What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-05 compared with 2023-03-31 · 126 added, 139 removed, 96 unchanged (73% of the section changed)

7 unchanged sentences

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.

Factors that may affect the actual results achieved by AngioDynamics include, without limitation, 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").

15 unchanged sentences

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.

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,

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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;

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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 continue to pose future risks with the emergence of new variants.

Even with the public health actions that have been taken to reduce the spread of the virus, the market continues to experience disruptions with respect to consumer demand, hospital operating procedures and workflow, trends that may continue.

The current macroeconomic environment continues to impact our business and may continue to pose future risks.

The Company's ability to manufacture products, the reliability of our supply chain, labor shortages, backlog and inflation (including the cost and availability of raw materials, direct labor and shipping) have impacted our business, trends that may continue.

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.

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 February 28, 2023, $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.

On June 8, 2023, the Company completed the sale of the dialysis and BioSentry businesses to Merit Medical Systems, Inc.

The Company also entered into various agreements to facilitate the transition to Merit, including a Transition Services Agreement and Contract Manufacturing Agreement.

Total consideration received by the Company for the Divestiture was $100.0 million in cash and resulted in a pre-tax book gain of $47.8 million.

On June 8, 2023 and in connection with the completion of the Divestiture, the Company repaid all amounts outstanding under its existing Credit Agreement, and as a result, the Credit Agreement was extinguished.

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 and nine months ended February 28, 2023 compared to the three and nine months ended February 28, 2022 are as follows:

Three months ended February 28, 2023:

• Revenue increased by 9.1% to $80.7 million.

• Med Tech growth of 16.6% and Med Device growth of 6.4%.

• Gross profit decreased 200 bps to 50.2%.

• Med Tech gross profit decreased 150 bps to 64.6% and Med Device gross profit decreased 260 bps to 44.5%.

• Net loss increased by $4.5 million to $9.5 million.

• Loss per share increased by $0.11 to a loss of $0.24.

Nine months ended February 28, 2023:

• Revenue increased by 8.1% to $247.7 million.

• Med Tech growth of 25.1% and Med Device growth of 2.5%.

A summary of these key financial metrics for the three months ended August 31, 2023 compared to the three months ended August 31, 2022 are as follows:

Three months ended August 31, 2023:

• Revenue decreased by 3.5% to $78.7 million

• Med Tech growth of 13.3% and Med Device declined by 10.0%

• Gross profit decreased 100 bps to 50.9%

• Med Tech gross profit decreased 230 bps to 63.8% and Med Device gross profit decreased 70 bps to 46.8%.

• Net loss increased by $10.7 million to $31.0 million.

• Loss per share increased by $0.27 to a loss of $0.79.

Our Med Tech revenue, comprised of Auryon, the thrombus management platform and NanoKnife, grew 16.6% in the third quarter of fiscal year 2023.

The growth in Auryon, AlphaVac and NanoKnife disposables was partially offset by

continued softness in AngioVac.

Our Med Device revenue grew 6.4% in the third quarter of fiscal year 2023 driven by growth in Core, Dialysis, Ports and Microwave products.

• Med Tech gross profit increased 150 bps to 64.7% and Med Device gross profit decreased 330 bps to 44.2%

• Net income increased by $58.9 million to $45.9 million

• Earnings per share increased by $1.48 to $1.15

• Cash used in operations increased by $1.2 million to $25.9 million

The decrease in revenue is due to the sale of the dialysis and BioSentry businesses which closed on June 8, 2023 and impacted sales by $7.1 million compared to the prior year.

Our Med Tech revenue, comprised of Auryon, the thrombus management platform and NanoKnife, grew 13.3% in the first quarter of fiscal year 2024.

The growth in Auryon and NanoKnife was partially offset by continued softness in the thrombus management platform.

Our Med Device revenue declined by 10.0% in the first quarter of fiscal year 2024 driven mainly by the sale of the dialysis and BioSentry businesses.

Results of Operations

For the three months ended February 28, 2023, the Company reported a net loss of $9.5 million, or a loss of $0.24 per diluted share, on net sales of $80.7 million, compared with a net loss of $5.0 million, or a loss of $0.13 per diluted share, on net sales of $74.0 million during the same quarter of the prior year.

