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Item 2. Management’s Discussion and Analysis

2021-09-30 compared with 2021-03-31 · 94 added, 222 removed, 96 unchanged (77% of the section changed)

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The following discussion should be read in conjunction with the Company's 2021 Annual Report on Form 10-K, and the consolidated financial statements and notes thereto included elsewhere in the Form 10-Q.

Forward-Looking Statements

Disclosure Regarding Forward-Looking Statements

This quarterly report on Form 10-Q, 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.

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Investors are cautioned that actual events or results may differ materially from our expectations, expressed or implied.

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 Securities and Exchange Commission (the "SEC").

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

Disclosure Regarding Trademarks

This report includes trademarks, tradenames and service marks that are our property or the property of other third parties.

Solely for convenience, such trademarks and tradenames sometimes appear without any “™” or “®” symbol.

However, failure to include such symbols is not intended to suggest, in any way, that we will not assert our rights or the rights of any applicable licensor, to these trademarks and tradenames.

For a complete listing of all our trademarks, tradenames and service marks please visit www.angiodynamics.com/IP.

Information on our website or connected to our website is not incorporated by reference into this Quarterly Report on Form 10-Q.

Executive Overview

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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 may pose significant risks to our business.

It remains 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, and continued spikes in cases experienced in various regions in which we conduct business 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 novel coronavirus.

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 CARES Act.

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

A summary of these key financial metrics for the three and nine months ended February 28, 2021 compared to the three and nine months ended February 29, 2020 are as follows:

Three months ended February 28, 2021:

• Revenue increased by 2.0% to $71.2 million.

• Gross margin decreased 370 bps to 54.1%.

• Operating loss decreased by $2.5 million to $3.7 million.

• Loss per share decreased by $0.06 to a loss of $0.09.

Nine months ended February 28, 2021:

A summary of these key financial metrics for the three months ended August 31, 2021 compared to the three months ended August 31, 2020 are as follows:

Three months ended August 31, 2021:

• Revenue increased by 9.6% to $77.0 million.

• Gross margin decreased 490 bps to 53.4%.

• Operating loss increased by $3.2 million to $13.7 million.

• Gross profit increased 120 bps to 52.1%.

• Net loss increased by $2.7 million to $7.0 million.

• Loss per share increased by $0.07 to a loss of $0.18

• Cash provided by operations increased by $30.3 million to $11.9 million.

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

Our Vascular Interventions & Therapies and Vascular Access businesses performed the strongest of the businesses during the quarter.

The number of procedures improved from the COVID-19 lows in the second half of last fiscal year, but remain below pre-COVID-19 levels.

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.

We continued supporting and progressing our key growth initiatives (AngioVac, Auryon and NanoKnife), managing operating expenses and managing our cash and balance sheet.

Our Med Tech business, comprised of Mechanical Thrombectomy, Auryon and NanoKnife, experienced improved performance during the first quarter of fiscal year 2022 as the number of procedures continued to improve from the COVID-19 impact in the first quarter of the prior year.

In our Med Device business, Vascular Access, excluding the large prior year order in the UK, also improved in the first quarter of fiscal year 2022 compared to the prior year period.

This was partially offset by our Med Device Oncology products, which continued to face pressure from reductions in procedure volumes due to challenges resulting from the COVID-19 pandemic.

New Accounting Pronouncements

Information regarding new accounting pronouncements is included in Note 17 to our consolidated financial statements in this Quarterly Report on Form 10-Q.

Results of Operations for the Three Months Ended February 28, 2021 and February 29, 2020

For the three months ended February 28, 2021, the Company reported a net loss of $3.5 million, or a loss of $0.09 per diluted share, on net sales of $71.2 million, compared with a net loss of $5.7 million, or a loss of $0.15 per diluted share, on net sales of $69.8 million during the same quarter of the prior year.

Results of Operations for the Three Months Ended August 31, 2021 and 2020

For the three months ended August 31, 2021, the Company reported a net loss of $7.0 million, or a loss of $0.18 per diluted share, on net sales of $77.0 million, compared with a net loss of $4.3 million, or a loss of $0.11 per diluted share, on net sales of $70.2 million during the same quarter of the prior year.

