What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-10-11 compared with 2022-04-07 · 121 added, 126 removed, 97 unchanged (72% of the section changed)

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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.

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 words such as “expects,” “reaffirms,” “intends,” “anticipates,” “plans,” “believes,” “seeks,” “estimates,” “projects,” or variations of such words and similar expressions, are forward-looking statements.

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," “projects”, "optimistic," 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 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 (including inflation, labor shortages and supply chain challenges, including the cost and availability of raw materials), 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 COVID-19).

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

Factors that may affect the actual results achieved by AngioDynamics include, without limitation, the scale and scope of the COVID-19 global pandemic, the ability of AngioDynamics to develop its existing and new products, technological advances and patents attained by competitors, infringement of AngioDynamics' technology or assertions that AngioDynamics' technology infringes the technology of third parties, the ability of AngioDynamics to effectively compete against competitors that have substantially greater resources, future actions by the FDA or other regulatory agencies, domestic and foreign health care reforms and government regulations, results of pending or future clinical trials, overall economic conditions (including inflation, labor shortages and supply chain challenges including the cost and availability of raw materials), the results of on-going litigation, challenges with respect to third-party distributors or joint venture partners or collaborators, the results of sales efforts, the effects of product recalls and product liability claims, changes in key personnel, the ability of AngioDynamics to execute on strategic initiatives, the effects of economic, credit and capital market conditions, general market conditions, market acceptance, foreign currency exchange rate fluctuations, the effects on pricing from group purchasing organizations and competition, the ability of AngioDynamics to obtain regulatory clearances or approval of its products, or to integrate acquired businesses.

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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Executive Overview

AngioDynamics is a leading and transformative medical technology company focused on restoring healthy blood flow in the body's vascular system, expanding cancer treatment options and improving quality of life for patients.

We design, manufacture and sell 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.

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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 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.

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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 2022, a benefit of $4.2 million was recorded as a result of the employee retention credit that the Company filed for under the provisions of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted December 27, 2020 which amended and extended the employee retention credit under section 2301 of 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.

A summary of these key financial metrics for the three and nine months ended February 28, 2022 compared to the three and nine months ended February 28, 2021 are as follows:

Three months ended February 28, 2022:

• Revenue increased by 3.9% to $74.0 million.

• Med Tech growth of 28.6% while Med Device declined 2.8%.

• Gross profit decreased 190 bps to 52.2%.

• Net loss increased by $1.4 million to $5.0 million.

• Loss per share increased by $0.04 to a loss of $0.13.

Nine months ended February 28, 2022:

On August 30, 2022, the Company repaid all amounts outstanding under its then existing credit agreement and entered into a new Credit Agreement.

The new Credit Agreement provides for a $75.0 million Revolving Facility and a $30.0 million Delayed Draw Term Loan as of August 31, 2022, $25.0 million was drawn on the Revolving Facility and $25.0 million was drawn on the Delayed Draw Term Loan .

See Note 7 "Long-Term Debt" set forth in the Notes to the consolidated financial statements.

Commencing with the first quarter of fiscal year 2023, the Company began to manage its operations through two segments, Med Tech and Med Device to align with the transformation from a company with a broad portfolio of largely undifferentiated products to a more focused medical technology company.

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

A summary of these key financial metrics for the three months ended August 31, 2022 compared to the three months ended August 31, 2021 are as follows:

Three months ended August 31, 2022:

• Revenue increased by 5.9% to $81.5 million.

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• Gross profit decreased 20 bps to 51.9%.

• Med Tech gross profit decreased 220 bps to 63.2% and Med Device gross profit decreased 70 bps to 47.5%.

• Net loss increased by $6.0 million to $13.0 million.

• Loss per share increased by $0.15 to a loss of $0.33.

• Cash used in operations in creased by $27.6 million to $15.8 million.

In our Med Tech business, comprised of Auryon, the Thrombectomy platform and NanoKnife, Auryon and the Thrombectomy platform experienced improved performance during the third quarter of fiscal year 2022.

Our Med Device business was negatively impacted by the backlog in Vascular Access products and our Oncology products continued to face pressure from reductions in procedure volumes due to challenges resulting from the COVID-19 pandemic, a trend that may continue.

Our Med Tech revenue, comprised of Auryon, the thrombus management platform and NanoKnife grew 29.6% in the first quarter of fiscal year 2023.

The growth in Auryon, the thrombus management platform and NanoKnife disposables was partially offset by decreased NanoKnife capital sales.

