{"id":1856,"date":"2023-10-18T13:22:03","date_gmt":"2023-10-18T13:22:03","guid":{"rendered":"https:\/\/connectwithfund.com\/news\/execution-issues-continue-to-undermine-angiodynamics-story-nasdaqango\/"},"modified":"2023-10-18T13:22:06","modified_gmt":"2023-10-18T13:22:06","slug":"execution-issues-continue-to-undermine-angiodynamics-story-nasdaqango","status":"publish","type":"post","link":"https:\/\/connectwithfund.com\/?p=1856","title":{"rendered":"Execution Issues Continue To Undermine AngioDynamics Story (NASDAQ:ANGO)"},"content":{"rendered":"
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There\u2019s never been anything wrong, at least at the top level, with AngioDynamics<\/strong>\u2019 (NASDAQ:ANGO<\/span>) plan to pivot towards and refocus on higher-growth opportunities in the business like AngioVac, AlphaVac, Auryon, and NanoKnife and essentially \u201cfarm\u201d the slower-growing legacy peripheral, vascular, and oncology\/surgical businesses for cash flow to fund further growth. Unfortunately, what has been wrong is a long track record of iffy execution, and those concerns remain front and center with this business.<\/span><\/p>\n

The shares are down another third or so since my last write-up in June, and while it\u2019s true that med-tech in general has been weak and that AngioDynamics\u2019 performance has largely \u201cfollowed the curve\u201d (and Teleflex<\/strong> (TFX)) over the last few months, the underlying performance is still pretty lackluster. At this point I think there are still valid concerns as to whether this company can achieve its goals, and while the stock looks cheap under 1x forward revenue, cheapness without execution isn\u2019t value.<\/span><\/p>\n

Growth In FQ1, But Also Some Trouble Below The Surface<\/strong><\/h2>\n

AngioDynamics reported 6% pro-forma revenue growth in the fiscal first quarter (for the quarter that ended with the end of August), with over 13% growth in the fast-growing Medical Technologies business and a little more than 2% growth in the slower-growing Medical Devices.<\/p>\n

Gross margin declined 20bp (to 50.8%) on a pro forma basis, while adjusted pro forma EBITDA improved by $2M to a small profit of $0.4M.<\/p>\n

Within the Medical Technologies business, AngioVac was down almost 8%, while the much smaller AlphaVac business grew just 2%. Auryon posted strong 26% growth, and NanoKnife was strong as well, with disposable growth of over 34% and capital growth of over 41%. Within Medical Devices, core peripheral was down slightly, PICCs were down 10%, Midlines were up 10%, and ports were up over 22%.<\/p>\n

A 6% decline in the thrombectomy business just isn\u2019t good enough, not when Penumbra<\/strong>\u2019s (PEN) vascular business is growing over 20% and Inari<\/strong> (NARI) is growing close to 30%. Are those entirely fair comparisons? No, given that AngioDynamics doesn\u2019t have the same breadth of product approvals\/labeling, but the fact remains that a growth business shouldn\u2019t be shrinking, particularly when issues like staffing are no longer as limiting as they were.<\/p>\n

I feel better about Auryon. Benchmarking this company is a lot harder now given that most peripheral atherectomy businesses are buried within larger companies, but Shockwave<\/strong> (SWAV) continues to grow strongly (well ahead of Angio, but again not an entirely fair comparison) and Philips<\/strong> (PHG) did mention double-digit growth in its image-guided therapies business (which houses its laser atherectomy business).<\/p>\n

The legacy core operations are not so impressive either. The 10% decline in PICCs came against an easy comp (down 7% in the prior year) and it seems as though Becton, Dickinson<\/strong> (BDX) and Teleflex<\/strong> continue to take share here. Likewise, the midline and port growth came on easier comps (down 13% and 8%, respectively, in the prior year), and I just don\u2019t see a lot of core strength here despite a healthier overall environment for procedure counts.<\/p>\n

\u2026 And Now What?<\/strong><\/h2>\n

Unfortunately I don\u2019t see a lot of near-term drivers for the business.<\/p>\n

Whatever is bedeviling the thrombectomy business isn\u2019t going to improve right away, and the launch of AlphaVac into the pulmonary embolism market (a large, growing market worth perhaps more than $2B) won\u2019t occur until summer of 2024 at the earliest \u2013 and then the company has to prove it has the data and sales acumen to drive procedures to its platform.<\/p>\n

Likewise, NanoKnife needs clinical data to take the next step. The company has completed the enrollment of the PRESERVE study, but the primary endpoint requires one-year follow-up, so we\u2019re likely at least 18 months from a potential FDA event that could drive meaningful acceleration.<\/p>\n