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

The table below summarizes net sales by Med Tech and Med Device:

Three Months Ended

(in thousands) Feb 28, 2021 Feb 29, 2020 % Change

(in thousands) Aug 31, 2021 Aug 31, 2020 % Change

Med Tech $ 17,619 $ 10,486 68.0%

Med Device 59,352 59,730 (0.6)%

Total $ 76,971 $ 70,216 9.6%

Three Months Ended

(in thousands) Aug 31, 2021 Aug 31, 2020 % Change

Net Sales by Global Business Unit

Vascular Interventions & Therapies $ 33,251 $ 30,552 8.8%

Endovascular Therapies $ 38,058 $ 29,857 27.5%

Vascular Access 24,957 28,105 (11.2)%

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Total $ 76,971 $ 70,216 9.6%

For the three months ended February 28, 2021, net sales increased $1.4 million to $71.2 million compared to the same period in the prior year.

Vascular Interventions & Therapies

• Total Vascular Interventions & Therapies net sales increased $2.7 million, or 8.8%.

Auryon, which was acquired as part of the Eximo acquisition in the second quarter of fiscal year 2020, contributed $3.3 million in sales.

Additionally, the AngioVac business grew $1.3 million as the Company continued to see increased case volumes in AngioVac, which increased 38% from the prior year.

These increases were partially offset by lower volume in Venous products due to fewer elective procedures during the COVID-19 pandemic and decreased volume in the Core business.

Vascular Interventions & Therapies net sales increased $2.7 million due to increased case volume in AngioVac and $3.3 million in sales of Auryon, which were the primary contributors to the 10.2% growth in sales in the U.S.

These increases were partially offset by decreased sales volume in Venous and the Core business.

• International Vascular Interventions & Therapies sales remained consistent with the prior year.

Vascular Access

• Total Vascular Access net sales increased $0.2 million due to increased sales in Midlines.

BioFlo product lines comprise 50% of overall Vascular Access sales compared to 51% a year ago.

Vascular Access net sales increased $1.0 million as a result of increased sales of Midlines, PICCs and dialysis.

• International Vascular Access net sales decreased by $0.8 million.

• Total Oncology net sales decreased $1.5 million year over year primarily due to a large NanoKnife distributor order in the Asia Pacific region ("APAC") in the prior year.

Oncology net sales increased across the majority of product lines, this was offset by Balloon product sales which decreased $0.3 million due to lower volumes.

The Company has discussed the 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, the growth in the near to mid-term will be driven by our high technology platforms including AngioVac, Auryon and NanoKnife.

For the three months ended August 31, 2021, net sales increased $6.8 million to $77.0 million compared to the same period in the prior year.

The Med Tech business increased $7.1 million from the first quarter of the prior year.

This growth was driven by Auryon sales which grew $4.8 million compared to the prior year.

The AngioVac business grew $0.7 million as the Company generally continued to see consistent case volumes in AngioVac despite continued COVID-19 challenges.

Additionally, NanoKnife also had improved capital and disposable sales which increased $1.0 and $0.7 million, respectively.

NanoKnife capital growth was in the U.S and Europe while the disposable growth was driven by U.S sales.

The Med Device business net sales decreased $0.4 million from the prior year;

however, excluding the large prior year order in the UK, net sales increased $4.8 million.

This increase was driven by increased case volume compared to the first quarter of the prior year which resulted in increased sales of Core, Venous and BioSentry products of $2.1 million, $0.6 million and $0.4 million, respectively.

Excluding the prior year order in the UK, Midlines, PICCs and Ports increased $2.2 million, with $1.1 million of the increase driven by U.S port sales.

These increases were partially offset by decreased Microwave sales of $0.4 million.

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

Three Months Ended

(in thousands) Feb 28, 2021 Feb 29, 2020 % Change

(in thousands) Aug 31, 2021 Aug 31, 2020 % Change

Gross profit $ 40,139 $ 35,764 12.2 %

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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 $1.8 million compared to the prior year.

Gross profit increased by $4.4 million compared to the prior year.

The change is primarily attributable to the following:

• Sales volume positively impacted gross profit by $4.2 million year over year;

• Net productivity negatively impacted gross profit by $2.9 million primarily as a result of under absorption of $1.5 million and increased start-up costs of $1.4 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 $0.4 million as a result of decreased NanoKnife capital sales.

This was partially offset by increased AngioVac sales.

• A benefit of $0.7 million was recorded as a result 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 mix positively impacted gross profit by $0.7 million as a result of increased sales of NanoKnife, Auryon and AngioVac;

• Increased Auryon start up costs related to placed units of $1.0 million negatively impacted gross profit year over year;

• Inflationary costs on raw materials, labor and freight had a negative impact of $1.4 million year over year, partially offset by favorablility in production volume and other initiatives of $1.2 million and $0.4 million, respectively.