Our Med Device revenue declined 1.1% in the first quarter of fiscal year 2023 driven by the backlog in Vascular Access products and continued pressures from reductions in Oncology procedure volumes due to challenges resulting from the COVID-19 pandemic, a trend that may continue.

Results of Operations

For the three months ended February 28, 2022, the Company reported a net loss of $5.0 million, or a loss of $0.13 per diluted share, on net sales of $74.0 million, compared with a net loss of $3.5 million, or a loss of $0.09 per diluted share, on net sales of $71.2 million during the same quarter of the prior year.

For the nine months ended February 28, 2022, the Company reported a net loss of $20.3 million, or a loss of $0.52 per diluted share, on net sales of $229.2 million, compared with a net loss of $12.1 million, or a loss of $0.32 per diluted share, on net sales of $214.2 million during the same period of the prior year.

For the three months ended August 31, 2022, the Company reported a net loss of $13.0 million, or a loss of $0.33 per diluted share, on net sales of $81.5 million, compared with a net loss of $7.0 million, or a loss of $0.18 per diluted share, on net sales of $77.0 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 Nine Months Ended

(in thousands) Feb 28, 2022 Feb 28, 2021 % Change Feb 28, 2022 Feb 28, 2021 % Change

Three Months Ended

(in thousands) Aug 31, 2022 Aug 31, 2021 % Change

Med Tech $ 22,817 $ 17,607 29.6%

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Total $ 81,537 $ 76,971 5.9%

Three Months Ended Nine Months Ended

(in thousands) Feb 28, 2022 Feb 28, 2021 % Change Feb 28, 2022 Feb 28, 2021 % Change

Net Sales by Global Business Unit

Therapies $ 38,083 $ 33,251 14.5% $ 115,799 $ 97,008 19.4%

Vascular Access 23,431 24,813 (5.6)% 73,459 76,848 (4.4)%

Oncology 12,456 13,118 (5.0)% 39,963 40,312 (0.9)%

Total $ 73,970 $ 71,182 3.9% $ 229,221 $ 214,168 7.0%

Three Months Ended

(in thousands) Aug 31, 2022 Aug 31, 2021 % Change

Net Sales by Geography

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Total $ 81,537 $ 76,971 5.9%

For the three months ended February 28, 2022, net sales increased $2.8 million to $74.0 million compared to the same period in the prior year.

For the nine months ended February 28, 2022, net sales increased $15.1 million to $229.2 million compared to the same period in the prior year.

At February 28, 2022, the Company had a backlog of $9.6 million.

The Med Tech business net sales increased $4.4 million and $16.5 million for the three and nine months ended February 28, 2022 compared to the same periods in the prior year, respectively.

The change in sales for both periods was primarily driven by:

• Increased Auryon sales of $3.9 million and $12.9 million compared to the same periods in the prior year, respectively;

• Growth in the thrombectomy platform of $0.6 million and $2.7 million compared to the same periods in the prior year, respectively, which was driven by growth in the mechanical thrombectomy platform partially offset by decreased sales of thrombolytics.

Increased sales in the mechanical thrombectomy platform of $0.9 million and $3.3 million, compared to the same periods in the prior year, respectively, was driven by AngioVac and the launch of the AlphaVac product in the second quarter of fiscal year 2022.

Even though sales increased, AngioVac case volume declined in the third quarter of fiscal year 2022 due to continued COVID-19 challenges;

• Decreased NanoKnife sales of $0.2 million for the three months ended February 28, 2022 compared to the same period in the prior year and increased NanoKnife sales of $0.8 million for the nine months ended February 28, 2022 compared to the same period in the prior year.

The decrease for the three months ended February 28, 2022 was driven by decreased capital sales internationally, partially offset by an increase in disposable sales in the U.S.

For the nine months ended February 28, 2022, NanoKnife disposable sales increased $1.2 million, driven by sales in the U.S., partially offset by decreased capital sales.

The Med Device business net sales decreased $1.6 million and $1.5 million for the three and nine months ended February 28, 2022 compared to the same periods in the prior year, respectively.

Excluding the large UK order in the first quarter of the prior year, net sales increased $3.7 million for the nine months ended February 28, 2022.

