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Table of Contents
    
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2020
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)
https://cdn.kscope.io/f08dd3e5c49672988198ce21ffa566c6-ango-20201130_g1.gif
 

Delaware11-3146460
(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 and 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 classTrading symbolName of each exchange on which registered
Common stock, par value $.01ANGONASDAQ Global Select Market
Preferred Stock Purchase RightsNASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act:
None


Table of Contents
(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  
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  
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      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      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   Accelerated filer 
Non-accelerated filer Smaller reporting company 
Emerging growth company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
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 January 6, 2021
Common Stock, par value $.01 37,963,797




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 OPERATIONS
(unaudited)
(in thousands of dollars, except per share data)
 
Three Months EndedSix Months Ended
Nov 30, 2020Nov 30, 2019Nov 30, 2020Nov 30, 2019
Net sales$72,770 $70,003 $142,986 $136,045 
Cost of sales (exclusive of intangible amortization)32,596 28,459 67,048 56,284 
Gross profit40,174 41,544 75,938 79,761 
Operating expenses:
Research and development9,712 7,764 18,721 14,055 
Sales and marketing20,174 20,113 37,879 39,493 
General and administrative9,219 10,994 17,776 19,448 
Amortization of intangibles4,593 4,530 9,546 8,398 
Change in fair value of contingent consideration184 145 (473)(303)
Acquisition, restructuring and other items, net1,128 1,421 2,447 2,921 
Total operating expenses45,010 44,967 85,896 84,012 
Operating loss(4,836)(3,423)(9,958)(4,251)
Other income (expense):
Interest expense, net(235)(41)(450)(506)
Other income (expense), net(102)162 422 64 
Total other income (expense), net(337)121 (28)(442)
Loss before income tax benefit(5,173)(3,302)(9,986)(4,693)
Income tax benefit(905)(566)(1,450)(682)
Net loss$(4,268)$(2,736)$(8,536)$(4,011)
Loss per share
Basic$(0.11)$(0.07)$(0.22)$(0.11)
Diluted$(0.11)$(0.07)$(0.22)$(0.11)
Weighted average shares outstanding
Basic38,327 37,992 38,242 37,887 
Diluted38,327 37,992 38,242 37,887 
The accompanying notes are an integral part of these consolidated financial statements.
3

Table of Contents
AngioDynamics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)
(in thousands of dollars)
 
Three Months EndedSix Months Ended
Nov 30, 2020Nov 30, 2019Nov 30, 2020Nov 30, 2019
Net loss$(4,268)$(2,736)$(8,536)$(4,011)
Other comprehensive income (loss), before tax:
Foreign currency translation 1,180 231 3,275 80 
Other comprehensive income, before tax1,180 231 3,275 80 
Income tax expense related to items of other comprehensive income (loss)    
Other comprehensive income, net of tax1,180 231 3,275 80 
Total comprehensive loss, net of tax$(3,088)$(2,505)$(5,261)$(3,931)
The accompanying notes are an integral part of these consolidated financial statements.

4

Table of Contents
AngioDynamics, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands of dollars, except share data)
Nov 30, 2020May 31, 2020
Assets
Current assets
Cash and cash equivalents$58,025 $54,435 
Accounts receivable, net of allowances of $1,941 and $2,150 respectively
33,604 31,263 
Inventories49,582 59,905 
Prepaid expenses and other8,493 7,310 
Total current assets149,704 152,913 
Property, plant and equipment, net29,628 28,312 
Other assets17,513 15,338 
Intangible assets, net190,559 197,136 
Goodwill201,117 200,515 
Total assets$588,521 $594,214 
Liabilities and stockholders' equity
Current liabilities
Accounts payable$15,979 $19,096 
Accrued liabilities27,610 29,380 
Current portion of contingent consideration 836 
Other current liabilities2,223 2,133 
Total current liabilities45,812 51,445 
Long-term debt, net of current portion40,000 40,000 
Deferred income taxes23,018 24,057 
Contingent consideration, net of current portion15,178 14,811 
Other long-term liabilities10,170 9,029 
Total liabilities134,178 139,342 
Commitments and contingencies (Note 14)
Stockholders' equity
Preferred stock, par value $0.01 per share, 5,000,000 shares authorized; no shares issued and outstanding
  
