ANGIODYNAMICS INC 10-Q

Item 1. Financial Statements. AngioDynamics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands of dollars, except per share data) Three Months Ended Aug 31, 2024 Aug 31, 2023 Net sales $ 67,491 $ 78,679 Cost of sales (exclusive of intangible amortization) 30,767 38,619 Gross profit 36,724 40,060 Operating expenses: Research and development 6,285 7,941 Sales and marketing 25,605 27,368 General and administrative 10,975 10,856 Amortization of intangibles 2,570 3,625 Change in fair value of contingent consideration 76 ( 130 ) Acquisition, restructuring and other items, net 4,311 3,212 Total operating expenses 49,822 52,872 Gain on sale of assets — 47,842 Operating income (loss) ( 13,098 ) 35,030 Other expense: Interest income, net 606 119 Other expense, net ( 173 ) ( 288 ) Total other income (expense), net 433 ( 169 ) Income (loss) before income tax benefit ( 12,665 ) 34,861 Income tax expense (benefit) 133 ( 11,023 ) Net income (loss) $ ( 12,798 ) $ 45,884 Earnings (loss) per share Basic $ ( 0.31 ) $ 1.15 Diluted $ ( 0.31 ) $ 1.15 Weighted average shares outstanding Basic 40,653 39,842 Diluted 40,653 39,968 The accompanying notes are an integral part of these consolidated financial statements. 3 Table of Content AngioDynamics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited) (in thousands of dollars) Three Months Ended Aug 31, 2024 Aug 31, 2023 Net income (loss) $ ( 12,798 ) $ 45,884 Other comprehensive income (loss), before tax: Foreign currency translation gain (loss) 1,098 ( 930 ) Other comprehensive income (loss), before tax 1,098 ( 930 ) Income tax expense related to items of other comprehensive income (loss) — — Other comprehensive income (loss), net of tax 1,098 ( 930 ) Total comprehensive income (loss), net of tax $ ( 11,700 ) $ 44,954 The accompanying notes are an integral part of these consolidated financial statements. 4 Table of Content AngioDynamics, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands of dollars, except share data) Aug 31, 2024 May 31, 2024 Assets Current assets Cash and cash equivalents $ 55,005 $ 76,056 Accounts receivable, net of allowances of $ 2,363 and $ 2,141 respectively 39,563 43,610 Inventories 64,700 60,616 Prepaid expenses and other 13,326 12,971 Total current assets 172,594 193,253 Property, plant and equipment, net 34,377 35,666 Intangible assets, net 75,774 77,383 Other assets 10,883 11,369 Total assets $ 293,628 $ 317,671 Liabilities and stockholders' equity Current liabilities Accounts payable $ 31,272 $ 37,751 Accrued liabilities 34,108 41,098 Current portion of contingent consideration 4,804 4,728 Other current liabilities 6,515 7,578 Total current liabilities 76,699 91,155 Deferred income taxes 4,626 4,852 Other long-term liabilities 15,721 16,078 Total liabilities 97,046 112,085 Commitments and contingencies (Note 14) Stockholders' equity Preferred stock, par value $ 0.01 per share, 5,000,000 shares authorized; no shares issued and outstanding — — Common stock, par value $ 0.01 per share, 75,000,000 shares authorized; 41,446,390 and 40,801,597 shares issued and 41,004,249 and 40,431,597 shares outstanding at August 31, 2024 and May 31, 2024, respectively 386 385 Additional paid-in capital 613,730 610,484 Accumulated deficit ( 408,002 ) ( 395,204 ) Treasury stock, 442,141 and 370,000 shares at August 31, 2024 and May 31, 2024, respectively ( 6,265 ) ( 5,714 ) Accumulated other comprehensive loss ( 3,267 ) ( 4,365 ) Total Stockholders’ Equity 196,582 205,586 Total Liabilities and Stockholders' Equity $ 293,628 $ 317,671 The accompanying notes are an integral part of these consolidated financial statements. 5 Table of Content AngioDynamics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands of dollars) Three Months Ended Aug 31, 2024 Aug 31, 2023 Cash flows from operating activities: Net income (loss) $ ( 12,798 ) $ 45,884 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 6,785 6,688 Non-cash lease expense 494 476 Stock based compensation 3,205 4,144 Gain on disposal of assets — ( 47,842 ) Transaction costs for disposition — ( 2,427 ) Change in fair value of contingent consideration 76 ( 130 ) Deferred income taxes ( 339 ) ( 11,415 ) Change in accounts receivable allowances 270 ( 78 ) Fixed and intangible asset impairments and disposals 20 65 Write-off of other assets — 869 Other 121 ( 9 ) Changes in operating assets and liabilities: Accounts receivable 3,784 3,157 Inventories ( 4,053 ) ( 4,574 ) Prepaid expenses and other ( 836 ) ( 4,168 ) Accounts payable, accrued and other liabilities ( 14,982 ) ( 16,539 ) Net cash used in operating activities ( 18,253 ) ( 25,899 ) Cash flows from investing activities: Additions to property, plant and equipment ( 1,092 ) ( 791 ) Additions to placement and evaluation units ( 1,313 ) ( 767 ) Proceeds from sale of assets — 100,000 Net cash (used in) provided by investing activities ( 2,405 ) 98,442 Cash flows from financing activities: Repayment of long-term debt — ( 50,000 ) Payment of acquisition related contingent consideration — ( 10,000 ) Repurchase of common stock ( 552 ) — Proceeds from exercise of stock options and employee stock purchase plan 43 410 Net cash used in financing activities ( 509 ) ( 59,590 ) Effect of exchange rate changes on cash and cash equivalents 116 13 Increase (decrease) in cash and cash equivalents ( 21,051 ) 12,966 Cash and cash equivalents at beginning of period 76,056 44,620 Cash and cash equivalents at end of period $ 55,005 $ 57,586 Supplemental disclosure of non-cash investing and financing activities: Accrual for capital expenditures incurred during the period $ ( 32 ) $ ( 68 ) The accompanying notes are an integral part of these consolidated financial statements. 