The change in sales for both periods was primarily driven by:

• The backlog of $9.6 million at February 28, 2022, which primarily impacted sales of Core, Venous and Vascular Access products, for the three and nine month periods;

• Decreased sales in Vascular Access (specifically Midlines, Ports and Dialysis), Radio Frequency A blation and Microwave products for the three months ended February 28, 2022 compared to the same period in the prior year of $1.4 million, $0.3 million and $0.2 million, respectively.

This was partially offset by increased sales of Core products of $0.3 million for the three months ended February 28, 2022 compared to the same period in the prior year;

• Increased case volume for the nine months ended February 28, 2022 compared to the same period in the prior year, which resulted in increased sales of Core (despite the impact of the backlog) and BioSentry products of $3.1 million and $0.4 million, respectively.

Port sales also increased $1.5 million, driven primarily by sales in the U.S.

These increases for the nine months ended February 28, 2022 compared to the same period in the prior year were partially offset by decreased Midline, PICCs, Di alysis, Radio Frequency Ablation and Microwave sales of $2.3 million, $1.6 million, $1.0 million, $0.6 million, $0.8 million, respectively;

• Midlines, PICCs and Ports increased $2.8 million, excluding the prior year order in the UK, for the nine months ended February 28, 2022 compared to the prior year period.

Gross Profit, Operating Expenses, and Other Income (expense)

Three Months Ended Nine Months Ended

(in thousands) Feb 28, 2022 Feb 28, 2021 % Change Feb 28, 2022 Feb 28, 2021 % Change

Gross profit $ 38,583 $ 38,530 0.1 % $ 119,277 $ 114,468 4.2 %

For the three months ended August 31, 2022, net sales increased $4.6 million to $81.5 million compared to the same period in the prior year.

At August 31, 2022, the Company had a backlog of $7.1 million, a decrease of $1.3 million from May 31, 2022.

The Med Tech segment net sales increased $5.2 million for the three months ended August 31, 2022 compared to the same period in the prior year period.

The change in sales from the prior year was primarily driven by:

• Increased Auryon sales of $2.9 million;

• Growth in the thrombus management platform of $2.4 million .

Increased sales in the mechanical thrombectomy platform of $2.3 million was driven by AngioVac and the launch of the AlphaVac product in the second quarter of fiscal year 2022;

• Decreased NanoKnife sales of $0.1 million, which was driven by decreased capital sales internationally.

This decrease was partially offset by a $0.3 million increase in disposable sales in the U.S.

and internationally.

The Med Device segment net sales decreased $0.6 million for the three months ended August 31, 2022 compared to the same period in the prior year period.

The change in sales from the prior year was primarily driven by:

• The backlog of $7.1 million at August 31, 2022, which primarily impacted sales of Core and Vascular Access products;

• Decreased sales of Venous, Midlines, PICCs, Ports, Radio Frequency A blation and BioSentry of $0.5 million, $0.4 million, $0.6 million, $0.6 million, $0.4 million and $0.3 million, respectively.

These decreases were partially offset by increased Dialysis (despite the impact of the backlog), Core and Microwave sales of $1.2 million, $0.9 million and $0.3 million, respectively.

Three Months Ended

(in thousands) Aug 31, 2022 Aug 31, 2021 % Change

Med Tech $ 14,429 $ 11,517 25.3 %

Gross profit % of sales 63.2 % 65.4 %

Med Device $ 27,876 $ 28,622 (2.6) %

Gross profit % of sales 47.5 % 48.2 %

Total $ 42,305 $ 40,139 5.4 %

Gross profit % of sales 51.9 % 52.1 %

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.

Total Company gross profit increased by $2.2 million for the three months ended August 31, 2022 compared to the same period in the prior year.

The change from the prior year was primarily driven by:

• Sales volume, which positively impacted gross profit by $2.7 million;

• Net productivity, which positively impacted gross profit by $2.0 million;

• Pricing and mix, which positively impacted gross profit by $0.4 million;

• Inflationary costs on raw materials, labor shortages and freight costs, which negatively impacted gross profit by $2.2 million;

• Depreciation on placement units of $0.7 million.

The Med Tech segment gross profit increased by $2.9 million for the three months ended August 31, 2022 compared to the same period in the prior year.

The change from the prior year was primarily driven by:

• Sales volume, which positively impacted gross profit by $3.9 million;

• Net productivity, which positively impacted gross profit by $0.7 million;

• Pricing pressures and mix, which negatively impacted gross profit by $1.2 million;

• Inflationary costs on raw materials, labor shortages and freight costs, which negatively impacted gross profit by $0.2 million;

• Depreciation on Auryon and NanoKnife placement units of $0.4 million.