Common stock, par value $0.01 per share, 75,000,000 shares authorized; 38,702,030 and 38,448,536 shares issued and 38,332,030 and 38,078,536 shares outstanding at November 30, 2020 and May 31, 2020, respectively
375 374 
Additional paid-in capital566,602 561,871 
Accumulated deficit (108,854)(100,318)
Treasury stock, 370,000 shares at November 30, 2020 and May 31, 2020, respectively
(5,714)(5,714)
Accumulated other comprehensive income (loss)1,934 (1,341)
Total Stockholders’ Equity454,343 454,872 
Total Liabilities and Stockholders' Equity$588,521 $594,214 
The accompanying notes are an integral part of these consolidated financial statements.
5

Table of Contents
AngioDynamics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands of dollars)
Six Months Ended
Nov 30, 2020Nov 30, 2019
Cash flows from operating activities:
Net loss$(8,536)$(4,011)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization13,013 11,110 
Non-cash lease expense1,265 904 
Stock based compensation4,251 4,226 
Change in fair value of contingent consideration(473)(303)
Deferred income taxes(1,553)(734)
Change in accounts receivable allowances29 199 
Fixed and intangible asset impairments and disposals180 369 
              Write-off of other assets  593 
Other(230)(27)
Changes in operating assets and liabilities:
Accounts receivable(2,281)9,464 
Inventories10,528 (10,009)
Prepaid expenses and other(6,323)(3,544)
Accounts payable, accrued and other liabilities(3,847)(8,834)
Net cash provided by (used in) operating activities6,023 (597)
Cash flows from investing activities:
Additions to property, plant and equipment(3,185)(4,014)
Acquisition of intangibles (350)
Cash paid for acquisitions (45,760)
Net cash used in investing activities(3,185)(50,124)
Cash flows from financing activities:
Repayment of long-term debt (132,500)
Deferred financing costs on long-term debt (741)
Payment of acquisition related contingent consideration  (1,208)
Proceeds (outlays) from exercise of stock options and employee stock purchase plan481 (1,300)
Net cash provided by (used in) financing activities481 (135,749)
Effect of exchange rate changes on cash and cash equivalents271 76 
Increase (decrease) in cash and cash equivalents3,590 (186,394)
Cash and cash equivalents at beginning of period54,435 227,641 
Cash and cash equivalents at end of period$58,025 $41,247 
Supplemental disclosure of non-cash investing and financing activities:
Accrual for capital expenditures incurred during the period$23 $444 
Fair value of contingent consideration for acquisitions 14,900 
The accompanying notes are an integral part of these consolidated financial statements.
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AngioDynamics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
(in thousands of dollars, except share data)

 
Common StockAdditional
paid in
capital
Accumulated deficit Accumulated
other
comprehensive
income (loss)
Treasury Stock
SharesAmountSharesAmountTotal
Balance at May 31, 202038,448,536 $374 $561,871 $(100,318)$(1,341)(370,000)$(5,714)$454,872 
Net loss(4,268)(4,268)
Issuance/Cancellation of restricted stock units164,946 (143)(143)
Purchases of common stock under ESPP79,596 1 633 634 
Stock-based compensation1,864 1,864 
Other comprehensive income, net of tax2,095 2,095 
Balance at August 31, 202038,693,078 $375 $564,225 $(104,586)$754 (370,000)$(5,714)$455,054 
Net loss(4,268)(4,268)
Issuance/Cancellation of restricted stock units8,952 (10)(10)
Stock-based compensation2,387 2,387 
Other comprehensive income, net of tax1,180 1,180 
Balance at November 30, 202038,702,030 $375 $566,602 $(108,854)$1,934 (370,000)$(5,714)$454,343 

