AngioDynamics, Inc.

Good morning and welcome to the NGO Dynamics fourth quarter and fiscal year 2020 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded. The news release detailing the fourth quarter and fiscal year 2020 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.andgeodynamics.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'd 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 2021. 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 Investor 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 the morning's conference call. I now would turn the call over to Jim Clemmer, AngioDynamics President and Chief Executive Officer. Mr. Clemmer?

Thank you, Kevin. Good morning, everyone, and thank you for joining us for AngioDynamics Fiscal 2020 Fourth Quarter and Full Year Earnings Call. Joining me on today's call is Steve Trowbridge, AngioDynamics Executive Vice President and Chief Financial Officer, who will provide a detailed analysis of our fourth quarter financial performance. As you are all aware, for the past several months, the world has been impacted by the ongoing COVID-19 pandemic, putting particular strain on the healthcare industry. We remain focused on our ability to provide products to our customers and patients while also continuing to invest in our growth platforms and carefully managing our expenses and our cash position. While we are seeing early signs of improvement since the onset of the pandemic in March, the near-term impacts from this virus are not fully transparent and our business has not yet returned to pre-COVID levels. With that in mind, Steve and I will characterize the potential impact from the virus on our business with as much transparency as we can for you throughout this call. Our fourth quarter and full year 2020 results were negatively impacted by this pandemic. Fourth quarter revenue of $58.3 million decreased 18.1% year over year and decreased roughly 17% when excluding Escalera. Revenue for the full year was $264.2 million, a decrease of 2.4%, but flat compared to 2019 when excluding Esclera. In addition, we reported an adjusted loss per share of $0.06 for the quarter, reflecting the impacts of COVID-19, as well as ongoing investment in our key technology platforms, most notably and preparing for the full launch of our Arion Athrectomy System. Adjusted earnings per share for the full year 2020 was nine cents. As we discussed on our third quarter call, hospitals began restricting access for all non-essential employees and procedures in the early part of March. These restrictions led to a decline in procedural volumes, which significantly impacted our sales in the latter part of March and April. However, I'm pleased to say that during the month of May, procedure volumes began to rebound. Since that time, we have seen a steady improvement in procedure volumes and with it, a corresponding improvement in our sales. Our revenue has not yet returned to pre-COVID levels, but I can report to you that this positive trend continued throughout June in the first half of July, and we are seeing encouraging trends in our marketplace. Turning now to the operations side, our priority during the quarter was to manage expenses closely and conserve cash in the near term while still investing strategically in our key long-term growth platforms, Anjuvac, Nanonife, and Arion. As was the case during the third quarter, we put employee safety and Product Availability, the Head of Efficiencies, and our gross margin took a step back as a result. We anticipate this pressure will continue through at least the first half of fiscal 2021 as we ensure that we are ready to resume growing our business as quickly as possible once the environment normalizes so that we can rebuild our momentum from the first few months of this calendar year. I am pleased with our ability to balance these priorities during the quarter. I believe that we remain well positioned to weather the COVID-19 pandemic and will be able to return to a more normalized level of growth once the macroeconomics begins to stabilize. As it stands today, we've maintained a solid financial foundation and continue to drive compelling strategic transformation driven by our key technology platforms. To drive these key technology platforms forward, we focused our spending during the quarter on two areas, internal research and development and our clinical and regulatory pathway expansion. Let me update you on our accomplishments in each of these areas. On the R&D front, we continue to focus investment on our three key technologies, AngioVac, Arion, and NanoKnife, while seeking out ways to increase the profitability profile of our other products. We continue to see strong interest in NanoKnife 3.0 and AngioVac 3.0, and we remain focused on further developing these platforms. Regarding AngioVac, we remain on track to deliver two new products next calendar year and we look forward to sharing these developments with you in future quarters. We also continue to advance the ARION technology and as we told you last quarter, we