The Med Device segment gross profit decreased by $0.7 million for the three months ended August 31, 2022 compared to the same period in the prior year.

The change from the prior year was primarily driven by:

• Net productivity, which positively impacted gross profit by $1.5 million was driven by the additional manufacturing capacity with the Costa Rica plant;

• Price and mix, which positively impacted gross profit by $0.3 million;

• Sales volume, which negatively impacted gross profit by $0.4 million;

• Inflationary costs on raw materials, labor shortages and freight costs, which negatively impacted gross profit by $2.0 million.

Operating Expenses, and Other Income (expense)

Three Months Ended

(in thousands) Aug 31, 2022 Aug 31, 2021 % Change

Research and development $ 8,333 $ 7,394 12.7 %

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% of sales 12.4 % 11.6 %

Gross profit increased by $0.1 million for th e three months ended February 28, 2022 compared to the same period in the prior year.

The change was primarily driven by:

• Sales volume, which positively impacted gross profit by $1.5 million;

• Labor shortages, inflationary costs on raw materials and production volume which negatively impacted gross profit by $1.7 million;

• A benefit of $0.8 million that 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 compared to a benefit of $0.7 million in the prior year period.

Gross profit increased by $4.8 million for the nine months ended February 28, 2022 compared to the same period in the prior year.

The change was primarily driven by:

• Sales volume which positively impacted gross profit by $9.2 million;

• Price and mix which positively impacted gross profit by $0.9 million as a result of increased sales of Auryon and AngioVac products.

This positive impact was partially offset by sales of lower margin Vascular Access products;

• Start-up costs related to Auryon and AlphaVac of $2.1 million, including depreciation on Auryon placement units of $0.8 million, which negatively impacted gross profit;

• Labor shortages, freight and inflationary costs on raw materials which negatively impacted gross profit by $2.7 million year over 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, and manage clinical, regulatory and medical affairs.

R&D expense decreased $1.3 million and $4.4 million for the three and nine months ended February 28, 2022 compared to the same period in the prior year, respectively.

The change for both periods was primarily driven by:

• The timing of certain projects, which reduced R&D project expense by $0.3 million and $2.4 million compared to the same periods in the prior year, respectively;

• Open R&D positions, which resulted in decreased compensation and benefits expense of $0.9 and $2.0 million compared to the same periods in the prior year, respectively;

• A benefit of $0.5 million that 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 compared to $0.3 million in the prior year period.

R&D expense increased $0.9 million for the three months ended August 31, 2022 compared to the same period in the prior year.

The change from the prior year was primarily driven by:

• The timing of certain projects and clinical spend associated with the ongoing clinical trials, which increased R&D expense by $0.9 million.

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 $0.8 million and $11.0 million for the three and nine months ended February 28, 2022 compared to the same period in the prior year, respectively.

The change for both periods was primarily driven by:

• Additional headcount from the build-out of the Auryon sales and marketing teams, which increased compensation and benefits expense by $2.2 million and $8.9 million compared to the same periods in the prior year, respectively;

• Travel, meeting and tradeshow expenses, which increased $0.8 million and $4.2 million compared to the same periods in the prior year, respectively, as some COVID-19 restrictions were lifte d;

• A benefit of $2.8 million that 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 compared to $0.9 million in the prior year period.

S&M expense increased $2.1 million for the three months ended August 31, 2022 compared to the same period in the prior year.

The change from the prior year was primarily driven by:

• Additional headcount from the build-out of the Auryon and mechanical thrombectomy sales and marketing teams, which increased compensation and benefits expense by $1.2 million;

• Travel, meeting and tradeshow expenses, which increased $1.2 million and was partially offset by decreased facilities and depreciation expense of $0.2 million.

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 $0.3 million for the three months ended February 28, 2022 and increased $0.6 million for the nine months ended February 28, 2022 compared to the same periods in the prior year.

The change for both periods was primarily driven by:

• Compensation and benefits expense, which decreased $1.1 million for the three months ended February 28, 2022 compared to the same period in the prior year while compensation and benefits expense for the nine months ended February 28, 2022 increased $0.2 million compared to the same period in the prior year;

• Other outside consultant spend, which increased $0.7 million for the three months ended February 28, 2022 compared to the same period in the prior year;

• Legal expense, which decreased $1.2 million while other outside consultant spend increased $1.6 million for the nine months ended February 28, 2022 compared to the same period in the prior year.