Common StockAdditional
paid in
capital
Retained earningsAccumulated
other
comprehensive
loss
Treasury Stock
SharesAmountSharesAmountTotal
Balance at May 31, 201937,984,382 $372 $555,040 $66,469 $(1,352)(370,000)$(5,714)$614,815 
Net loss(1,275)(1,275)
Exercise of stock options48,136 1 530 531 
Issuance/Cancellation of restricted stock units287,087 (2,459)(2,459)
Purchases of common stock under ESPP40,270 628 628 
Stock-based compensation1,984 1,984 
Other comprehensive loss, net of tax(151)(151)
Balance at August 31, 201938,359,875 $373 $555,723 $65,194 $(1,503)(370,000)$(5,714)$614,073 
Net loss(2,736)(2,736)
Issuance/Cancellation of restricted stock units4,051  
Stock-based compensation2,242 2,242 
Other comprehensive income, net of tax231 231 
Balance at November 30, 201938,363,926 $373 $557,965 $62,458 $(1,272)(370,000)$(5,714)$613,810 
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 November 30, 2020, the Consolidated Statements of Operations and the Consolidated Statements of Comprehensive Loss for the three and six months ended November 30, 2020 and 2019, the Consolidated Statements of Stockholders’ Equity for the three months ended November 30, 2020 and 2019 and the Consolidated Statements of Cash Flows for the six months ended November 30, 2020 and 2019 have been prepared by the Company and are unaudited. The Consolidated Balance Sheet as of May 31, 2020 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 November 30, 2020 (and for all periods presented) have been made.
The unaudited interim consolidated financial statements for the three and six months ended November 30, 2020 and 2019 include the accounts of AngioDynamics, Inc. and its wholly owned subsidiaries, collectively, the “Company”. All intercompany balances and transactions have been eliminated.
2. ACQUISITIONS
C3 Wave Tip Location Acquisition
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. The intangible assets will be amortized over 15 years. The contingent consideration is comprised of technical milestones and will be accounted for when the contingency is resolved or becomes probable and reasonably estimable.
Eximo Acquisition
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 B 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 B Laser Atherectomy technology which treats Peripheral Artery Disease.
The Company accounted for the Eximo 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 non-deductible for income tax purposes.
The Company has not disclosed the amount of revenue and earnings for sales of Eximo products since acquisition, nor proforma information, because these amounts are not significant to the Company's financial statements. Acquisition-related costs associated with the Eximo acquisition, which are included in "acquisition, restructuring and other items, net" in the accompanying Consolidated Statements of Operations, were approximately $0.6 million in fiscal year 2020. The following table summarizes the final aggregate purchase price allocated to the net assets acquired:
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(in thousands)Final allocation
Accounts receivable$50 
Inventory150 
Prepaid and other current assets54 
Long-term deposits51 
Property, plant and equipment397 
Intangible assets:
Product technology60,300 
Goodwill11,427 
Total assets acquired$72,429 
Liabilities assumed
Accounts payable$84 
Other current liabilities615 
Deferred tax liabilities11,070 
Total liabilities assumed$11,769 
Net assets acquired$60,660 

The Company finalized the allocation of the purchase price to the assets acquired and liabilities assumed in the fourth quarter of fiscal year 2020.
The value assigned to the product technology 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. The product technology is deemed to have a useful life of fifteen years and will be amortized on a straight-line basis over the useful life.
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

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 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:
Three Months Ended Nov 30, 2020
Three Months Ended Nov 30, 2019
(in thousands)United StatesInternationalTotalUnited StatesInternationalTotal
Net sales
Vascular Interventions & Therapies$30,689 $3,211 $33,900 $27,601 $3,549 $31,150 
Vascular Access20,161 3,769 23,930 18,563 4,221 $22,784 
Oncology9,834 5,106 14,940 9,391 6,678 $16,069 
Total$60,684 $12,086 $72,770 $55,555 $14,448 $70,003 