6 Table of Content AngioDynamics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) (in thousands of dollars, except share data) Common Stock Additional paid in capital Accumulated deficit Accumulated other comprehensive loss Treasury Stock Shares Amount Shares Amount Total Balance at May 31, 2024 40,801,597 $ 385 $ 610,484 $ ( 395,204 ) $ ( 4,365 ) ( 370,000 ) $ ( 5,714 ) $ 205,586 Net loss ( 12,798 ) ( 12,798 ) Issuance/Cancellation of restricted stock units 432,144 ( 321 ) ( 321 ) Issuance/Cancellation of performance share units 60,731 ( 347 ) ( 347 ) Purchases of common stock under ESPP 151,918 2 709 711 Stock-based compensation 3,205 3,205 Common stock repurchased ( 1 ) ( 72,141 ) $ ( 551 ) ( 552 ) Other comprehensive income, net of tax 1,098 1,098 Balance at August 31, 2024 41,446,390 $ 386 $ 613,730 $ ( 408,002 ) $ ( 3,267 ) ( 442,141 ) $ ( 6,265 ) $ 196,582 Common Stock Additional paid in capital Accumulated deficit Accumulated other comprehensive loss Treasury Stock Shares Amount Shares Amount Total Balance at May 31, 2023 39,981,422 $ 382 $ 599,206 $ ( 210,855 ) $ ( 4,723 ) ( 370,000 ) $ ( 5,714 ) $ 378,296 Net income 45,884 45,884 Issuance/Cancellation of restricted stock units 386,031 ( 280 ) ( 280 ) Issuance/Cancellation of performance share units 87,377 ( 210 ) ( 210 ) Purchases of common stock under ESPP 131,811 1 899 900 Stock-based compensation 4,144 4,144 Other comprehensive loss, net of tax ( 930 ) ( 930 ) Balance at August 31, 2023 40,586,641 $ 383 $ 603,759 $ ( 164,971 ) $ ( 5,653 ) ( 370,000 ) $ ( 5,714 ) $ 427,804 The accompanying notes are an integral part of these consolidated financial statements. 7 Table of Content AngioDynamics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. CONSOLIDATED FINANCIAL STATEMENTS The Consolidated Statements of Operations and the Consolidated Statements of Comprehensive Income (Loss) for the three months ended August 31, 2024 and 2023, the Consolidated Balance Sheet as of August 31, 2024, the Consolidated Statements of Cash Flows for the three months ended August 31, 2024 and 2023, and the Consolidated Statements of Stockholders’ Equity for the three months ended August 31, 2024 and 2023 have been prepared by the Company and are unaudited. The Consolidated Balance Sheet as of May 31, 2024 was derived from audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to state fairly the financial position, changes in stockholders’ equity and comprehensive income, results of operations and cash flows as of and for the period ended August 31, 2024 (and for all periods presented) have been made. The unaudited interim consolidated financial statements for the three months ended August 31, 2024 and 2023 include the accounts of AngioDynamics, Inc. and its wholly owned subsidiaries (collectively, the "Company", "we", "our" or "us"). All intercompany balances and transactions have been eliminated. 2. DIVESTITURES PICCs and Midlines Pursuant to an asset purchase agreement dated February 15, 2024 (the "Asset Purchase Agreement"), the Company completed the sale of the PICC and Midline businesses (the "Divestiture") to Spectrum Vascular ("Spectrum"). Total consideration received by the Company for the Divestiture in the third quarter of fiscal year 2024 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 that Spectrum will pay to the Company upon achievement. The Company and Spectrum entered into various agreements to facilitate the transition of the divested businesses to Spectrum, including a Transition 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 is not classified as discontinued operations. The following table summarizes the major classes of assets sold on the date of the sale: (in thousands) As of February 15, 2024 Current assets: Inventories $ 4,203 Total current assets $ 4,203 Non-current assets: Property, plant and equipment, net $ 158 Intangible assets, net 20,781 Other assets 40 Total non-current assets $ 20,979 Dialysis and BioSentry Pursuant to an asset purchase agreement dated June 8, 2023 (the "Asset Purchase Agreement"), the Company completed the sale of the dialysis and BioSentry tract sealant system biopsy businesses (the "Divestiture") to Merit Medical Systems, Inc. ("Merit"). Total consideration received by the Company for the Divestiture in the first quarter of fiscal year 2024 was $ 100.0 million in cash and resulted in a pre-tax book gain of $ 47.8 million. The Company and Merit entered into various agreements to facilitate the transition of the divested businesses to Merit, including a Transition Services Agreement and Contract Manufacturing Agreement. The Company determined that the sale of 8 Table of Content 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. The following table summarizes the major classes of assets sold on the date of the sale: (in thousands) As of June 8, 2023 Current assets: Inventories $ 4,068 Prepaid expenses and other 2,000 Total current assets $ 6,068 Non-current assets: Property, plant and equipment, net $ 54 Intangible assets, net 17,629 Goodwill 25,980 Total non-current assets $ 43,663 3. REVENUE FROM CONTRACTS WITH CUSTOMERS Revenue Recognition Under ASC 606, Revenue from Contracts with Customers , 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 five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company has one primary revenue stream which is the sales of its products. Disaggregation of Revenue The following table summarizes net sales by Med Tech, Med Device and by geography: Three Months Ended August 31, 2024 Three Months Ended August 