Three Months Ended Nine Months Ended

(in thousands) Feb 28, 2022 Feb 28, 2021 $ Change Feb 28, 2022 Feb 28, 2021 $ Change

G&A expense increased $1.2 million for the three months ended August 31, 2022 compared to the same period in the prior year.

The change from the prior year was primarily driven by:

• Compensation and benefits and travel expenses, which increased $0.6 million and $0.2 million, respectively;

• Other outside consultant spend for legal and IT, which increased $0.4 million.

Three Months Ended

(in thousands) Aug 31, 2022 Aug 31, 2021 $ Change

Amortization of intangibles $ 4,837 $ 4,821 $ 16

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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 increased $0.6 million and $0.8 million, respectively, for the three and nine months ended February 28, 2022 compared to the prior year periods.

The increase is due to amortization relating to the Camaro intangible asset addition of $3.9 million in the first quarter of fiscal year 2022, partially offset by assets that became fully amortized in fiscal year 2021.

• Amortization expense remained consistent with the prior year.

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 for the three and nine months ended February 28, 2022 is related to the Eximo contingent consideration.

• The change in the fair value for the three months ended August 31, 2022 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, increased by $1.7 million and $4.0 million for the three and nine months ended February 28, 2022, respectively, compared to the same periods in the prior year.

The change for both periods was primarily driven by:

• Legal expense, re lated to litigation that is outside of the normal course of business, which increased $0.7 million and $2.9 million compared to the same periods in the prior year, respectively;

• Manufacturing relocation expense related to the move of certain manufacturing lines to Costa Rica of $0.4 million and $0.5 million compared to the same periods in the prior year, respectively;

• Other expenses (mainly severance associated with organizational changes), which increased $0.3 million for the three months ended February 28, 2022 compared to the same period in the prior year;

• Manufacturing facilities relocation expense of $0.4 million for the nine months ended February 28, 2021 as a result of the sale of the Fluid Management business ;

• Transition Services Agreement fees of $0.3 million and $1.0 million from Medline Industries were received for the three and nine months ended February 28, 2021.

These activities were completed during fiscal year 2021.

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

• The change in other expense of $0.1 million and $0.7 million for the three and nine months ended February 28, 2022 compared to the same period in the prior year, respectively, is primarily due to unrealized foreign currency fluctuations of $0.1 million and $0.9 million, respectively.

Acquisition, restructuring and other items, net, increased by $3.1 million for the three months ended August 31, 2022, compared to the same period in the prior year.

The change from the prior year was primarily driven by:

• The payment to the Israeli Innovation Authority of $3.5 million related to grant funds that were provided to Eximo to develop the Auryon laser prior to the acquisition in the second quarter of fiscal year 2020.

These grant funds were fully repaid in the first quarter of fiscal year 2023 to satisfy the obligation which was otherwise being paid as a royalty based on a percentage of sales;

• Manufacturing relocation expense related to the move of certain manufacturing lines to Costa Rica of $0.1 million;

• Legal expense, re lated to litigation that is outside of the normal course of business, which decreased $0.2 million;

• Other expenses (mainly severance associated with organizational changes), which decreased $0.3 million.

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

• Other expense, net remained consistent with the prior year.

Income Tax Benefit

Three Months Ended Nine Months Ended

(in thousands) Feb 28, 2022 Feb 28, 2021 Feb 28, 2022 Feb 28, 2021

Three Months Ended

(in thousands) Aug 31, 2022 Aug 31, 2021

Income tax benefit $ (0.9) $ (1.6)

Effective tax rate including discrete items 6.2 % 19.0 %

Our effective tax rate including discrete items for the three-month periods ended February 28, 2022 and 2021 was 13.9% and 14.1%, respectively.

Our effective tax rate including discrete items for the nine-month periods ended February 28, 2022 and 2021 was 12.7% and 14.4%, respectively.

Our effective tax rate including discrete items for the three-month periods ended August 31, 2022 and 2021 was 6.2% and 19.0%, respectively.

In fiscal year 2023, the Company’s effective tax rate differs from the U.S.

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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 believe that our current cash on hand and availability under our Credit Agreement provides 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 $23.9 million as of February 28, 2022, compared with $48.2 million as of May 31, 2021.

As of February 28, 2022 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 February 28, 2022 and May 31, 2021, was $16.7 million and $15.7 million, respectively.

