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Table of Contents

    
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2019
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 
Commission file number 0-50761

 
AngioDynamics, Inc.
(Exact name of registrant as specified in its charter)
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12817052&doc=11
 
 

Delaware
 
11-3146460
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
14 Plaza Drive Latham, New York
 
12110
(Address of principal executive offices)
 
(Zip Code)
(518) 795-1400
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common stock, par value $.01
 
NASDAQ Global Select Market
Preferred Stock Purchase Rights
 
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:


Table of Contents

None
(Title of Class)
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  ¨    No  x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
x
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨
 
Smaller reporting company
 
¨
 
 
 
 
 
 
 
Emerging growth company
 
o
 
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Indicate the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding as of March 29, 2019
Common Stock, par value $.01
 
37,215,894
 



Table of Contents

AngioDynamics, Inc. and Subsidiaries
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.

2

Table of Contents

PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.

AngioDynamics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands of dollars, except per share data)
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
Feb 28, 2019
 
Feb 28, 2018
 
Feb 28, 2019
 
Feb 28, 2018
Net sales
 
$
86,341

 
$
83,851

 
$
263,184

 
$
255,968

Cost of sales (exclusive of intangible amortization)
 
39,650

 
38,403

 
122,917

 
126,560

Gross profit
 
46,691

 
45,448

 
140,267

 
129,408

Operating expenses:
 
 
 
 
 
 
 
 
Research and development
 
7,210

 
6,457

 
22,235

 
19,005

Sales and marketing
 
19,413

 
18,009

 
59,115

 
56,378

General and administrative
 
8,780

 
7,723

 
26,612

 
23,319

Amortization of intangibles
 
5,342

 
4,191

 
14,646

 
12,433

Change in fair value of contingent consideration
 
609

 
31

 
865

 
218

Acquisition, restructuring and other items, net
 
2,550

 
4,177

 
9,700

 
11,932

Total operating expenses
 
43,904

 
40,588

 
133,173

 
123,285

Operating income
 
2,787

 
4,860

 
7,094

 
6,123

Other (expenses) income:
 
 
 
 
 
 
 
 
Interest expense, net
 
(1,442
)
 
(740
)
 
(3,689
)
 
(2,223
)
Other income (expense), net
 
(266
)
 
(49
)
 
(72
)
 
238

Total other expenses, net
 
(1,708
)
 
(789
)
 
(3,761
)
 
(1,985
)
Income before income tax expense
 
1,079

 
4,071

 
3,333

 
4,138

Income tax expense (benefit)
 
283

 
(9,948
)
 
866

 
(10,095
)
Net income
 
$
796

 
$
14,019

 
$
2,467

 
$
14,233

Earnings per share
 
 
 
 
 
 
 
 
Basic
 
$
0.02

 
$
0.38

 
$
0.07

 
$
0.38

Diluted
 
$
0.02

 
$
0.37

 
$
0.06

 
$
0.38

Weighted average shares outstanding
 
 
 
 
 
 
 
 
Basic
 
37,518

 
37,122

 
37,446

 
37,031

Diluted
 
38,338

 
37,442

 
38,350

 
37,358

The accompanying notes are an integral part of these consolidated financial statements.

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AngioDynamics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(in thousands of dollars)
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
Feb 28, 2019
 
Feb 28, 2018
 
Feb 28, 2019
 
Feb 28, 2018
Net income
 
$
796

 
$
14,019

 
$
2,467

 
$
14,233

Other comprehensive income, before tax:
 
 
 
 
 
 
 
 
Unrealized gain on marketable securities
 

 
21

 
33

 
66

Foreign currency translation
 
173

 
188

 
(158
)
 
621

Other comprehensive income (loss), before tax
 
173

 
209

 
(125
)
 
687

Income tax expense related to items of other comprehensive income
 

 

 

 

Other comprehensive income (loss), net of tax
 
173

 
209

 
(125
)
 
687

Total comprehensive income, net of tax
 
$
969

 
$
14,228

 
$
2,342

 
$
14,920

The accompanying notes are an integral part of these consolidated financial statements.


