AngioDynamics Second Quarter a Mixed Bag

| About: AngioDynamics, Inc. (ANGO)

Therapeutic and diagnostic devices maker AngioDynamics (NASDAQ:ANGO) announced second-quarter fiscal 2011 (ended Nov 30, 2010) results after the closing bell on January 4, 2011, with earnings of 13 cents per share beating the Zacks Consensus Estimate by a penny while matching the year-ago earnings. Net income budged up 4.8% year over year to $3.3 million despite a modest decline in sales, helped by management’s effective cost containment initiatives and lower tax.

Revenue Analysis
Revenues edged down 0.2% year over year to $53.4 million, missing the Zacks Consensus Estimate of $55 million. International sales surged 12% to $6.7 million, representing the second consecutive quarter of double-digit growth. International revenues were driven by strong sales of oncology products in Asia-Pacific.

Oncology sales climbed 16% year over year to $15.9 million, boosted by sustained healthy demand for the company’s popular NanoKnife system for treating tumors. Oncology revenues include $1.6 million in NanoKnife sales.

AngioDynamics has sealed commercial agreements with four hospitals for NanoKnife in the quarter including sites in Taiwan and Hong Kong, marking the device’s first venture into Asia. Total number of patients treated with NanoKnife stood at 412 at the end of the quarter. Clinical trials are underway to support the safety and efficacy of NanoKnife and evaluate the potential of the device in additional indications.

However, gains from Oncology were partly offset by the declines in Vascular business. Vascular sales slid 6% year over year to $37.5 million, impacted by the restructuring of sales force, pricing pressure as well as slowdown in hospital admission and procedure volume. Revenues from Peripheral Vascular dipped 5% to $22 million while Access sales fell 7% to $15.5 million.

Margin Trends
Gross margin of 59.1% was essentially flat year over year while improving from 58.3% in the previous quarter, attributable to management’s efforts to reduce material costs and improve manufacturing efficiencies. Operating expenses declined 0.6% year over year to $26.1 million as the company spent less on sales and marketing. Operating margin improved to 10.1% from 10% a year ago.

Balance Sheet & Cash Flow
AngioDynamics exited the quarter with a healthy balance sheet. Cash and investments increased 49% year over year to $110.6 million. Long-term debt declined 7% year over year to $6.4 million. The company generated cash from operations of $9.9 million in the quarter.

Outlook & Recommendation
AngioDynamics has backed its outlook for fiscal 2011. Net sales forecast remains in the range of $220 million to $225 million (up 2%-4% year over year). Operating income has been projected between $20.5 million and $22 million.

The company continues to expect EBITDA between $33 million and $34.5 million. EPS (GAAP) forecast remains in the range of 47 cents to 50 cents while gross margin is still expected between 58% and 59%. The current Zacks Consensus Estimates for revenues and EPS are $221 million and 49 cents, respectively.

New York-based AngioDynamics is a leading provider of therapeutic and diagnostic devices for treating peripheral vascular and other non-coronary diseases. The company has market leading positions in several of its operating segments including angiographic products and thrombolytic catheters and products.

AngioDynamics continues to broaden its product portfolio while it is actively pursuing cost management. During the second quarter the company expanded its Morpheus Smart peripherally inserted central catheter (“PICC”) product line with the addition of a 5-French dual-lumen interventional radiology kit.

AngioDynamics has already rolled out 4 new products in the current fiscal year and is on track to launch 10 products through its internal R&D effort in fiscal 2011. The company is driving product innovation by investing roughly 10% of its revenues in R&D.

We expect AngioDynamics’ focus on interventional peripherals to help drive future growth. Moreover, the company should continue to benefit from the ongoing shift from open surgery to less invasive interventional procedures.

However, AngioDynamics is exposed to intense price competition and its product lines face strong challenges from the competitive offerings of its larger rivals such as Boston Scientific (NYSE:BSX) and C.R. Bard (NYSE:BCR). We currently have a Neutral recommendation on AngioDynamics, supported by a short-term Zacks #3 Rank (Hold).