focused our investment in three primary areas. Ensuring a robust and efficient supply chain, introducing physician and sales training programs and developing a dedicated selling and marketing channel to take this unique product to market. We are planning a full launch early in the second quarter of this fiscal year, and we currently anticipate Arion generating $7 to $10 million in revenue in fiscal 2021. We are excited to see what this product does in the hands of physicians. The second driver of our transformation is clinical and regulatory expansion and data generation, which are foundational pillars to our strategic transformation. Our Pathfinder and Direct studies are still a primary focus but require a certain level of flexibility in this current environment. As we mentioned last quarter, CMS and hospitals throughout the country prioritize critical care procedures and preserving treatment capacity, additional site initiation activities and patient enrollment efforts in both Pathfinder, our atherectomy registry, and Direct our nano knife pancreatic cancer IDE were paused. However, as hospitals are now gradually opening back up, we are seeing activity around these initiatives begin once again. As of today, 21 direct study sites have secured IRB approval, as we've added two additional sites since our last quarterly call, providing further evidence that these activities are indeed beginning to occur again. Additionally, we received an expanded indication for our Unifuse thrombectomy product that now allows for the administration of fluids into vessels that are impacted by thrombus, including both the peripheral and pulmonary arteries. This additional indication is consistent with our long-term strategy of building out along the continuum of thrombus management and developing a robust technology platform that will address thrombectomy of any complexity. We also won an appeal of a non-substantial equivalence ruling from the FDA regarding our SmartPort Plus. We went through the appeals process and the FDA overturned the initial ruling and provided 510 clearance, further evidence of our significantly strengthened clinical and regulatory acumen. We also received CE Mark for SmartPort Plus ports in June. While I didn't specifically mention M&A as an area of focused spending in the fourth quarter, it will continue to play an important role in our transformation as we learn more about the shape of recovery over the immediate and the long term. However, we do not anticipate engaging in M&A activity until the COVID pandemic is ultimately behind us. At that time, we will maintain our disciplined approach of identifying appropriate M&A targets and continue to assess opportunities while also prioritizing the strengths of our balance sheet amid this rapidly evolving macroeconomic climate. Before I turn the call over to Steve, I'd like to provide an update on how the COVID-19 pandemic continues to impact our business. Our Latham headquarters has reopened in accordance with New York State guidelines. Our other office-based employees are continuing to work remotely and doing so effectively and efficiently. We will remain flexible and supportive in ensuring that we remain productive at all of our office locations. From a manufacturing standpoint, we have employees on the manufacturing floor to ensure that our products are available to save lives and, as I mentioned earlier, We want to be ready to resume growing the business as quickly as possible once the environment returns to normal. Our field-based reps, who have been grounded when we last spoke, are now starting to re-enter the field in a safe and well-orchestrated manner in order to once again provide unparalleled service to our physicians. Our clinical support teams also did a terrific job of supporting cases even without being elbow-to-elbow with physicians and we are using learnings from that to develop even more efficient and effective ways of supporting our customers. I'd like to say again how proud I am of our team, the amazing job that they did providing remote support to our customers throughout this pandemic. We remain very proactive around CRM activities and business development planning so that we are prepared to spring into action as elective procedures resume and continue building on the momentum that we had generated prior to being impacted by COVID-19. From a procedural impact perspective, our business includes products that fall on both sides of the critical care and necessary lines. AngioVac cases faced COVID-related headwinds during the fourth quarter but have shown signs of a robust recovery. June was a record month for AngioVac from both a procedure and revenue perspective. Oncology procedures straddled the line between acute and elective-like, and while we saw strong man-of-life capital sales during the fourth quarter, procedural volumes declined. So far in the early days of the first quarter of fiscal 2021, we're also seeing a slow positive uptake in case volumes. Laser Arthrectomy procedures with our Arion laser have continued consistent