What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-07-25 compared with 2023-08-03 · 117 added, 118 removed, 249 unchanged (49% of the section changed)

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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 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.

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.

As of May 31, 2023, $25.0 million was drawn on the Revolving Facility and $25.0 million was drawn on the Delayed Draw Term Loan.

See Note 12 "Long-Term Debt" set forth in the Notes to the consolidated financial statements.

During the fourth quarter of fiscal year 2023, the Company was in discussions with Merit Medical Systems, Inc.

("Merit") to sell the dialysis product portfolio and BioSentry tract sealant system biopsy businesses.

This qualified for held for sale accounting as of May 31, 2023.

On June 8, 2023, the Company entered into an asset purchase agreement (the "Asset Purchase Agreement") with Merit Medical Systems, Inc.

pursuant to which Merit acquired the dialysis product portfolio and BioSentry tract sealant system biopsy businesses for $100.0 million in cash subject to the terms and conditions of the Asset Purchase Agreement.

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

The Company determined that the sale of the

businesses did not constitute a strategic shift that had a major effect on the Company’s operations or financial results and as a result, this transaction will not be classified as discontinued operations.

As of May 31, 2023, the Company concluded that the sale of the dialysis product portfolio and BioSentry tract sealant system biopsy businesses to Merit Medical Systems, Inc.

was a triggering event for the Med Device reporting unit.

The Company utilized the income approach to determine the fair value of the remaining Med Device reporting unit.

Based on the results of this evaluation, the Company recorded a goodwill impairment charge of $14.5 million for the year ended May 31, 2023 to write down the carrying value of the Med Device reporting unit to fair value.

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.

On January 5, 2024, the Company announced a restructuring of its manufacturing footprint and a shift to an outsourced model (the "Plan").

This Plan is intended to transfer all product manufacturing processes to third-party manufacturers.

The restructuring activities associated with the Plan are expected to be completed in the third quarter of fiscal year 2026 and will allow the Company to more effectively compete in chosen markets and fundamentally change its corporate gross margin profile.

On February 15, 2024, the Company completed the sale of its PICC and Midline businesses to Spectrum Vascular.

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

Total consideration received by the Company for the Divestiture was $34.5 million in cash and resulted in a pre-tax book gain of $6.7 million.

Included in the agreement is a $5.5 million earn-out related to the sales of divested products over a two year period and a milestone payment of $5.0 million paid upon final transfer of the manufacturing to a third-party.

In the third quarter of fiscal year 2024, the Company concluded that the sustained decline in our stock price was a triggering event for the Med Tech reporting unit.

The Company utilized the income approach to determine the fair value of the remaining Med Tech reporting unit.

Based on the results of this evaluation, the Company recorded a goodwill impairment charge of $159.5 million for the quarter ended February 29, 2024 to write down the carrying value of the Med Tech reporting unit to fair value.

On March 31, 2024, the Company and BD entered into a Settlement Agreement as described in Note 17 "Commitments and Contingencies" set forth in the Notes to our consolidated financial statements in this Annual Report on Form 10-K.

The Company will make a one-time lump sum payment to BD in the amount of $7.0 million, $3.0 million of which was paid within 5 business days of execution of the Settlement Agreement, and the remainder of which will be payable in installments over the 12 month period ending March 31, 2025.

The Company will also make six minimum annual payments to BD of $2.5 million through February 2029, and potential additional payments if six percent (6%) of annual net sales of AngioDynamics’ port products exceed the minimum payment.

The parties will participate in the pending appeal before the Federal Circuit of the case titled C.R.

and Bard Peripheral Vascular, Inc.

AngioDynamics, Inc.

15-00218–JFB;

and CAFC appeal No.

23-2056) and a contingent payment of $3.0 million will be due from AngioDynamics to BD if the Federal Circuit reverses or vacates the District Court’s findings of invalidity with respect to the patent claims at issue in the case.

Appellate briefing is closed, but an agrument date has not yet been set.

Neither party admitted any liability and the agreement contains mutual covenants not to sue and releases.

As of May 31, 2024, the present value of the lump sum and minimum annual payments of $19.4 million was recorded in "Acquisition, restructuring and other items, net" on the accompanying consolidated statements of operations and a long-term asset of $1.2 million, other current liabilities of $5.5 million and other long-term liabilities of $12.1 million was recorded on the consolidated balance sheets.