For the nine months ended February 28, 2023, the Company reported a net loss of $31.0 million, or a loss of $0.79 per diluted share, on net sales of $247.7 million, compared with a net loss of $20.3 million, or a loss of $0.52 per diluted share, on net sales of $229.2 million during the same quarter of the prior year.

For the three months ended August 31, 2023, the Company reported net income of $45.9 million, or diluted earnings per share of $1.15, on net sales of $78.7 million, compared with a net loss of $13.0 million, or a loss of $0.33 per diluted share, on net sales of $81.5 million during the same quarter of the prior year.

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

Three Months Ended Nine Months Ended

(in thousands) Feb 28, 2023 Feb 28, 2022 % Change Feb 28, 2023 Feb 28, 2022 % Change

Three Months Ended

(in thousands) Aug 31, 2023 Aug 31, 2022 $ Change

Med Tech $ 25,860 $ 22,817 $ 3,043

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Total $ 78,679 $ 81,537 $ (2,858)

Three Months Ended Nine Months Ended

(in thousands) Feb 28, 2023 Feb 28, 2022 % Change Feb 28, 2023 Feb 28, 2022 % Change

Three Months Ended

(in thousands) Aug 31, 2023 Aug 31, 2022 $ Change

United States $ 64,399 $ 69,023 $ (4,624)

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Total $ 78,679 $ 81,537 $ (2,858)

For the three months ended February 28, 2023, net sales increased $6.7 million to $80.7 million compared to the same period in the prior year.

For the nine months ended February 28, 2023, net sales increased $18.5 million to $247.7 million compared to the same period in the prior year.

At February 28, 2023, the Company had a backlog of $5.4 million, an increase of $0.4 million from November 30, 2022.

The Med Tec h segment net sales increased $3.3 million and $14.1 million fo r the three and nine months ended February 28, 2023 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 $3.1 million and $9.9 million compared to the same periods in the prior year, respectively;

• Growth in the thrombus management platform of $2.3 million for the nine months ended February 28, 2023 compared to the same period in the prior year, while the thrombus management platform decreased $0.1 million for the three months ended February 28, 2023 compared to the same period in the prior year.

Growth in the mechanical thrombectomy platform was driven by AlphaVac sales of $2.0 million and $5.4 million compared to the same periods in the prior year, respectively, offset by softness in AngioVac sales of of 15.7% and 8.2% compared to the same periods in the prior year, respectively;

• Increased NanoKnife sales of $0.2 million and $1.9 million compared to the same periods in the prior year, respectively , which was primarily driven by increased probe sales domestically and internationally.

The Me d Device segment net sales increased $3.5 million and $4.4 million for the three and nine months ended February 28, 2023 compared to the same periods in the prior year, respectively.

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

• The backlog of $5.4 million at February 28, 2023, which primarily impacted sales of Core and Vascular Access products;

• Increased sales of Core, Ports and Dialysis, despite the impact of the backlog, along with increased Microwave and other Oncology sales for the three months ended February 28, 2023 compared to the same period in the prior year of $2.1 million, $1.4 million, $1.1 million, $0.7 million and $0.5 million, respectively.

These increases were partially offset by decreased Venous, PICCs and Midlines sales for the three months ended February 28, 2023 compared to the same period in the prior year of $1.4 million, $0.6 million and $0.4 million, respectively;

• Increased sales of Core, Dialysis and Ports, despite the impact of the backlog, along with increased Microwave sales for the nine months ended February 28, 2023 compared to the same period in the prior year of $4.9 million, $3.9 million, $1.4 million and $1.3 million, respectively.

These increases were partially offset by decreased Venous, PICCs, Midlines and other Oncology and Vascular Access sales for the nine months ended February 28, 2023 compared to the same period in the prior year of $3.1 million, $1.9 million, $0.8 million and $1.3 million, respectively.

Three Months Ended Nine Months Ended

(in thousands) Feb 28, 2023 Feb 28, 2022 % Change Feb 28, 2023 Feb 28, 2022 $ Change

For the three months ended August 31, 2023, net sales decreased $2.9 million to $78.7 million compared to the same period in the prior year.