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, and manage clinical, regulatory and medical affairs.

R&D expense increased $0.2 million compared to the prior year.

R&D expense decreased $1.6 million compared to the prior year.

The change is primarily attributable to the following:

• R&D expenses related to the AngioVac platform expansion, the NanoKnife DIRECT© study and the Pathfinder study increased $1.2 million.

This was partially offset by decreased expenses of $0.2 million related to Auryon.

• Outside consultant expense and other expenses decreased $0.3 million along with decreased travel expenses of $0.2 million.

• A benefit of $0.3 million was recorded as a result 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.

• R&D project expense decreased $1.0 million year over year primarily due to the timing of certain projects;

• Compensation and benefits expense decreased $0.4 million as a result of open roles.

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 decreased $1.3 million compared to the prior year.

S&M expense increased $6.7 million compared to the prior year.

The change is primarily attributable to the following:

• Travel expenses decreased $1.2 million due to less travel as a result of the COVID-19 pandemic.

In addition, tradeshow and other expenses decreased $1.1 million primarily due to the cancellation of events.

• Expenses related to the build-out of the Auryon sales and marketing teams to prepare for full product launch of $2.0 million.

• A benefit of $0.9 million was recorded as a result 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.

• Compensation and benefits expense increased $4.3 million due to additional headcount from the build-out of the Auryon sales and marketing teams;

• Travel and other expenses increased $2.5 million as some COVID-19 restrictions were lifted.

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 $1.2 million compared to the prior year.

G&A expense increased $0.4 million compared to the prior year.

The change is primarily attributable to the following:

• Legal expenses decreased $1.5 million

• Compensation and benefits expense increased $0.9 million year over year primarily due to increased headcount;

• Outside consultant spend decreased $0.7 million, partially offsetting the foregoing increase.

Three Months Ended

(in thousands) Feb 28, 2021 Feb 29, 2020 $ Change

(in thousands) Aug 31, 2021 Aug 31, 2020 $ Change

Amortization of intangibles $ 4,821 $ 4,953 $ (132)

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

• Amortization expense decreased $0.7 million from the prior year due to assets that became fully amortized in fiscal year 2021.

• Amortization expense decreased $0.1 million from the prior year due to assets that became fully amortized in fiscal year 2021 along with the write-off of the OARtrac intangible asset in the fourth quarter of fiscal year 2021.

This was partially offset by amortization relating to the Camaro intangible asset addition of $3.9 million in the first quarter of fiscal year 2022.

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 in the fair value of the contingent consideration is the normal amortization of the present value of the Eximo contingent consideration.

• The change in the fair value is related to the Eximo contingent consideration.

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 $1.0 million compared to the prior year.

The decrease is primarily attributable to the following:

• Legal expense, related to litigation that is outside of the normal course of business, of $1.0 million was recorded in the third quarter of fiscal year 2021 compared to $0.6 million in the prior year.

• There was no M&A expense incurred in the third quarter of fiscal year 2021 compared to $0.2 million in the prior year.

• In the third quarter of fiscal year 2020, the Company incurred $0.8 million of expense to move manufacturing facilities as a result of the sale of the Fluid Management business.

• As part of the sale of the Fluid Management business, the Company entered into a transition services agreement with Medline Industries, Inc.

("Medline") for certain legal, human resource, tax, accounting and information technology services from the Company for a period not to exceed 24 months.

As a result of the transition services agreement, the Company invoiced Medline $0.3 million in the third quarter of fiscal year 2021 compared to $0.4 million in the prior year.

• Other expenses of $0.4 million in the third quarter of fiscal year 2020 consisted of severance associated with organizational changes.

Acquisition, restructuring and other items, net, increased by $1.1 million compared to the prior year.

The change is primarily attributable to the following:

• Legal expense, related to litigation that is outside of the normal course of business, of $2.1 million was recorded in the first quarter of fiscal year 2022 compared to $0.8 million in the prior year;

• In the first quarter of fiscal year 2021, and as a result of the sale of the Fluid Management business, the Company incurred $0.3 million of expense to move manufacturing facilities and the Company received $0.4 million from Medline Industries, Inc.

as part of the TSA agreement.

These activities were completed during fiscal year 2021;

• Other expenses of $0.4 million in the first quarter of fiscal year 2022 compared to $0.6 million in the prior year consisted mainly of severance associated with organizational changes.