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

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Year ended May 31, 2024:

• Revenue increased by 7.1% to $338.8 million

• Med Tech growth of 22.8% and Med Device growth of 1.9%

• Revenue decreased by 10.3% to $303.9 million

• Med Tech growth of 10.0% and Med Device decrease of 18.4%

• Gross profit decreased by 50 bps to 50.9%

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• Loss per share increased by $3.26 to a loss of $4.59

• Cash flow from operations increased by $7.3 million resulting in cash provided by operations of $0.1 million

Our Med Tech business, comprised of Auryon, the Thrombectomy platform and NanoKnife grew 22.8% in fiscal year 2023.

The growth in Auryon, AlphaVac and NanoKnife disposables was partially offset by continued softness in AngioVac.

Our Med Device business grew 1.9% in fiscal year 2023 driven by growth in Core, Dialysis, Ports and Microwave products.

• Cash flow from operations decreased by $28.2 million resulting in cash used in operations of $28.2 million

For the year ended May 31, 2024, the decrease in revenue is partially due to the sale of the PICCs, Midline, dialysis and BioSentry businesses, along with the discontinuation of the RadioFrequency Ablation and Syntrax product lines, the total of which impacted sales by $48.4 million compared to the year ended May 31, 2023.

Our Med Tech business, comprised of Auryon, the thrombus management platform and NanoKnife grew 10.0% in fiscal year 2024.

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

Our Med Device business decreased 18.4% in fiscal year 2024 driven mainly by the sale of the PICCs, Midlines, dialysis and BioSentry businesses along with the discontinuation of the RadioFrequency Ablation product lines.

Strategic Initiatives to Drive Growth

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This included:

◦ Pathway expansion for Auryon in arterial thrombectomy and full market release of the hyrodphilic coated catheters;

◦ FDA clearance of the AlphaVac F18 thrombectomy system;

◦ Enrollment of patients in the APEX IDE study for the use of AlphaVac F18 to treat pulmonary embolism;

◦ Continued enrollment of patients in the PRESERVE study for the use of NanoKnife in the prostate.

◦ Pathway expansion for Auryon in arterial thrombectomy and the launch of the Auryon XL radial catheter;

◦ 510(k) clearance and CE mark for the use of AlphaVac F18 85 System to treat pulmonary embolism;

◦ Completed enrollment of patients in the PRESERVE study for the use of NanoKnife in the prostate in the first quarter.

• Value Creation.

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In addition, the Company continues to pursue targeted global expansion opportunities.

This included:

◦ The sale of the dialysis and BioSentry businesses to Merit Medical Systems, Inc.

on June 8, 2023;

◦ The sale of the PICC and Midline businesses to Spectrum Vascular on February 15, 2024;

◦ The discontinuation of the RadioFrequency Ablation and Syntrax product lines as of February 29, 2024.

• Focused Resource Deployment.

The Company continued its discipline on deploying resources.

This included:

◦ The announcement on January 5, 2024 to restructure the manufacturing footprint and a shift to an outsourced model which will transfer all product manufacturing processes to third-party manufacturers to allow the Company to more effectively compete in chosen markets and fundamentally change its corporate gross margin profile.

Critical Accounting Policies and Use of Estimates

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Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following

To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps:

(i) identify the contract(s) with a customer;

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

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

In these arrangements, revenue recognized for the sale of the disposables is not allocated

between the disposal revenue and lease revenue due to the insignificant value of the units in relation to the total agreement value.

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

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Accordingly, the Company does not have any contract assets associated with the future right to invoice its customers.

In some cases, if control of the product has not yet transferred to the customer or the timing of the payments made by the customer precedes the Company’s

fulfillment of the performance obligation, the Company recognizes a contract liability that is included in deferred revenue in the accompanying Consolidated Balance Sheets.

In some cases, if control of the product has not yet transferred to the customer or the timing of the payments made by the customer precedes the Company’s fulfillment of the performance obligation, the Company recognizes a contract liability that is included in deferred revenue in the accompanying Consolidated Balance Sheets.