31, 2023 (in thousands) United States International Total United States International Total Net sales Med Tech $ 24,889 $ 3,080 $ 27,969 $ 22,242 $ 3,618 $ 25,860 Med Device 34,592 4,930 39,522 42,157 10,662 52,819 Total $ 59,481 $ 8,010 $ 67,491 $ 64,399 $ 14,280 $ 78,679 Net Product Revenue The Company's products consist of a wide range of medical, surgical and diagnostic devices used by professional healthcare providers for vascular access, for the treatment of peripheral vascular disease and for use in oncology and surgical settings. The Company's products are generally used in minimally invasive, image-guided procedures. Most of the Company's products are intended to be used once and then discarded, or they may be implanted for short or long term use. The Company sells its products to its distributors and to end users, such as interventional radiologists, interventional cardiologists, vascular surgeons, urologists, interventional and surgical oncologists and critical care nurses. Contracts and Performance Obligations The Company contracts with its customers based on customer purchase orders, which in many cases are governed by master purchasing agreements. The Company’s contracts with customers are generally for product only, and do not include other performance obligations such as services or other material rights. As part of its assessment of each contract, the Company evaluates certain factors including the customer’s ability to pay (or credit risk). For each contract, the Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations. 9 Table of Content Transaction Price and Allocation to Performance Obligations Transaction prices of products are typically based on contracted rates. Product revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products to a customer, net of any variable consideration as described below. If a contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products underlying each performance obligation. The Company has standard pricing for its products and determines standalone selling prices based on the price at which the performance obligation is sold separately. Revenue Recognition Revenue is recognized when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which occurs at a point in time, and may be upon shipment from the Company’s manufacturing site or delivery to the customer’s named location, based on the shipping terms of a contract. In determining whether control has transferred, the Company considers if there is a present right to payment from the customer and when physical possession, legal title and risks and rewards of ownership have transferred to the customer. The Company typically invoices customers upon satisfaction of identified performance obligations. As the Company’s standard payment terms are 30 to 90 days from invoicing, the Company does not provide any significant financing to its customers. The Company enters into agreements to place placement and evaluation units (“units”) at customer sites, but the Company retains title to the units. For the duration of these agreements the customer has the right to use the unit at no upfront charge in connection with the customer’s ongoing purchase of disposables. These types of agreements include an embedded operating lease for the right to use the units. In these arrangements, revenue recognized for the sale of the disposables is not allocated between the disposable 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. Variable Consideration Reserves: Revenue from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established for discounts, returns, rebates and allowances that are offered within contracts between the Company and its customers. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as a contra asset. Rebates and Allowances: The Company provides certain customers with rebates and allowances that are explicitly stated in the Company’s contracts and are recorded as a reduction of revenue in the period the related product revenue is recognized. The Company establishes reserves for such amounts, which is included in accrued expenses in the accompanying Consolidated Balance Sheets. These rebates and allowances result from performance-based offers that are primarily based on attaining contractually specified sales volumes. The Company is also required to pay administrative fees to group purchasing organizations. Product Returns: The Company generally offers customers a limited right of return. Product returns after 30 days must be pre-approved by the Company and customers may be subject to a 20 % restocking charge. To be accepted, a returned product must be unadulterated, undamaged and have at least twelve months remaining prior to its expiration date. The Company estimates the amount of its product sales that may be returned by its customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized. The Company currently estimates product return liabilities using its historical product return information and considers other factors that it believes could significantly impact its expected returns, including product recalls. During the three months ended August 31, 2024 and 2023, such product returns were not material. Contract Balances with Customers A receivable is generally recognized in the period the Company ships the product. Payment terms on invoiced amounts are based on contractual terms with each customer and generally coincide with revenue recognition. 