At August 31, 2023, the Company had a backlog of $3.3 million, an increase of $0.6 million from May 31, 2023.

The Med Tec h segment net sales increased $3.0 million fo r the three months ended August 31, 2023 compared to the same period in the prior year.

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

• Increased Auryon sales of $2.3 million;

• Decreased sales of the thrombus management platform of $0.7 million, which was driven by a decrease in AngioVac sales of $0.5 million;

• Increased NanoKnife sales of $1.4 million, which was driven by increased capital and disposable sales both domestically and internationally.

The Me d Device segment net sales decreased $5.9 million for the three months ended August 31, 2023 compared to the same period in the prior year.

The backlog, which primarily impacted sales of Core and Vascular Access products, was $3.3 million, an increase of $0.6 million from May 31, 2023.

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

• Decreased sales of dialysis and BioSentry of $5.5 million and $1.6 million, respectively, which was due to the divestiture of these businesses on June 8, 2023;

• Decreased sales of PICCs, Core and Other Oncology and Vascular Access sales of $0.8 million, $0.1 million and $0.5 million, respectively.

These decreases were partially offset by increased sales of Ports, Midlines and Microwave products of $1.5 million, $0.3 million and $1.1 million, respectively.

Three Months Ended

(in thousands) Aug 31, 2023 Aug 31, 2022 $ Change

Med Tech $ 16,727 $ 14,429 $ 2,298

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Gross profit % of sales 50.9 % 51.9 %

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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.

Total Company gross profit increased by $1.9 million and $8.6 million for the three months and nine months ended February 28, 2023 compared to the same periods in the prior year.

The change for both periods was primarily driven by:

• Sales volume, which positively impacted gross profit by $3.7 million and $10.6 million, respectively;

• Production volume, mix and other incentives which positively impacted gross profit by $1.8 million and $11.1 million, respectively;

• Pricing, which negatively impacted gross profit by $0.5 million and $3.8 million, respectively;

• Inflationary costs on raw materials, labor shortages and freight costs, which negatively impacted gross profit by $1.7 million and $6.9 million, respectively;

• Depreciation on placement units of $0.5 million and $1.7 million, respectively;

• A benefit of $0.8 million that was recorded as a result of the employee retention credit that the Company filed for under the provision of the CARES Act in the third quarter of the prior year.

The Med Tech segment gross profit increased by $1.8 million and $7.8 million for the three and nine months ended February 28, 2023 compared to the same periods in the prior year.

The change for both periods was primarily driven by:

• Sales volume, which positively impacted gross profit by $2.6 million and $11.2 million, respectively;

• Production volume, overhead, manufacturing and other incentives which positively impacted gross profit by $0.5 million and $2.7 million, respectively;

• Pricing pressures and mix, which negatively impacted gross profit by $0.9 million and $4.7 million, respectively;

• Inflationary costs on raw materials, labor shortages and freight costs, which negatively impacted gross profit by $0.1 million and $0.5 million, respectively;

• Depreciation on placement units of $0.4 million and $1.0 million, respectively.

The Med Device segment gross profit increased by $0.1 million and $0.9 million for the three and nine months ended February 28, 2023 compared to the same periods in the prior year.

The change for both periods was primarily driven by:

• Sales volume, which positively impacted gross profit by $1.5 million and $1.6 million, respectively;

• Production volume, manufacturing and other incentives which positively impacted gross profit by $0.4 million and $6.8 million, respectively;

• Pricing pressures and mix, which negatively impacted gross profit by $0.1 million and $0.8 million, respectively;

• Inflationary costs on raw materials, labor shortages and freight costs, which negatively impacted gross profit by $1.6 and $6.4 million, respectively;

• Depreciation on placement units of $0.1 million and $0.3 million, respectively.

Total Company gross profit decreased by $2.2 million for the three months ended August 31, 2023 compared to the same period in the prior year.