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Six Months Ended Nov 30, 2020
Six Months Ended Nov 30, 2019
(in thousands)United StatesInternationalTotalUnited StatesInternationalTotal
Net sales
Vascular Interventions & Therapies$57,669 $6,088 $63,757 $53,277 $6,786 $60,063 
Vascular Access39,383 12,652 52,035 37,847 8,096 $45,943 
Oncology17,740 9,454 27,194 17,368 12,671 $30,039 
Total$114,792 $28,194 $142,986 $108,492 $27,553 $136,045 
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 implanted for short or long 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.
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 contra asset.
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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 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 six months ended November 30, 2020, 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 Consolidated Balance Sheets.
The following table presents changes in the Company’s receivables, contract assets and contract liabilities with customers:
(in thousands)Nov 30, 2020
May 31, 2020
Receivables$33,604 $31,263 
Contract assets$ $ 
Contract liabilities$406 $545 
During the six months ended November 30, 2020, the Company had additions to contract liabilities of $0.6 million. This was offset by $0.7 million in revenue that was recognized during the six months ended November 30, 2020.
Costs to Obtain or Fulfill a Customer Contract
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:
(in thousands)Nov 30, 2020May 31, 2020
Raw materials$21,301 $23,308 
Work in process7,957 8,318 
Finished goods20,324 28,279 
Inventories$49,582 $59,905 
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
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obsolete, expiring and slow moving inventory. The total inventory reserve at November 30, 2020 and May 31, 2020 was $4.2 million and $4.7 million, respectively.
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, 2019. 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 as of December 31, 2019. 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 and the Company recorded a goodwill impairment charge of $158.6 million as of May 31, 2020 to write down the carrying value of the reporting unit to fair value.
The future occurrence of another 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 another interim assessment for the reporting unit prior to the next required annual assessment as of December 31, 2020.
There were no adjustments to goodwill for the six months ended November 30, 2020 other than foreign currency translation adjustments.
Intangible assets consisted of the following:
Nov 30, 2020
(in thousands)Gross carrying valueAccumulated amortizationNet carrying value
Product technologies$254,750 $(95,897)$158,853 
Customer relationships60,255 (32,121)28,134 
Trademarks10,150 (6,851)3,299 
Licenses6,087 (5,814)273 
$331,242 $(140,683)$190,559 

May 31, 2020
(in thousands)Gross carrying valueAccumulated amortizationNet carrying value
Product technologies$251,569 $(88,547)$163,022 
Customer relationships60,160 (30,018)30,142 
Trademarks10,150 (6,691)3,459 
Licenses6,087 (5,574)513 
$327,966 $(130,830)$197,136 
Amortization expense for the three months ended November 30, 2020 and 2019 was $4.6 million and $4.5 million, respectively. Amortization expense for the six months ended November 30, 2020 and 2019 was $9.5 million and $8.4 million, respectively.


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Expected future amortization expense related to the intangible assets is as follows:
(in thousands)
Remainder of 2021$8,488 
202217,038 
202317,488 
202415,986 
202517,006 
2026 and thereafter114,553 
$190,559 

6. ACCRUED LIABILITIES
Accrued liabilities consisted of the following: 
(in thousands)Nov 30, 2020May 31, 2020
Payroll and related expenses$11,347 $13,059 
Royalties1,814 2,392 
Accrued severance533 794 
Sales and franchise taxes834 634 
Outside services3,393 2,222 
Indemnification holdback4,625 5,000 
Other5,064 5,279 
$27,610 $29,380 