I\u2019m not as concerned about Auryon in the near term \u2013 peripheral vascular disease remains a significant market opportunity and this is a credible solution, but I don\u2019t think the company will keep pace with Shockwave and I\u2019m concerned that Abbott<\/strong> (ABT) could make Cardiovascular Systems a more meaningful competitor. I\u2019d also note that part of the growth plan for Auryon involves moving into markets like small-vessel deep vein thrombosis where a laser atherectomy approach may be a tougher sell against Penumbra\/Inari\u2019s aspiration-based approach.<\/p>\n

Meanwhile, the core business isn\u2019t exactly replete with drivers. Underlying procedure volumes should be positive, but if the company is losing share to larger players in access products, that\u2019s going to be a challenging headwind.<\/p>\n

The Outlook<\/strong><\/h2>\n

I think the bullish thesis on AngioDynamics is that thrombectomy (particularly AlphaVac) is going to accelerate meaningfully from here in 2024-2026 with new approved indications, and likewise with Auryon and NanoKnife. On top of that, the company will use its clean balance sheet to pursue more growth-based M&A.<\/p>\n

Okay, that\u2019s all fine as it stands. The trouble is that investors have heard this before, with many products under AngioDynamics\u2019 roof having a bright future in their past. That slowdown in thrombectomy dredges up some unpleasant memories of former would-be growth drivers, and it\u2019s incumbent upon management to return these businesses to growth while also continuing to drive the growth of Auryon and NanoKnife (particularly if the NanoKnife clinical studies are supportive).<\/p>\n

Even here, though, I see risk. I\u2019m bullish on the prospects for NanoKnife\u2019s PRESERVE study to show good outcomes, but the study was contemplated before improved radiation oncology technologies really started ramping up, and I\u2019m concerned that a prostate cancer indication will struggle to gain traction unless the data are really compelling.<\/p>\n

I\u2019m still looking for around 4% to 5% long-term revenue growth from AngioDynamics. I\u2019ve kept my FY\u201924 revenue estimate where it was (a bit below management\u2019s guidance range) as FY\u201923 was basically in line with my expectations and the recent quarters haven\u2019t argued for a big upgrade. Likewise, management\u2019s guidance largely captures the margin improvement I was already modeling; I\u2019m looking for low single-digit EBITDA margin in FY\u201924 improving toward the high single-digits over the next five years.<\/p>\n

I\u2019ve cut back my longer-term free cash flow margin estimates, as I really need to see evidence of sustained improvement (including double-digit adjusted EBITDA margin) before thinking that low-to-mid double-digit FCF margins are really a viable target.<\/p>\n

AngioDynamics looks reasonably valued on discounted cash flow, but that\u2019s a tricky valuation approach for what should be a growth med-tech story. Using a multiples-based approach is likewise problematic. With revenue growth where it is, the margins are a limiting issue and it will be tough to break out much beyond 1.0x to 1.5x revenue until better growth and margins are established. That still leaves a fair value in the $9.50 to $13.50 range, though.<\/p>\n

The Bottom Line<\/strong><\/h2>\n

As undemanding as the valuation appears, I still have real concerns that AngioDynamics could be a value trap. High single-digit pro forma revenue growth in FY\u201924 could be enough to change sentiment in a few quarters if margins continue to improve, but this is a stock thesis that really needs execution. I\u2019d be happy to be proven wrong and have to upgrade my estimates in the coming months, but until I see beat-and-raises, it\u2019s tough to get bullish even with the apparently low valuation today.<\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

There\u2019s never been anything wrong, at least at the top level, with AngioDynamics\u2019 (NASDAQ:ANGO) plan to pivot towards and refocus on higher-growth opportunities in the business like AngioVac, AlphaVac, Auryon, and NanoKnife and essentially \u201cfarm\u201d the slower-growing legacy peripheral, vascular, and oncology\/surgical businesses for cash flow to fund further growth. Unfortunately, what has been wrong is a long track record of iffy execution, and those concerns remain front and center with this business. The shares are down another third or so since my last write-up in June, and while it\u2019s true that med-tech in general has been weak and that<\/p>\n","protected":false},"author":1,"featured_media":1857,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[42],"tags":[],"class_list":["post-1856","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"yoast_head":"\nExecution Issues Continue To Undermine AngioDynamics Story (NASDAQ:ANGO) | ConnectWithFund<\/title>\n<meta name=\"description\" content=\"There\u2019s never been anything wrong, at least at the top level, with AngioDynamics\u2019 (NASDAQ:ANGO) plan to pivot towards and refocus on higher-growth\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/connectwithfund.com\/?p=1856\" \/>\n<meta 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