ANGIODYNAMICS : Management's Discussion and Analysis of Financial Conditions and Results of Operations. (form 10-K)

The following information should be read together with the audited consolidated
financial statements and the notes thereto and other information included
elsewhere in this annual report on Form 10-K.
For all periods presented in Management's Discussion and Analysis of Financial
Conditions and Results of Operations, all sales, cost of sales, expenses, gains
and income taxes are exclusive of Fluid Management.
Forward-Looking Statements
This annual report on Form 10-K, including the sections entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements regarding AngioDynamics' expected
future financial position, results of operations, cash flows, business strategy,
budgets, projected costs, capital expenditures, products, competitive positions,
growth opportunities, plans and objectives of management for future operations,
as well as statements that include the words such as "expects," "reaffirms,"
"intends," "anticipates," "plans," "believes," "seeks," "estimates," or
variations of such words and similar expressions, are forward-looking
statements. These forward looking statements are not guarantees of future
performance and are subject to risks and uncertainties. Investors are cautioned
that actual events or results may differ from our expectations. Factors that may
affect our actual results achieved include, without limitation, our ability to
develop existing and new products, future actions by FDA or other regulatory
agencies, results of pending or future clinical trials, the results of ongoing
litigation, overall economic conditions, general market conditions, market
acceptance, foreign currency exchange rate fluctuations, the effects on pricing
from group purchasing organizations and competition, our ability to integrate
purchased businesses and other factors including natural disasters and pandemics
(such as the scope, scale and duration of the impact of the novel coronavirus,
COVID-19). Other risks and uncertainties include, but are not limited to, the
factors described from time to time in our reports filed with the SEC.
Although we believe that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this annual report on Form 10-K will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by us or any other person that our
objectives and plans will be achieved. Any forward-looking statements are made
pursuant to the Private Securities Litigation Reform Act of 1995 and, as such,
speak only as of the date made. AngioDynamics disclaims any obligation to update
the forward-looking statements. Investors are cautioned not to place undue
reliance on these forward-looking statements which speak only as of the date
stated, or if no date is stated, as of the date of this document.
EXECUTIVE OVERVIEW
Company and Market
We design, manufacture and sell 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. Our devices are generally used in minimally invasive, image-guided
procedures. Most of our products are intended to be used once and then
discarded, or they may be implanted for short or long term use.
Our business operations cross a variety of markets. Our financial performance is
impacted by changing market dynamics, which have included an emergence of
value-based purchasing by healthcare providers, consolidation of healthcare
providers, the increased role of the consumer in health care decision-making and
an aging population, among others. In addition, our
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growth is impacted by changes within our sector, such as the merging of
competitors to gain scale and influence; changes in the regulatory environment
for medical device; and fluctuations in the global economy.
Our sales and profitability growth also depends, in part, on the introduction of
new and innovative products, together with ongoing enhancements to our existing
products. Expansions to our product offerings are created through internal
product development, technology licensing and strategic alliances. We recognize
the importance of, and intend to continue to make investments in research and
development activities and business development opportunities and feel confident
that our existing capital structure and free cash flow generation will allow us
to properly fund those activities.
On August 14, 2018, the Company acquired the BioSentry Tract Sealant System
(BioSentry) technology from Surgical Specialties, LLC, a medical device company
headquartered in Westwood, Massachusetts for a total purchase price of $39.8
million of which $37.0 million was paid on August 14, 2018 and $2.8 million was
recorded as contingent consideration. The contingent consideration liability was
recorded at fair value and was paid upon fulfillment of hydrogel orders during
the fourth quarter of fiscal year 2019. This is part of the Company's strategic
focus on building a continuum of care within the oncology space. Refer to Note 2
for further disclosure on the acquisition.
On September 21, 2018, the Company acquired RadiaDyne, a privately held medical
diagnostic and device company that designs and develops patient dose monitoring
technology to improve cancer treatment outcomes. The aggregate purchase price
of $75.0 million included an upfront payment of $47.9 million, contingent
consideration with an estimated fair value of $22.3 million, an indemnification
holdback of $4.6 million and a purchase price holdback of $0.2 million. This
acquisition expands the Company's growing Oncology business by adding
RadiaDyne's early-stage, proprietary OARtrac® real-time radiation dose
monitoring platform and other market-leading oncology solutions, including the
IsoLoc®/ImmobiLoc® and Alatus® balloon stabilizing technologies. During fiscal
year 2020, the Company revised the sales projections for RadiaDyne products as a
result of reviews performed by executive management. The adjustments to the
sales projections over the contractual earn-out period resulted in a $9.2
million reduction in the fair value of the contingent liability. It was also
determined that one of the technical milestones would not be achieved, which
resulted in an additional reduction in the liability of $2.7 million. In
addition, an inventory reserve of $1.0 million was recorded for raw materials
and existing dosimetry inventory associated with OARtrac that was purchased
pursuant to the Company's acquisition of RadiaDyne, as these inventory items
were deemed unmarketable absent subsequent design and development activities.
On March 7, 2019, the United States District Court for the District of Delaware
granted judgment as a matter of law under rule 50(a) in favor of the Company.
This judgment dismissed Bard's suit claiming certain of the Company's
implantable port products infringe on three U.S. patents held by Bard. See Note
17 for additional disclosure.
On March 14, 2019, the Company entered into a settlement agreement with
Biolitec, Inc. related to the action commenced in the United States District
Court for the Northern District of New York in January 2008. The Company sought
judgment against Biolitec for defense and indemnification in two lawsuits which
were previously settled. As a result of the settlement, Biolitec paid the
Company $3.4 million during fiscal year 2019 and $0.5 million during fiscal year
2020.
On May 31, 2019, the Company completed the sale of the NAMIC Fluid Management
business (the "Divestiture") and all of the assets used primarily in connection
with the Fluid Management business to Medline Industries, Inc. ("Medline")
pursuant to an asset purchase agreement dated April 17, 2019 (the "Asset
Purchase Agreement"). Total consideration received by the Company for the
Divestiture in the fourth quarter of fiscal year 2019 was $169.2 million in cash
and resulted in a gain of $46.6 million after working capital adjustments of
$0.6 million. The gain is recorded in discontinued operations. A portion of the
net proceeds were used on June 3, 2019 to retire the outstanding balance on the
Term Loan and Revolving Facility and the remaining net proceeds will continue to
be invested in the business.
On October 2, 2019, the Company entered into a share purchase agreement to
acquire Eximo Medical, Ltd., a pre-commercial stage medical device company and
its proprietary 355nm laser atherectomy technology. The aggregate purchase price
of $60.7 million included an upfront payment of $45.8 million and contingent
consideration with an estimated fair value of $14.9 million. This acquisition
expands and complements the Company's Vascular Interventions and Therapies
product portfolio by adding the 355nm laser atherectomy technology which treats
Peripheral Artery Disease.
On December 17, 2019, the Company acquired the C3 Wave tip location asset from
Medical Components Inc. for an aggregate purchase price of $10.0 million with
$5.0 million of potential future contingent consideration related to technical
milestones. This acquisition fills a gap in the Vascular Access portfolio and
supports the Company's strategic plan. The Company accounted for this
acquisition as an asset purchase. The Company recorded the amount paid at
closing as inventory of $0.6 million and intangible assets of a trademark of
$0.9 million and product technology of $8.5 million.
As of May 31, 2020, the Company identified a triggering event resulting from the
Company's market capitalization being below its book value of equity for a
sustained period of time. Following the triggering event at May 31, 2020, the
Company
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determined its fair value using a combination of the income approach and market approach. This valuation assessment indicated that the Company's book value exceeded its fair value, resulting in an impairment of goodwill of $158.6 million.