7. LONG TERM DEBT
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 with the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and Bank of America, N.A. and KeyBank National Association, as co-syndication agents.
The Credit Agreement provides for a $125.0 million secured revolving credit facility (the “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 proceeds may be used to refinance certain existing indebtedness of the Company and its subsidiaries, to finance the working capital needs, and for general corporate purposes (including permitted acquisitions), of the Company and its subsidiaries.
The Credit Agreement has a five year maturity. Interest on the facility will be based, at the Company’s option, on a base rate of LIBOR plus an applicable margin tied to the Company’s total leverage ratio and having ranges between 0.25% and 0.75% for base rate loans and between 1.25% and 1.75% for LIBOR loans. After default, the interest rate may be increased by 2.0%. The facility will also carry a commitment fee of 0.20% to 0.25% per annum on the unused portion.
The Company's obligations under the Revolving Facility are unconditionally guaranteed, jointly and severally, by the Company's material direct and indirect domestic subsidiaries (the “Guarantors”). All obligations of the Company and the Guarantors under the Revolving Facility are secured by first priority security interests in substantially all of the assets of the Company and the Guarantors.
The Credit Agreement includes customary representations, warranties and covenants, and acceleration, indemnity and events of default provisions, including, among other things, two quarterly financial covenants as follows: 
maximum leverage ratio of consolidated total indebtedness* to consolidated EBITDA* of not greater than 3.00 to 1.00 (during certain periods following material acquisitions the ratio shall be increased to 3.50 to 1.00).
fixed charge coverage ratio of consolidated EBITDA minus consolidated capital expenditures to consolidated interest expense paid or payable in cash plus scheduled principal payments in respect of indebtedness under the Credit Agreement of not less than 1.25 to 1.00.
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* The definitions of consolidated total indebtedness and consolidated EBITDA are maintained in the credit agreement included as an exhibit to Form 8-k filed on June 6, 2019.
As of November 30, 2020, there was $40.0 million outstanding balance on the Revolving Facility. As of November 30, 2020 and May 31, 2020, the carrying value of long-term debt approximated its fair market value.
The interest rate on the Revolving Facility at November 30, 2020 was 1.65%.
The Company was in compliance with the Credit Agreement covenants as of November 30, 2020.

8. INCOME TAXES
The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate for the full fiscal year adjusted for any discrete events, which are recorded in the period that they occur.  The estimated annual effective tax rate prior to discrete items was 16.1% as of the second quarter of fiscal year 2021, as compared to 13.2% for the same period in fiscal year 2020. In fiscal year 2021, the Company’s effective tax rate differs from the U.S. statutory rate primarily due to the impact of the valuation allowance, foreign taxes, and other non-deductible permanent items (such as non-deductible meals and entertainment, Section 162(m) excess compensation and non-deductible share based compensation).
The Company regularly assesses its ability to realize its deferred tax assets. Assessing the realization of deferred tax assets requires significant management judgment. In determining whether its deferred tax assets are more likely than not realizable, the Company evaluated all available positive and negative evidence, and weighted the evidence based on its objectivity.
Based on the review of all available evidence, the Company determined that it has not yet attained a sustained level of profitability and the objectively verifiable negative evidence outweighed the positive evidence. Therefore, the Company has provided a valuation allowance on its federal and state net operating loss carryforwards, federal and state R&D credit carryforwards and other net deferred tax assets that have a limited life and are not supportable by the naked credit deferred tax liability sourced income as of November 30, 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.

