AngioDynamics, Inc.

Good morning and welcome to the Angio Dynamics Fiscal Year 2021 Second 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 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 fiscal 2021 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 investors' 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 the actual results or events to differ materially from those described in the forward-looking statements. The 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, and good morning, everyone, and thank you for joining us for Angio Dynamics Fiscal 2021 Second Quarter Earnings Call. Joining me on today's call is Steve Trowbridge, Angio Dynamics Executive Vice President and Chief Financial Officer. who will provide a detailed analysis of our second quarter financial performance. I'm very pleased with our second quarter performance. We delivered strong revenue growth while continuing to invest in our key technology platforms. Arion, AngioVac, and Nanonife all delivered strong performances during the quarter, resulting in second quarter revenue of $72.8 million, growing 4% year over year. Additionally, we continue to balance near-term cash and expense management with strategic investment in our long-term growth initiatives, and we're pleased to deliver an adjusted EPS of one cent for the second quarter. The COVID-19 pandemic continues to impact both the angiodynamics team and our customers. However, we observed improvements in certain geographies throughout the quarter, as hospitals and local governments continue to navigate the pandemic. We're very excited that there have been several positive developments in the global fight against COVID-19, including the approval of several vaccines. However, we expect headwinds to continue to impact our markets through the back half of our fiscal year and do not anticipate a full return to pre-COVID levels of demand in the near term. I am extremely proud of the resilience our team has shown over the past several months as we continue to navigate this unprecedented global crisis. We have established very solid momentum through the first half of our fiscal year while continuing to make progress on our key growth initiatives. I am excited about the upcoming product launches we have planned throughout calendar year 2021, including the planned release of our new multi-purpose mechanical aspiration thrombectomy device, which I will discuss in more detail later on our call. As we've discussed about in recent quarters, we are focused on deriving growth across our three key technology platforms through internal R&D, M&A, and clinical and regulatory pathway expansion. Arion was the most recent acquisition and continues to perform well and in line with our expectations for the year. We successfully launched our Arion atherectomy system during the quarter, and we have seen strong customer interest in this new product. We reported Arion-related revenue of $2.1 million in the quarter, bringing our fiscal year first half revenue to $3.2 million. And we continue to anticipate Arion revenue in the range of $7 to $10 million for the full fiscal year. While like last quarter, M&A was not an area of focused spending in the quarter, it will continue to play an important role in our transformation in the future. We continue to pause any M&A activity until we are comfortable that the COVID pandemic is behind us, at which time we will resume our disciplined approach of identifying appropriate M&A targets and assessing strategic opportunities. In terms of internal R&D, we continue to invest for growth, and during the second quarter, we saw continuous strength from our AngioVac platform, which grew 24% year over year. We are also very excited about the upcoming launch of our multi-purpose mechanical aspiration thrombectomy device, another product resulting from our focused internal research and development. We have continued to see strong momentum in our NanoKnife platform, with strong disposable sales in the corner, building off the strong capital sales last fiscal year, as well as the increased visibility into the uniqueness of this technology provided by the comprehensive direct study. On that note, our sponsored clinical studies, Direct and Pathfinder, remain a primary focus and continue to require flexibility in the current environment. As of today, we have 26 direct study sites that have secured IRB approval, three additional sites since the update we provided you on our first quarter earnings call. We are pleased with the significant number of leading hospitals that have signed on to participate in this important study. Moving forward, we anticipate shifting efforts from additional site initiation to patient screening and enrollment. As can be expected, screening activity has been challenging in the current environment due to COVID-related protocols at many hospitals. Our Pathfinder Arion Registry study has nine sites initiated and enrolling subjects. As of today, we are about 75% of the way toward our enrollment target, and we expect enrollment to be completed by the end of the third quarter. The vast majority of sites participating in Pathfinder are office-based laboratories. To date, these OBLs are not experiencing the same type of significant COVID-related delays as hospitals. Finally, with respect to reimbursement, we would like to highlight CMS's final decision to provide for and increase Medicare payment of IRE, which is NanoKnife's method of action, in the hospital outpatient setting. This is a significant milestone for the technology. As we previously discussed, IRE received tissue agnostic CPT3 codes. These codes now have payment associated with them in the hospital outpatient setting, at least on par with other ablation technologies. And we believe that the advantages of IRE and the newly established reimbursement levels will drive adoption in the outpatient setting, a setting that is very well utilized in Europe by specialties like urologists and interventional radiologists. With that, I'd like to turn the call over to Steve Trowbridge our Executive Vice President and Chief Financial Officer, to review the quarter in more detail.