The COVID-19 global pandemic may pose significant risks to our business. It is
too early to quantify the impact this situation will have on fiscal year 2021 or
beyond, but the public health actions being undertaken to reduce spread of the
virus are causing and may continue to cause significant disruptions with respect
to consumer demand, hospital operating procedures and workflow, our ability to
continue to manufacture products and the reliability of our supply chain.
Accordingly, management is evaluating the Company's liquidity position,
communicating with and monitoring the actions of our customers and suppliers,
and reviewing our near-term financial performance as we manage the Company
through the uncertainty related to the coronavirus.
As of the date of this report:
1.Our field based sales personnel are starting to re-enter the field in a safe
and well orchestrated manner in order to once again provide unparalleled service
to our physicians.
2.Our Latham headquarters reopened in accordance with New York State guidelines.
Our other office-based employees continue to work remotely.
3.Our manufacturing facility in Queensbury, New York is operating under our
business continuity plan with precautions including, without limitation,
creating small "work pods", increasing distancing and regularly monitoring
temperatures.
We anticipate that guidance and restrictions from the Center for Medicaid
Services, hospitals and hospital systems, to reduce "elective-like" procedures
and prioritize critical care and coronavirus patients, will have a materially
adverse impact on certain procedure volumes to which certain of our products
relate.
As discussed in more detail below, we will closely monitor our liquidity and
capital resources through the disruption caused by the COVID-19 pandemic.
In evaluating the operating performance of our business, management focuses on
revenue, gross margin, operating income, earnings per share and cash flow from
operations. A summary of these key financial metrics for the year ended May 31,
2020 compared to the year ended May 31, 2019 follows:
Year ended May 31, 2020:
•Revenue decreased by 2.4% to $264.2 million
•Gross margin as a percentage of sales decreased by 70 bps to 56.9%
•Operating loss increased by $157.7 million to $167.1 million
•Cash flow from operations decreased by $52.0 million to cash used in operations
of $14.6 million
Strategic Initiatives to Drive Growth
Throughout the year, we introduced strategic moves designed to streamline our
business, improve our overall business operations and position ourselves for
growth. Those initiatives included:
•Product development process. The Company continued its robust product
development process which is intended to improve the Company's ability to bring
new products to market.
•Value Creation. To create value and drive future growth, the Company plans to
practice dispassionate portfolio optimization and continue to focus on areas of
compelling unmet needs including those that are patient-centric and
evidenced-based. This was evident through the Auryon and C3 Wave tip location
acquisitions noted. In addition, the Company is pursuing targeted global
expansion opportunities.
Critical Accounting Policies and Use of Estimates
Our significant accounting policies are summarized in Note 1 to Notes to
Consolidated Financial Statements included in our Form 10-K. While all of these
significant accounting policies affect the reporting of our financial condition
and results of operations, we view certain of these policies as critical.
Policies determined to be critical are those policies that have the most
significant impact on our financial statements and require us to use a greater
degree of judgment and/or estimates. Actual results may differ from those
estimates.
Revenue Recognition
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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 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'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 devices 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 temporarily implanted for
short- or longer-term use. The Company sells its products to its distribution
partners and to end users, such as interventional radiologists, interventional
cardiologists, vascular surgeons, urologists, interventional and surgical
oncologists and critical care nurses.
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.
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. To the extent the
transaction price includes variable consideration, the Company estimates the
amount of variable consideration that should be included in the transaction
price utilizing the expected value method. As such, revenue is recorded net of
rebates, returns and other deductions.
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. Contracts with our
customers typically include a single performance obligation related to the sale
of our products.
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 contractual 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.
Sales, value add, and other taxes collected on behalf of third parties are
excluded from revenue.
Revenues 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 current liability.
A receivable is 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 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 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 a liability for such amounts, which is included in accrued expenses
in the accompanying consolidated balance
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sheets. These rebates and allowances result from performance-based offers that
are primarily based on attaining contractually specified sales volumes and
administrative fees the Company is required to pay to group purchasing
organizations.
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 year ended
May 31, 2020, such product returns were not material.
Acquisitions and Contingent Consideration
The Company allocates the purchase price of acquired companies to the tangible
and intangible assets acquired and liabilities assumed based on their estimated
fair values. The estimates used to value the net assets acquired are based in
part on historical experience and information obtained from the management of
the acquired company. The Company generally values the identifiable intangible
assets acquired using a discounted cash flow model. The significant estimates
used in valuing certain of the intangible assets include, but are not limited
to: future expected cash flows of the asset, discount rates to determine the
present value of the future cash flows, attrition rates of customers, royalty
rates and expected technology life cycles. The Company also estimates the useful
lives of the intangible assets based on the expected period over which the
Company anticipates generating economic benefit from the asset.