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

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Projected revenues are based on the Company’s most recent internal operational budgets and long-range strategic plans.

The discount rate used is determined at the time of measurement in accordance with accepted valuation methodologies.

The discount rate used is determined at the time of

measurement in accordance with accepted valuation methodologies.

Changes in projected revenues, probabilities of payment, discount rates, and projected payment dates may result in adjustments to the fair value measurements.

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Goodwill and Intangible Assets

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

Intangible assets other than goodwill and in process research and development ("IP R&D") are amortized over their estimated useful lives, which range between two to eighteen years, on a straight-line basis over the expected period of benefit.

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

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When testing for impairment of definite-lived intangible assets held for use, the Company groups assets at the lowest level for which cash flows are separately identifiable.

Prior to the first quarter of fiscal year 2023, the Company managed its operations as one reporting unit.

At the beginning of the first quarter of fiscal year 2023, the Company began to manage its operations as two operating segments and two reporting units, namely Med Tech and Med Device (see Note 18 "Segment and Geographic Information" set forth in the Notes to our consolidated financial statements included in this Annual Report on Form 10-K).

The Company operates as two reporting units and two asset groups.

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If an intangible asset is considered to be impaired, the amount of the impairment will equal the excess of the carrying value over the fair value of the asset.

Goodwill and other intangible assets that have indefinite useful lives are not amortized, but rather, are tested for impairment annually or more frequently if impairment indicators arise.

Goodwill is not amortized, but rather, are tested for impairment annually or more frequently if impairment indicators arise.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination.

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If the carrying value of the reporting units exceed the fair value, the carrying value is reduced to its fair value through an adjustment to the goodwill balance, resulting in an impairment charge.

As detailed in Note 9, "Goodwill and Intangible Assets" set forth in the Notes to our consolidated financial statements included in this Annual Report on Form 10-K, the Company recorded a goodwill impairment loss of $14.5 million for the year ended May 31, 2023 as the fair value of the Med Device reporting unit was less than its carrying value.

There were no adjustments to goodwill for the Med Tech reporting unit for the year ended May 31, 2023 other than foreign currency translation adjustments.

As detailed in Note 9, "Goodwill and Intangible Assets" set forth in the Notes to our consolidated financial statements included in this Annual Report on Form 10-K, the Company recorded a goodwill impairment loss of $159.5 million for the year ended May 31, 2024 as the fair value of the Med Tech reporting unit was less than its carrying value.

The Company recorded an impairment loss of $14.5 million for the year ended May 31, 2023 as the fair value of the Med Device reporting unit was less than its carrying value.

Results of Operations for the years ended May 31, 2024 and 2023

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Total $ 303,914 $ 338,752 $ (34,838)

For the year ended May 31, 2023, net sales increased $22.5 million to $338.8 million compared to the year ended May 31, 2022.

For the year ended May 31, 2024, net sales decreased $34.8 million to $303.9 million compared to the year ended May 31, 2023.

At May 31, 2024, the Company had a backlog of $1.3 million compared to $2.7 million at the end of May 31, 2023.

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• Increased Auryon sales of $6.4 million;

• Growth in the thrombectomy platform of $3.0 million, which was driven by growth in the mechanical thrombectomy platform in AlphaVac sales of $5.0 million, partially offset by softness in AngioVac;

• Increased NanoKnife sales of $3.0 million, which was driven by NanoKnife disposable sales in the U.S.

and internationally which increased $3.3 million due to increased case volume.

This increase was partially offset by decreased NanoKnife capital sales in the U.S.

The Med Device business net sales increased $4.6 million for the year ended May 31, 2023 compared to the prior year.

• Increased NanoKnife sales of $5.7 million, which was driven by both NanoKnife disposable and capital sales, which increased $2.5 million and $3.2 million, respectively, due to increased case volume in both the U.S and international markets;

• Decrease in the thrombectomy platform of $2.4 million, which was driven by softness in the mechanical thrombectomy platform in AngioVac, AlphaVac and Thrombolytic sales of $1.4 million, $0.4 million and $0.6 million, respectively.

The Med Device business net sales decreased $44.6 million for the year ended May 31, 2024 compared to the prior year.