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 10 Table of Content 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. The following table presents changes in the Company’s receivables, contract assets and contract liabilities with customers: (in thousands) Aug 31, 2024 May 31, 2024 Receivables $ 39,563 $ 43,610 Contract assets $ — $ — Contract liabilities $ — $ 391 During the three months ended August 31, 2024, the Company had additions to contract liabilities of $ 0.1 million. This was offset by $ 0.1 million in revenue that was recognized during the three months ended August 31, 2024. Costs to Obtain or Fulfill a Customer Contract Under ASC 606, the Company may recognize an asset for incremental costs of obtaining a contract with a customer if it expects to recover those costs. The Company’s sales incentive compensation plans qualify for capitalization since these plans are directly related to sales achieved during a period of time. However, the Company has elected the practical expedient under ASC 340-40-25-4 to expense the costs as they are incurred within selling and marketing expenses since the amortization period is less than one year. The Company accounts for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products. Shipping and handling costs, associated with the distribution of finished products to customers, are recorded in costs of goods sold and are recognized when the related finished product is shipped to the customer. Amounts charged to customers for shipping and handling are recorded in net sales. 4. INVENTORIES Inventories are stated at lower of cost and net realizable value (using the first-in, first-out method). Inventories consisted of the following: (in thousands) Aug 31, 2024 May 31, 2024 Raw materials $ 31,444 $ 30,736 Work in process 7,728 6,772 Finished goods 25,528 23,108 Inventories $ 64,700 $ 60,616 The Company periodically reviews inventory for both obsolescence and loss of value. The Company makes assumptions about the future demand for and market value of the inventory. Based on these assumptions, the Company estimates the amount of obsolete, expiring and slow-moving inventory. The total inventory reserve at August 31, 2024 and May 31, 2024 was $ 3.2 million and $ 3.3 million, respectively. 5. INTANGIBLE ASSETS Definite Lived Intangible Assets Intangible assets are amortized over their estimated useful lives on a straight-line basis. Useful lives range from two to eighteen years . The Company periodically reviews, and adjusts, if necessary, the estimated useful lives of its 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 or asset groups may not be recoverable. If an intangible asset or asset group 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. 11 Table of Content Intangible assets consisted of the following: Aug 31, 2024 (in thousands) Gross carrying value Accumulated amortization Net carrying value Product technologies $ 177,654 $ ( 105,373 ) $ 72,281 Customer relationships 9,052 ( 5,765 ) 3,287 Trademarks 2,100 ( 2,038 ) 62 Licenses 3,837 ( 3,693 ) 144 $ 192,643 $ ( 116,869 ) $ 75,774 May 31, 2024 (in thousands) Gross carrying value Accumulated amortization Net carrying value Product technologies $ 176,227 $ ( 102,468 ) $ 73,759 Customer relationships 9,028 ( 5,628 ) 3,400 Trademarks 2,100 ( 2,024 ) 76 Licenses 3,837 ( 3,689 ) 148 $ 191,192 $ ( 113,809 ) $ 77,383 Amortization expense for the three months ended August 31, 2024 and 2023 was $ 2.6 million and $ 3.6 million, respectively. Expected future amortization expense related to the intangible assets for each of the following fiscal years is as follows: (in thousands) Remainder of 2025 $ 7,773 2026 10,183 2027 10,092 2028 10,043 2029 9,946 2030 and thereafter 27,737 $ 75,774 6. ACCRUED LIABILITIES Accrued liabilities consisted of the following: (in thousands) Aug 31, 2024 May 31, 2024 Payroll and related expenses $ 9,685 $ 15,640 Outside services 8,125 8,962 Research and development 1,613 1,255 Royalties 1,455 2,575 Sales and franchise taxes 894 520 Deferred Warranties 429 460 TSA Payable 5,794 6,259 Rebates 396 412 Accrued Freight 450 575 Accrued severance 1,817 1,486 Other 3,450 2,954 $ 34,108 $ 41,098 7. INCOME TAXES The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate for the full fiscal year adjusted for any discrete events, which are recorded in the period that they occur. The estimated annual effective 12 Table of Content tax rate prior to discrete items was 1.8 % as of the first quarter of fiscal year 2025, as compared to ( 32.0 )% for the same period in fiscal year 2024. In fiscal year 2025, the Company’s effective tax rate differs from the U.S. statutory rate primarily due to the impact of the valuation allowance, foreign taxes, and other non-deductible permanent items (such as non-deductible meals and entertainment, Section 162(m) excess compensation and non-deductible share-based compensation). The Company regularly assesses its ability to realize its deferred tax assets. Assessing the realization of deferred tax assets requires significant management judgment. In determining whether its deferred tax assets are more likely than not realizable, the Company evaluated all available positive and negative evidence, and weighted the evidence based on its objectivity. 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 as of August 31, 2024. The Company will continue to assess the level of the valuation allowance required. If sufficient positive evidence exists in future periods to support a release of some or all of the valuation allowance, such a release would likely have a material impact on the Company’s results of operations. 