The change from the prior year was primarily driven by:

• The sale of the dialysis and BioSentry businesses, which negatively impacted gross profit by $4.2 million;

• Sales volume, which positively impacted gross profit by $2.2 million;

• Production volume, price and other incentives which positively impacted gross profit by $1.5 million;

• Sales mix, which negatively impacted gross profit by $0.8 million;

• Inflationary costs on raw materials, labor shortages and freight costs, which negatively impacted gross profit by $0.4 million;

• Incremental depreciation on placement units of $0.4 million.

The Med Tech segment gross profit increased by $2.3 million for the three months ended August 31, 2023 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 $2.1 million;

• Price and other incentives which positively impacted gross profit by $1.2 million;

• Sales mix, which negatively impacted gross profit by $0.6 million;

• Inflationary costs on raw materials, labor shortages and freight costs, which negatively impacted gross profit by $0.1 million;

• Incremental depreciation on placement units of $0.2 million.

The Med Device segment gross profit decreased by $4.5 million for the three months ended August 31, 2023 compared to the same period in the prior year.

The change from the prior year was primarily driven by:

• The sale of the dialysis and BioSentry businesses, which negatively impacted gross profit by $4.2 million;

• Sales volume, which positively impacted gross profit by $0.5 million;

• Production volume and price, which positively impacted gross profit by $0.4 million;

• Sales mix, which negatively impacted gross profit by $0.7 million;

• Inflationary costs on raw materials, labor shortages and freight costs, which negatively impacted gross profit by $0.3 million;

• Incremental depreciation on placement units of $0.1 million.

Operating Expenses and Other Income (Expense)

Three Months Ended Nine Months Ended

(in thousands) Feb 28, 2023 Feb 28, 2022 % Change Feb 28, 2023 Feb 28, 2022 % Change

Three Months Ended

(in thousands) Aug 31, 2023 Aug 31, 2022 $ Change

Research and development $ 7,941 $ 8,333 $ (392)

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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 $0.4 million and $0.9 million for t he three and nine months ended February 28, 2023 compared to the same periods in the prior year, respectively.

The change for both periods was primarily driven by:

• The timing of certain projects and clinical spend associated with the ongoing clinical trials, which decreased R&D expense by $0.7 million and $1.3 million, respectively;

• Compensation and benefits expenses, which decreased $0.1 million for the three months ended February 28, 2023;

• A benefit of $0.5 million that was recorded as a result of the employee retention credit that the Company filed for under the provision of the CARES Act in the third quarter of the prior year.

R& D expense decreased $0.4 million for t he three months ended August 31, 2023 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 decreased R&D expense by $0.6 million;

• Compensation and benefits expenses, which increased $0.2 million.

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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 $5.0 million and $9.5 million for t he three and nine months ended February 28, 2023 compared to the same periods in the prior year, respectively.

The change for both periods 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 $0.9 million and $3.4 million, respectively;

• Travel, meeting, tradeshow and other selling expenses, which increased $1.3 million and $3.9 million, respectively;

• Other fixed expenses (utilities, insurance, depreciation, etc.), which decreased $0.2 million and $0.5 million, respectively;

• A benefit of $2.8 million that was recorded as a result of the employee retention credit that the Company file for under the provision of the CARES Act in the third quarter of the prior year.

S&M expense increased $0.8 million for t he three months ended August 31, 2023 compared to the same period in the prior year.

The change from the prior year was primarily driven by:

• Compensation and benefits expense, which increased by $1.4 million;

• Trade show expenses, which increased $0.3 million.

This was partially offset by travel and other selling expenses, which decreased $0.8 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 e xpense increased $0.1 million and $2.4 million for th e three and nine months ended February 28, 2023 compared to the same periods in the prior year, respectively.

The change for both periods was primarily driven by:

• Compensation and benefits expenses, which increased $0.3 million for the nine months ended February 28, 2023 and decreased $0.2 million for the three months ended February 28, 2023;

• Other outside consultant spend for legal and IT which increased $0.3 million and $2.0 million, respectively.

Three Months Ended Nine Months Ended

(in thousands) Feb 28, 2023 Feb 28, 2022 $ Change Feb 28, 2023 Feb 28, 2022 $ Change

G&A e xpense increased $0.8 million for th e three months ended August 31, 2023 compared to the same period in the prior year.