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

• The increase in other expense from the prior year of $0.1 million is primarily due to increased interest expense of $0.1 million for the $30.0 million outstanding on the Revolving Facility at the end of the third quarter of fiscal year 2021 compared to $15.0 million outstanding in the prior year.

• The increase in other expense from the prior year of $0.8 million is primarily due to unrealized foreign currency losses of $0.9 million.

Income Tax Benefit

Three Months Ended

(in thousands) Feb 28, 2021 Feb 29, 2020

Income tax benefit $ (0.6) $ (0.8)

Effective tax rate including discrete items 14.1 % 12.6 %

Our effective tax rate including discrete items for the three-month periods ended February 28, 2021 and February 29, 2020 was 14.1% and 12.6%, respectively.

In fiscal year 2021, the Company’s 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 estimated annual effective tax rate, however, prior to discrete items was 15.6% in the third quarter of fiscal year 2021, as compared to 12.9% for the same period in fiscal year 2020.

Results of Operations for the Nine Months Ended February 28, 2021 and February 29, 2020

For the nine months ended February 28, 2021, the Company reported a net loss of $12.1 million, or a loss of $0.32 per diluted share, on net sales of $214.2 million, compared with a net loss of $9.7 million, or a loss of $0.26 per diluted share, on net sales of $205.8 million during the prior year.

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

Nine Months Ended

(in thousands) Feb 28, 2021 Feb 29, 2020 % Change

Net Sales by Global Business Unit

Vascular Interventions & Therapies $ 97,008 $ 90,616 7.1%

Vascular Access 76,848 70,585 8.9%

Oncology 40,312 44,624 (9.7)%

Total $ 214,168 $ 205,825 4.1%

Net Sales by Geography

United States $ 173,446 $ 163,381 6.2%

International 40,722 42,444 (4.1)%

Total $ 214,168 $ 205,825 4.1%

For the nine months ended February 28, 2021, net sales increased $8.3 million to $214.2 million compared to the same period in the prior year.

Vascular Interventions & Therapies

• Total Vascular Interventions & Therapies net sales increased $6.4 million, or 7.1%.

Auryon, which was acquired as part of the Eximo acquisition in the second quarter of fiscal year 2020, contributed $6.5 million in sales.

Additionally, the AngioVac business grew $4.3 million as the Company continued to experience increases in case volumes in AngioVac, which increased 30% from the prior year.

These increases were partially offset by lower volume in Venous products due to fewer elective procedures during the COVID-19 pandemic.

Vascular Interventions & Therapies net sales increased $7.1 million due to increased case volume in AngioVac, increased Core Peripheral product sales and $6.5 million in sales of Auryon.

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

• International Vascular Interventions & Therapies net sales decreased $0.7 million.

Vascular Access

• Total Vascular Access net sales increased $6.3 million due to increased sales of PICCs, Midlines and Dialysis of $3.4 million, $3.1 million and $0.3 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.

These increases were offset by decreased sales in Ports, which declined by 1%.

BioFlo product lines comprise 53% of overall Vascular Access sales compared to 51% in the prior year.

Vascular Access net sales increased $2.5 million primarily due to increased PICCs, Midlines and Dialysis sales of $1.1 million, $1.1 million and $0.4 million, respectively.

• International Vascular Access net sales increased by $3.8 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 $1.3 million.

• Total Oncology net sales decreased $4.3 million year over year.

Of this decrease, $2.1 million is due to a large NanoKnife distributor order in APAC in the prior year.

There was also decreased capital and disposable sales internationally of $2.5 million due to reduced case volumes as a result of the COVID-19 pandemic.

Oncology net sales increased by $0.4 million primarily due to increased NanoKnife disposable sales of $0.9 million, BioSentry sales of $1.0 million and Microwave disposable sales of $0.7 million.

This was partially offset by decreased NanoKnife capital sales of $0.5 million and Balloon product sales of $1.2 million.

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

Nine Months Ended

(in thousands) Feb 28, 2021 Feb 29, 2020 % Change

Gross profit $ 114,468 $ 120,060 (4.7) %

Gross profit % of sales 53.4 % 58.3 %

Research and development $ 27,286 $ 22,450 21.5 %

% of sales 12.7 % 10.9 %

Selling and marketing $ 57,486 $ 60,427 (4.9) %

% of sales 26.8 % 29.4 %

General and administrative $ 26,787 $ 29,651 (9.7) %

% of sales 12.5 % 14.4 %

Gross profit decreased by $5.6 million compared to the prior year.

The change is primarily attributable to the following:

• Sales volume positively impacted gross profit by $5.4 million year over year.