Thanks, Jim. 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. As I've done in each of the last two quarters, I'd note that with respect to the second quarter and our business moving forward, we will continue to provide slightly more inter-quarter detail than we would in a normal operating environment. Our net sales for the second quarter of fiscal 2021 increased 4% year over year to $72.8 million. As I stated last quarter, our same customer analysis of our business has indicated that volumes remain below pre-COVID levels. And assuming the recovery continues along its current trajectory, we do expect this to remain a factor throughout the course of fiscal 2021. Our second quarter results reflected less severe declines than the 10% to 15% decline we discussed on last quarter's call. But we are still keeping a close eye on the third quarter and currently expect that the third quarter is likely to see a more pronounced impact from COVID-related headwinds. As has been true in our recent quarters, The ongoing pandemic has impacted each of our three businesses in varying ways. Our VA and VIT businesses performed the strongest during the quarter, as the number of procedures improved from the COVID lows we saw in the second half of last fiscal year, but still remained below pre-COVID levels. Our oncology business also performed well during the quarter, but did face a difficult comparison on the capital side. Our total VIT business increased 8.8% year over year, driven by AngioVac sales growth of 24%. Now note that this is the first quarter that comped against the launch of our Gen 3 platform. So while in absolute terms, the growth rate appears lower than previous quarters, the trajectory of this business remains quite strong and unchanged. Our VIT business also benefited from $2.1 million in sales related to Ariane. We officially announced the commercial launch of Arion in September, and the early response from the marketplace has been positive. As we stated in the past, we anticipate this product will represent an increasing part of our VIT business moving forward, with sequential quarterly improvement throughout the rest of this year. For our VIT business, this growth was driven by AngioVac and Arion was somewhat offset by a 10.6% decline in venous sales, resulting from a decline in the number of elective procedures being performed due to the COVID-19 pandemic. This impact is consistent with what we have seen in the previous two quarters, and we anticipate these headwinds will continue throughout the remainder of fiscal 21. Vascular access revenue increased 5% during the quarter. Growth in this business was driven by growth in PICs and midlines for the third straight quarter, as well as growth in ports and dialysis. Our strong second quarter performance was partly attributable to the fact that the headwinds we faced as a result of the COVID-19 pandemic were less severe than we had expected. But again, we expect a more pronounced impact during the third quarter given elevated cases across the country and the globe. Revenue from our oncology business declined 7% during the quarter. This decline was the result of lower nanonife capital sales on a year-over-year basis when compared to the second fiscal quarter of last year, during which we saw strong capital sales driven by the release of our NanoKnife 3.0. We were very pleased that NanoKnife probe sales grew 30% in the quarter, led by 76% growth in the United States. This strong probe growth is driven in large part by the increased installed base resulting from the strong capital sales we reported in previous quarters, giving us further confidence in our ability to drive growth in probes through an increasingly large installed base. Moving down the income statement, our gross margin for the second quarter of fiscal 2021 was 55.2%, a decrease of 410 basis points compared to a year ago, but an increase of 430 basis points sequentially from our first quarter. The decline was split fairly evenly between Arian startup costs and planned underabsorption in our manufacturing facility. As we've discussed in the past, this decline was anticipated given the ongoing focus on employee safety and predictability. In addition, we reported an inventory reduction during the quarter of $3.2 million, resulting in a year-to-date reduction of $10.3 million. As previously noted, our plans will have an impact on our full-year gross margin as we assess the shape and timing of the COVID-19 recovery. But we continue to expect to finish the year with quarterly gross margin running closer to pre-COVID levels. Our research and development expenses during the second quarter of fiscal 21 were $9.7 million, or 13.3% of sales, compared to $7.8 million, or 11.1% of sales, a year ago. We remain focused on strategically investing in R&D in order to improve our key technology platforms while remaining thoughtful about our investments given the COVID environment. Staying true to this plan, we expect to accelerate our investment in anticipation of the launch of our new multipurpose mechanical aspiration thrombectomy device in calendar 2021, with opportunities for additional investment in the back half of fiscal 21. This investment is included in our R&D guidance, and while we reserve the right to pull back on these investments if the environment changes meaningfully, for fiscal 21, we anticipate that R&D spend will come in at the higher end of our previously provided range, of between $35 and $40 million, as we've accelerated certain investments on the heels of our first half performance. SG&A expense for the second quarter of fiscal 21 decreased slightly from the previous year to $29.4 million, representing 40.4% of sales, compared to $31.1 million, representing 44.4% of sales, a year ago. We're continually assessing controllable discretionary spend with an eye toward cash management while maintaining investment in our key technologies. We now anticipate our full year SG&A spending to come in toward the lower end of our previously provided range of between $123 and $127 million. Our adjusted net income for the second quarter of fiscal 21 was $0.6 million or earnings of $0.01 per share compared to adjusted net income of $2.2 million or $0.06 per share in the second quarter of last year. Adjusted EBITDA in the second quarter of fiscal 21 was 5.2 million, compared to 6.4 million in the second quarter of fiscal 2020. Turning to our balance sheet, in the second quarter of fiscal 21, we began the quarter with roughly 47.9 million in cash and cash equivalents, and we generated 11.5 million of cash from operating activities. During the second quarter, we had capital expenditures of 1.4 million, As of November 30, 2020, we had $58 million in cash and cash equivalents and $40 million in debt outstanding. Subsequent to the end of our second fiscal quarter, we repaid $10 million of our outstanding debt and now have $30 million in debt outstanding at the time of this call. Turning now to guidance. Based upon what we are currently seeing, we continue to anticipate 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. While we obviously had a strong second quarter, we do expect to see a sequential decline in third quarter revenue as a result of the typical seasonality in our business and reflecting our current thinking around the impacts of the COVID-19 pandemic on our third quarter results. Historically, we have seen a one to three percent sequential decline in revenue from our second fiscal quarter to our third fiscal quarter. Overall, we are pleased with our strong performance in the second quarter despite continued headwinds from COVID-19. We will remain committed to growing our key technology platforms and will continue to invest to support new product launches and product updates for 2021 and beyond. With that, I'll turn it back to Jim.