The change from the prior year was primarily driven by:

• Compensation and benefits expenses, which increased $0.9 million.

This increase was primarily driven by a change in the vesting of equity grants to members of the Board from a one-year vest period to immediate vesting which resulted in additional expense of $1.1 million in the first quarter of fiscal year 2024;

• Other outside consultant spend for legal and IT, which increased $0.1 million.

This was partially offset by decreased travel expenses of $0.2 million.

Three Months Ended

(in thousands) Aug 31, 2023 Aug 31, 2022 $ Change

Amortization of intangibles $ 3,625 $ 4,837 $ (1,212)

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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 remained consistent with the prior year.

• Amortization expense decreased $1.2 million for the three months ended August 31, 2023 compared to the same period in the prior year due to the intangible assets that were included in the sale of the dialysis and BioSentry businesses.

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 nine months ended February 28, 2023 is related to the Eximo contingent consideration and the increased probability of achieving the revenue milestones.

• The change in the fair value for the three months ended August 31, 2023 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 item s, net, increased by $1.0 million and $5.0 million for the three and nine months ended February 28, 2023, compared to the same periods in the prior year, respectively.

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 $0.9 million and $1.1 million, respectively;

• Manufacturing relocation expense related to the move of certain manufacturing lines to Costa Rica, which decreased $0.1 million for the three months ended February 28, 2023 and increased $0.6 million for the nine months ended February 28, 2023;

• Other expenses (mainly severance associated with organizational changes), which increased $0.1 million for the three months ended February 28, 2023 and decreased $0.2 million for the nine months ended February 28, 2023;

Acquisition, restructuring and other item s, net, decreased by $2.4 million for the three months ended August 31, 2023, compared to the same period in the prior year.

The change from the prior year was primarily driven by:

• Manufacturing relocation expense related to the move of certain manufacturing lines to Costa Rica, which increased $0.5 million;

• A transition services agreement that was entered into as a result of the sale of the dialysis and BioSentry businesses.

The Company invoiced Merit Medical Systems, Inc.

$0.2 million in the first quarter of fiscal year 2024;

• 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;

• $0.9 million of deferred financing fees that were written-off in conjunction with the sale of the Dialysis and BioSentry businesses and concurrent extinguishment of the debt.

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

• The change in other expe nse of $0.3 million and $1.1 million for the three and nine months ended February 28, 2023, respectively, compared to the same periods in the prior year, is primarily due to increased interest expense of $0.6 million and $1.3 million, respectively and unrealized foreign currency fluctuations of $0.3 million and $0.2 million, respectively.

• The change in other expe nse of $0.4 million for the three months ended August 31, 2023, compared to the same period in the prior year, is primarily due to decreased interest expense of $0.3 million, increased interest income of $0.2 million and unrealized foreign currency fluctuations of $0.1 million.

Income Tax Benefit

Three Months Ended Nine Months Ended

(in thousands) Feb 28, 2023 Feb 28, 2022 Feb 28, 2023 Feb 28, 2022

Three Months Ended

(in thousands) Aug 31, 2023 Aug 31, 2022

Income tax benefit $ (11.0) $ (0.9)

Effective tax rate including discrete items (31.6) % 6.2 %

Our effective tax rate including discrete items for the three months ended February 28, 2023 and 2022 was 1.9% and 13.9%, respectively.

Our effective tax rate including discrete items for the nine months ended February 28, 2023 and 2022 was 4.9% and 12.7%, respectively.

Our effective tax rate including discrete items for the three months ended August 31, 2023 and 2022 was (31.6)% and 6.2%, respectively.

In fiscal year 2024, the Company’s effective tax rate differs from the U.S.

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Liquidity and Capital Resources

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 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 $30.1 million as of February 28, 2023, compared with $28.8 million as of May 31, 2022.

As of February 28, 2023 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 February 28, 2023 and May 31, 2022, was $19.1 million and $16.9 million, respectively.

We regularly review our liquidity and anticipated capital requirements and we believe that our current cash on hand provides sufficient liquidity to meet our anticipated needs for capital for at least the next 12 months.

Our cash and cash equivalents totaled $57.6 million as of August 31, 2023, compared with $44.6 million as of May 31, 2023.