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AngioDynamics, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands of dollars, except share data)
 
Feb 28, 2019
 
May 31, 2018
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
41,704

 
$
74,096

Marketable securities

 
1,317

Accounts receivable, net of allowances of $2,128 and $2,466, respectively
44,208

 
39,401

Inventories
52,388

 
48,916

Prepaid expenses and other
4,440

 
4,302

Total current assets
142,740

 
168,032

Property, plant and equipment, net
41,207

 
42,461

Other assets
3,610

 
3,417

Intangible assets, net
166,564

 
130,310

Goodwill
423,674

 
361,252

Total assets
$
777,795

 
$
705,472

Liabilities and stockholders' equity
 
 
 
Current liabilities
 
 
 
Accounts payable
$
18,443

 
$
15,775

Accrued liabilities
21,929

 
34,426

Current portion of long-term debt
6,250

 
5,000

Current portion of contingent consideration
6,673

 
2,100

Total current liabilities
53,295

 
57,301

Long-term debt, net of current portion
126,837

 
86,621

Contingent consideration, net of current portion
20,454

 
1,161

Deferred income taxes
17,834

 
17,173

Other long-term liabilities
5,296

 
621

Total liabilities
223,716

 
162,877

Commitments and contingencies (Note 14)

 

Stockholders' equity
 
 
 
Preferred stock, par value $.01 per share, 5,000,000 shares authorized; no shares issued and outstanding

 

Common stock, par value $.01 per share, 75,000,000 shares authorized; 37,955,894 and 37,594,493 shares issued and 37,585,894 and 37,224,493 shares outstanding at February 28, 2019 and May 31, 2018, respectively
372

 
370

Additional paid-in capital
552,902

 
543,762

Retained earnings
7,596

 
5,129

Treasury stock, 370,000 shares at February 28, 2019 and May 31, 2018, respectively
(5,714
)
 
(5,714
)
Accumulated other comprehensive loss
(1,077
)
 
(952
)
Total Stockholders’ Equity
554,079

 
542,595

Total Liabilities and Stockholders' Equity
$
777,795

 
$
705,472

The accompanying notes are an integral part of these consolidated financial statements.

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AngioDynamics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands of dollars)
 
Nine Months Ended
 
Feb 28, 2019
 
Feb 28, 2018
Cash flows from operating activities:
 
 
 
Net income
$
2,467

 
$
14,233

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
19,158

 
17,395

Stock based compensation
7,119

 
5,821

Change in fair value of contingent consideration
865

 
218

Deferred income taxes
633

 
(10,150
)
Change in accounts receivable allowances
(99
)
 
(35
)
Fixed and intangible asset impairments and disposals
689

 
30

Other
(5
)
 
(635
)
Changes in operating assets and liabilities:

 

Accounts receivable
(3,853
)
 
2,897

Inventories
(2,702
)
 
(1,913
)
Prepaid expenses and other
(1,508
)
 
(548
)
Accounts payable, accrued and other liabilities
(10,336
)
 
(9,797
)
Net cash provided by operating activities
12,428

 
17,516

Cash flows from investing activities:
 
 
 
Additions to property, plant and equipment
(2,303
)
 
(1,647
)
Acquisition of intangibles

 
(1,265
)
Cash paid for acquisitions
(84,920
)
 

Proceeds from sale of marketable securities
1,350

 

Net cash used in investing activities
(85,873
)
 
(2,912
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of and borrowings on long-term debt
55,000

 

Repayment of long-term debt
(13,750
)
 
(3,750
)
Payment of acquisition related contingent consideration
(2,100
)
 
(9,500
)
Proceeds from exercise of stock options and employee stock purchase plan
2,023

 
2,560

Net cash provided by (used) in financing activities
41,173

 
(10,690
)
Effect of exchange rate changes on cash and cash equivalents
(120
)
 
834

(Decrease) increase in cash and cash equivalents
(32,392
)
 
4,748

Cash and cash equivalents at beginning of period
74,096

 
47,544

Cash and cash equivalents at end of period
$
41,704

 
$
52,292

Supplemental disclosure of non-cash investing and financing activities:
 
 
 
 
 
 
 
Accrual for capital expenditures incurred during the period
$
(42
)
 
$
95

Fair value of contingent consideration for acquisitions
25,100

 

Fair value of acquisition consideration included in other long-term liabilities
4,691

 

The accompanying notes are an integral part of these consolidated financial statements.

