AngioDynamics, Inc.

Good morning and welcome to the Anteo Dynamics Fiscal Year 2020 Second Quarter Earnings Call. At this time, all participants are in listen-only mode. Any brief 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 Second 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 Investors section of the company's website at www.anciodynamics.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, AngioDynamics President and Chief Executive Officer. Mr. Clemmer?

Thank you, Rob, and good morning, everyone, and thank you for joining us for AngioDynamics Fiscal 2020 Second Quarter Earnings Call. Joining me on today's call is Steve Trowbridge, AngioDynamics General Counsel and Interim Chief Financial Officer, who will provide a detailed analysis of our second quarter financial performance. But first, I'd like to begin by providing an overview of our operational and execution highlights for the quarter. We achieved strong margin expansion in profitability during the quarter, driven by ex-Esclera sales growth that continues to trend in the right direction. I am pleased with our continued transition from a company with a broad portfolio of undifferentiated products to a much more focused medical technology company that delivers unique and innovative healthcare solutions. The new profile of our company is enabling us to move away from the mature, lower growth markets where we have competed in the past by carving out significant space in larger and faster growing markets. We will continue to develop our foundational technologies such as NanoKnife, AngioVac, and our recently acquired Eximo atherectomy laser to drive this transformation. We will also further accentuate our existing portfolio strengths by acquiring or developing technology to support these products as evidenced by the acquisition of the C3 wave tip location device announced this morning. We remain focused on three drivers to continue our transformation. Internal Research and Development, M&A, and Clinical and Regulatory Pathway Expansion. A great example of execution through our internal R&D efforts is our AngioVac Generation 3 cannula and circuit that we launched late last quarter. AngioVac Gen 3 drove our ninth consecutive quarter of double-digit procedure and revenue growth in our thrombus management category. With respect to M&A, this morning we announced the acquisition of the C3 Wave Pick Tip Location System. This wireless, app-based ECG system eliminates the need for a conformatory chest X-ray during pick tip placement. This system has received FDA 510 , CE, Health Canada, and other international approvals. This product can be used as an aid when inserting picks at the bedside and fills a technology gap in our VA portfolio that has been a contributing factor in the decline of our pick revenue over the past several years. As a result, we believe that this tip location system will allow for greater patient access to our unique BioFlow picks. In addition, We are continuously evaluating opportunities to reshape our portfolio. Our balance sheet allows us to remain opportunistic with regard to M&A that will enhance our existing oncology and thrombus management portfolios. We are also prepared to augment these existing portfolios with equally disruptive and innovative technology as evidenced by our acquisition of Eximo Medical. We have already made significant progress integrating this acquisition into AngioDynamics. We have begun building out a dedicated sales force to put this unique and highly innovative laser atherectomy technology in the hands of clinicians. We have also been working hard to build out a robust and scalable supply chain to ensure that our physicians' needs are met in a timely manner with high quality products. We remain on pace to continue to make our expected investments to ensure that we are prepared to properly launch this product into the marketplace. We have also been spending more time in the field with key opinion leaders discussing the opportunities and use cases of the XMO laser atherectomy product. Hearing what these physicians have to say after using the product We are even more excited about the application of Eximo's unique technology and the competitive positioning in a large and growing market. One of these KOLs, Dr. John Rundback, a radiologist at Holy Name Medical Center in Teaneck, New Jersey, co-authored the results of Eximo's initial IDE study and recently spoke with us about the distinct advantages of Eximo's laser atherectomy product. Specifically, he highlighted Eximo's proprietary technology that allows the device to provide more energy than competing lasers, enabling more effective removal of both calcified and non-calcified lesions, while also more effectively preventing destruction of the surrounding vessel walls. As clinicians gain a better understanding of the improved outcomes and Ease of Use afforded by this technology compared to the current standard of care, we anticipate a meaningful increase in adoption and revenue over the coming years. As Dr. Rundback highlighted, this novel laser technology enables clinicians to perform atherectomy across both laser and mechanical procedures in a way that is more versatile and less risky than other methods. and we remain confident that clinicians will see value in this product. As we continue to make solid progress building out our internal infrastructure, we remain on track to execute a commercial launch towards the end of our fiscal year. The third driver of our transformation is clinical and regulatory pathway expansion. The NanoKnife direct study is an example of our ability to leverage our developing clinical and regulatory talents. As of today, 13 study sites have secured IRB approval, and we anticipate up to an additional five sites achieving IRB approval by the end of our fiscal year. We are very pleased with the pace at which leading institutions are committing to our comprehensive clinical study and securing IRB approval. This pace and commitment supports our expectation that we will enroll the required 250 patients in the registry arm of the study over the coming two and a half years. Separately, we are pleased to announce that our prostate safety study has secured central IRB approval. This will keep us on pace to complete this study by the end of the fiscal year. We look forward to providing you additional updates on both of these exciting nanonife-related studies over the coming quarters. Lastly, we are pleased to announce that during the quarter, the American Medical Association CPT editorial panel posted two newly approved Category 3 CPT physician billing codes for irreversible electroporation. The AMA's approval of these physician billing codes recognizes the unique features of IRE and NanoKnife for patients with pancreatic and other serious cancers. The new codes enable