• Net productivity negatively impacted gross profit by $8.9 million primarily as a result of under absorption of $6.1 million and start-up costs of $2.8 million related to the Auryon launch.

• Mix negatively impacted gross margin by $1.1 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 reserve for recalled products of $0.5 million and amortization of prior year capitalized variances of $0.4 million negatively impacted gross margin.

• A benefit of $0.7 million was recorded as a result 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 - R&D expense includes internal and external costs to develop new products, enhance existing products, validate new and enhanced products, and manage clinical, regulatory and medical affairs.

R&D expense increased $4.8 million compared to the prior year.

The change is primarily attributable to the following:

• R&D expenses related to the AngioVac platform expansion, the NanoKnife DIRECT © study and the Pathfinder study increased $4.6 million along with $1.7 million of expenses related to Auryon.

• Outside consultant expense and other expenses decreased $0.7 million along with decreased travel expenses of $0.4 million.

• A benefit of $0.3 million was recorded as a result 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 - 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 decreased $2.9 million compared to the prior year.

The change is primarily attributable to the following:

• Travel expenses decreased $4.0 million due to less travel as a result of the COVID-19 pandemic.

In addition, tradeshow and other expenses decreased $4.3 million primarily due to the cancellation of events.

• Compensation and benefits decrease of $0.7 million due to open roles.

• Expenses related to the build-out of the Auryon sales and marketing teams to prepare for full product launch of $6.8 million.

• A benefit of $0.9 million was recorded as a result 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 - 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 $2.9 million compared to the prior year.

The change is primarily attributable to the following:

• Legal expenses decreased $2.7 million.

• Travel expenses decreased $0.4 million due to less travel as a result of the COVID-19 pandemic.

Nine Months Ended

(in thousands) Feb 28, 2021 Feb 29, 2020 $ Change

Amortization of intangibles $ 13,838 $ 13,417 $ 421

Change in fair value of contingent consideration $ (290) $ 116 $ (406)

Acquisition, restructuring and other items, net $ 3,057 $ 4,486 $ (1,429)

Other expense, net $ (417) $ (739) $ 322

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

• Amortization expense increased $0.4 million compared to the prior year as a result of the Eximo Medical and C3 Wave tip location acquisitions, which increased intangible assets by $60.3 million and $9.4 million, respectively.

These additions resulted in additional amortization expense of $1.8 million.

These additions were partially offset by assets that became fully amortized during fiscal year 2021.

• The change from the prior year is due to a decision 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 decreased by $1.4 million compared to the prior year.

The decrease is primarily attributable to the following:

• Legal expense, related to litigation that is outside of the normal course of business, of $2.9 million was recorded in fiscal year 2021 compared to $2.0 million in the prior year.

• 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 $2.2 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.

As a result of the transition services agreement, the Company invoiced Medline $1.0 million in fiscal year 2021 compared to $1.7 million in the prior year.

• Other expenses of $0.7 million consists of severance associated with organizational changes, compared to $1.2 million in the prior year.

Other expense, net - Other expenses include 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 $0.5 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 $0.3 million for the $30.0 million outstanding on the Revolving Facility at the end of the third quarter of fiscal year 2021 compared to $15.0 million outstanding in the prior year.

In addition, interest income decreased by $0.3 million.

Income Tax Benefit

Nine Months Ended

(in thousands) Feb 28, 2021 Feb 29, 2020

(in thousands) Aug 31, 2021 Aug 31, 2020

Income tax benefit $ (1.6) $ (0.5)

Effective tax rate including discrete items 19.0 % 11.3 %

Our effective tax rate including discrete items for the nine-month periods ended February 28, 2021 and February 29, 2020 was 14.4% and 13.4%, respectively.

Our effective tax rate including discrete items for the three-month periods ended August 31, 2021 and 2020 was 19.0% and 11.3%, respectively.

In fiscal year 2022, the Company’s effective tax rate differs from the U.S.

The estimated annual effective tax rate, however, prior to discrete items was 15.6% in the third quarter of fiscal year 2021, as compared to 12.9% for the same period in fiscal year 2020.

The estimated annual effective tax rate, however, prior to discrete items was 10.6% in the first quarter of fiscal year 2022, as compared to 14.2% for the same period in fiscal year 2021.

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 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.

Our cash and cash equivalents totaled $54.5 million as of February 28, 2021, compared with $54.4 million as of May 31, 2020.

As of February 28, 2021 and May 31, 2020, total debt outstanding related to the Revolving Facility was $30.0 million and $40.0 million, respectively.

