2 million is due to increased interest expense of $1.9 million primarily due to the draw on the Revolving Facility during fiscal year 2019.

In addition, foreign currency fluctuations increased $0.7 million.

These increases were partially offset by other income of $0.4 million.

Income Tax Provision (Benefit)

Year ended May 31,

(in thousands) 2019 2018

Income tax expense (benefit) $ (3,556) $ (11,036)

Effective tax rate including discrete items 24 % 64 %

Our effective tax rate benefit was 24% for fiscal year 2019 compared with a benefit of 64% for the prior year.

The prior year rate primarily reflects income tax benefit of $8.9 million driven by the impact of the U.S.

Tax Reform, the valuation allowance recorded and the deferred tax liability related to intangibles that have an indefinite reversal period ("naked credit deferred tax liability"), which as a result of U.S.

Tax Reform can now be considered as a source of income to recover indefinite lived NOLs.

The Company regularly assesses its ability to realize its deferred tax assets.

Assessing the realization of deferred tax assets requires significant management judgment.

In determining whether its deferred tax assets are more likely than not realizable, the Company evaluated all available positive and negative evidence, and weighted the evidence based on its objectivity.

Evidence the Company considered included its history of net operating losses, which resulted in the Company recording a full valuation allowance for its deferred tax assets in fiscal year 2016, except the naked credit deferred tax liability.

Based on the review of all available evidence, the Company determined that it has not yet attained a sustained level of profitability and the objectively verifiable negative evidence outweighed the positive evidence.

Therefore, the Company has provided a valuation allowance on its federal and state net operating loss carryforwards, federal and state R&D credit carryforwards and other net deferred tax assets that have a limited life and are not supportable by the naked credit deferred tax liability sourced income as of May 31, 2019.

The Company will continue to assess the level of the valuation allowance required.

Income From Discontinued Operations

Year ended May 31,

(in thousands) 2019 2018

Income from discontinued operations before gain on sale of Fluid Management $ 27,579 $ 24,728

Gain on sale of Fluid Management 46,592 —

Income from discontinued operations before income taxes 74,171 24,728

Provision for income taxes 1,685 2,166

Income from discontinued operations $ 72,486 $ 22,562

The Company applied the “Intraperiod Tax Allocation” rules under ASC 740, which requires the allocation of an entity’s total annual income tax provision among continuing operations and, in the Company’s case, discontinued operations.

Included in the $1.6 million income tax expense for fiscal year 2019 is $0.6 million tax expense related to the gain on the Divestiture.

The taxes on the gain were calculated using various state statutory tax rates and are partially offset by the utilization of historical state net operating losses.

There are no current federal taxes on the gain due to utilization of historical net operating losses which had a corresponding valuation allowance.

Liquidity and Capital Resources

We are continuously and critically reviewing our liquidity and anticipated capital requirements in light of the significant uncertainty created by the COVID-19 global pandemic.

We believe that our current cash on hand and availability under the Revolving Facility provides sufficient liquidity to meet our anticipated needs for capital for at least the next 12 months.

We regularly review our liquidity and anticipated capital requirements in light of the significant uncertainty created by the COVID-19 global pandemic.

We believe that our current cash on hand and availability under our Revolving Facility provide sufficient liquidity to meet our anticipated needs for capital for at least the next 12 months.

We are closely monitoring receivables and payables.

In addition, we believe that our recently increased inventory levels provide additional risk mitigation in the event we incur a manufacturing disruption.

Our cash and cash equivalents totaled $48.2 million as of May 31, 2021, compared with $54.4 million as of May 31, 2020.

13 unchanged sentences

Year ended 2021:

• Net loss of $166.8 million plus the non-cash items, primarily driven by the goodwill impairment, depreciation and amortization and share based compensation, contributed to cash used in operations of $14.6 million.

• Net loss of $31.5 million, plus the non-cash items, primarily driven by depreciation and amortization and share-based compensation, along with the changes in working capital below, contributed to cash provided by operations of $24.1 million.

• In fiscal year 2021, working capital was favorably impacted by decreased inventory on hand of $11.5 million and increased accounts payable and accrued liabilities of $4.9 million.

This was partially offset by increased accounts receivable of $4.2 million.

Year ended 2020:

• Net loss of $166.8 million plus the non-cash items, primarily driven by the goodwill impairment, depreciation and amortization and share-based compensation, along with the changes in working capital below, contributed to cash used in operations of $14.6 million.

• Working capital was negatively impacted by increased inventory on hand of $18.8 million and decreased accounts payable and accrued liabilities of $15.5 million.

Accounts receivable had a favorable impact of $11.9 million on working capital as a result of the sale of the Fluid Management business and decreased sales in the fourth quarter as a result of the impact from COVID-19.

Year ended 2019:

• Net income was driven by the sale of the Fluid Management business.

Net loss from continuing operations was driven by higher operating expenses in research and development, selling and marketing and general administrative as well as costs related to our acquisition and restructuring activities.

The loss was partially offset by increased sales and improved gross profit.

• Working capital was negatively impacted by increased inventory on hand of $1.4 million.

Days sales outstanding ("DSO") increased as a result of increased sales during the fourth quarter.

This had a $3.2 million negative impact on

working capital.

The Company continued to optimize days payables outstanding ("DPO"), which resulted in a $5.2 million favorable impact on working capital.