8. SHARE-BASED COMPENSATION On October 13, 2020, the Company's shareholders approved the 2020 Stock and Incentive Award Plan (the “2020 Plan”). The 2020 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance share units, performance shares and other incentive awards to the Company's employees, directors and other service providers. On November 14, 2023 the Company's shareholders approved an amendment to the 2020 Plan to increase the reserve of shares of common stock available for future grants by 1.5 million shares. As of August 31, 2024, there was a maximum of 0.9 million shares of common stock available for future grant under the 2020 Plan. Prior to the adoption of the 2020 Plan, equity awards were issued under the 2004 Stock and Incentive Award Plan (the “2004 Plan”). The adoption of the 2020 Plan did not impact the administration of equity awards issued under the 2004 Plan but following the adoption of the 2020 Plan, equity award grants are no longer made under the 2004 Plan. The Company also has an employee stock purchase plan. On November 3, 2022 the Company's shareholders approved an amendment to the employee stock purchase plan to increase the reserve of shares of common stock available for future grants by 1.0 million shares. As of August 31, 2024, there was a maximum of 2.7 million shares of common stock available for future grant under the employee stock purchase plan. For the three months ended August 31, 2024 and 2023, share-based compensation expense was $ 3.2 million and $ 4.1 million, respectively. During the three months ended August 31, 2024 and 2023, the Company granted stock options and restricted stock units under the 2020 Plan to certain employees and members of the Board of Directors. Stock option awards are valued using the Black-Scholes option-pricing model and then amortized on a straight-line basis over the requisite service period of the award. Generally, restricted stock unit awards are valued based on the closing trading value of the Company’s common stock on the date of grant and then amortized on a straight-line basis over the requisite service period of the award. In July 2023, the Board of Directors approved a change in terms of restricted stock units granted to non-employee directors to provide for immediate vesting upon grant of the award. During the three months ended August 31, 2024 and 2023, the Company granted performance share units under the 2020 Plan to certain employees. The awards may be earned by achieving performance levels over the requisite service period. The performance criteria are based on achieving certain performance targets and the total shareholder return (“TSR”) of the Company’s common stock relative to the TSR of the common stock of a pre-defined industry peer-group. The fair value of these awards is based on a Monte Carlo simulation model. As of August 31, 2024, there was $ 21.9 million of unrecognized compensation expense related to share-based payment arrangements. These costs are expected to be recognized over a weighted-average period of approximately three years . The Company has sufficient shares to satisfy expected share-based payment arrangements. 9. EQUITY On July 16, 2024, the Board of Directors approved a share repurchase program (the "Repurchase Program") under which they authorized the Company the option to repurchase up to $ 15.0 million of its outstanding common stock. The timing and amount of any share repurchases under the authorization will be determined by management within certain parameters and based on market conditions and other considerations. During the first quarter of fiscal year 2024, the Company repurchased 13 Table of Content 72,141 shares of common stock in the open market at an aggregate cost of $ 0.5 million under the Repurchase Program. As of August 31, 2024, $ 14.5 million remained available for repurchase under the Repurchase Program. 10. EARNINGS PER SHARE Basic earnings per share is based on the weighted average number of common shares outstanding without consideration of potential common stock. Diluted earnings per share includes the dilutive effect of potential common stock consisting of stock options, restricted stock units and performance stock units, provided that the inclusion of such securities is not anti-dilutive. In periods with a net loss, stock options and restricted stock units are not included in the computation of diluted loss per share as the impact would be anti-dilutive. The following table reconciles basic to diluted weighted-average shares outstanding: Three Months Ended (in thousands) Aug 31, 2024 Aug 31, 2023 Basic 40,653 39,842 Effect of dilutive securities — 126 Diluted 40,653 39,968 Securities excluded as their inclusion would be anti-dilutive 5,180 3,401 11. SEGMENT AND GEOGRAPHIC INFORMATION Segment information The Company regularly reviews its segments and the approach used by the chief operating decision maker, the President and Chief Executive Officer ("CEO"), and management to evaluate performance and allocate resources. The Company manages its operations through two segments, Med Tech and Med Device. The CEO evaluates these two segments based on net sales and gross margin to, among other items, allocate resources and assess performance. Executives reporting to the CEO include those responsible for commercial operations, manufacturing operations, regulatory and quality and certain corporate functions. The CEO evaluates all other elements of profitability, investment and cash flow metrics on a consolidated global basis due to shared infrastructure and resources. The Company manages its assets on a total company basis, not by operating segment; therefore, the CEO does not review any asset information by operating segment and, accordingly, asset information is not reported or evaluated by