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AngioDynamics, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(unaudited)
(in thousands of dollars, except share data)

 
 
Common Stock
 
Additional
paid in
capital
 
Retained earnings
 
Accumulated
other
comprehensive
loss
 
Treasury Stock
 
 
 
Shares
 
Amount
 
 
 
Shares
 
Amount
 
Total
Balance at May 31, 2018
37,594,493

 
$
370

 
$
543,762

 
$
5,129

 
$
(952
)
 
(370,000
)
 
$
(5,714
)
 
$
542,595

Net loss
 
 
 
 
 
 
$
(469
)
 
 
 
 
 
 
 
(469
)
Exercise of stock options
71,336

 
1

 
607

 
 
 
 
 
 
 
 
 
608

Issuance/Cancellation of restricted stock units
149,446

 
 
 
(460
)
 
 
 
 
 
 
 
 
 
(460
)
Issuance/Cancellation of performance share units
5,235

 
 
 
 
 
 
 
 
 
 
 
 
 

Purchases of common stock under ESPP
40,547

 
1

 
556

 
 
 
 
 
 
 
 
 
557

Stock-based compensation
 
 
 
 
2,150

 
 
 
 
 
 
 
 
 
2,150

Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
(92
)
 
 
 
 
 
(92
)
Balance at August 31, 2018
37,861,057

 
$
372

 
$
546,615

 
$
4,660

 
$
(1,044
)
 
(370,000
)
 
$
(5,714
)
 
$
544,889

Net income
 
 
 
 
 
 
2,140

 
 
 
 
 
 
 
2,140

Exercise of stock options
10,571

 
 
 
149

 
 
 
 
 
 
 
 
 
149

Issuance/Cancellation of restricted stock units
3,901

 
 
 
 
 
 
 
 
 
 
 
 
 

Stock-based compensation
 
 
 
 
2,591

 
 
 
 
 
 
 
 
 
2,591

Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
(206
)
 
 
 
 
 
(206
)
Balance at November 30, 2018
37,875,529

 
$
372

 
$
549,355

 
$
6,800

 
$
(1,250
)
 
(370,000
)
 
$
(5,714
)
 
$
549,563

Net income
 
 
 
 
 
 
796

 
 
 
 
 
 
 
796

Exercise of stock options
40,346

 


 
603

 
 
 
 
 
 
 
 
 
603

Issuance/Cancellation of restricted stock units
7,703

 


 
(49
)
 
 
 
 
 
 
 
 
 
(49
)
Purchases of common stock under ESPP
32,316

 


 
615

 
 
 
 
 
 
 
 
 
615

Stock-based compensation
 
 
 
 
2,378

 
 
 
 
 
 
 
 
 
2,378

Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
173

 
 
 
 
 
173

Balance at February 28, 2019
37,955,894

 
$
372

 
$
552,902

 
$
7,596

 
$
(1,077
)
 
(370,000
)
 
$
(5,714
)
 
$
554,079

















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AngioDynamics, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY - continued
(unaudited)
(in thousands of dollars, except share data)

 
Common Stock
 
Additional
paid in
capital
 
Retained earnings (deficit)
 
Accumulated
other
comprehensive
loss
 
Treasury Stock
 
 
 
Shares
 
Amount
 
 
 
Shares
 
Amount
 
Total
Balance at May 31, 2017
37,210,091

 
$
367

 
$
532,705

 
$
(11,007
)
 
$
(1,324
)
 
(370,000
)
 
$
(5,714
)
 
$
515,027

Net loss
 
 
 
 
 
 
(35
)
 
 
 
 
 
 
 
(35
)
Adjustment from the adoption of ASU 2016-09
 
 
 
 
199

 
(199
)
 
 
 
 
 
 
 

Exercise of stock options
17,897

 
 
 
89

 
 
 
 
 
 
 
 