The backlog, which primarily impacted sales of Core and Vascular Access products, was $1.3 million at May 31, 2024 compared to $2.7 million at May 31, 2023.

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

• Increased sales of Core, Dialysis, Ports and Microwave sales of $5.4 million, $5.2 million, $1.4 million and $1.0 million, respectively.

These increases were partially offset by decreased Venous, PICCs, Midlines and other Oncology and Vascular Access sales of $3.6 million, $2.4 million, $0.8 million and $1.6 million, respectively.

• Decreased sales of PICCs and Midline products of $13.8 million which was due to the divestiture of these businesses on February 15, 2024;

• Decreased sales of dialysis and BioSentry products of $31.8 million which was due to the divestiture of these businesses on June 8, 2023;

• Decreased sales of RadioFrequency Ablation of $2.8 million due to the discontinuation of this product line as of February 29, 2024;

• Increased sales of Ports, Core and Venous of $2.5 million, $2.0 million and $0.9 million, respectively.

This increase was partially offset by decreased sales of Oncology and Microwave products of $1.2 million and $0.4 million, respectively.

Year ended May 31,

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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 $8.5 million compared to the prior year.

Total Company gross profit decreased by $19.5 million compared to the prior year.

The change from the prior year was primarily driven by:

• Sales volume, which positively impacted gross profit by $13.2 million;

• The sale of the PICCs, Midline, dialysis and BioSentry businesses, which negatively impacted gross profit by $23.9 million;

• Sales volume and price mix, which positively impacted gross profit by $8.4 million;

• Production volume and other incentives which positively impacted gross profit by $2.2 million;

• Price and mix, which negatively impacted gross profit by $4.9 million;

• Inflationary costs on raw materials, labor shortages and freight costs, which negatively impacted gross profit by $8.1 million;

• Sales mix, inflationary costs on raw materials, labor shortages and freight costs, which negatively impacted gross profit by $5.0 million;

• Incremental depreciation on placement units of $1.2 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 provision of the CARES Act in the prior year.

The Med Tech segment gross profit increased by $5.2 million compared to the prior year.

The change from the prior year was primarily driven by:

• Sales volume, which positively impacted gross profit by $13.9 million;

• Production volume, manufacturing and other incentives which positively impacted gross profit by $2.1 million;

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

• Sales volume and price mix, which positively impacted gross profit by $5.5 million;

• Production volume and other incentives which positively impacted gross profit by $1.6 million;

• Sales mix, which negatively impacted gross profit by $0.9 million;

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

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The change from the prior year was primarily driven by:

• Sales volume, which positively impacted gross profit by $2.1 million;

• Production volume, manufacturing and other incentives which positively impacted gross profit by $8.6 million;

• Pricing pressures and mix, which negatively impacted gross profit by $3.7 million;

• The sale of the PICCs, Midline, dialysis and BioSentry businesses, which negatively impacted gross profit by $23.9 million;

• Sales volume and price mix, which positively impacted gross profit by $3.3 million;

• Production volume and other incentives which positively impacted gross profit by $0.6 million;

• Sales mix, which negatively impacted gross profit by $3.6 million;

• Inflationary costs on raw materials, labor shortages and freight costs, which negatively impacted gross profit by $1.0 million;

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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, manage clinical, regulatory and medical affairs.

R&D expense decreased $0.9 million compared to the prior year.

R&D expense increased $1.6 million compared to 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 $0.4 million;

• Compensation and benefits expenses, which decreased $0.3 million;

• 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 prior year.

• Compensation and benefits expenses, which increased $2.0 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 by $8.9 million compared to the prior year.

S&M expense decreased by $1.4 million compared to 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 $3.1 million;

• Travel, meeting, tradeshow and other selling expenses, which increased $3.7 million;

• Other fixed expenses (utilities, insurance, depreciation, etc.), which decreased $0.6 million;

• 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 prior year.

• Compensation and benefits expense, which increased by $1.1 million;

• Travel, meeting, tradeshow and other selling expenses, which decreased $2.5 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.

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The change from the prior year was primarily driven by:

• Compensation and benefits expense, which decreased $0.5 million;

• Compensation and benefits expense, which increased $0.9 million;

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

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Acquisition, restructuring and other items, net $ 53,182 $ 15,633 $ 37,549

Other expense $ (3,256) $ (1,478) $ (1,778)

Other income (expense) $ 797 $ (3,256) $ 4,053

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

• Amortization expense decreased $5.7 million compared to the prior year.

