AngioDynamics, Inc.

Good morning and welcome to the NGO Dynamics second quarter fiscal year 2019 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference, please press star zero. As a reminder, this conference call is being recorded. The news release detailing the second quarter results crossed the wire earlier this morning and is available on the company's website. Thank you for joining us. Adjusted Earnings, and Free Cash Flow for Fiscal Year 2019. Management encourages you to review the company's past and future filings with the SEC, including, without limitation, the company's Forms 10-Q and 10-K, which identify specific factors that may cause the actual results or events to differ materially from those described in the forward-looking statements. A slide package offering insight into the company's financial results is also available on the Investor section of the company's website under Presentations. This presentation should be read in conjunction with the press release discussing the company's operating results and financial performance during this morning's conference call. And now I'd like to turn the call over to Jim Clemmer, AngioDynamics President and Chief Executive Officer. Mr. Clemmer?

Thank you, Melissa. Good morning, everyone, and thank you for joining us today for AngioDynamics' second quarter Fiscal 2019 Earnings Call. With me on the call is Michael Greiner, AngioDynamics Executive Vice President and Chief Financial Officer. Today, I will provide a brief overview of the operating highlights for the quarter. Michael will then provide a detailed analysis of our financial performance and our fiscal 2019 financial guidance. After that, we'll open the call to your questions. We are pleased with our operating and financial accomplishments during the second quarter, which reflect our ongoing commitment to profitable growth, operational excellence, and to building a market-leading, cohesive product portfolio. Our net sales for the second quarter of fiscal 2019 increased 5.5% to $91.5 million, driven by a double-digit improvement in oncology, as well as Better Than Expected Growth across our vascular access and vascular interventions and therapies businesses. Additionally, our recent acquisitions of BioSentry and Radiodyne are contributing to our results, validating our portfolio optimization strategy, and enhancing our value proposition within oncology. At the product level, our AngioVac, NanoKnife, Fluid management and core peripheral product lines continue to generate solid growth and momentum, offsetting headwinds in our venous insufficiency business and the anticipated slower sales of our radiofrequency ablation product. Overall, we are pleased to report growth across each of our business units, expanded gross margins, and improved profitability during the quarter. and these results are supportive of our financial goals for fiscal 2019. Now focusing on the performance of each of our businesses, our vascular interventions and therapies or VIT business grew 2.2% year over year as strong growth in the fluid management and angio-vac product lines was partially offset by an anticipated decline in the venous insufficiency business. However, we were encouraged to see the declines in Venus decelerating. We expect comps to ease in the back half and continue to work diligently to stabilize this business by the end of our fiscal year. AngioVac procedural volume remains strong, with procedures increasing 10% year-over-year in our second quarter, representing our fifth consecutive quarter of double-digit growth for procedural volume. which we believe validates our unique technology. As noted previously, we are making targeted R&D investments in our thrombus management portfolio while also identifying external growth opportunities as we seek to build out a franchise around our angioVac technology. Next week at the JPMorgan conference, we'll discuss in more detail our growth plans associated with our thrombus management opportunity as we aim to provide a more comprehensive offering in that space. We saw continued growth in our core peripheral products, which includes angiographic catheters, due to the combination of our widely trusted technology and strong execution related to the Salesforce restructuring we implemented at the beginning of our fiscal year. Vascular access revenue was up 5.1% during the second quarter. as improved performance in sales of our ports and dialysis products, combined with continued strong sales of midlines, was slightly offset by decline in sales of PICs. Our vascular access growth was driven by the continued market adoption of BioFlow, our market-leading thrombus reduction technology. While we expected decline in PICs to continue, we anticipate decelerating declines going forward. We saw growth in all of our geographies in VA, and we're particularly pleased with the continued growth of our ports and dialysis products. We attribute much of this consistent growth to the sales and marketing leadership changes that we've implemented over the past 18 months, which have resulted in stronger commercial discipline and execution. As reported, revenue from our oncology business, which now includes BioSentry and Radiodyne, increased 19.8%. Driven by strong growth in both capital and disposables, Nanomife sales were up 29.1% year-over-year, and we continue to see momentum and increasing global adoption of our technology. As previously noted, we are pleased with the early success of our oncology acquisitions, as both are progressing in line with our expectations. The addition of these products is consistent with our commitment to build a continuum of care within our oncology platform business that is built around our core ablative platforms. And we've already seen signs of how these technologies complement our existing portfolio. We will further outline our oncology platform and our growth plans next week at the JPMorgan conference. We also wanted to update you on our progress towards obtaining a pancreatic cancer indication for NanoKnife. We are in the process of submitting final responses to what we believe are the final few questions from the FDA. We expect this to be the final step in our process towards IDE approval. We also received a determination from the FDA that the NanoKnife comprehensive study of stage three pancreatic cancer will receive a category B designation. This means that the FDA has determined that the information we provided demonstrates that their initial questions around safety and effectiveness for the Nanomife system for the treatment of stage three pancreatic cancer have been resolved. This is a significant positive as the device and the related treatment during the study will be eligible for reimbursement. We are looking forward to this comprehensive study that will demonstrate the technology's unique capabilities and benefits to pancreatic cancer patients. With that, I'll turn the call over to Michael Greiner, our Executive Vice President and Chief Financial Officer.

Thanks, Jim, and good morning, everyone. As Jim mentioned, our net sales for the second quarter of fiscal 2019 were 91.5 million, representing year-over-year growth of 5.5%, including our radiodine and biocentury acquisitions, and 2.2% growth on an organic basis. I'd also like to note that we experienced solid growth in most of our product categories, which are documented on the slides mentioned previously. Our gross margin for the second quarter of fiscal 2019 expanded 440 basis points to 53.7% from 49.3% a year ago. This is reflecting our continued focus on operational and supply chain improvements, as well as positive impact associated with our portfolio optimization strategy. Our second quarter gross margin was in line with our expectations. However, given continued headwinds related to freight and shipping, as well as productivity improvements that will not be realized in the current year, We now anticipate our full year fiscal year 2019 gross margin to be in the range of 54% to 55%, with a fourth quarter exit gross margin exceeding 55%. Our research and development expenses during the second quarter of fiscal 2019 were $7.4 million compared to $6.1 million a year ago. Consistent with our comments last quarter, we have seen an uptick in R&D spend as a percentage of sales. We now anticipate R&D spend to be between $28.5 and $29.5 million, or approximately 8% of net sales for this fiscal year. This contemplates additional spending related to our nanonife study and supporting our recent acquisitions during the back half of this fiscal year. Moving down the income statement, SG&A spends for the second quarter of fiscal 2019 increased to $29.6 million, compared to $26.5 million last year. We anticipate SG&A expense as a percent of revenue to be approximately 33% for the back half of the fiscal year, which contemplates an increase of approximately $4 million as a result of the two acquisitions. Our adjusted net income for the second quarter of fiscal 2019 was $8.4 million, or 22 cents per share, compared to adjusted net income of $6.3 million, or 17 cents per share, in the comparable second quarter of last year. Last year, in the reported second quarter, we had $5.8 million, or $0.16 per share, based on the then-enacted 36% statutory tax rate. The updated reported adjusted net income for the second quarter of last year is now at the post-tax reform blended rate of 30.62%. Adjusted EBITDA in the second quarter of fiscal 2019, excluding the items shown in the reconciliation table in our presentation, was $16.3 million, compared to $13.3 million in the second quarter of fiscal 2018. This greater than 22% growth is attributable to the previously noted increase in sales and improved gross margins. In the second quarter of fiscal 2019, we generated $13 million of cash in operating activities, from operating activities, and our free cash flow was $12.2 million.