AngioDynamics, Inc.

Good morning and welcome to the NGO Dynamics fourth quarter of fiscal year 2019 earnings file. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone today should require operator assistance, please press star zero from your telephone keypad. As a reminder, this conference call is being recorded. The news release detailing the fourth quarter of fiscal year 2019 results crossed the wire earlier this morning and is available on the company's website. www.ngeodynamics.com 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 Investors section of the company's website under Events and 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. I'd now like to turn the call over to Jim Clemmer, Angio Dynamics President and Chief Executive Officer. Mr. Clemmer?

Thank you, Rob. Good morning, everyone, and thank you for joining us today for Angio Dynamics 2019 Fiscal Fourth Quarter and our full year earnings call. Joining me today on the call is Michael Greiner, AngioDynamics Executive Vice President and Chief Financial Officer, who will provide a detailed analysis of our fiscal fourth quarter and our full year financial performance. But first, I'd like to begin by providing an overview of our operating and execution highlights for the year and further describe our vision for what lies ahead for AngioDynamics. Shortly after arriving at AngioDynamics, I defined a near-term focus for the company that included improving operational efficiency, increasing gross margins, and optimizing working capital as well as developing a robust R&D process. Those shorter-term objectives were critical to establishing a framework and foundation upon which we could build our longer-term vision and strategy. As we exited fiscal year 2018, We were energized by the significant progress we had made against those operational goals, positioning us to begin formulating a more defined strategy for our portfolio. Specifically, we identified the products that we believed were both differentiated and positioned for growth and that we could complement with M&A and our improved R&D processes. We also identified those products for which we may not be the most effective long-term owners. As you saw throughout fiscal year 2019, we have taken the first meaningful steps towards optimizing our portfolio with a specific focus on oncology and thrombus management. In the early part of the fiscal year, we completed the acquisitions of BioSentry and Radiodyne, adding three exciting technologies from these acquisitions. The BioSentry track sealant, the Elatus and Immobilock balloon stabilizing products, and the OrTrack radiation dose monitoring technology, all of which will contribute meaningfully within our oncology portfolio. The second half of the year saw continued momentum around our NanoKnife platform as we announced FDA approval of the IDE for our direct study for the use of NanoKnife to treat stage 3 pancreatic cancer. Within six weeks of approval, we enrolled our first patient, which was ahead of our schedule. Our clinical groups are focused on driving the operations of our direct trial, working with more than a dozen leading centers in our initial phase of site startup, to complete all of the steps necessary for site initiation. Over 57,000 people are diagnosed each year in the United States with pancreatic cancer, resulting in a sizable addressable market for NanoKnife in excess of $150 million. Shortly after receiving our IDE approval for direct, we were pleased to announce that the FDA approved a second NanoKnife IDE for our safety study for the use of NanoKnife to treat prostate cancer. Once the safety study is complete, we look forward to laying out the protocol for a study that we believe will demonstrate NanoKnife's ability to improve the quality of life and improve patients to the alternative treatment. We are excited to begin this six-patient safety study. as it is the first step in a comprehensive, data-driven approach to establish NanoKnife as a widely utilized treatment for prostate cancer. With approximately one man out of every nine being diagnosed with prostate cancer during his lifetime, this represents another significant addressable market opportunity for NanoKnife. We will continue to provide updates on our efforts to expand our NanoKnife platform to address significant unmet needs in a variety of oncology markets and applications, as well as keep you abreast of our progress as we proceed with our direct study. Lastly on NanoKnife, in the fourth quarter, we received a 510 clearance from the FDA for our NanoKnife 3.0 generator. The NanoKnife 3.0 is a new version of the NanoKnife platform with several key improvements, including an updated hardware and software design to improve the user experience, also improved graphics capabilities and flow of user interface that will enhance the user's ability to interact with our software. The end of our fiscal year was punctuated by the sale of our Namex Fluid Management Business, which resulted in a balance sheet that as of today has no debt, over $85 million in cash and approximately $175 million in dry powder. The sale is an additional step in our broader portfolio optimization strategy, helping us become a higher growth, more profitable company. Fiscal 2019 also proved to be a very productive year on the operational front as we saw accelerating benefits from the two plant closings that we completed in fiscal 2018. Additionally, our R&D efforts during the past couple of years have enabled us to launch a combination of new products or product extensions during fiscal 2020. These include but are not limited to an improved version of AngioVac utilizing new cannula shapes that will improve the device's efficiency and will be a key stepping stone for further development within the thrombus management portfolio. In fact, on July 5th, we received FDA 510 clearance for this new improved version of AngioVac. We also have NanoKnife 3.0, which as I mentioned a few minutes ago, has recently been approved by the FDA. And in our vascular access portfolio, we will be introducing a new port that combines our vortex port body with our BioFlow catheter technology, as well as a new dual and triple