The Company's estimates of fair value are based on assumptions believed to be
reasonable at that time. If management made different estimates or judgments,
material differences in the fair values of the net assets acquired may result.
Certain of the Company's business combinations involve potential payment of
future consideration that is contingent upon the achievement of certain product
development milestones and/or contingent on the acquired business reaching
certain performance milestones. The Company records contingent consideration at
fair value at the date of acquisition based on the consideration expected to be
transferred, estimated as the probability weighted future cash flows, discounted
back to present value. The fair value of contingent consideration is measured
using projected payment dates, discount rates, probabilities of payment, and
projected revenues (for revenue-based considerations). 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. Changes in projected
revenues, probabilities of payment, discount rates, and projected payment dates
may result in adjustments to the fair value measurements. Contingent
consideration is remeasured each reporting period using Level 3 inputs, and the
change in fair value, including accretion for the passage of time, is recognized
as income or expense within operating expenses in the consolidated statements of
income. Contingent consideration payments made soon after the acquisition date
are classified as investing activities in the consolidated statements of cash
flows. Contingent consideration payments not made soon after the acquisition
date that are related to the acquisition date fair value are reported as
financing activities in the consolidated statements of cash flows, and amounts
paid in excess of the original acquisition date fair value are reported as
operating activities in the consolidated statements of cash flows.
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 either a
straight-line basis over the expected period of benefit or as revenues are
earned from the sales of the related product. The Company periodically reviews
the estimated useful lives of intangible assets and reviews such assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of the assets may not be recoverable. Such conditions could
include significant adverse changes in the business climate, current-period
operating or cash flow losses, significant declines in forecasted operations, or
a current expectation that an asset group will be disposed of before the end of
its useful life. 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. The Company operates as a single asset group. If a
triggering event is deemed to exist, the Company performs an undiscounted
operating cash flow analysis to determine if an impairment exists. 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 represents the excess of the purchase
price over the fair value of the net tangible and identifiable intangible assets
acquired in each business combination. Goodwill and intangible assets have been
recorded at either incurred or allocated cost. Allocated costs were based on
respective fair market values at the date of acquisition.
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For goodwill, the impairment test requires a comparison of the estimated fair
value of the reporting unit to which the goodwill is assigned to the carrying
value of the assets and liabilities of that reporting unit. The determination of
reporting units also requires management judgment. The Company considers whether
a reporting unit exists within a reportable segment based on the availability of
discrete financial information. The Company operates as a single operating
segment with one reporting unit and consequently evaluates goodwill for
impairment based on an evaluation of the fair value of the Company as a whole.
If the carrying value of the reporting unit exceeds the fair value of the
reporting unit, the carrying value is reduced to its fair value through an
adjustment to the goodwill balance, resulting in an impairment charge.
Determining the fair value of a reporting unit is judgmental and requires the
use of significant estimates and assumptions, including revenue growth rates,
operating margins, discount rates and future market conditions, among others.
Changes in assumptions or estimates could materially affect the estimated fair
value, and therefore could affect the likelihood and amount of a potential
impairment.
In the fourth quarter of fiscal year 2020, the Company concluded that the
sustained decline in its market capitalization represented an impairment
indicator that required the Company to perform an interim test for goodwill
impairment as of May 31, 2020.
To determine the fair value of the single reporting unit as of May 31, 2020, the
Company utilized a weighting of fair values derived from the income approach and
the market approach. The income approach is based on the projected cash flows
that are discounted to their present value using discount rates that consider
the timing and risk of the forecasted cash flows. Fair value is estimated using
internally developed forecasts and assumptions. The discount rate used is the
average estimated value of a market participant's cost of capital and debt,
derived using customary market metrics and includes an additional risk premium
to account for additional forecast and company specific risk. Other significant
assumptions include revenue growth rates, profitability projections, and
terminal value growth rates. The market approach estimates fair values based on
the determination of appropriate publicly traded market comparison companies and
market multiples of revenue and earnings derived from those companies with
similar operating and investment characteristics as the Company being valued.
Finally, the Company compared and reconciled the Company's overall fair value to
its market capitalization in order to assess the reasonableness of the
calculated fair values of the reporting unit.
As detailed in Note 9, "Goodwill and Intangible Assets," the Company recorded a
goodwill impairment loss of $158.6 million for the year ended May 31, 2020 as
the fair value of the reporting unit was less than its carrying value.
Results of Operations for the years ended May 31, 2020 and 2019
For the fiscal year ended May 31, 2020, we reported net loss from continuing
operations of $166.8 million, or $4.39 loss per diluted share, on net sales of
$264.2 million compared to a fiscal year 2019 net loss of $11.1 million, or
$0.30 loss per diluted share, on net sales of $270.6 million.
Net Sales
Net sales - Net sales are derived from the sale of our products and related
freight charges, less discounts and returns.
Net sales for the year ended May 31, 2020 and 2019 were:
                                                            Year ended May 

31,

      (in thousands)                                2020            2019         % Growth
      Net Sales by Product Category
          Vascular Interventions & Therapies    $ 112,706       $ 119,901          (6)%
          Vascular Access                          94,299          94,730           0%
          Oncology/Surgery                         57,152          56,003           2%
      Total                                     $ 264,157       $ 270,634          (2)%

      Net Sales by Geography
          United States                         $ 207,980       $ 216,957          (4)%
          International                            56,177          53,677           5%
      Total                                     $ 264,157       $ 270,634          (2)%

For year ended May 31, 2020, net sales decreased $6.5 million to $264.2 million compared to the year ended May 31, 2019.

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Vascular Interventions & Therapies
•Total Vascular Interventions & Therapies sales decreased $7.2 million primarily
attributable to decreased sales of Venous and Core products of $10.4 million and
$2.3 million, respectively. The decrease in Venous products is due to the impact
from COVID-19, as this is considered an elective procedure, along with the
termination of the Asclera distribution agreement which contributed $5.9 million
in the prior year. The decrease in Core products is a direct result of COVID-19
as Core product sales were up year-over-year through the end of the third
quarter. These decreases were partially offset by continued strong performance
in AngioVac, where case volumes were up 19% year-over-year. There was $0.7
million in sales of Auryon that was acquired as part of the Eximo acquisition in
the second quarter of fiscal year 2020.
•U.S. Vascular Interventions & Therapies sales decreased $7.8 million due to
decreased sales volume in Venous and Core products as discussed above. This was
partially offset by increased case volume in AngioVac and $0.7 million in sales
of Auryon.
•International Vascular Interventions & Therapies sales increased $0.6 million
due to increased volume in Angiographic catheters primarily in EMEA (Europe, the
Middle East and Africa).
Vascular Access
•Total Vascular Access sales decreased $0.4 million primarily due to lower port
sales. This was partially offset by increased PICC and Midline sales as a result
of the new distribution agreement with MedComp and the C3 Wave tip location
acquisition. The Company's BioFlo portfolio comprises 51% of overall Vascular
Access sales, consistent with prior year.
•U.S. Vascular Access sales decreased by $2.8 million due to competitive
pressures in the PICC and Port product lines. This was partially offset by
growth in Midlines and BioFlo Dialysis which continue to gain traction in the
marketplace along with the C3 Wave tip location acquisition.
•International Vascular Access sales increased by $2.4 million as the Company
continues to expand its global reach of its Vascular Access product offerings.
Oncology/Surgery
•Total Oncology/Surgery sales increased $1.1 million year over year primarily
due to $4.8 million in NanoKnife capital sales and increased sales of BioSentry
and Balloon products of $0.4 million and $1.4 million, respectively. This was
partially offset by decreased sales in Radiofrequency Ablation, Microwave and
NanoKnife disposables.
•U.S. Oncology sales increased by $1.7 million primarily due to $2.4 million in
NanoKnife capital sales and increased sales of BioSentry and Balloon products of
$0.2 million and $1.4 million, respectively. This was partially offset by a $1.5
million decrease in RadioFrequency Ablation and Microwave sales and a $0.4
decrease in NanoKnife disposable sales.
•International Oncology sales decreased by $0.6 million due to decreased
RadioFrequency Ablation and Microwave sales of $2.4 million and decreased
NanoKnife disposables of $0.8 million. This was partially offset by increased
NanoKnife capital sales of $2.4 million.
Gross Profit, Operating expenses, and Other income (expense)
                                                                  Year ended May 31,
(in thousands)                                            2020            2019         % Change
Gross profit (exclusive of intangible amortization)   $ 150,272       $ 156,000          -3.7  %
Gross profit % of sales                                    56.9  %         57.6  %
Research and development                              $  29,682       $  28,258           5.0  %
% of sales                                                 11.2  %         10.4  %
Selling and marketing                                 $  78,634       $  76,829           2.3  %
% of sales                                                 29.8  %         28.4  %
General and administrative                            $  37,872       $  34,902           8.5  %
% of sales                                                 14.3  %         12.9  %


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.
Gross profit decreased by $5.7 million compared to the prior year. The decrease
is attributable to the following:
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•Sales volume negatively impacted gross margin by $1.9 million, while price
positively impacted gross margin by $3.0 million.
•Net productivity negatively impacted gross margin by $1.0 million as a result
of under absorption in manufacturing operations as the Company maintained
staffing levels and continued producing product in the plant to provide
flexibility during the severe uncertainty brought about by the COVID-19 global
pandemic.
•Inventory reserve of $1.0 million for raw materials and existing dosimetry
inventory associated with OARtrac that was purchased pursuant to the Company's
acquisition of RadiaDyne as these inventory items were deemed unmarketable
absent subsequent design and development activities.
•Mix negatively impacted gross margin by $0.7 million as a result of higher
Vascular Access sales, which are lower margin products.
•Other items, including a royalty step-up and a prior year supplier
reimbursement, negatively impacted gross margin by $0.8 million.
•The termination of the Asclera distribution agreement negatively impacted gross
margin by $3.4 million.

Research and development expenses - Research and development ("R&D") expenses
include 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 increased $1.4 million compared to the prior year. The increase is
attributable to the following:
•Compensation and benefits increased approximately $0.4 million due to increased
variable compensation along with increased headcount as a result of the Eximo
acquisition.
•Research and development spend related to the Eximo acquisition contributed
$2.3 million along with $1.2 million in other project spend.
•Outside consultant and other spend decreased $2.2 million.

Sales and marketing expenses - Sales and marketing ("S&M") expenses consist
primarily of salaries, commissions, travel and related business expenses,
attendance at medical society meetings, product promotions and marketing
activities.
S&M expense increased by $1.8 million compared to the prior year. The increase
is attributable to the following:
•Compensation and benefits increase of approximately $0.7 million which is
primarily attributed to increased variable compensation and increased
commissions as a result of NanoKnife capital sales.
•Expenses related to the build-out of the Eximo sales and marketing teams to
prepare for full product launch of $3.1 million.
•Travel expenses decreased $1.6 million directly as a result of the COVID-19
pandemic and the fact that the sales force could not travel in the fourth
quarter of fiscal year 2020.
•Outside service and other fees decreased $1.3 million which was partially
offset by other sales and marketing expenses of $1.1 million to support
company-wide initiatives.

General and administrative expenses - General and administrative ("G&A")
expenses include executive management, finance, information technology, human
resources, business development, legal, and the administrative and professional
costs associated with those activities.
G&A expense increased by $3.0 million compared to the prior year. The increase
is attributable to the following:
•Legal and professional fees relating to ongoing litigation that is within the
normal course of business increased $3.7 million, primarily related to the
Company's suit against C.R. Bard.
•Compensation and benefits decreased approximately $2.9 million primarily as a
result of reversal of share based compensation expense of $1.8 million for
employees who are no longer with the Company and favorable benefits expense of
$0.9 million.
•Increased consultant spend of $0.4 million, increased expenses related to the
Eximo acquisition to integrate the business of $0.8 million and other expenses
of $0.9 million.
                                       50
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                                                                Year ended May 31,
 (in thousands)                                         2020           2019          $ Change
 Amortization of intangibles                        $  18,121       $ 17,056       $   1,065
 Goodwill impairment                                $ 158,578       $      -       $ 158,578

Change in fair value of contingent consideration $ (11,531) $ (6,776) $ (4,755)

 Acquisition, restructuring and other items, net    $   6,014       $ 15,127       $  (9,113)

 Other expense                                      $  (1,037)      $ (5,306)      $   4,269


Amortization of intangibles - Represents the amount of amortization expense that
was taken on intangible assets held by the Company.
•Amortization expense increased $1.1 million compared to the prior year. The
Eximo Medical and C3 Wave tip location acquisitions increased intangible assets
by $60.3 million and $9.4 million, respectively. These additions resulted in
additional amortization expense of $2.9 million. This was partially offset by
the write-off of the Merz intangible in the fourth quarter of fiscal year 2019
and other intangibles that became fully amortized.
Goodwill Impairment - Represents the impairment charge taken on goodwill.
•The Company recorded a non-cash goodwill impairment charge of $158.6 million
for the year ended May 31, 2020 as the fair value of the 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 from the prior year is primarily due to revised sales projections
for RadiaDyne products as a result of reviews performed by executive management.
The adjustments to the sales projections over the contractual earn-out period
resulted in a $9.2 million reduction in the fair value of the contingent
liability. It was also determined that one of the technical milestones would not
be achieved, which resulted in an additional reduction in the liability of
$2.7 million. These reductions in the fair value were offset by normal
amortization of the present value of the remaining contingent consideration,
including the Eximo contingent consideration that was recorded for $14.9 million
in the second quarter of fiscal year 2020. In addition, the final minimum
payment of $1.2 million was paid for the Microsulis contingent consideration
during the first quarter of fiscal year 2020.
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.
Acquisition, restructuring and other items, net decreased by $9.1 million
compared to the prior year. The decrease is attributable to the following:
•M&A expense of $0.8 million was incurred in fiscal year 2020 compared to $4.0
million in the prior year.
•Legal expense, related to litigation that is outside of the normal course of
business, of $2.7 million was recorded in fiscal year 2020, which includes an
offset of $0.5 million from the Biolitec bankruptcy settlement, compared to $7.8
million in the prior year. Included in the $7.8 million from prior year, is a
$3.4 million settlement received for the Biolitec litigation and a $2.5 million
accrual for the settlement of the Merz contract termination.
•In fiscal year 2020, the Company incurred $2.8 million of expense to move
manufacturing facilities as a result of the sale of the Fluid Management
business.
•As part of the sale of the Fluid Management business, the Company entered into
a transition services agreement with Medline for certain legal, human resource,
tax, accounting and information technology services from the Company for a
period not to exceed 24 months. Income of $1.8 million for these services was
recognized in fiscal year 2020.
•The prior year had a $1.7 million asset impairment charge.
•Other expenses of $1.5 million in fiscal year 2020 compared to $1.3 million in
the prior year consists of expenses to move the manufacturing of BioSentry
products and severance associated with the sale of the Fluid Management
business.

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

                                       51
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•The decrease in other expenses from the prior year of $4.3 million is due to
decreased interest expense of $4.6 million as the Credit Facility was paid down
in full at the beginning of the first quarter of fiscal year 2020. In addition
to the decrease in interest expense, interest income increased $0.3 million from
the prior year as a result of increased cash due to proceeds from the sale of
the Fluid Management business. These increases are partially offset by the
write-off of the deferred financing fees that were associated with the old
Credit Facility of $0.5 million. Other expenses also include foreign currency
fluctuations which increased by $0.2 million.
Income Tax Provision (Benefit)
                                                     Year ended May 31,
                (in thousands)                      2020           2019
                Income tax expense (benefit)     $ (1,348)      $ (3,556)
                Effective tax rate                      1  %          24  %


Our effective tax rate was a benefit of 1% for fiscal year 2020 compared with an
effective tax rate benefit of 24% for the prior year. The current year effective
tax rate differs from the U.S. Federal statutory tax rate of 21% primarily due
to no tax benefit being recorded on the goodwill impairment of $158.6 million.
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. 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, 2020.
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.
Results of Operations for the years ended May 31, 2019 and 2018
For the fiscal year ended May 31, 2019, we reported net loss from continuing
operations of $11.1 million, or $0.30 loss per basic and diluted common share,
on net sales of $270.6 million compared to a fiscal year 2018 net loss of $6.2
million, or $0.17 loss per basic and diluted common share, on net sales of
$261.7 million.
Net Sales
Net sales - Net sales are derived from the sale of our products and related
freight charges, less discounts and returns.
Net sales for the year ended May 31, 2019 and 2018 were:
                                                            Year ended May 

31,

      (in thousands)                                2019            2018         % Growth
      Net Sales by Product Category
          Vascular Interventions & Therapies    $ 119,901       $ 119,704           0%
          Vascular Access                          94,730          92,760           2%
          Oncology/Surgery                         56,003          49,191           14%
      Total                                     $ 270,634       $ 261,655           3%

      Net Sales by Geography
          United States                         $ 216,957       $ 213,727           2%
          International                            53,677          47,928           12%
      Total                                     $ 270,634       $ 261,655           3%

For year ended May 31, 2019, net sales increased $9.0 million to $270.6 million compared to the year ended May 31, 2018.

                                       52
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Vascular Interventions & Therapies
•Total Vascular Interventions & Therapies sales increased $0.2 million primarily
attributable to strong performance in AngioVac and Core Peripheral products. The
Company continues to see strong case volumes in AngioVac, which increased 20%
percent from the prior year due to increased adoption of the Company's unique
technology. This was partially offset by decreases in Venous products due to
reimbursement challenges and the termination of the Asclera distribution
agreement.
•U.S. Vascular Interventions & Therapies sales decreased $1.1 million due to
decreased sales volume in Venous products and the termination of the Asclera
distribution agreement. This was partially offset by increased case volume in
AngioVac and increased sales volume of Core Peripheral products.
•International Vascular Interventions & Therapies sales increased $1.3 million
due to increased volume in Venous and Angiographic catheters in EMEA and China.
Vascular Access
•Total Vascular Access sales increased $2.0 million due to growth in BioFlo
which increased $2.8 million year over year. The increase in sales is also due
to the launch of the BIIM ultrasound product in fiscal year 2019 which had $0.5
million in sales. This was partially offset by a decline in non-BioFlo PICCs of
$1.8 million. The Company's BioFlo portfolio now comprises 51% of overall
Vascular Access sales, compared to 49% a year ago.
•U.S. Vascular Access sales decreased by $1.2 million due to competitive
pressures in the PICC product line. This was partially offset by growth in
Midlines and BioFlo Dialysis and Ports which continue to gain traction in the
marketplace.
•International Vascular Access sales increased by $3.2 million as the Company
continues to expand its global reach of its Vascular Access product offerings.
Oncology/Surgery
•Total Oncology/Surgery sales increased $6.8 million year over year primarily
due to $4.9 million in sales of BioSentry products and $4.8 million in sales of
RadiaDyne products along with increased sales of NanoKnife disposables of $0.5
million. This was partially offset by decreased sales in Radiofrequency
Ablation, Microwave and NanoKnife capital. Microwave sales were negatively
impacted by the timing of the Company's prior year replacement shipments of $2.6
million which took place primarily in the first and second quarters of the prior
year as a result of the market withdrawal of Acculis. NanoKnife capital
decreased $0.9 million due to the timing of capital sales.
•U.S. Oncology sales increased by $6.9 million primarily due to $4.8 million in
sales of BioSentry products and $4.8 million in sales of RadiaDyne products.
This was partially offset by a $1.5 million decrease in NanoKnife capital and
disposable sales and a $0.6 million decrease in RadioFrequency Ablation and
Microwave sales.
•International Oncology sales decreased by $0.1 million due to decreased
RadioFrequency Ablation and Microwave sales of $0.7 million, partially offset by
increased NanoKnife capital and disposable sales of $0.8 million.
Gross Profit, Operating expenses, and Other income (expense)
                                                      Year ended May 31,
             (in thousands)                   2019            2018         % Change
             Gross profit                 $ 156,000       $ 143,856           8.4  %
             Gross profit % of sales           57.6  %         55.0  %
             Research and development     $  28,258       $  24,338          16.1  %
             % of sales                        10.4  %          9.3  %
             Selling and marketing        $  76,829       $  73,109           5.1  %
             % of sales                        28.4  %         27.9  %
             General and administrative   $  34,902       $  30,991          12.6  %
             % of sales                        12.9  %         11.8  %


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.
Gross profit increased by $12.1 million compared to the prior year. The increase
is attributable to the following:
                                       53
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•Net productivity of $2.5 million, where plant consolidation contributed $3.3
million of favorability partially offset by increased freight expense of $0.8
million.
•Sales volume and mix positively contributed $1.5 million year over year.
•Currency and pricing headwinds negatively impacting gross margin by $2.0
million year over year.
•Sales of BioSentry and RadiaDyne products contributed $6.9 million to gross
profit.
•Prior year reserve of $1.7 million related to the discontinuation of our
RadioFrequency Ablation product in Japan.
•The expiration of a royalty agreement in fiscal year 2018 resulted in $1.5
million of favorability compared to the prior year.
Research and development expenses - Research and development ("R&D") expenses
include 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 increased $3.9 million compared to the prior year. The increase is
attributable to the following:
•New product development and clinical efforts related to the Company's
investment areas of NanoKnife, Thrombus Management and BioFlo increased $3.5
million.
•Increased compensation and benefits of $0.5 million primarily as a result of
increased variable compensation.
Sales and marketing expenses - Sales and marketing ("S&M") expenses consist
primarily of salaries, commissions, travel and related business expenses,
attendance at medical society meetings, product promotions and marketing
activities.
S&M expense increased by $3.7 million compared to the prior year. The increase
is attributable to the following:
•Compensation and benefits increase of approximately $3.7 million which is
primarily attributed to increased headcount as a result of the BioSentry and
RadiaDyne acquisitions along with higher variable compensation.
General and administrative expenses - General and administrative ("G&A")
expenses include executive management, finance, information technology, human
resources, business development, legal, and the administrative and professional
costs associated with those activities.
G&A expense increased by $3.9 million compared to the prior year. The increase
is attributable to the following:
•Compensation and benefits increase of approximately $2.8 million primarily as a
result of increased variable compensation, salaries and benefits and stock based
compensation.
•Increased legal fees related to ongoing litigation that is within the normal
course of business of $0.6 million.
•Increased other expenses for technology investments of $0.3 million and lease
expense of $0.2 million.
                                                                Year ended May 31,
  (in thousands)                                        2019           2018         $ Change
  Amortization of intangibles                        $ 17,056       $ 13,906       $  3,150

Change in fair value of contingent consideration $ (6,776) $ 250 $ (7,026)

  Acquisition, restructuring and other items, net    $ 15,127       $ 15,432       $   (305)
  Other expense                                      $ (5,306)      $ (3,093)      $ (2,213)


Amortization of intangibles - Represents the amount of amortization expense that
was taken on intangible assets held by the Company.
•The change in amortization expense from the prior year is due to intangible
asset additions as a result of the BioSentry and RadiaDyne acquisitions. The
BioSentry acquisition increased intangible assets by $26.0 million and resulted
in additional amortization expense of $1.5 million. The RadiaDyne acquisition
increased intangible assets by $25.6 million and resulted in additional
amortization expense of $1.7 million.
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 increase from the prior year is due to contingent considerations that were
recorded as part of the BioSentry and RadiaDyne acquisitions of $2.8 million and
$22.3 million, respectively. In the fourth quarter, adjustments to the sales
projections for RadiaDyne products resulted in an $8.4 million gain. The
remaining change in the fair value in contingent consideration is the result of
amortization of the present value discount of $1.6 million. In addition, in the
                                       54
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second quarter of fiscal year 2018, the final minimum payment was made on the
AngioVac product contingent consideration and a $2.1 million payment was made on
the Microsulis contingent consideration during the first quarter of fiscal 2019.
Only one minimum payment is remaining on the Microsulis contingent
consideration.
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.
Acquisition, restructuring and other items, net decreased $0.3 million compared
to the prior year. The decrease is attributable to the following:
•M&A expense of $4.0 million was incurred in fiscal year 2019 compared to $1.7
million in the prior year.
•Legal expense, related to litigation that is outside of the normal course of
business, of $7.8 million was recorded in fiscal year 2019 compared to $8.4
million in fiscal year 2018. Included in the $7.8 million, is a $3.4 million
settlement received for the Biolitec litigation and a $2.5 million accrual for
the settlement of the Merz contract termination.
•For the year ended 2018, the Company incurred $4.7 million of expense which
consisted of $1.4 million of severance, $2.9 million of costs to move the
product lines and $0.2 million in contract termination expenses related to the
plant consolidation that was announced in the third quarter of fiscal year 2017.
The plant consolidation was completed in the fourth quarter of fiscal year 2018;
therefore, only $0.3 million of expense was incurred for the year ended 2019.
Other expenses - Other expenses include interest expense, foreign currency
impacts, bank fees, and amortization of deferred financing costs and remained
consistent with the prior year.
•The increase in other expenses from the prior year of $2.2 million is due to
increased interest expense of $1.9 million primarily due to the draw on the
Revolving Facility during fiscal year 2019. In addition, foreign currency
fluctuations increased $0.7 million. These increases were partially offset by
other income of $0.4 million.
Income Tax Provision (Benefit)
                                                            Year ended May 31,
        (in thousands)                                     2019            2018
        Income tax expense (benefit)                    $ (3,556)      $

(11,036)

        Effective tax rate including discrete items           24  %         

64 %

Our effective tax rate benefit was 24% for fiscal year 2019 compared with a
benefit of 64% for the prior year.
The prior year rate primarily reflects income tax benefit of $8.9 million driven
by the impact of the U.S. Tax Reform, the valuation allowance recorded and the
deferred tax liability related to intangibles that have an indefinite reversal
period ("naked credit deferred tax liability"), which as a result of U.S. Tax
Reform can now be considered as a source of income to recover indefinite lived
NOLs.
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. 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, 2019.
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.
Income From Discontinued Operations
                                       55
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                                                                         Year ended May 31,
(in thousands)                                                         2019               2018

Income from discontinued operations before gain on sale of Fluid Management

$  27,579          $  24,728
Gain on sale of Fluid Management                                      46,592                  -
Income from discontinued operations before income taxes               74,171             24,728
Provision for income taxes                                             1,685              2,166
Income from discontinued operations                                $  

72,486 $ 22,562

The Company applied the "Intraperiod Tax Allocation" rules under ASC 740, which
requires the allocation of an entity's total annual income tax provision among
continuing operations and, in the Company's case, discontinued operations.
Included in the $1.6 million income tax expense for fiscal year 2019 is $0.6
million tax expense related to the gain on the Divestiture. The taxes on the
gain were calculated using various state statutory tax rates and are partially
offset by the utilization of historical state net operating losses. There are no
current federal taxes on the gain due to utilization of historical net operating
losses which had a corresponding valuation allowance.
Liquidity and Capital Resources
We are continuously and critically reviewing our liquidity and anticipated
capital requirements in light of the significant uncertainty created by the
COVID-19 global pandemic. We believe that our current cash on hand and
availability under the Revolving Facility provides sufficient liquidity to meet
our anticipated needs for capital for at least the next 12 months. We are
closely monitoring receivables and payables. In addition, we believe that our
recently increased inventory levels provide additional risk mitigation in the
event we incur a manufacturing disruption.
Our cash and cash equivalents totaled $54.4 million as of May 31, 2020, compared
with $227.6 million as of May 31, 2019. As of May 31, 2020, total debt
outstanding related to the Revolving Facility was $40.0 million. The fair value
of the contingent consideration liability as of May 31, 2020 was $15.6 million.
The table below summarizes our cash flows for the years ended May 31, 2020, 2019
and 2018:
                                                                       Year ended May 31,
(in thousands)                                             2020                2019               2018
Cash provided by (used in):
Operating activities                                   $  (14,554)         $  37,440          $  41,287
Investing activities                                      (63,345)            82,554             (3,656)
Financing activities                                      (95,242)            33,931            (11,551)
Effect of exchange rate changes on cash and cash
equivalents                                                   (65)              (380)               472
Net change in cash and cash equivalents                $ (173,206)

$ 153,545 $ 26,552

During the years ended May 31, 2020, 2019 and 2018, cash flows consisted of the
following:
Cash provided by (used in) operating activities:
Year ended 2020:
•Net loss of $166.8 million plus the non-cash items, primarily driven by the
goodwill impairment, depreciation and amortization and share based compensation,
contributed to cash used in operations of $14.6 million.
•Working capital was negatively impacted by increased inventory on hand of $18.8
million and decreased accounts payable and accrued liabilities of $15.5 million.
Accounts receivable had a favorable impact of $11.9 million on working capital
as a result of the sale of the Fluid Management business and decreased sales in
the fourth quarter as a result of the impact from COVID-19.