operating segment. Total assets were $ 293.6 million as of August 31, 2024. The table below summarizes net sales and gross margin by Med Tech and Med Device: Three Months Ended (in thousands) Aug 31, 2024 Aug 31, 2023 Med Tech net sales $ 27,969 $ 25,860 Gross profit 17,697 16,727 Gross margin 63.3 % 64.7 % Med Device net sales $ 39,522 $ 52,819 Gross profit 19,027 23,333 Gross margin 48.1 % 44.2 % Total net sales $ 67,491 $ 78,679 Gross profit 36,724 40,060 Gross margin 54.4 % 50.9 % 14 Table of Content Geographic information The table below summarizes net sales by geographic area based on external customer location: Three Months Ended (in thousands) Aug 31, 2024 Aug 31, 2023 Net Sales United States $ 59,481 $ 64,399 International 8,010 14,280 Total $ 67,491 $ 78,679 For the three months ended August 31, 2024 and 2023, international sales as a percentage of total net sales were 11.9 % and 18.1 %, respectively. Sales to any one country outside the U.S., as determined by shipment destination, did not comprise a material portion of net sales in any of the last three fiscal years. In addition, no one customer represents more than 10% of consolidated net sales and 66 % of long-lived assets are located within the United States. 12. FAIR VALUE On a recurring basis, the Company measures certain financial assets and financial liabilities at fair value based upon quoted market prices, where available. Where quoted market prices or other observable inputs are not available, the Company applies valuation techniques to estimate fair value. FASB ASC Topic 820, Fair Value Measurements and Disclosures, establishes a three-level valuation hierarchy for disclosure of fair value measurements. The categorization of financial assets and financial liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy are defined as follows: • Level 1 - Inputs to the valuation methodology are quoted market prices for identical assets or liabilities. • Level 2 - Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets or liabilities and market-corroborated inputs. • Level 3 - Inputs to the valuation methodology are significant unobservable inputs based on management’s best estimate of inputs market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk. The Company's financial instruments include cash and cash equivalents, accounts receivable, accounts payable and contingent consideration. The carrying amount of cash and cash equivalents, accounts receivable, and accounts payable approximates fair value due to their immediate or short-term maturities. The recurring fair value measurements using significant unobservable inputs (Level 3) relate to contingent consideration liabilities. The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis: Fair Value Measurements using inputs considered as: Fair Value at Aug 31, 2024 (in thousands) Level 1 Level 2 Level 3 Financial Liabilities Contingent consideration for acquisition earn outs $ — $ — $ 4,804 $ 4,804 Total Financial Liabilities $ — $ — $ 4,804 $ 4,804 Fair Value Measurements using inputs considered as: Fair Value at May 31, 2024 (in thousands) Level 1 Level 2 Level 3 Financial Liabilities Contingent consideration for acquisition earn outs $ — $ — $ 4,728 $ 4,728 Total Financial Liabilities $ — $ — $ 4,728 $ 4,728 There were no transfers between Level 1, 2 and 3 for the three months ended August 31, 2024 and 2023. The table below presents the changes in fair value components of Level 3 instruments: 15 Table of Content Three Months Ended Aug 31, 2024 (in thousands) Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Balance, May 31, 2024 $ 4,728 Change in present value of contingent consideration (1) 76 Balance, August 31, 2024 $ 4,804 (1) Change in the fair value of contingent consideration is included in earnings and comprised of changes in estimated earn out payments based on projections of Company performance and amortization of the present value discount. Contingent Liability for Acquisition Earn Outs Some of the Company's business combinations involve the potential for the payment of future contingent consideration upon the achievement of certain product development milestones or various other performance conditions. Payment of the additional consideration is generally contingent on the acquired company reaching certain performance milestones, including attaining specified revenue levels or product development targets. Contingent consideration is recorded at the estimated fair value of the contingent payments on the acquisition date. The fair value of the contingent consideration is remeasured at the estimated fair value at each reporting period with the change in fair value recognized as income or expense within change in fair value of contingent consideration in the Consolidated Statements of Operations. The Company measures the initial liability and remeasures the liability on a recurring basis using Level 3 inputs as defined under authoritative guidance for fair value measurements, which is determined using a discounted cash flow model applied to projected net sales, using probabilities of achieving projected net sales and projected payment dates. Projected net sales are based on internal projections and extensive analysis of the target market and the sales potential. Increases or decreases in any valuation inputs in isolation may result in a significantly lower or higher fair value measurement in the future. The recurring Level 3 fair value measurements of the contingent consideration liabilities include the following significant unobservable inputs as of August 31, 2024: (in thousands) Fair Value Valuation Technique Unobservable Input Range Revenue based payments $ 4,804 Discounted cash flow Discount rate 10 % Probability of payment 90 % - 100 % Projected fiscal year of payment 2025 At August 31, 2024, the amount of undiscounted future contingent consideration that the Company expects to pay as a result of all completed acquisitions is approximately $ 5.0 million. The milestones, including revenue projections and technical milestones associated with the contingent consideration, must be reached in future periods ranging from fiscal years 2025 to 2029 in order for the associated consideration to be paid. 13. LEASES The Company determines if an arrangement is a lease at inception of the contract. The Company has operating leases for buildings, primarily for office space, R&D, manufacturing and warehousing. Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. Many of the lease agreements contain renewal or termination clauses that are factored into the determination of the lease term if it is reasonably certain that these options would be exercised. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. 16 Table of Content The following table presents supplemental balance sheet information related to leases: (in thousands) Balance Sheet Location Aug 31, 2024 May 31, 2024 Assets Operating lease ROU asset Other assets $ 5,313 $ 5,804 Liabilities Current operating lease liabilities Other current liabilities 1,931 1,975 Non-current operating lease liabilities Other long-term liabilities 3,490 3,939 Total lease liabilities $ 5,421 $ 5,914 The interest rate implicit in lease agreements is typically not readily determinable, and as such the Company used the incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The incremental borrowing rate is defined as the interest the Company would pay to borrow on a collateralized basis, considering factors such as length of lease term. The following table presents the weighted average remaining lease term and discount rate: Aug 31, 2024 Weighted average remaining term (in years) 3.24 Weighted average discount rate 4.7 % The maturities of the lease liabilities for each of the following fiscal years is: (in thousands) Aug 31, 2024 Remainder of 2025 $ 1,642 2026 1,978 2027 984 2028 729 2029 and thereafter 515 Total lease payments $ 5,848 Less: imputed interest 427 Total lease obligations $ 5,421 Less: Current portion of lease obligations 1,931 Long-term lease obligations $ 3,490 During the three months ended August 31, 2024 and 2023, the Company recognized $ 0.7 million and $ 0.6 million of operating lease expense, respectively, which includes immaterial short-term leases. The expenses on the Consolidated Statement of Operations were classified as follows: Three Months Ended (in thousands) Aug 31, 2024 Aug 31, 2023 Cost of sales $ 230 $ 197 Research and development 109 58 Sales and marketing 40 40 General and administrative 300 332 $ 679 $ 627 The following table presents supplemental cash flow and other information related to leases: Three Months Ended (in thousands) Aug 31, 2024 Aug 31, 2023 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 562 $ 532 ROU assets obtained in exchange for lease liabilities Operating leases $ — $ 381 17 Table of Content 14. COMMITMENTS AND CONTINGENCIES The Company is involved in various legal proceedings, including commercial, intellectual property, product liability, and regulatory matters of a nature considered normal for its business. The Company accrues for amounts related to these matters if it is probable that a liability has been incurred, and an amount can be reasonably estimated. The Company discloses such matters when there is at least a reasonable possibility that a material loss may have been incurred. However, the Company cannot predict the outcome of any litigation or the potential for future litigation. C.R. Bard, Inc. v. AngioDynamics, Inc. On January 11, 2012, C.R. Bard, Inc. (“Bard”) filed a suit in the United States District Court of Utah claiming certain of the Company's implantable port products infringe on three U.S. patents held by Bard (US Patent Nos. 7,785,302 ("302"), 7,959,615 (“615”) and 7,947,022 ("022")). On March 10, 2015, Bard and Bard Peripheral Vascular filed suit in the District of Delaware claiming certain of the Company's implantable port products infringe on three U.S. patents held by Bard (US Patent Nos. 8,475,417, 8,545,460, 8,805,478). The Court entered Judgement on June 1, 2023 in favor of the Company. On March 8, 2021, Bard filed suit in the District of Delaware asserting certain of the Company’s port products (including certain related infusion sets) infringe U.S. Patent Nos. 8,025,639, 9,603,992 and 9,603,993. The Company counterclaimed, alleging that certain of Bard’s catheter products infringe U.S. Patent Nos. 8,377,011, 10,729,881, 8,454,574. On March 31, 2024, the Company and Bard’s parent company Becton, Dickinson and Company (collectively, “BD”) entered into a settlement agreement (the “Settlement Agreement”) to resolve the ongoing litigations. Under the terms of the Settlement Agreement, BD will grant a license to the Company under certain of BD’s port patents and AngioDynamics will grant BD a license under certain of the Company’s catheter patents. The Company will make a one-time lump sum payment to BD in the amount of $ 7.0 million, $ 3.0 million which was paid within 5 business days of execution of the Settlement Agreement, and the remainder will be payable in installments over the next 12 months 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 the Company’s port products exceed the minimum payment. The parties will participate in the