 
89

Issuance/Cancellation of restricted stock units
119,098

 
1

 
 
 
 
 
 
 
 
 
 
 
1

Purchases of common stock under ESPP
50,900

 
 
 
722

 
 
 
 
 
 
 
 
 
722

Stock-based compensation
 
 
 
 
1,797

 
 
 
 
 
 
 
 
 
1,797

Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
283

 
 
 
 
 
283

Balance at August 31, 2017
37,397,986

 
$
368

 
$
535,512

 
$
(11,241
)
 
$
(1,041
)
 
(370,000
)
 
$
(5,714
)
 
$
517,884

Net income
 
 
 
 
 
 
249

 
 
 
 
 
 
 
249

Exercise of stock options
78,211

 
1

 
925

 
 
 
 
 
 
 
 
 
926

Issuance/Cancellation of restricted stock units
5,478

 
 
 
 
 
 
 
 
 
 
 
 
 

Stock-based compensation
 
 
 
 
1,966

 
 
 
 
 
 
 
 
 
1,966

Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
195

 
 
 
 
 
195

Balance at November 30, 2017
37,481,675

 
$
369

 
$
538,403

 
$
(10,992
)
 
$
(846
)
 
(370,000
)
 
$
(5,714
)
 
$
521,220

Net income
 
 
 
 
 
 
14,019

 
 
 
 
 
 
 
14,019

Exercise of stock options
22,269

 
 
 
281

 
 
 
 
 
 
 
 
 
281

Issuance/Cancellation of restricted stock units
1,519

 
 
 
 
 
 
 
 
 
 
 
 
 

Purchases of common stock under ESPP
39,043

 
1

 
540

 
 
 
 
 
 
 
 
 
541

Stock-based compensation
 
 
 
 
2,058

 
 
 
 
 
 
 
 
 
2,058

Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
209

 
 
 
 
 
209

Balance at February 28, 2018
37,544,506

 
$
370

 
$
541,282

 
$
3,027

 
$
(637
)
 
(370,000
)
 
$
(5,714
)
 
$
538,328


The accompanying notes are an integral part of these consolidated financial statements.

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AngioDynamics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of February 28, 2019, the consolidated statement of stockholders’ equity for the three and nine months ended February 28, 2019 and 2018, and the consolidated statements of income, consolidated statements of comprehensive income for the three and nine months ended February 28, 2019 and 2018, and consolidated statements of cash flows for the nine months ended February 28, 2019 and 2018, have been prepared by us and are unaudited. The consolidated balance sheet as of May 31, 2018 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 February 28, 2019 (and for all periods presented) have been made.
The unaudited interim consolidated financial statements for the three and nine months ended February 28, 2019 and 2018 include the accounts of AngioDynamics, Inc. and its wholly owned subsidiaries, collectively, the “Company”. All intercompany balances and transactions have been eliminated.
2. ACQUISITIONS

RadiaDyne 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. The fair value of $22.3 million in contingent consideration is comprised of $16.5 million for the revenue milestones and $5.8 million for the technical milestones. The $4.6 million indemnification holdback is recorded in other long-term liabilities and the $0.2 million purchase price holdback was initially recorded in accrued liabilities, but was paid during the third quarter of fiscal year 2019.
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.
The Company accounted for the RadiaDyne acquisition under the acquisition method of accounting for business combinations. Accordingly, the cost to acquire the assets was allocated to the underlying net assets in proportion to estimates of their respective fair values. The excess of the purchase price over the estimated fair value of the net assets acquired was recorded as goodwill. Goodwill is deductible for income tax purposes.
The Company has not disclosed the amount of revenue and earnings for sales of RadiaDyne products since acquisition, nor proforma information, because these amounts are not significant to the Company's financial statements. Acquisition-related costs associated with the RadiaDyne acquisition, which are included in acquisition, restructuring and other expenses, net in the accompanying consolidated statements of income, were approximately $1.6 million. The following table summarizes the preliminary and revised aggregate purchase price allocated to the net assets acquired:

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Preliminary allocation
 
Adjustments (1)
 
Revised allocation
(in thousands)
 
 
 
 
 