Year ended 2018:

• Net income was driven by higher gross margin, lower operating expenses in selling and marketing, general and administrative and acquisition, restructuring and other items, net.

Partially offsetting the positive cash impact was a $9.3 million non-cash discrete tax benefit as a result of the Tax Reform Act and the revaluation of the Company's deferred tax assets and liabilities to reflect the lower statutory rate.

• The Company continues to focus on optimizing days sales outstanding ("DSO") which contributed $5.0 million to working capital improvement.

Working capital was also positively impacted by decreased inventory on hand of $5.7 million.

Even though the Company continued to optimize days payables outstanding ("DPO"), the decrease in raw material purchases at year end negatively impacted working capital from accounts payable and accrued liabilities.

Cash used in investing activities:

Year ended 2021:

• $5.2 million of cash was used for fixed asset additions and $8.5 million of Auryon placement and evaluation units.

Year ended 2020:

• $45.8 million payment to acquire Eximo Medical Ltd.

2 unchanged sentences

• $7.2 million in fixed asset additions primarily related to building improvements along with maintenance of equipment.

Year ended 2019:

• $3.1 million in fixed asset additions, primarily for maintenance of equipment.

• $37.0 million cash payment to acquire the BioSentry product from SSC and a $47.9 million cash payment to acquire RadiaDyne as described in Note 2 to the financial statements.

• $169.2 million in cash proceeds as a result of the Divestiture described in Note 3 to the financial statements.

• $1.3 million in proceeds from the sale of an auction rate security.

Year ended 2018:

• $2.4 million in fixed asset additions.

• In the third quarter, we entered into a distribution and license agreement where we recorded the upfront license fee of $1.3 million as an intangible asset that will be amortized over thirty-six months.

Cash used in financing activities:

Year ended 2021:

• $20.0 million in payments on the Revolving Facility in fiscal year 2021;

• $3.0 million of proceeds from stock option and ESPP activity.

Year ended 2020:

• $132.5 million repayment of long-term debt in conjunction with the new Credit Agreement that was entered into at the beginning of the first quarter of fiscal year 2020.

3 unchanged sentences

• $1.2 million payment on earn-out liabilities.

Year ended 2019:

• $55.0 million draw on the Revolving Facility as a result of the RadiaDyne acquisition described in Note 2 to the financial statements.

• $5.0 million repayment on the Term Loan.

This is consistent with the required amortization payment on the Term Loan.

There was also a $10.0 million repayment on the Revolving Facility in the third quarter of fiscal year 2019.

• $2.0 million of proceeds from stock option and ESPP activity.

• $8.1 million payment on earn-out liabilities.

Year ended 2018:

• $5.0 million in repayments on long-term debt, consistent with the required amortization payment on the Term Loan.

• $2.9 million of proceeds from stock option and ESPP activity.

• $9.5 million payment on earn-out liabilities.

On June 3, 2019 and in connection with the completion of the Fluid Management divestiture, the Company repaid all amounts outstanding under its existing Credit Agreement and entered into a new Credit Agreement.

The Credit Agreement

provides for a $125.0 million secured Revolving Facility, which includes an uncommitted expansion feature that allows the Company to increase the total revolving commitments and/or add new tranches of term loans in an aggregate amount not to exceed $75.0 million.

The Credit Agreement provides for a $125.0 million secured Revolving Facility, which includes an uncommitted expansion feature that allows the Company to increase the total revolving commitments and/or add new tranches of term loans in an aggregate amount not to exceed $75.0 million.

The Credit Agreement includes customary representations, warranties and covenants, and acceleration, indemnity and events of default provisions, including, among other things, two financial covenants.

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The amount that we can borrow under our Credit Agreement is directly based on our leverage ratio.

The interest rate on the Revolving Facility at May 31, 2021 was 1.36%.

On December 17, 2019, the Company made a $15.0 million draw on the Revolving Facility as part of the acquisition of the C3 Wave tip location asset from Medical Components Inc.

1 unchanged sentence

In the fourth quarter of fiscal year 2020, the Company made an additional $25.0 million draw on the Revolving Facility.

In December 2020 and March 2021, payments of $10.0 million each were made on the Revolving Facility.

We believe that our current cash balance, together with cash generated from operations and access to our Revolving Facility, will provide sufficient liquidity to meet our anticipated needs for capital for at least the next 12 months.

If we seek to make significant acquisitions of other businesses or technologies in the future for cash, we may require external financing.

If we seek to make acquisitions of other businesses or technologies in the future for cash, we may require external financing.

Our contractual obligations as of May 31, 2021 are set forth in the table below (in thousands).

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20,000 — 15,000 5,000 —

Indemnification holdback 5,000 5,000 — — —

Royalties 47,700 3,800 7,600 7,600 28,700

Litigation matters 975 975 — — —

$ 105,104 $ 12,899 $ 48,136 $ 15,198 $ 28,871

4 unchanged sentences

Timing of payments are as contractually scheduled, or where contingent, the Company's best estimate of payment timing.

Results of Operations for the years ended May 31, 2020 and 2019

For management discussion and analysis of our 2020 financial results and liquidity compared with 2019, see Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended May 31, 2020 filed on August 10, 2020.

Recent Accounting Pronouncements

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis