AngioDynamics, Inc.

Good morning and welcome to the NGO Dynamics fiscal year 2021 first quarter 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 during the conference, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded. The news release detailing the fiscal 2021 first quarter results crossed the wire earlier this morning and is available on the company's website. This conference call is also being webcast live over the Internet at the Investor section of the company's website at www.angiodynamics.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 2021. 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 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 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, Melissa. Good morning everyone and thank you for joining us for AngioDynamics Fiscal 2021 First Quarter 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 first quarter financial performance. I am excited that we're able to report a strong first fiscal quarter while remaining focused on profitability, and on managing our cash and balance sheet despite the impacts of COVID-19. Throughout the quarter, we observed solid improvement across our end markets as hospitals and local governments continue to navigate the pandemic. These effects have been largely localized. We are observing variability in the pace and magnitude of recovery throughout our various geographies. We view these positive signals as encouraging, but we do not anticipate the demand environment to return to pre-COVID levels in the near term, and we currently expect that demand for this year will be roughly 10 to 15 percent below pre-COVID levels. Despite this headwind, we have a line of sight into growth, and we expect that we will be profitable this fiscal year, which Steve will cover in more detail shortly. Turning to our results for the quarter, first quarter revenue of $70.2 million increased 6.3% year over year, inclusive of the order in the UK we discussed with you last quarter. In addition, we reported adjusted earnings per share of two cents for the quarter, reflecting our commitment to growth as well as our ability to manage expenses and cash. in response to the COVID-19 pandemic. I am extremely proud of the entire AngioDynamics team for the way it has continued to execute in the face of this difficult market. Our team's ability to constantly adapt to such a dynamic environment has resulted in year over year sales growth, while our dedication to expense management has allowed us to maintain profitability. The team also continues to demonstrate an unwavering commitment to upholding the quality of our products and to helping patients and customers attain better outcomes. Additionally, we remain committed to supporting and progressing our key growth initiatives, as demonstrated by our recent announcement of the commercial launch of our Arion atherectomy system, which I'll discuss a bit later on the call. As we continue to progress throughout the year, our ability to provide products to customers and patients remains our priority. I am pleased with our ability to balance growth investments, operating expenses, and disciplined capital management. And I believe that we remain well positioned to return to a more normalized level of growth as the macro environment begins to stabilize. We've maintained a solid financial foundation and continue to execute a compelling strategic transformation led by our key technology platforms. To drive these key technology platforms forward, we continue to focus our spending on two areas during the quarter, internal research and development, and 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 the recent launches of our NanoKnife and AngioVac platforms, and we remain focused on further developing these platforms. During the first quarter, we saw continued strength from our AngioVac platform. And as we've mentioned in the past, we are investing in the expansion of this platform in calendar 2021, which will open up a significantly larger piece of the addressable market. I am thrilled that we were able to announce the commercial launch of our Arion atherectomy laser. Our team has been working diligently for nearly a year to establish a robust and efficient supply chain, build out a dedicated sales and marketing channel, and develop physician and sales training programs in preparation for this product launch. We have already seen strong interest and significant traction during the limited release phase, as evidenced by the more than $1 million in Ariane revenue and the 500 cases that were performed during the first quarter. as well as the fact that we currently have 47 lasers in the field and a robust pipeline of upcoming installations. We continue to anticipate Ariane revenue in the range of $7 to $10 million in fiscal year 2021. Now that the commercial launch is officially underway, our sales force is committed to educating potential customers on the benefits of this revolutionary technology, and I am optimistic that they will quickly see the value of this product for both their patients and their practices. The second driver of our transformation is clinical and regulatory expansion and data generation, which are foundational pillars of our strategy. Our pathfinder and direct studies remain a primary focus and continue to require a certain level of flexibility in this current environment. We continue to see hospitals gradually opening back up and activity in these two studies continuing to improve. As of today, 23 direct study sites have secured IRB approval, as we have added two additional sites since our last quarterly call. Additionally, last quarter, we announced our 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. While, like last quarter, I didn't specifically mention M&A as an area of focused spending in the first quarter, it will continue to play an important role in our transformation. We continue to pause any M&A activity until we are comfortable that the COVID pandemic is behind us, at which time we will then resume our disciplined approach of identifying appropriate M&A targets. and assessing strategic opportunities. With that, I'd like to now turn the call over to Steve Trowbridge, our Executive Vice President and Chief Financial Officer.

Thanks, 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 results. Similar to the last two quarters, I'd note that with respect to the first quarter and our business moving forward, We will provide slightly more inter-quarter detail than we would in a normal operating environment. Our net sales for the first quarter of fiscal 2021 increased 6.3% year over year to 70.2 million. As has been true in our recent quarters, the ongoing recovery has had a varying impact on each of our three businesses. Our VA and VIT businesses performed the strongest during the quarter. as the number of procedures improved off of the COVID lows we saw in the second half of last fiscal year, but still remained below pre-COVID levels. Our oncology business continued to face pressure from COVID-related procedure headwinds and a tough capital spending environment. We performed a deep analysis of our business on a same customer basis, and that analysis has indicated that volumes are still down 10 to 15% from pre-COVID levels. We expect this to remain consistent throughout the course of fiscal 2021, assuming the recovery continues along its current trajectory. Our total DIT business increased 3.3% year-over-year, driven by AngioVac sales growth of 46% compared to the prior year's quarter, somewhat offset by a 16% decline in venous sales as a result of a lower number of elective procedures being performed. Our Venus business is the business we would expect to be most impacted by elective procedure delays stemming from the COVID pandemic. Our VIT business also benefited from 1.1 million in sales related to Arion during the limited release phase. As Jim mentioned, we are very excited to have officially launched Arion, and we anticipate this product will represent an increasing part of our VIT business moving forward, with sequential quarterly improvement anticipated throughout the rest of this year. Vascular access revenue increased 21.4% during the quarter. Growth in this business was driven by solid growth in picks and midlines for the second straight quarter, which helped to offset slight declines of ports and other access. As discussed last quarter, we had a sale of approximately $5 million to the NHS through our distribution partner that we do not expect to repeat. Excluding this sale, our vascular access revenues declined 1.2% year over year. Revenue from our oncology business declined 12.3% during the quarter, as oncology procedure volumes continued to be negatively impacted by COVID-19 in many of our key geographies. Total nanonife sales declined roughly 25% year over year against a difficult capital sales comparison. Excluding capital sales, nanonife probe sales declined 5% in the quarter, as 7% U.S. probe sales growth was more than offset by softness in China due to the ongoing impacts of COVID-19. As a reminder, many nano knife procedures occur subsequent to multiple rounds of chemotherapy, and patients are immunocompromised as a result. As you can appreciate, many of these patients are cautious about returning to hospitals and operating rooms, resulting in procedural volumes that are below pre-COVID levels. Moving down the income statement, our gross margin for the first quarter of fiscal 2021 was 50.9%, a decrease of 700 basis points compared to a year ago. As we mentioned last quarter, this decline was anticipated given the ongoing focus on employee safety and product availability. Approximately 500 basis points of margin headwind was related to the planned underabsorption in our manufacturing facility. However, we reported a significant inventory reduction during the quarter of 7.2 million leading us to take the full impact of the underabsorption during the first quarter. Our plans will have an impact on our full year gross margin as we continue to assess the shape and timing of the COVID-19 recovery, but we expect to finish the year with quarterly gross margin running closer to pre-COVID levels. Our research and development expenses during the first quarter of fiscal 2021 were $9 million, or 12.8% of sales, compared to $6.3 million, or 9.5% of sales, a year ago. As we discussed in previous quarters, we remain focused on strategically investing in R&D to further develop our NanoKnife, Angeovac, and Aurion products, while continuing to drive the profitability of our other businesses. We remain thoughtful about our investments in light of the current 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 21, we now anticipate R&D spend to be between $35 and $40 million, with the increase over our prior expectations coming as a result of additional investment in expanding our angiovec and nanonife platforms. SG&A expense for the first quarter of fiscal 21 decreased to $26.3 million, representing 37.4% of sales, compared to $27.8 million, representing 42.1% of sales a year ago. We expect a slight increase in SG&A expense in the second quarter as we support the commercial release of Arion. We're continually assessing controllable discretionary spend with an eye toward cash management while maintaining investment in our key technologies. So we continue to anticipate SG&A expending during fiscal 2021 to be between 123 million and 127 million. Our adjusted net income for the first quarter of fiscal 21 was 0.6 million or earnings of two cents per share. compared to adjusted net income of $3.2 million, or $0.08 per share, in the first quarter of last year. Adjusted EBITDA in the first quarter of fiscal 21 was $4.5 million, compared to $7.3 million in the first quarter of fiscal 2020. Turning now to our balance sheet, in the first quarter of fiscal 21, we began with roughly $54.4 million in cash equivalents, and we used $5.4 million of cash in operating activities, with a significant portion of that attributable to seasonal Q1 expenses. During the first quarter, we had capital expenditures of $1.8 million. As of August 31, 2020, we had $47.9 million in cash and cash equivalents and $40 million in debt outstanding. Turning now to guidance. Based upon what we are currently seeing, we anticipate that fiscal year 2021 net sales will be in the range of $278 to $284 million, and full year adjusted earnings per share to be in the range of zero to five cents. We are obviously in a very fluid environment as a result of COVID-19, requiring us to analyze a number of different scenarios. The guidance we are providing you today is predicated on the current trajectory of the COVID-19 pandemic. If the environment changes meaningfully between now and the end of the year in our key geographies, we may need to adjust expectations and we will communicate any changes accordingly. 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?