 
Accounts receivable
 
$
900

 
$

 
$
900

Inventory
 
732

 

 
732

Prepaid and other current assets
 
98

 

 
98

Property, plant and equipment
 
133

 

 
133

Intangible assets:
 
 
 
 
 
 
RadiaDyne trademark
 
400

 

 
400

OARtrac trademark
 
200

 

 
200

RadiaDyne legacy product technology
 
1,500

 

 
1,500

OARtrac product technology
 
16,300

 
2,600

 
18,900

RadiaDyne customer relationships
 
3,700

 
600

 
4,300

Goodwill
 
51,482

 
(3,200
)
 
48,282

Total assets acquired
 
$
75,445

 
$

 
$
75,445

Liabilities assumed
 
 
 
 
 
 
Accounts payable
 
$
352

 
$

 
$
352

Accrued expenses
 
106

 

 
106

Total liabilities assumed
 
$
458

 
$

 
$
458

Net assets acquired
 
$
74,987

 
$

 
$
74,987

(1) Measurement period adjustments are recognized on a prospective basis in the period of change, instead of restating prior periods. There was no impact to reported earnings in connection with these measurement period adjustments for the periods presented. Amounts represent adjustments to the preliminary purchase price allocation first presented in the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 2018 resulting from revising the Company's purchase price allocation for this acquisition.
The allocation of the purchase price to the assets acquired and liabilities assumed, including the amount allocated to goodwill, is subject to change within the measurement period (up to one year from the acquisition date) as additional information that existed at the date of the acquisition related to the values of assets acquired and liabilities assumed is obtained.
The values assigned to the RadiaDyne and OARtrac trademark and product technologies were derived using the relief-from-royalties method under the income approach. This approach is used to estimate the cost savings that accrue for the owner of an intangible asset who would otherwise have to pay royalties or licensing fees on revenues earned through the use of the asset if they had not owned the rights to use the assets. The net after-tax royalty savings are calculated for each year in the remaining economic life of the intangible asset and discounted to present value. The trademarks are deemed to have a useful life of five to seven years and the product technologies are deemed to have a useful life of seven to ten years. Both are amortized on a straight-line basis over their useful life.
The value assigned to customer relationships was derived using the multi-period excess earnings method under the income approach. This approach estimates the excess earnings generated over the lives of the customers that existed as of the acquisition date and discounts such earnings to present value. Customer relationships are amortized on a straight-line basis over fifteen years.
The goodwill arising from the acquisition consists largely of synergies and economies of scale the Company hopes to achieve from combining the acquired assets with the Company's current operations.
BioSentry Acquisition
On August 14, 2018, the Company acquired the BioSentry product from Surgical Specialties, LLC (“SSC”), for an aggregate 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 will be payable to SSC upon fulfillment of certain hydrogel orders.
The Company accounted for the BioSentry acquisition under the acquisition method of accounting for business combinations. Accordingly, the cost to acquire the assets was allocated to the underlying net assets in proportion to estimates of their respective fair values. The excess of the purchase price over the estimated fair value of the net assets acquired was recorded as goodwill. Goodwill is deductible for income tax purposes.

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The Company has not disclosed the amount of revenue and earnings for sales of BioSentry products since acquisition, nor proforma information, because these amounts are not significant to the Company's financial statements. Acquisition-related costs associated with the BioSentry acquisition, which are included in acquisition, restructuring and other expenses, net in the accompanying consolidated statements of income, were approximately $1.0 million. The following table summarizes the preliminary and revised aggregate purchase price allocated to the net assets acquired:

 
Preliminary allocation
 
Adjustments (1)
 
Revised allocation
(in thousands)
 
 
 
 
 
 
Inventory
 
$
50

 
$

 
$
50

Property, plant and equipment
 
10

 

 
10

Intangible assets:
 
 
 
 
 
 
    BioSentry trademark
 
1,700

 
800

 
2,500

    BioSentry product technology
 
13,800

 
7,100

 
20,900

    Customer relationships
 
2,500

 
(300
)
 
2,200

Goodwill
 
21,740

 
(7,600
)
 
14,140

Net assets acquired
 
$
39,800

 
$

 
$
39,800

(1) Measurement period adjustments are recognized on a prospective basis in the period of change, instead of restating prior periods. There was no impact to reported earnings in connection with these measurement period adjustments for the periods presented. Amounts represent adjustments to the preliminary purchase price allocation first presented in the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 2018 resulting from revising the Company's purchase price allocation for this acquisition.