physicians to distinguish this innovative technology when reporting IRE to payers, which will also help generate new clinical data. I want to specifically recognize the Society of Interventional Radiology and the American College of Surgeons who co-sponsored the application for new codes to the American Medical Association. We look forward to continuing to work with key specialty societies, our physician customers, patient advocacy groups, and other stakeholders to advance access to the life-changing benefits of NanoKnife. We continue to build momentum while putting a foundation in place to support higher organic revenue growth and the integration of Eximo. And as we expect to build further momentum into the back half of the year, our team continues to execute against our strategic initiatives. Now before I turn the call over to Steve, I'd like to take a moment and thank Michael Greiner for his many outstanding contributions during his time as part of the NGO Dynamics leadership team. As I frequently mention, this is a very different company than it was even two or three years ago, and Michael played a very large and valuable role in that transformation. I want to wish Michael and his family well, and we wish him much success going forward in his new role. With that, I'd like to turn the call over to Steve Trowbridge, our General Counsel and Interim 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-to-date results, as well as our financial guidance. Unless otherwise noted, all prior year results and comparisons exclude the contribution of our NAMIC fluid management business. Additionally, we have anniversaried the acquisitions of BioSentry and Radiodyne, and all results discussed today are on an organic basis. Our net sales for the second quarter of fiscal 2020 were $70 million, which is flat compared to a year ago. Excluding the fiscal 2019 revenue contribution from the Esclera Sclerotherapy product, which we stopped distributing during the fourth quarter of fiscal year 2019, revenue growth for the second quarter was 2.5%. Our AngioVac, NanoKnife, and Elatus and Isolock balloon products exhibited solid growth during the quarter. These pockets of growth were partially offset by declines in our PICs and port products. Our total DIT business grew 0.6% year-over-year, and when excluding Esclera, grew 6.5%, led by strong growth in AngioVac. AngioVac procedural volume remained strong, with procedures increasing 31% year-over-year, representing our ninth consecutive quarter of double-digit volume and revenue growth. Our core business also returned to growth during the quarter. This, combined with the strength of AngioVac, is an encouraging sign as we enter the back half of the year. Vascular access revenue declined roughly 4% during the second quarter, as growth in sales of our dialysis products was more than offset by declines in sales of PICs and ports. As Jim mentioned earlier, we're very excited about the acquisition of the C3 wave TIP location system and expect that filling this technology gap will have a positive impact on our PIC business going forward. In addition, as we discussed last quarter, we rewarded the GPO agreement with Premier for ports. This agreement allows us to leverage Premier's extensive membership network of approximately 4,000 U.S. hospitals and 165,000 other providers to sell our BioFlow, Vortex, and Accela products, and we expect this agreement to drive growth in the back half of the year. Revenue from our oncology business increased 5.1%, primarily related to growth from nanonife and balloons. This growth was somewhat offset by a continued anticipated decline in sales of our radio frequency ablation product. Nanonite growth in the quarter was strong, driven by a significant capital sales, partially offset by a quarter-over-quarter decline in probe sales. We remain focused on driving future utilization, and while sales of disposable probes in the quarter were soft, the significant amount of capital sales, coupled with the pace of leading hospitals' engagement with our direct study that Jim mentioned earlier, are both strong indicators of commitment to the NanoKnife platform, and we expect probe sales to grow in the back half. Moving down the income statement, our gross margin for the second quarter of fiscal 2020 was 59.3%, up 140 basis points compared to a year ago, driven primarily by productivity and supply chain improvements, as well as positive product mix. Our research and development expenses during the second quarter of fiscal 2020 were $7.8 million, or 11.1% of sales compared to 7.1 million or 10.1% of sales a year ago. As we have previously messaged, we are continuing to invest strategically in R&D and clinical to support the growth of our leading technologies. We continue to expect R&D spend to be between 32 and 34 million in fiscal year 2020 including investments related to our acquisition of Eximo. SG&A expense for the second quarter of fiscal 2020 increased to $31.1 million, representing 44.4% of sales, compared to $28.5 million, representing 40.8% of sales, a year ago. We continue to anticipate SG&A spend between $126 and $130 million for fiscal year 2020. This increase in spend will support our upcoming product launches as well as the needed investments for a commercial release of Eximo in the back half of our fiscal year. Our adjusted net income for the second quarter of fiscal 2020 was $2.2 million, or $0.06 per share, compared to adjusted net income of $2.9 million, or $0.07 per share, in the second quarter of last year. Adjusted EBITDA in the second quarter of fiscal 2020 was $6.4 million, compared to $9 million in the second quarter of fiscal 2019. In the second quarter of fiscal 2020, we began with roughly $83.6 million in cash, and we used $5.9 million of cash in operating activities. Our free cash flow was $3.3 million. During the second quarter, we used $45.8 million of cash on hand to fund the acquisition of Eximo Medical that we discussed during last quarter's call. As of November 30, 2019, we had $41.2 million in cash and cash equivalents and no debt. With regard to our financial guidance for fiscal 2020, 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 continue to anticipate adjusted EPS in the range of $0.10 to $0.15. To provide some further context around the earnings guidance, we acknowledge that our year-to-date earnings are already near the top end of our full-year guidance range. As we discussed last quarter, we anticipate increasing investment over the back half of the fiscal year with respect to building the XMO commercial team and supply chain infrastructure. These investments remain in line with our original plan and we will impact earnings most significantly during the third quarter of fiscal 2020. With that, I'd like to turn the call back to the operator to open the call for questions.