lumen catheter that will expand our acute dialysis portfolio. Turning to the legal front, We continue to make progress during the year, announcing a successful outcome in the Delaware intellectual property litigation with Bard as the court ruled in our favor during the third quarter. We are also moving forward with our antitrust case against Bard and anticipate a trial date in the spring of 2020. We are confident that we will prove Barter legally ties the sale of its tip location systems to its line of picks, violating federal antitrust laws, preventing competition in the marketplace, and limiting patient access to our superior BioFlow technology. In addition to these event-driven outcomes, we saw our vascular access business stabilize throughout the course of fiscal 2019. driven by growth in sales of our dialysis and ports products. Separately, our vascular interventions and therapies or VIT business saw solid growth driven by our AngioVac product line which reported a seventh consecutive quarter of double-digit procedural growth in revenue growth along with continued consistent performance in our core product line offerings. Finally, Our oncology portfolio is positioned for significant future growth, led by Solero, the additions of BioSentry and Radiodyne, and our NanoKnife platform approach. Fiscal year 2019 was an exciting and transformative year for AngioDynamics, as the core foundational components we had been putting in place over the course of the prior two years have enabled us to begin executing on our longer-term strategic vision of becoming a focused, high-growth, innovative medical device company that consistently delivers strong results. As we look forward to fiscal year 2020 and beyond, we will ensure that our foundation of operational excellence remains robust, we will further expand our gross margins, and we will continue to use operating cash flows to invest in R&D that will drive successful ROI outcomes and bring disruptive new technologies to the marketplace while also expanding our market opportunities. Our efforts will be focused on areas with clear opportunities to build upon our existing science and technology and secondarily in market opportunities where we have the right to win based upon prior success in adjacent areas, competitive landscape, and with reimbursement and regulatory support. We will also continue to monitor clinical and regulatory pathways and assess opportunities for investment that allow us to expand the uses for our existing technologies. As I've mentioned before, two primary areas of focus for us will be our oncology and our thrombus management portfolios where we believe there are significant unmet patient needs and opportunities to improve both the clinical experience and patient outcomes. For example, as we mentioned last quarter, we believe there is a significant opportunity available to us in the moderately complex segment of the thrombus management market based upon the success of our Unifuse and AngioVac platforms which serve the simple and the complex ends of the space respectively. The intermediate space is a significantly larger addressable market than we currently serve, and it has meaningful opportunities for growth and share gains. Our results and operational progress could not have been achieved without the wonderful efforts of our team. It's often overstated, but the quality of our team is truly What gives me the confidence going forward that we can successfully drive a new path, and I'm very excited about what the future holds for our company. With that, I'd like to turn the call over to Michael Greiner, our Executive Vice President and Chief Financial Officer.

Thanks, Jim, and good morning. Before I begin, please remember that we post a presentation on our investor relations website summarizing the key items associated with our quarterly and year-end results, as well as our financial guidance. This year-end, we have also provided slides to support the NAMIC divestiture, including showing pro forma financials for fiscal year 2019, which exclude the contribution from the NAMIC assets that we divested on May 31st, 2019. Unless otherwise noted, all results discussed on this call are on an actuals basis and include the contribution of our NAMIC fluid management business for full year fiscal 2019. Our net sales for the fourth quarter of fiscal 2019 were $96.3 million, representing year-over-year growth of 9% when including our radiodyne and biosensory acquisitions and 5.2% on an organic basis. The 12 months ended May 31, 2019. Net sales were $359.5 million, representing total year-over-year growth of 4.4% and organic growth of 1.6%. At the product level, Our Solero, dialysis catheter, ports, fluid management, and angioVac products exhibited solid growth during the quarter. This offset lower nano knife capital sales and continued slower sales of our radio frequency ablation products as market adoption shifts to our microwave ablation technology. Our VIT business grew 6.9% year over year as strong growth in the angioVac and fluid management product lines along with continued strength in our core business were partially offset by anticipated decline in the Venus Insufficiency business. We continue to see signs that our Venus Insufficiency business is stabilizing and currently anticipate that we will return to modest growth this year. Also related to our Venus Insufficiency business, we noted the discontinuance of our Esclera product line when we announced the divestiture of the NAMIC assets in April. The revenue associated with that product in fiscal year 2019 was $5.9 million and we will not have any revenue contribution from Esclera in fiscal year 2020 or forward. Based on the anticipated accumulation of Esclera inventory we would have had over the coming years, we subsequently settled a contract dispute for the distribution of this product for $2.5 million. This was an appropriate action and a positive outcome for our cash position and working capital in future periods. Our NAMIC business finished strong as it transitioned to its new owners on June 1st. We were pleased that we were able to stay focused on meeting the needs of our customers throughout the