9. SHARE-BASED COMPENSATION
The Company has three stock-based compensation plans that provide for the issuance of up to approximately 14.2 million shares of common stock. The 2004 Stock and Incentive Award Plan (the "2004 Plan") and the 2020 Stock and Incentive Award Plan (the "2020 Plan") provide for the grant of up to 7.8 million and 2.4 million shares of common stock, respectively. These plans provide for the grant of incentive stock options, non-statutory stock options, restricted stock, stock appreciation rights, performance units, performance shares and other incentive awards to the Company's employees, directors and other service providers. The Company also has an employee stock purchase plan which provides for the issuance of up to 4.0 million shares of common stock.
For the three months ended November 30, 2020 and 2019, share-based compensation expense was $2.4 million and $2.2 million, respectively. For the six months ended November 30, 2020 and 2019, share-based compensation expense was $4.3 million and $4.2 million, respectively
During the six months ended November 30, 2020 and 2019, the Company granted stock options and restricted stock units under the 2004 and 2020 Plan to certain employees and members of the Board of Directors. Stock option awards are valued using the Black-Scholes option-pricing model and then amortized on a straight-line basis over the requisite service period of the award. Restricted stock unit awards are valued based on the closing trading value of the Company's shares on the date of grant and then amortized on a straight-line basis over the requisite service period of the award.
During the six months ended November 30, 2020 and 2019, the Company granted performance share units under the 2004 Plan to certain employees. The awards may be earned by achieving relative performance levels over the year requisite service period. The performance criteria are based on achieving certain performance targets and the total shareholder return ("TSR") of the Company's common stock relative to the TSR of the common stock of a pre-defined industry peer-group. The fair value of these awards are based on the closing trading value of the Company's shares on the date of grant and use a Monte Carlo simulation model.
As of November 30, 2020, there was $16.0 million of unrecognized compensation expense related to share-based payment arrangements. These costs are expected to be recognized over a weighted-average period of approximately four years. The Company has sufficient shares to satisfy expected share-based payment arrangements.
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10. EARNINGS PER SHARE
Basic earnings per share is based on the weighted average number of common shares outstanding without consideration of potential common stock. Diluted earnings per share includes the dilutive effect of potential common stock consisting of stock options, restricted stock units and performance stock units, provided that the inclusion of such securities is not anti-dilutive. In periods with a net loss, stock options and restricted stock units are not included in the computation of diluted loss per share as the impact would be anti-dilutive.

The following table reconciles basic to diluted weighted-average shares outstanding:
Three Months EndedSix Months Ended
(in thousands)Nov 30, 2020Nov 30, 2019Nov 30, 2020Nov 30, 2019
Basic38,327 37,992 38,242 37,887 
Effect of dilutive securities    
Diluted38,327 37,992 38,242 37,887 
Securities excluded as their inclusion would be anti-dilutive3,133 2,694 3,159 2,689 

11. SEGMENT AND GEOGRAPHIC INFORMATION
The Company considers the business to be a single operating segment engaged in the development, manufacture and sale of medical devices for vascular access, peripheral vascular disease and oncology on a global basis. The Company's chief operating decision maker, the President and Chief Executive Officer (CEO), evaluates the various global product portfolios on a net sales basis. Executives reporting to the CEO include those responsible for commercial operations, manufacturing operations, regulatory and quality and certain corporate functions. The CEO evaluates profitability, investment and cash flow metrics on a consolidated worldwide basis due to shared infrastructure and resources.
The table below summarizes net sales by Global Business Unit: 
Three Months EndedSix Months Ended
(in thousands)Nov 30, 2020Nov 30, 2019Nov 30, 2020Nov 30, 2019
Net sales
Vascular Interventions & Therapies 
$33,900 $31,150 $63,757 $60,063 
Vascular Access23,930 22,784 52,035 45,943 
Oncology14,940 16,069 27,194 30,039 
Total$72,770 $70,003 $142,986 $136,045 
The table below presents net sales by geographic area based on external customer location:
Three Months EndedSix Months Ended
(in thousands)Nov 30, 2020Nov 30, 2019Nov 30, 2020Nov 30, 2019
Net sales
United States$60,684 $55,555 $114,792 $108,492 
International12,086 14,448 28,194 27,553 
Total$72,770 $70,003 $142,986 $136,045 

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12. FAIR VALUE
On a recurring basis, the Company measures certain financial assets and financial liabilities at fair value based upon quoted market prices, where available. Where quoted market prices or other observable inputs are not available, the Company applies valuation techniques to estimate fair value. FASB ASC Topic 820, Fair Value Measurements and Disclosures, establishes a three-level valuation hierarchy for disclosure of fair value measurements. The categorization of financial assets and financial liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy are defined as follows:
Level 1 - Inputs to the valuation methodology are quoted market prices for identical assets or liabilities.

Level 2 - Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets or liabilities and market-corroborated inputs.