The decrease is due to assets that became fully amortized in fiscal year 2023.

The decrease is due to assets being included in the sale of the dialysis, BioSentry, PICCs and Midlines businesses and the abandonment of the Syntrax product line.

Goodwill impairment - Represents the impairment charge taken on goodwill.

• The Company recorded a non-cash goodwill impairment charge of $14.5 million for the year ended May 31, 2023 as the fair value of the Med Device reporting unit was less than its carrying value.

• The Company recorded a non-cash goodwill impairment charge of $159.5 million for the year ended May 31, 2024 as the fair value of the Med Tech reporting unit was less than its carrying value compared to a $14.5 million goodwill impairment charge for the year ended May 31, 2023 as the fair value of the Med Device reporting unit was less than its carrying value.

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 year ended May 31, 2024 is related to the Eximo contingent consideration and the increased probability of achieving the revenue milestones.

The first revenue milestone was achieved in May 2023 and will be paid in the first quarter of fiscal year 2024.

The second revenue milestone was achieved in April 2024 and was paid in the fourth quarter of fiscal year 2024.

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

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The change from the prior year was primarily driven by:

• Legal expense, related to litigation that is outside of the normal course of business, which increased $2.4 million;

• Mergers and acquisition expense related to legal fees, which increased $0.3 million;

• Manufacturing relocation expense related to the move of certain manufacturing lines to Costa Rica, which increased $0.4 million;

• Other expenses (mainly severance associated with organizational changes), which decreased $0.1 million;

• Legal expense, related to litigation that is outside of the normal course of business, which increased $25.0 million and was driven by the $19.3 million settlement between the Company and BD;

• Plant closure expense, related to the restructuring of our manufacturing footprint which was announced on January 5, 2024, which increased $9.5 million;

• An impairment of $3.4 million on the Syntrax product technology intangible and fixed assets and an inventory write-off of $2.9 million was taken in the third quarter of fiscal year 2024 related to the abandonment of the Syntrax and RF product lines;

• Transaction services agreements that were entered into as a result of the sale of the PICCs, Midline, dialysis and BioSentry businesses.

The Company invoiced Spectrum $0.6 million for the year ended May 31, 2024.

The Company invoiced Merit Medical Systems, Inc.

$0.5 million for the year ended May 31, 2024;

• Manufacturing relocation expense related to the move of certain manufacturing lines from Queensbury, New York to a third party, which decreased $0.5 million;

• Other expenses, mainly severance associated with organizational changes, which increased $2.0 million;

• 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.

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

• The change in other expe nse of $1.8 million compared to the prior year, is primarily due to increased interest expense of $2.1 million and unrealized foreign currency fluctuations of $0.2 million.

Other income (expense) - Other expense includes interest income and expense, foreign currency impacts and bank fees.

• The change in other income and expe nse of $4.1 million compared to the prior year, is primarily due to decreased interest ex pense of $2.5 million and increased interest income of $1.6 million.

Income Tax Benefit

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

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

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

Therefore, the Company has provided a valuation allowance on its federal and state net operating loss carryforwards, federal and state R&D credit carryforwards and other net deferred tax assets that have a limited life and are not supportable by the naked credit deferred tax liability sourced income as of May 31, 2023.

As a result of the full impairment of Goodwill and the reversal of the naked credit deferred tax liability sourced income, the Company has recorded a full valuation allowance on its U.S.

net deferred tax assets as of May 31, 2024.

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

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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 provides sufficient liquidity to meet our anticipated needs for capital for at least the next 12 months.

We regularly review our liquidity and anticipated capital requirements 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 $76.1 million as of May 31, 2024, compared with $44.6 million as of May 31, 2023.

As of May 31, 2023 and 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.

As of May 31, 2024 there was no outstanding debt as the Credit Agreement was extinguished in connection with the Divestiture (see Note 12 "Long-Term Debt" set forth in the Notes to our consolidated financial statements included in this Annual Report on Form 10-K).

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

The fair value of the contingent consideration liability as of May 31, 2024 was $4.7 million.

