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May 25, 2010
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On May 24, 2010, Angeion Corporation (ANGN) reported operating results for the second quarter ending April 30, 2010. The company surprised on the upside, beating our estimate on both the top line and EPS.
We have adjusted our full-year revenue and EPS slightly upwards. The company is delivering on their strategy to grow revenue through new product introductions, further international penetration and gains in market share and pricing. We remain highly positive on Angeion’s long-term growth prospects and expect near-term R&D and marketing investments to result in positive net income in 2011.
Revenue in the second quarter of $6.854 million increased by 10.4% year-over-year, and consisted of $5.961 million (up 10.5% y-o-y) in equipment and supplies sales and $893k (up 10% y-o-y) in services revenue. International sales were $445k in the quarter, an increase of 44% y-o-y and accounted for 21.1% of total revenue, compared to 16% in the same period 2009. EPS of ($0.13) was down from the ($0.05) posted in the second quarter 2009.
Total revenue came in 2% ahead of our $6.729 million estimate with equipment and supplies revenue beating our $5.877 million forecast by 1.4% and supplies revenue up 4.8% from our $852k estimate. Revenue growth in the quarter benefited from continued international penetration, modest contribution from the late Q2 2010 launch of new products including the Ultima CardiO2 machine and what we expect is some slight gains in market share and pricing.
We view the revenue growth in the quarter as especially impressive given that hospital capital expenditures remain stingy.
EPS of ($0.13) compared favorably to our estimate of ($0.18) and benefited from the slightly better-than-anticipated revenue figure and a stronger-than-expected (52% actual vs. 51% estimated) gross margin. While service margin fell to 80.9% in the quarter (down from 88.8% y-o-y and 88.2% from Q1 2010), product margin remained strong at 47.7% (slightly down from 47.9% y-o-y and up from 45.6% from Q1 2010).
We expect service margin to remain at around the 81% level for the remainder of the year, as the company retrofits certain products which should enable the company to reduce warranty expense for the longer-term. Going into 2011, we expect service margin to return towards its historical 85% - 89% level. Product margin should remain near 47% which will keep gross margins at above 50% going forward.
Operating expenses of $4.012 million were about 1% lower than our $4.050 million forecast and were 20% higher than the second quarter 2009. We expect operating expenses to remain near these levels in the third and fourth quarters of 2010 as the company pumps money into marketing and development in support of new products. As we have detailed, we expect Angeion to gain significant leverage from these investments beginning in early 2011.
Angeion exited the quarter with $11.1 million in cash and equivalents, up from $10.5 million at the end of the first quarter. The company generated $1.01 million in cash from operations in the second quarter and $375k through the first six months of the year. The balance sheet remains debt-free. On the conference call, management commented that they are still actively looking for acquisition targets.
We expect the cash balance, along with operating cash, to be more than satisfactory to fund the expected elevated operating expenses, the recently announced share buyback program and a potential small (~$5 million in revenue) acquisition. The company also has a significant amount of borrowing capacity to fund a larger acquisition.
We continue to expect strong revenue growth for the remainder of the year and have adjusted our full-year revenue and EPS slightly upwards from $27.376 million and ($0.63) to $27.702 million and ($0.56). We are maintaining our Outperform rating and our $6.00 price target.
Share Buyback Program Announced...
On March 16, 2010 Angeion announced a share repurchase program whereby the company expects to buyback up to $1 million of its outstanding shares on the open market over the following nine months. The intended share repurchase will be funded with cash on hand and represents approximately 5% of outstanding shares. Angeion repurchased 25,578 shares through the end of the second quarter.
Given that we believe the shares continue to trade are very attractive levels, we view the buyback program as a positive move and wise use of the company’s large cash balance.
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