with other procedures and are still very early in the ramp stage. While we saw a decline in EVLT during the fourth quarter, not unexpectedly, this line has proven to be the slowest to recover. And finally, sales of our VA products, including PICs, midlines, and ports, remained resilient over the past few weeks. driven by our previously announced line extensions for our picks and midlines as well as moderate tailwinds for our new agreement with Premier. Finally, I'd like to address three additional one-off items. To start, we recently made the decision to implement a restructuring of our oncology organization as it has not been meeting our expectations. On our third quarter call, We mentioned that we were not pleased with the performance of our biocentury and radiodyne businesses, and we took action to create a more effective organization. This included the creation of an inside sales team that will go live in three weeks to cover our biocentury and radiodyne products, and likely it will become a larger part of our broader organization over time. This dynamic is also driving a more significant reorganization of the broader oncology business unit. which is now reporting directly to me, allowing me to get closer to the business and provide better insight into the right long-term path for this business. These efforts will allow us to increase our focus on driving the realization of the benefits of our unique technologies like NanoKnife and getting them to perform as best as they can. Next, during the fourth quarter, Our overall results were negatively impacted by a recall initiated by BARD that is related to a component in our VA kit that we provide. The full net impact, inclusive of costs incurred, was roughly $750,000 during the fourth quarter. And lastly, our first quarter 2021 revenue will also include a one-time order in the UK from NHS. During the fourth quarter, a distributor partner reached out to us on a one-time stocking order related to pandemic planning. Our team did a great job in addressing this order and working urgently to fill the order. $1 million was shipped in the fourth quarter, and we expect to ship $5 million during the first quarter of FY 2021. We do not expect this order to repeat. While the current environment is certainly unprecedented, We continue to prioritize the health and safety of our employees and our patients. Moving forward, we will remain thoughtful and disciplined about our overall spending as we continue to effectively manage the near-term macro risks while still positioning our innovative product portfolio to succeed over the long term. With that, I'd like to turn the call over to Steve Trowbridge, our Executive Vice President and Chief Financial Officer.

Thank you, Jim, and good morning, everyone. Before I begin, I'd like to point you to the presentation on our investor relations website summarizing the key items associated with our quarterly and full year results. I'd also like to note that with respect to the fourth quarter and our business moving forward, we will provide slightly more inter-quarter detail than we would in a normal operating environment. We will not be providing guidance at this time, as it remains difficult to accurately assess the impacts from COVID-19 on procedural volumes in the near future. Additionally, unless otherwise noted, all prior year results and comparisons exclude the contribution of our NAMIC fluid management business, which we divested at the end of our fiscal year and at May 31, 2019. As Jim mentioned, our sales during the fourth quarter were negatively impacted by COVID. Our net sales for the fourth quarter of fiscal 2020 decreased 18.1% year-over-year to $58.3 million. Excluding the fiscal 2019 revenue contribution from the esclerotherapy product, which we stopped distributing during the fourth quarter of fiscal year 2019, revenue decline for the fourth quarter was roughly 17%. Each of our three businesses saw varying degrees of impact from the deferral of non-essential procedures associated with the COVID-19 pandemic. Our oncology and VIT businesses faced the greatest impact, as these two businesses have the largest exposure to elective procedures. Our VA business faced a smaller impact, as solid growth in PICs and midlines helped to offset declines of other products in the VA portfolio. Our total VIT business declined 28.8% year-over-year, and when excluding Esclera, declined 26.2%, driven by declines in the venous and core businesses. AngioVac sales fell 11% compared to the fourth quarter of last year. However, as Jim mentioned, we have seen a strong rebound in AngioVac procedures and sales volume, which drove a record month in June. Vascular access revenue decreased 4.6% during the fourth quarter, as double-digit declines in sales of ports and dialysis were offset by solid growth in PIC and midline sales. Revenue from our oncology business declined 18% during the quarter, as the deferral of nonessential procedures broadly impacted sales across the oncology portfolio. However, nanonife sales increased roughly 