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During the years ended May 31, 2024 and 2023, cash flows consisted of the following:

Cash provided by (used in) operating activities:

Cash (used in) provided by operating activities:

Years ended May 31, 2024 and 2023:

• Net loss of $52.4 million and $26.5 million, respectively, plus the non-cash items, primarily driven by depreciation and amortization, goodwill impairment and stock-based compensation, along with the changes in working capital below, contributed to cash provided by operations of $0.1 million for the year ended May 31, 2023 and cash used in operations of $7.2 million for the year ended May 31, 2022.

• For the year ended May 31, 2023, working capital was unfavorably impacted by increased accounts receivable and inventory on hand of $1.3 million and $8.2 million, respectively.

This was partially offset by increased accounts payable and accrued liabilities of $2.1 million.

• For the year ended May 31, 2022, working capital was unfavorably impacted by increased accounts receivable, inventory on hand and prepaids of $17.2 million, $2.8 million and $5.0 million respectively.

This was partially offset by increased accounts payable and accrued liabilities of $3.9 million.

Cash used in investing activities:

• Net loss of $184.3 million and $52.4 million, respectively, plus the non-cash items, primarily driven by depreciation and amortization, gain on the divestiture and related expenses, goodwill impairment and stock-based compensation, along with the changes in working capital below, contributed to cash used in operations of $28.2 million for the year ended May 31, 2024 and cash provided by operations of $0.1 million for the year ended May 31, 2023;

• For the year ended May 31, 2024, working capital was unfavorably impacted by increased prepaid expenses and inventory on hand of $11.6 million and $9.4 million, respectively.

This was partially offset by decreased accounts receivable and increased accounts payable and accrued liabilities of $7.9 million and $27.5 million, respectively;

• For the year ended May 31, 2023, working capital was unfavorably impacted by increased accounts receivable, inventory on hand and prepaids of $1.3 million and $8.2 million, respectively.

This was partially offset by decreased prepaids and increased accounts payable and accrued liabilities of $0.3 million and $2.1 million, respectively.

Cash provided by (used in) investing activities:

Years ended May 31, 2024 and 2023:

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• $5.0 million and $5.4 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 financing activities:

• $134.5 million of cash was received for the divestiture of the PICCs, Midline, dialysis and BioSentry businesses;

• $3.3 million and $0.5 million, respectively, of cash was used for the acquisition of exclusive licenses.

Cash (used in) provided by financing activities:

Years ended May 31, 2024 and 2023:

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

• $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 12 "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;

• $0.8 million of deferred financing costs associated with the then new Credit Agreement in the first quarter of fiscal year 2023;

• $15.0 million of contingent consideration payments made in fiscal year 2024;

• $0.8 million and $1.2 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 that 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 May 31, 2023 applicable to each was 6.73%.

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

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

Subsequent to fiscal year 2023, on June 8, 2023, the Company entered into an asset purchase agreement (the "Asset Purchase Agreement") with Merit Medical Systems, Inc.

("Merit") pursuant to which Merit acquired the dialysis product portfolio and BioSentry tract sealant system biopsy businesses.

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

The purchase price for the asset sale was $100.0 million in cash subject to the terms and conditions of the Asset Purchase Agreement.

In conjunction with the Asset Purchase Agreement, on June 8, 2023, AngioDynamics used a portion of the consideration received to repay all amounts owed under AngioDynamics’ existing Credit Agreement, dated as of August 30, 2022, and as a result, the Credit Agreement was extinguished.

On June 8, 2023 and in connection with the completion of the sale 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.

Our contractual obligations as of May 31, 2024 are set forth in the table below (in thousands).

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Contractual Obligations:

Long term debt and interest $ 50,108 $ 50,108 $ — $ — $ —

Operating leases (1)

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Results of Operations for the years ended May 31, 2023 and 2022

For management discussion and analysis of our 2022 financial results and liquidity compared with 2021, see Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended May 31, 2022 filed on July 22, 2022.

For management discussion and analysis of our 2023 financial results and liquidity compared with 2022, see Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended May 31, 2023 filed on August 3, 2023.

Recent Accounting Pronouncements

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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-K

Item 7. Management’s Discussion and Analysis