AngioDynamics, Inc.

Good morning and welcome to the Antiodynamics Fiscal Year 2020 First Quarter Earnings Call. 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 during the conference, please press star-zero from your telephone keypad. As a reminder, this conference is being recorded. The news release detailing the fiscal 2020 First Quarter results crossed the wire earlier this morning and is available on the company's website. This conference call is also being broadcast live over the internet at the investor section of the company's website at www.ngodynamics.com, and the webcast replay of the call will be available at the same site approximately one hour after the end of today's call. Before we begin, I would like to caution listeners that during the course of this conference call, the company will make projections or forward-looking statements regarding future events, including statements about expected revenue, adjusted earnings, and gross margins for fiscal year 2020. Management encourages you to review the company's past and future filings with the SEC, including without limitation the company's forms 10Q and 10K, 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, Andrew Dynamics President and Chief Executive Officer. Mr. Clemmer?

Thank you, Rob, and good morning, everyone, and thank you for joining us for Andrew Dynamics Fiscal 2020 First Quarter Earnings Call. Joining me on today's call is Michael Greiner, Andrew Dynamics Executive Vice President and Chief Financial Officer. will provide a detailed analysis of our first quarter financial performance. But first, I'd like to begin by providing an overview of our operating and execution highlights for the quarter. I am very pleased with our solid financial performance as well as the additional strategic and operational progress we have made towards achieving our longer-term vision during the quarter. AngioDynamics looks vastly different today We are continuing to focus our efforts on developing and acquiring innovative technologies that complement our oncology and thrombus management platforms. Additionally, research and development remains a top priority for us and we remain on track to release a number of new products and product extensions during fiscal 2020. In addition, we continue to evaluate our portfolio and may consider divesting of existing businesses that no longer align with our longer-term vision and strategy. For example, the divestiture of our Namek business in late fiscal 2019 allows us to continue to aggressively invest internally as well as to be opportunistic on the M&A front as evidenced by the acquisition that we announced this morning. The acquisition of Eximo Medical Limited is consistent with our stated strategy of acquiring highly innovative and disruptive technologies within the clotting space and is a great complement to our vein-focused angioVac platform. Eximo's laser atherectomy technology is a differentiated therapy that is well positioned to take share in a large and growing market with established reimbursement dynamics. This technology is an exciting addition to our portfolio, and while the product is currently in a limited launch stage, we will be building a significant commercial and sales organization over the coming quarters to fully support the growth trajectory we believe this product will achieve as it penetrates this significant market. To support future growth opportunities that are presented by owning this product, in addition to making these significant investments, we are prepared to invest in this overall platform to potentially enter additional markets. Exima will not have a material revenue impact in fiscal year 2020, and as we noted in our earnings release, We are modifying our expectations for current year adjusted EPS to a range of 10 cents to 15 cents. We anticipate a meaningful increase in revenue over the coming years as clinicians begin to gain a better understanding of their approved outcomes and ease of use afforded by this technology compared to the current state of care. This novel laser technology enables clinicians to perform atherectomy in a way that is more versatile and easier to use than other methods, including other laser atherectomy devices, and we're confident that clinicians will see the value in this product. We paid $46 million for Eximo in upfront consideration, with additional earnouts totaling $20 million associated with technical and revenue milestones. Turning now to Nanonife, our momentum continues as seven study sites have secured IRB approval related to our direct study, and we anticipate up to 10 additional sites achieving IRB approval by the end of our fiscal year. This is in line with our previously reported expectations. We are working with the sites that will enable us to complete our prostate safety study by the end of this fiscal year. We look forward to providing you additional updates on both of these exciting nanolife-related studies over the coming quarters. As I mentioned earlier, our R&D efforts will enable us to launch a combination of new products and product extensions in fiscal 2020. We remain on track with these product introductions, which include an improved version of AngioVac, which was launched last week, 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. Our Nanonite 3.0 generator, which has also already been launched, with two units sold during the first quarter. and three new products in our vascular access portfolio, including a new port that combines our vortex port body with our BioFlow catheter technology, as well as new dual and triple lumen catheters that will expand our acute dialysis portfolio. We also recently announced a dual source group purchasing agreement with Premier to supply implantable infusion ports including Bioflow, Vortex, and Accela, as well as two committed sole source agreements