Year ended 2019:
•Net income was driven by the sale of the Fluid Management business. Net loss
from continuing operations was driven by higher operating expenses in research
and development, selling and marketing and general administrative as well as
costs related to our acquisition and restructuring activities. The loss was
partially offset by increased sales and improved gross profit.
•Working capital was negatively impacted by increased inventory on hand of $1.4
million. Days sales outstanding ("DSO") increased as a result of increased sales
during the fourth quarter. This had a $3.2 million negative impact on
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working capital. The Company continued to optimize days payables outstanding ("DPO"), which resulted in a $5.2 million favorable impact on working capital.

Year ended 2018:
•Net income was driven by higher gross margin, lower operating expenses in
selling and marketing, general and administrative and acquisition, restructuring
and other items, net. Partially offsetting the positive cash impact was a $9.3
million non-cash discrete tax benefit as a result of the Tax Reform Act and the
revaluation of the Company's deferred tax assets and liabilities to reflect the
lower statutory rate.
•The Company continues to focus on optimizing days sales outstanding ("DSO")
which contributed $5.0 million to working capital improvement. Working capital
was also positively impacted by decreased inventory on hand of $5.7 million.
Even though the Company continued to optimize days payables outstanding ("DPO"),
the decrease in raw material purchases at year end negatively impacted working
capital from accounts payable and accrued liabilities.
Cash used in investing activities:
Year ended 2020:
•$45.8 million payment to acquire Eximo Medical Ltd. and $10.0 million payment
to acquire the C3 Wave tip location asset from Medical Components, Inc. Refer to
Note 2 of the financial statements.
•$7.2 million in fixed asset additions primarily related to building
improvements along with maintenance of equipment.
Year ended 2019:
•$3.1 million in fixed asset additions, primarily for maintenance of equipment.
•$37.0 million cash payment to acquire the BioSentry product from SSC and a
$47.9 million cash payment to acquire RadiaDyne as described in Note 2 to the
financial statements.
•$169.2 million in cash proceeds as a result of the Divestiture described in
Note 3 to the financial statements.
•$1.3 million in proceeds from the sale of an auction rate security.
Year ended 2018:
•$2.4 million in fixed asset additions.
•In the third quarter, we entered into a distribution and license agreement
where we recorded the upfront license fee of $1.3 million as an intangible asset
that will be amortized over thirty-six months.
Cash used in financing activities:
Year ended 2020:
•$132.5 million repayment of long-term debt in conjunction with the new Credit
Agreement that was entered into at the beginning of the first quarter of fiscal
year 2020. Refer to Note 12 of the financial statements.
•$40.0 million draw on the Revolving Facility.
•$0.8 million of outlays from stock option and ESPP activity.
•$1.2 million payment on earn-out liabilities.
Year ended 2019:
•$55.0 million draw on the Revolving Facility as a result of the RadiaDyne
acquisition described in Note 2 to the financial statements.
•$5.0 million repayment on the Term Loan. This is consistent with the required
amortization payment on the Term Loan. There was also a $10.0 million repayment
on the Revolving Facility in the third quarter of fiscal year 2019.
•$2.0 million of proceeds from stock option and ESPP activity.
•$8.1 million payment on earn-out liabilities.
Year ended 2018:
•$5.0 million in repayments on long-term debt, consistent with the required
amortization payment on the Term Loan.
•$2.9 million of proceeds from stock option and ESPP activity.
•$9.5 million payment on earn-out liabilities.
On June 3, 2019 and in connection with the completion of the Fluid Management
divestiture, the Company repaid all amounts outstanding under its existing
Credit Agreement and entered into a new Credit Agreement. The Credit Agreement
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provides for a $125.0 million secured Revolving Facility, which 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.
On December 17, 2019, the Company made a $15.0 million draw on the Revolving
Facility as part of the acquisition of the C3 Wave tip location asset from
Medical Components Inc. that is described Note 2 to the financial statements. In
the fourth quarter of fiscal year 2020, the Company made an additional $25.0
million draw on the Revolving Facility. 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
significant acquisitions of other businesses or technologies in the future for
cash, we may require external financing.
Our contractual obligations as of May 31, 2020 are set forth in the table below
(in thousands). We have no variable interest entities or other off-balance sheet
obligations.
                                                                          

Cash payments due by period as of May 31, 2020

                                                                           Less than                                              After 5
(in thousands)                                            Total            One Year          1-3 Years         3-5 Years           Years
Contractual Obligations:
Long term debt and interest                            $  42,286          $    762          $  1,524          $ 40,000          $      -
Operating leases (1)                                      12,009             2,806             4,889             3,126             1,188
Purchase obligations (2)                                     553               553                 -                 -                 -
Acquisition-related future obligations (3)                21,000             1,000            10,000            10,000                 -
Indemnification holdback                                   5,000             5,000                 -                 -                 -
Royalties                                                 51,500             3,800             7,600             7,600            32,500

                                                       $ 132,348          $ 13,921          $ 24,013          $ 60,726          $ 33,688


(1) Operating leases include short-term leases that are not recorded on our
consolidated balance sheet under ASU No. 2016-02.
(2) The inventory purchase obligations are not reflected on our consolidated
balance sheets under accounting principles generally accepted in the United
States of America.
(3) Acquisition-related future obligations include scheduled minimum payments
and contingent payments based upon achievement of performance measures or
milestones such as sales or profitability targets, the achievement of research
and development objectives or the receipt of regulatory approvals. The amount
represents the undiscounted value of contingent liabilities recorded on the
balance sheet. Timing of payments are as contractually scheduled, or where
contingent, the Company's best estimate of payment timing.

Recent Accounting Pronouncements Refer to Note 1 of the Notes to the Consolidated Financial Statements for Recently Issued Accounting Pronouncements.

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