As of August 31, 2023 there was no outstanding debt as the Credit Agreement was extinguished in connection with the Divestiture (see Note 7 "Long-Term Debt" set forth in the Notes to our consolidated financial statements included in this Quarterly Report on Form 10-Q).

As of May 31, 2023, total debt outstanding related to the Credit Agreement was $50.0 million.

The fair value of contingent consideration liability as of August 31, 2023 and May 31, 2023, was $9.2 million and $19.3 million, respectively.

The table below summarizes our cash flows:

Nine Months Ended

(in thousands) Feb 28, 2023 Feb 28, 2022

Three Months Ended

(in thousands) Aug 31, 2023 Aug 31, 2022

Cash provided by (used in):

4 unchanged sentences

Net change in cash and cash equivalents $ 12,966 $ (4,261)

During the quarters ended February 28, 2023 and 2022, cash flows consisted of the following:

During the quarters ended August 31, 2023 and 2022, cash flows consisted of the following:

Cash used in operating activities

Nine months ended February 28, 2023 and 2022:

• Net loss of $31.0 million and $20.3 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 $15.9 million and $15.8 million, respectively, for these periods.

• For the period ended February 28, 2023, working capital was unfavorably impacted by decreased accounts payable, accrued liabilities and other liabilities of $7.1 million, along with increased in ventory and prepaid expenses of $12.3 million and $0.4 million, respectively, partially offset by decreased accounts rec eivable of $0.8 million .

• For the period ended February 28, 2022, working capital was unfavorably impacted by decreased accounts payable, accrued liabilities and other liabilities of $11.8 million, along with increased receivables and prepaid expenses of $6.4 million and $7.1 million, respectively.

Cash used in investing activities

Nine months ended February 28, 2023 and 2022:

Three months ended August 31, 2023 and 2022:

• Net income of $45.9 million and a net loss of $13.0 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 $25.9 million and $24.7 million, respectively, for these periods.

• For the period ended August 31, 2023, working capital was unfavorably impacted by decreased accounts payable, accrued liabilities and other liabilities of $16.5 million, along with increased in ventory and prepaid expenses of $4.6 million and $4.2 million, respectively.

This was partially offset by decreased accounts rec eivable of $3.2 million .

• 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, along with increased receivables, inventory and prepaid expenses of $1.4 million, $6.2 million and $5.7 million, respectively.

Cash provided by (used in) investing activities

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Three months ended August 31, 2023 and 2022:

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

• $0.8 million and $2.2 million, respectively, of cash was used for Auryon placement and evaluation unit additions;

• $100.0 million of cash was received for the divestiture of the dialysis and BioSentry businesses in the first quarter of fiscal year 2024;

• $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 financing activities

Nine months ended February 28, 2023 and 2022:

• $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;

• $0.8 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;

Three months ended August 31, 2023 and 2022:

• $50.0 million repayment of the Credit Agreement in connection with the completion of the dialysis and BioSentry divestiture in the first quarter of fiscal year 2024;

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

• $0.7 million of deferred financing costs associated with the then new Credit Agreement in the first quarter of fiscal year 2023;

• $10.0 million contingent consideration payment made in the first quarter of fiscal year 2024;

• $0.4 million and $0.1 million, respectively, of proceeds from stock option and ESPP activity.

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.

One financial covenant requires us to maintain a fixed charge coverage ratio of not less than 1.25 to 1.00.

The other financial covenant requires us to maintain a total leverage ratio of not greater than 3.00 to 1.00.

The total leverage ratio is based upon our trailing twelve months total adjusted EBITDA (as defined in the Credit Agreement).

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

The interest rate at February 28, 2023 applicable to each was 6.15%.

The Company was in compliance with the Credit Agreement covenants as of February 28, 2023.

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.

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.

On June 8, 2023 and in connection with the completion of the dialysis and BioSentry divestiture, the Company repaid all amounts outstanding under its existing Credit Agreement, and as a result, the Credit Agreement was extinguished.

Pursuant to the terms of the Credit Agreement, AngioDynamics had the option to repay this facility prior to the maturity date without penalty.

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

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

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

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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