divestiture process, and we hope for the continued success of that business in the hands of the new owners. Turning to AngioVac within our VIT portfolio, procedural volume remains strong, with procedures increasing 35% year-over-year, representing our seventh consecutive quarter of double-digit volume and revenue growth, and further validating our strategy to build or acquire complementary products to support our promised platform, as Jim noted earlier. Vascular access revenue increased 4.9% during the fourth quarter, as continued strong performance in sales of our dialysis products was partially offset by slight declines in sales of PICs. However, as expected, sales of our ports products returned to low single-digit growth in the fourth quarter, while our midlines business also bounced back to grow double digits. Additionally, while PIC sales were down during the quarter and the year, we have seen steadily improving performance throughout the year and are optimistic that continued sales execution combined with lower comps will ensure that our PIC-related revenue will have limited negative impact on consolidated results in fiscal 2020. Revenue from our oncology business increased 26.5%, driven by strong sales of our Solero product as well as revenue contributed from our biosensory and radiodyne acquisitions. This helped offset a slight decline in nanonife probe sales, while nanonife capital sales were down 100,000 versus the prior year. We remain pleased with the early success of our oncology acquisitions, which are both progressing in line with our expectations and are supportive of our anticipated growth rate for this year, which is approximately 50% on an annualized basis and an excess of 80% on an actual basis. Moving down the income statement, our gross margin for the fourth quarter of fiscal 2019 was 53.6%, relatively flat compared to a year ago as improvements in net productivity and higher volume were offset by negative impacts of price and product mix. For the 12 months ended May 31, 2019, our gross margin was 53.4% compared to 51.4% in fiscal 2018. While we did not achieve our full year gross margin target of 54%, we were very pleased with a 200 basis point increase over fiscal year 2018. Challenges were presented throughout the year that we were unable to offset with productivity gains. We discussed some of these challenges throughout the year, which included a drag related to freight expense, higher than anticipated negative pricing and currency impacts, and a significant fourth quarter headwind related to product mix. The product mix impact was primarily driven by the year-over-year revenue increase in our fluid management business. These discrete items were specific to fiscal year 2019 and do not impact our ability to achieve our gross margin guidance going forward. Our research and development expenses during the fourth quarter of fiscal 2019 were $7.2 million or 7.5% of sales compared to $6.5 million or 7.3% of sales a year ago. For the 12 months ended May 31, 2019, our research and development expenses were $29.4 million, or 8.2% of sales, compared to $25.5 million, or 7.4% of sales a year ago. As we have messaged throughout the year, we are continuing to invest in R&D and clinical to support the growth of our core strategic technologies. We expect R&D spend to be between $29 and $32 million in fiscal year 2020. SG&A expense for the fourth quarter of fiscal 2019 increased to $30.4 million, representing 31.6% of sales, compared to $28.8 million, representing 32.7% of sales a year ago. For the 12 months ended May 31, 2019, our SG&A expense increased to $116.2 million, representing 32.3% of total sales, compared to $108.5 million, representing 31.5% of total sales a year ago. We expect SG&A spend to be between $119 and $123 million for fiscal year 2020. The increase is primarily a result of the upcoming product launches that Jim discussed earlier, as well as a full annualization of SG&A expense for the two acquisitions. Our adjusted net income for the fourth quarter of fiscal 2019 was $9.6 million, or 25 cents per share, for the 12 months ended May 31, 2019, our adjusted net income was $31.6 million or $0.83 per share compared to adjusted net income of $27.6 million or $0.74 per share in fiscal 2018. Adjusted EBITDAs in the fourth quarter of fiscal 2019 was $17.6 million for the 12 months ended May 31, 2019, our adjusted EBITDA was $61.5 million compared to $57 million for the same period a year ago. In the fourth quarter of fiscal 2019, we generated $25 million of cash from operating activities and our free cash flow was $24.2 million, bringing our full year free cash flow total to $34.3 million. Turning to the balance sheet and slide four of the presentation. As of May 31st, 2019 and post-closing of the NAMIC divestiture, we had $227.6 million in cash and cash equivalents and $132.5 million in debt. On June 3rd, we used $132.5 million of our cash balance to fully pay down all of our existing outstanding debt. We simultaneously entered into a new revolver-only credit agreement providing access to $125 million of capital. As of today, we have no outstanding debt and approximately $85 million in cash and cash equivalents. Next, in order to provide context for our 2020 expectations, I will discuss our 2019 pro forma income statement excluding our fluid management business. As shown in the supplemental presentation, pro forma net revenue for the year end of May 31, 2019 was $270.6 million representing 3.4% growth over fiscal year 2018. Pro forma gross margin in fiscal year 2019 was 57.6% compared to 55% for fiscal year 2018. Pro forma adjusted net income for the 12 months ended May 31st, 2019 was 8.2 million and pro forma earnings per share was 22 cents, basically flat when compared to pro forma earnings per share in fiscal 2018. Proforma adjusted EBITDAs for the 12 months ended May 31, 2019 was $30.6 million. Finally, turning to our financial guidance for fiscal 2020, we expect net sales in the range of $280 to $286 million, adjusted EPS between $0.25 and $0.30, as well as gross margin in the range of 58% to 59%. With that, I would like to turn the call back to the operator to open the call for questions.