pending appeal before the Federal Circuit of the case that was filed March 10, 2015 and a contingent payment of $ 3.0 million will be due from the Company 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 argument date has not yet been set. Neither party admitted any liability and the agreement contains mutual covenants not to sue and releases. Port Product Claims As of August 31, 2024, the Company is defending approximately 50 product liability claims involving the Company's port products (collectively, the “Port Product Claims”). Port Product Claims are pending in various state and federal court jurisdictions, and a motion to transfer the Port Product Claims pursuant to 28 USC § 1407 for coordinated or consolidated pretrial proceedings is pending before the United States Judicial Panel on Multidistrict Litigation. The Port Product Claims generally seek damages for personal injury allegedly resulting from use of the products. The Company has limited information regarding the nature and quantity of certain of the Port Product Claims. The Company continues to receive claims and lawsuits and may in future periods learn additional information regarding other unfiled or unknown claims, or other lawsuits, which could materially impact the Company’s estimate of the number of claims or lawsuits against the Company. 18 Table of Content 15. ACQUISITION, RESTRUCTURING, AND OTHER ITEMS, NET Acquisition, Restructuring and Other Items Acquisition, restructuring and other items, net, consisted of: Three Months Ended (in thousands) Aug 31, 2024 Aug 31, 2023 Legal (1) $ 507 $ 1,817 Plant closure (2) 3,589 — Transition service agreement (3) ( 507 ) ( 145 ) Manufacturing relocation (4) — 587 Other 722 953 Total $ 4,311 $ 3,212 (1) Legal expenses related to litigation that is outside the normal course of business. (2) Plant closure expense, related to the restructuring of our manufacturing footprint which was announced on January 5, 2024. (3) Transition services agreements that were entered into with Merit and Spectrum. (4) Expenses to relocate certain manufacturing lines out of Queensbury, NY. Restructuring The Company evaluates its performance and looks for opportunities to improve the overall operations of the Company on an ongoing basis. As a result of this evaluation, certain restructuring initiatives are taken to enhance the Company’s overall operations. On January 5, 2024, the Company announced a restructuring of its manufacturing footprint and a shift to an outsourced model (the "Plan"). This Plan will 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. The following table provides a summary of our estimated costs associated with the plan: Type of cost Total estimated amount expected to be incurred (in thousands) Facilities closeout fees (1) $ 14,500 to $ 15,250 Termination benefits 9,000 to 10,000 Outside consultants 9,000 to 10,000 Validation expenses 4,500 to 5,500 Regulatory filings 750 to 1,250 Other 750 to 1,250 $ 38,500 to $ 43,250 (1) Included in this estimate is approximately $ 13.6 million of non-cash charges for accelerated depreciation and building impairment. The Company recorded restructuring charges related to the plan during the three months ended August 31, 2024 of $ 3.6 million . Total restructuring charges recorded to date are $ 13.1 million. Termination benefits are only earned if an employee stays until their termination date; therefore, the expenses related to termination benefits are being recorded ratably over the service period. The table below presents the restructuring reserve for the three months ended August 31, 2024 : 19 Table of Content Three Months Ended Aug 31, 2024 Termination Benefits Outside Consultants Validation Expenses Facilities Closeout Fees Regulatory Filings Other Total (in thousands) Balance at May 31, 2024 $ 568 $ 1,153 $ 373 $ — $ 6 $ 20 $ 2,120 Charges 287 994 696 1,269 13 330 3,589 Non-cash adjustments — — — ( 1,269 ) — — ( 1,269 ) Cash payments — ( 1,153 ) ( 387 ) — ( 19 ) ( 276 ) ( 1,835 ) Balance at August 31, 2024 $ 855 $ 994 $ 682 $ — $ — $ 74 $ 2,605 16. ACCUMULATED OTHER COMPREHENSIVE LOSS Changes in each component of accumulated other comprehensive income, net of tax, are as follows: Three Months Ended Aug 31, 2024 (in thousands) Foreign currency translation income Balance at May 31, 2024 $ ( 4,365 ) Other comprehensive income, net of tax 1,098 Net other comprehensive income $ 1,098 Balance at August 31, 2024 $ ( 3,267 ) 17. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Recently Issued Accounting Pronouncements - Adopted There are no recently issued accounting pronouncements that have been adopted. Recently Issued Accounting Pronouncements - Not Yet Applicable or Adopted Standard Description Effective Date Effect on the Consolidated Financial Statements ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures This ASU improves the reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. June 1, 2024 The Company plans to adopt the new standard for fiscal year 2025 and does not expect there to be a material impact to the consolidated financial statements. ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures This ASU improves the income tax disclosure requirements on an annual basis by (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. June 1, 2025 The Company plans to adopt the new standard in the first quarter of fiscal year 2026 and does not expect there to be a material impact to the consolidated financial statements. There have been no material changes to our critical accounting policies since our Annual Report on Form 10-K for fiscal year ended May 31, 2024. 20 Table of Content