with the Ascend and Surpass membership groups. We are excited by this announcement as it provides us access to Premier's extensive membership network of approximately 4,000 US hospitals and 165,000 other providers while further validating our high-quality portfolio I am very pleased with our ongoing operational improvements. Our team continues to make outstanding progress on our strategic initiatives. We are very excited about what the future holds for AngioDynamics. Finally, as I've already stated, we will continue to focus our M&A and R&D efforts on oncology and thrombus management solutions that allow us to play in attractive markets. An example of executing our strategy is highlighted by the recent divestiture of our fluid management business. We exited a mature $200 million market exhibiting slow to moderate growth, and now we've entered a growing $500 million plus market with the Eximo acquisition that we announced this morning. 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, everyone. 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. Unless otherwise noted, all prior year results and comparisons exclude the contribution of our naming fluid management business from the prior year. Our net sales for the first quarter of fiscal 2020 were $66 million. representing year-over-year growth of 3.3% when including our Radiodyne and Biocentury acquisitions and a 1% decline on an organic basis. Excluding the fiscal 2019 revenue contribution from our Asclara product, which we stopped distributing during the fourth quarter of fiscal year 2019, revenue growth for the first quarter was 5.6%, representing organic growth of 1.3%. On an organic basis, our AngioVac Dialysis Catheter, and Thrombolytic products exhibited solid growth during the quarter. Separately, our venous insufficiency products returned to growth when excluding Esclero. These pockets of growth were offset by declines in our PICS and PORTS products as well. We continue to see traction around our prior year acquisitions, specifically the BioSentry Tract Sealing System and the Elatis and Isolac balloon products. We have not seen meaningful revenue yet related to our OrTrack system and are still determining the appropriate go-to-market strategy for ensuring proper and long-term acceptance of this technology in the marketplace. Our total VIT business grew 1.1% year-over-year and excluding Esclera grew 6.4%. Strong growth in AngioVac and our thrombolytic products as well as slight growth in our Venus products ex-Esclera were partially offset by a slight decline in our core business. Turning to AngioVac, within our VIC portfolio, procedural volume remains strong, with procedures increasing 38% year-over-year, representing our eighth consecutive quarter of double-digit volume and revenue growth, and continues to validate our strategy to build or acquire complementary products that will fill in the moderately complex gap within our current promise platform. Also, I'm excited to share that we completed over 100 cases during the month of September, our first month ever with more than 100 cases completed with our angiobac product. Vascular access revenue declined roughly 2.7% during the first quarter, as continued strong performance in sales of our dialysis products and growth in midlines was offset by declines in sales of PICs and PORTs. Revenue from our oncology business increased 20.9%, primarily related to the prior year acquisitions, as well as growth from NanoKnife and Solero. This growth was partially offset by a continued anticipated decline in sales of our radiofrequency ablation products. Now moving down the income statement. Our gross margin for the first quarter of fiscal 2020 was 57.9%, up 170 basis points compared to a year ago. Thank you for joining us. We now expect R&D spend to be between $32 and $34 million in fiscal year 2020 as a result of investments related to our acquisition of XML. SG&A expense for the first quarter of fiscal 2020 increased to $27.8 million, representing 42.1% of sales, compared to $26.8 million, representing 42% of sales a year ago. Inclusive of the XML acquisition spend, We anticipate SG&A to be between $126 and $130 million for fiscal year 2020. This increase in spend will support our upcoming product launches that Jim discussed earlier as well as the required investments for a full market release of Eximo in the back half of this fiscal year. Our adjusted net income for the first quarter of fiscal 2020 was $3.2 million or $0.08 per share compared to adjusted net income of $0.7 million or 2 cents per share in the first quarter of last year. Adjusted EBITDAs in the first quarter of fiscal 2020 was 7.3 million compared to 5.4 million in the first quarter of last year. And in the first quarter of fiscal 2020, we used 6.5 million of cash in operating activities while our free cash flow was negative 7.9 million. We began the quarter with roughly 227.6 million in cash Please refer to slide 5 for a walk and detailed description of the material cash outlays we had between May 31st and August 31st. As of August 31st, 2019, we had $83.6 million in cash and cash equivalents and no debt. As of today, post the announced acquisition of Eximo, we have approximately $38.7 million in cash and cash equivalents and still no outstanding debt. With regards to our financial guidance for fiscal 2020, which includes the impact of the XMO acquisition announced this morning, we continue to expect net sales in the range of $280 to $286 million and gross margin in the range of 58 to 59%. We also now anticipate adjusted EPS in the range of $0.10 to $0.15, which, as Jim mentioned, contemplates the aforementioned investment that is required this year to build out Our commercial footprint to support our HMO acquisition. With that, I would like to turn the call back to the operator to open the call for questions.