The fair value of contingent consideration liability as of February 28, 2021 and May 31, 2020, was $15.4 million and $15.6 million, respectively.

Our cash and cash equivalents totaled $35.5 million as of August 31, 2021, compared with $48.2 million as of May 31, 2021.

As of August 31, 2021 and May 31, 2021, total debt outstanding related to the Revolving Facility was $25.0 million and $20.0 million, respectively.

The fair value of contingent consideration liability as of August 31, 2021 and May 31, 2021, was $15.9 million and $15.7 million, respectively.

The table below summarizes our cash flows:

Nine Months Ended

(in thousands) Feb 28, 2021 Feb 29, 2020

Three Months Ended

(in thousands) Aug 31, 2021 Aug 31, 2020

Cash provided by (used in):

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Cash flows consisted of the following:

Cash provided by (used in) operating activities

Nine months ended February 28, 2021 and February 29, 2020:

• Net loss of $12.1 million and $9.7 million, respectively, 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 $11.9 million for fiscal year 2021 and cash used in operations in the prior year of $18.4 million.

• In fiscal year 2021, working capital was favorably impacted by decreased inventory on hand of $11.1 million.

This was partially offset by increased accounts receivable of $1.8 million and decreased accounts payable and accrued liabilities of $1.7 million.

• In fiscal year 2020, working capital was negatively impacted by increased inventory on hand of $14.0 million and decreased accounts payable and accrued liabilities of $18.0 million.

Accounts receivable had a favorable impact on working capital as a result of the sale of the Fluid Management business.

Cash used in operating activities

Three months ended August 31, 2021 and 2020:

• Net loss of $7.0 million and $4.3 million for the period ended August 31, 2021 and 2020, respectively, plus the non-cash items, primarily driven by depreciation and amortization and stock based compensation, along with the changes

in working capital below, contributed to cash used in operations of $8.9 million and $5.4 million, respectively, for these periods.

• For the period ended August 31, 2021, working capital was negatively impacted by decreased accounts payable, accrued liabilities and other liabilities of $6.3 million, mainly driven by the payment of annual incentive compensation in the first quarter.

• For the period ended August 31, 2020, working capital was negatively impacted by increased accounts receivable of $2.7 million and decreased accounts payable, accrued liabilities and other liabilities of $10.1 million.

Inventory had a favorable impact on working capital of $7.2 million.

Cash used in investing activities

Nine months ended February 28, 2021 and February 29, 2020:

• $4.6 million of cash was used for fixed asset additions versus $5.8 million in the prior year.

• $45.8 million of cash was used to acquire Eximo Medical Ltd.

in the second quarter of fiscal year 2020 and $10.0 million of cash was used to acquire the C3 wave tip location asset in the third quarter of fiscal year 2020.

Cash used in financing activities

Nine months ended February 28, 2021 and February 29, 2020:

• $10.0 million payment on the Revolving Facility in the third quarter of fiscal year 2021.

• $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.

• $15.0 million draw on the revolver in fiscal year 2020 for the acquisition of the C3 Wave tip location asset.

• $2.5 million of proceeds from stock option and ESPP activity versus $0.7 million in outlays in the prior year.

• $1.2 million payment on earn-out liabilities in the prior year.

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.

Three months ended August 31, 2021 and 2020:

• $1.0 million and $1.8 million, respectively, of cash was used for fixed asset additions;

• $4.5 million of cash was used for Auryon placement and evaluation unit additions in the first quarter of fiscal year 2022;

• $3.6 million of cash was used for the QX Medical asset acquisition in the first quarter of fiscal year 2022.

Cash provided by financing activities

Three months ended August 31, 2021 and 2020:

• $5.0 million draw on the revolver in the first quarter of fiscal year 2022 for the QX Medical asset acquisition;

• $0.4 million and $0.5 million, respectively, of proceeds from stock option and ESPP activity.

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.

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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 February 28, 2021 was 1.63%.

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.

that is described Note 2 to the financial statements.

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

In December 2020, a payment of $10.0 million was made on the Revolving Facility and in March 2021 another $10.0 million payment was made

on the Revolving Facility.

The interest rate on the Revolving Facility at August 31, 2021 was 1.34%.

The Company was in compliance with the Credit Agreement covenants as of August 31, 2021.

In the first quarter of fiscal year 2022, the Company made a $5.0 million draw on the Revolving Facility in conjunction with the QX Medical asset acquisition.

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.

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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-Q

Item 2. Management’s Discussion and Analysis