The allocation of the purchase price to the assets acquired and liabilities assumed, including the amount allocated to goodwill, is subject to change within the measurement period (up to one year from the acquisition date) as additional information that existed at the date of the acquisition related to the values of assets acquired and liabilities assumed is obtained.
The values assigned to the BioSentry trademark and product technologies were derived using the relief-from-royalties method under the income approach. This approach is used to estimate the cost savings that accrue for the owner of an intangible asset who would otherwise have to pay royalties or licensing fees on revenues earned through the use of the asset if they had not owned the rights to use the assets. The net after-tax royalty savings are calculated for each year in the remaining economic life of the intangible asset and discounted to present value. The trademark and product technologies are deemed to have a fifteen year useful life and are amortized on a straight-line basis over their useful life.
The value assigned to customer relationships was derived using the multi-period excess earnings method under the income approach. This approach estimates the excess earnings generated over the lives of the customers that existed as of the acquisition date and discounts such earnings to present value. Customer relationships are amortized on a straight-line basis over ten years.
The goodwill arising from the acquisition consists largely of synergies and economies of scale the Company hopes to achieve from combining the acquired assets with the Company's current operations.
3. REVENUE FROM CONTRACTS WITH CUSTOMERS

Adoption of ASC Topic 606 "Revenue from Contracts with Customers"
The Company adopted ASC 606, Revenue from Contracts with Customers on June 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. The reported results for fiscal 2019 reflect the application of ASC 606 guidance while the reported results for fiscal 2018 were prepared under the guidance of ASC 605, Revenue Recognition (“ASC 605”). For discussion of the Company’s accounting policy for revenue recognition under ASC 605, refer to Item 8 of the Annual Report on Form 10-K for the year ended May 31, 2018. The adoption of ASC 606 did not have an impact on the Company’s consolidated balance sheet, results of operations, equity or cash flows as of the adoption date or for the periods presented, other than the enhanced disclosures included in this footnote.
Revenue Recognition

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

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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 tables summarize net product revenue by Global Business Unit ("GBU") and geography for the three and nine months ended February 28, 2019:
 
Three months ended February 28, 2019
(in thousands)
United States
 
International
 
Total
Net sales
 
 
 
 
 
Vascular Interventions & Therapies
$
41,225

 
$
8,890

 
$
50,115

Vascular Access
18,952

 
3,396

 
22,348

Oncology
8,154

 
5,724

 
13,878

Total
$
68,331

 
$
18,010

 
$
86,341

 
Nine months ended February 28, 2019
(in thousands)
United States
 
International
 
Total
Net sales
 
 
 
 
 
Vascular Interventions & Therapies
$
126,089

 
$
26,514

 
$
152,603

Vascular Access
59,480

 
10,381

 
69,861

Oncology
22,329

 
18,391

 
40,720

Total
$
207,898

 
$
55,286

 
$
263,184


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 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.
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.
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. 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.


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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 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.
Variable Consideration
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.
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 a liability for such amounts, which is included in accrued expenses in the accompanying condensed consolidated balance 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.
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 nine months ended February 28, 2019, such product returns were not material.
Contract Balances with Customers
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 condensed consolidated balance sheets.
The following table presents changes in the Company’s receivables, contract assets and contract liabilities with customers:
 
Feb 28, 2019
 
May 31, 2018
(in thousands)
 
 
 
Receivables
$
44,208

 
$
39,401

Contract assets
$

 
$

Contract liabilities
$
1,047

 
$
1,203


During the nine months ended February 28, 2019, the Company recognized $0.7 million in revenue that was included in contract liabilities as of the beginning of the period. This was offset by additions to contract liabilities of $0.6 million.