Level 3 - Inputs to the valuation methodology are unobservable inputs based on management’s best estimate of inputs market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk.
The Company's financial instruments include cash and cash equivalents, accounts receivable, accounts payable and contingent consideration. The carrying amount of cash and cash equivalents, accounts receivable, and accounts payable approximates fair value due to the immediate or short-term maturities. The Company's recurring fair value measurements using significant unobservable inputs (Level 3) relate to contingent consideration liabilities.
The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis:
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Fair Value Measurements using inputs considered as:
Fair Value at Nov 30, 2020
(in thousands)Level 1Level 2Level 3
Financial Liabilities
Contingent consideration for acquisition earn outs$ $ $15,178 $15,178 
Total Financial Liabilities$ $ $15,178 $15,178 
Fair Value Measurements using inputs considered as:Fair Value at May 31, 2020
(in thousands)Level 1Level 2Level 3
Financial Liabilities
Contingent consideration for acquisition earn outs$ $ $15,647 $15,647 
Total Financial Liabilities$ $ $15,647 $15,647 

There were no transfers between Level 1, 2 and 3 for the three and six months ended November 30, 2020.
The table below presents the changes in fair value components of Level 3 instruments:
Three Months Ended Nov 30, 2020
(in thousands)Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Balance, August 31, 2020$14,994 
Total gains or losses (realized/unrealized):
Change in present value of contingent consideration (1)
184 
Balance, November 30, 2020
$15,178 


Six Months Ended Nov 30, 2020
(in thousands)Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Balance, May 31, 2020
$15,647 
Total gains or losses (realized/unrealized):
Change in present value of contingent consideration (1)
(473)
Currency gain from remeasurement4 
Balance, November 30, 2020
$15,178 

(1) Change in the fair value of contingent consideration is included in earnings and comprised of changes in estimated earn out payments based on projections of Company performance and amortization of the present value discount.

Contingent Consideration for Acquisition Earn Outs
Some of the Company's business combinations involve the potential for the payment of future contingent consideration upon the achievement of certain product development milestones or various other performance conditions. Payment of the additional consideration is generally contingent on the acquired company reaching certain performance milestones, including attaining specified revenue levels or product development targets. Contingent consideration is recorded at the estimated fair value of the contingent payments on the acquisition date. The fair value of the contingent consideration is remeasured at the estimated fair value at each reporting period with the change in fair value recognized as income or expense within change in fair value of contingent consideration in the Consolidated Statements of Operations.
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Table of Contents
The Company measures the initial liability and remeasures the liability on a recurring basis using Level 3 inputs as defined under authoritative guidance for fair value measurements. The fair value is determined using a discounted cash flow model applied to projected net sales, using probabilities of achieving projected net sales and projected payment dates. Projected net sales are based on the Company's internal projections and extensive analysis of the target market and the sales potential. Increases or decreases in any valuation inputs in isolation may result in a significantly lower or higher fair value measurement in the future.
The recurring Level 3 fair value measurements of the contingent consideration liabilities include the following significant unobservable inputs as of November 30, 2020:
(in thousands)Fair ValueValuation TechniqueUnobservable InputRange
Revenue based payments$15,178 Discounted cash flowDiscount rate5%
Probability of payment66% - 100%
Projected fiscal year of payment2024 - 2025

At November 30, 2020, the range of estimated potential undiscounted future contingent consideration that the Company expects to pay as a result of all completed acquisitions is $20.0 million. The revenue projections milestones associated with the contingent consideration must be reached in future periods ranging from fiscal years 2021 to 2029 in order for the associated consideration to be paid.

13. LEASES
The Company determines if an arrangement is a lease at inception of the contract. The Company has operating leases for buildings, primarily for office space, R&D, manufacturing and warehousing.
Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. Many of the lease agreements contain renewal or termination clauses that are factored into the determination of the lease term if it is reasonably certain that these options would be exercised. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.
The following table presents supplemental balance sheet information related to leases:
(in thousands)Balance Sheet LocationNov 30, 2020May 31, 2020
Assets
Operating lease ROU assetOther assets$9,421 $10