Our cash and cash equivalents totaled $24.6 million as of August 31, 2022, compared with $28.8 million as of May 31, 2022.

As of August 31, 2022 and May 31, 2022, total debt outstanding related to the Credit Agreement was $50.0 million ($25.0 million on the Revolving Facility and $25.0 million on the Delayed Draw Term Loan) and $25.0 million, respectively.

The fair value of contingent consideration liability as of August 31, 2022 and May 31, 2022, was $17.2 million and $16.9 million, respectively.

The table below summarizes our cash flows:

Nine Months Ended

(in thousands) Feb 28, 2022 Feb 28, 2021

Three Months Ended

(in thousands) Aug 31, 2022 Aug 31, 2021

Cash provided by (used in):

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Net change in cash and cash equivalents $ (4,261) $ (12,689)

Cash flows consisted of the following:

Cash (used in) provided by operating activities

Nine months ended February 28, 2022 and 2021:

• Net loss of $20.3 million and $12.1 million for the period ended February 28, 2022 and 2021, 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 $15.8 million and cash provided by operations of $11.9 million, respectively, for these periods.

• For the period ended February 28, 2022, working capital was negatively impacted by decreased accounts payable, accrued liabilities and other liabilities of $11.8 million, mainly driven by the payment of annual incentive compensation in the first fiscal quarter along with increased accounts rec eivable of $6.4 million.

• For the period ended February 28, 2021, working capital was negatively impacted by increased accounts receivable of $1.8 million and decreased accounts payable, accrued liabilities and other liabilities of $1.7 million.

Inventory had a favorable impact on working capital of $11.1 million.

During the quarters ended August 31, 2022 and 2021, cash flows consisted of the following:

Cash used in operating activities

Three months ended August 31, 2022 and 2021:

• Net loss of $13.0 million and $7.0 million, 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 $24.7 million and $8.9 million, respectively, for these periods.

• For the period ended August 31, 2022, working capital was unfavorably impacted by decreased accounts payable, accrued liabilities and other liabilities of $9.0 million, mainly driven by the payment of annual incentive compensation in the first fiscal quarter, along with increased accounts rec eivable, inventory and prepaid expenses of $1.4 million, $6.2 million and $5.7 million, respectively.

• For the period ended August 31, 2021, working capital was unfavorably 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 fiscal quarter, along with increased inventory of $0.7 million.

Cash used in investing activities

Nine months ended February 28, 2022 and 2021:

Three months ended August 31, 2022 and 2021:

• $0.8 million and $1.0 million, respectively, of cash was used for fixed asset additions;

• $8.7 million of cash was used for Auryon placement and evaluation unit additions in fiscal year 2022;

• $2.2 million and $4.5 million, respectively, of cash was used for Auryon placement and evaluation unit additions;

• $0.5 million of cash was used for the acquisition of an exclusive license in the first quarter of fiscal year 2023;

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

Cash provided by (used in) financing activities

Nine months ended February 28, 2022 and 2021:

Cash provided by financing activities

Three months ended August 31, 2022 and 2021:

• $70.0 million in proceeds on long-term debt less the repayment of $45.0 million associated with the new Credit Agreement in the first quarter of fiscal year 2023.

The $25.0 million draw on the Delayed Draw Term Loan associated with the new Credit Agreement is to fund the historical and planned fiscal year 2023 purchases of Auryon placement and evaluation units.

See Note 7 "Long-Term Debt" set forth in the Notes to the consolidated financial statements;

• $0.7 million of deferred financing costs associated with the new Credit Agreement;

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

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

• $0.1 million and $0.4 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.

On August 30, 2022, the Company repaid all amounts outstanding under its then existing credit agreement and entered into a new Credit Agreement.

The new Credit Agreement provides for a $75.0 million Revolving Facility and a $30.0 million Delayed Draw Term Loan, and also 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 February 28, 2022 was 1.36%.

The Company was in compliance with the Credit Agreement covenants as of February 28, 2022.

The interest rate at August 31, 2022 applicable to each was 4.06%.

The Company was in compliance with the Credit Agreement covenants as of August 31, 2022.

In the first quarter of fiscal year 2023 and in connection with the new Credit Agreement, the Company drew $25.0 million on the Revolving Facility.

The Company also drew $25.0 million on the Delayed Draw Term Loan to fund the historical and planned fiscal year 2023 purchases of Auryon placement and evaluation units for total long-term debt outstanding of $50.0 million.

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.

3 unchanged sentences

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