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Costs to Obtain or Fulfill a Customer Contract
Prior to the adoption of ASC 606, the Company expensed incremental commissions paid to sales representatives for obtaining product sales. Under ASC 606, the Company recognizes 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 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:
 
Feb 28, 2019
 
May 31, 2018
(in thousands)
 
 
 
Raw materials
$
19,852

 
$
18,678

Work in process
11,210

 
10,808

Finished goods
21,326

 
19,430

Inventories
$
52,388

 
$
48,916



The Company periodically reviews 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 February 28, 2019 and May 31, 2018 was $5.1 million and $6.1 million, respectively. Of the $5.1 million reserve as of February 28, 2019, $0.4 million relates to the inventory reserve for Acculis inventory as a result of the recall announced in the fourth quarter of fiscal year 2017 and $0.7 million relates to a specific reserve related to the termination of an agreement with a Japanese distributor in the second quarter of fiscal year 2018. Of the $6.1 million reserve as of May 31, 2018, $1.6 million relates to the inventory reserve for Acculis inventory as a result of the recall announced in the fourth quarter of fiscal year 2017 and $0.7 million relates to a specific reserve related to the termination of an agreement with a Japanese distributor in the second quarter of fiscal year 2018.

5. GOODWILL AND INTANGIBLE ASSETS

Intangible assets other than goodwill are amortized over their estimated useful lives on either a straight-line basis or proportionately to the benefit being realized. Useful lives range from two to eighteen years. The Company periodically reviews 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.

Goodwill is not amortized, but rather, is 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.

The Company's annual testing for impairment of goodwill was completed as of December 31, 2018. 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. The Company determines the fair value of the reporting unit based on the market valuation approach and concluded that it was not more-likely-than-not that the fair value of the Company's reporting unit was less than its carrying value.

Even though the Company determined that there was no goodwill impairment as of December 31, 2018, the future occurrence of a potential indicator of impairment, such as a significant adverse change in legal, regulatory, business or economic conditions or a more-likely-than-not expectation that the reporting unit or a significant portion of the reporting unit will be sold or disposed of, would require an interim assessment for the reporting unit prior to the next required annual

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assessment as of December 31, 2019. The Company continued to assess for potential impairment through February 28, 2019 and noted no events that would be considered a triggering event.

The changes in the carrying amount of goodwill for the nine months ended February 28, 2019 were as follows:

(in thousands)
 
Goodwill balance at May 31, 2018
$
361,252

Additions for BioSentry acquisition (Note 2)
14,140

Additions for RadiaDyne acquisition (Note 2)
48,282

Goodwill balance at February 28, 2019
$
423,674


Intangible assets consisted of the following:
 
Feb 28, 2019
 
Gross
carrying
value
 
Accumulated
amortization
 
Net carrying
value
(in thousands)
 
 
 
 
 
Product technologies
$
188,475

 
$
(77,772
)
 
$
110,703

Customer relationships
62,890

 
(26,363
)
 
36,527

Trademarks
31,500

 
(13,752
)
 
17,748

Licenses
5,752

 
(4,867
)
 
885

Distributor relationships
1,250

 
(549
)
 
701

 
$
289,867

 
$
(123,303
)
 
$
166,564

 
May 31, 2018
 
Gross
carrying
value
 
Accumulated
amortization
 
Net carrying
value
(in thousands)
 
 
 
 
 
Product technologies
$
147,175

 
$
(68,880
)
 
$
78,295

Customer relationships
56,428

 
(23,237
)
 
33,191

Trademarks
28,400

 
(11,809
)
 
16,591

Licenses
5,752

 
(4,357
)
 
1,395

Distributor relationships
1,250

 
(412
)
 
838

 
$
239,005

 
$
(108,695
)
 
$
130,310



Amortization expense for the three months ended February 28, 2019 and 2018 was $5.3 million and $4.2 million, respectively. Amortization expense for the nine months ended February 28, 2019 and 2018 was $14.6 million and $12.4 million, respectively.

Expected future amortization expense related to the intangible assets is as follows:
(in thousands)

Remainder of 2019
$
5,168

2020
18,955

2021
17,795

2022
16,910

2023
16,459

2024 and thereafter
91,277


$
166,564