26% year-over-year, driven by strong growth in capital sales. Sales of probes declined during the fourth quarter, after seeing improvement in the third quarter. Moving down the income statement, our gross margin for the fourth quarter of fiscal 2020 was 51.8%. a decrease of 630 basis points compared to a year ago. As Jim mentioned, this decline in gross margin was primarily driven by a conscious decision to focus on employee safety and product availability. We expect this trend to continue through the first half of 2021, which will obviously have an impact on our full-year gross margin as we continue to assess the shape and timing of the COVID-19 recovery. In addition to this dynamic, gross margin during the fourth quarter was also negatively impacted by 160 basis points due to a one-time write-off of raw materials and existing inventory associated with Oratrac, the dosimetry product that was purchased pursuant to the company's acquisition of Radiodyne. Our research and development expenses during the fourth quarter of fiscal 2020 were $7.2 million, or 12.4% of sales, compared to $6.9 million, or 9.7% of sales, a year ago. We are continuing to invest strategically in R&D and clinical with a focus on further developing our NanoKnife, AngioVac, and Aurion products, while remaining focused on driving the profitability of our other businesses. For the fiscal year, research and development expenses were $29.8 million. We continue to be thoughtful about our investments in light of the uncertain environment. However, we intend to maintain investment in our key growth drivers while being more judicious in our investment in other areas of the portfolio. While we reserve the right to pull back on these investments if the environment changes meaningfully, for fiscal 2021 we anticipate R&D spend to be between $32 and $34 million. SG&A expense for the fourth quarter of fiscal 2020 decreased to $26.4 million, representing 45.3% of sales, compared to $29.3 million, representing 41.1% of sales the year ago. For the fiscal year, SG&A expense was $116.5 million, or 44.1% of sales. We currently anticipate SG&A spend to be between $123 and $127 million for fiscal year 2021, which factors in the impact of the annualization of the Ariane acquisition as well as the planned increase in spending to support the Ariane Salesforce expansion. We will support our upcoming product launches as well as the needed investments for a commercial release of Ariane heading into fiscal 2021. Given the current environment, we are continually assessing controllable discretionary spend with an eye towards spend and cash management while maintaining investment in our key technologies. Our adjusted net loss for the fourth quarter of fiscal 2020 was $2.1 million or a loss of $0.06 per share compared to adjusted net income of $2.8 million or $0.07 per share in the fourth quarter of last year. For the fiscal year, adjusted net income was $3.5 million or income of $0.09 per share compared to adjusted net income of $8.2 million or 22 cents per share a year ago. Adjusted EBITDA in the fourth quarter of fiscal 2020 was $0.6 million compared to $8.5 million for the fourth quarter of fiscal 2019. For the fiscal year, adjusted EBITDA was $18 million compared to $30.6 million in fiscal 2019. As you read in our press release this morning, we incurred a goodwill impairment charge during the quarter of $157.6 million. which impacted our GAAP results. At May 31, 2020, the company identified a triggering event resulting from our market capitalization being below our book value of equity for a sustained period of time. Following the triggering event, we determined the fair value of the company using a combination of the income approach and market approach. This valuation assessment indicated that the company's book value exceeded its calculated fair value. Turning to our balance sheet, in the fourth quarter of fiscal 2020, we began with roughly $52.2 million in cash equivalents when factoring in the $25 million draw on Auburn-Volver that we disclosed and discussed in the third quarter call. And we gained $3.9 million of cash in operating activities. During the fourth quarter, we had capital expenditures of $1.5 million. As of May 31, 2020, we had $54.4 million in cash and cash equivalents and $40 million in debt outstanding. Turning now to guidance. As Jim and I have discussed on this call and in our third quarter call, we remain committed to improving the company's cash and expense position in a lasting manner that will improve the company over the long term, and we are pleased with the progress we've made on this front. As I mentioned earlier, given the current trajectory of COVID-19 cases and the continued uncertainty surrounding the magnitude and duration of these impacts, we will not be providing financial guidance for 2021 at this point in time. We will continue to monitor the operating environment closely and will provide guidance when appropriate. With that, I'll turn it back to Jim for a few closing remarks before we begin the Q&A portion of the call. Jim?