AngioDynamics, Inc.

Good morning and welcome to the NGO Dynamics fiscal year 2022 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 call, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. The news release detailing the fiscal 2022 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.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'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 2022, as well as trends that may continue. 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. The company will also discuss certain non-GAAP financial measures during this call. Management uses these measures to establish operational goals and review operational performance and believes that these measures may assist investors in analyzing the underlying trends in the company's business over time. Investors should consider these non-GAAP measures in addition to, not as a substitute for or as superior to, financial reporting measures prepared in accordance with GAAP. 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 a press release discussing the company's operational results and financial performance. during this morning's conference call. I'd now like to turn the conference 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 Angio Dynamics Fiscal 2022 First Quarter Earnings Call. Joining me on today's call is Steve Trowbridge, Angio Dynamics Executive Vice President and Chief Financial Officer. Steve will provide a detailed analysis of our first quarter financial performance and our updated FY22 guidance. We delivered a strong first quarter performance, and I am pleased with the commitment and dedication our team has shown as we continue to execute against the strategic plan that we laid out at our Investor and Technology Day in July. Angio Dynamics is in the midst of a transformation into a high-growth, MedTech company. And in our first quarter, we delivered strong revenue growth and we remained focused on investments, which we believe are critical to driving this transformation. Our first quarter was impacted by the ongoing COVID-19 pandemic and the recent surge caused by the Delta variant. Other medical device companies have discussed softening case volumes during the quarter, and we saw similar impacts. We are encouraged, however, to see improving trends in September, and we are particularly pleased with our performance, giving this challenging environment, and we are confident in our future. We ended the quarter with revenue of $77 million, representing growth of 9.6% year-over-year. Net sales from our MedTech business, which, as a reminder, includes Orion, NanoKnife, and our thrombus management platform were $17.6 million, a 68% increase from the previous year. We remain excited by the continued growth and innovation that we have shown in this part of the business. Our med device business, which includes the remainder of our portfolio, was roughly flat year over year. This year over year comparison includes the one time $5.2 million NHS order that we received last year for PICs and midlines. We believe these results reflect our momentum entering FY22 and to demonstrate that we are well positioned to drive further adoption of our unique platforms as procedural volumes normalize. Our Ariane business continued its positive trend in our first quarter. as strong procedural volumes and new customers drove revenue of $5.9 million, up sequentially from $4.6 million in the fourth quarter of FY21. The market reaction to our Aurion technology has demonstrated that we offer a differentiated technology with a wide array of treatment options driving positive patient outcomes. To date, Overall, Ariane procedures have been roughly split between above-the-knee and below-the-knee interventions, proving the versatility of our technology. For FY22, we expect Ariane to continue to grow meaningfully, and based off the strong first quarter performance, we now expect Ariane to generate revenue in the range of $24 to $26 million, compared to our prior expectations of $18 to $22 million. We continue to see year-over-year growth from AngioVac during the quarter, which grew 12% over the first quarter of FY21. While this growth was impacted by the challenging environment, we are pleased with the improved trends we are seeing in September. We are very excited about our mechanical thrombectomy platform, and we are particularly pleased to announce that last week we commenced the limited market release of our AlphaVac mechanical thrombectomy system. The initial response from physicians has been extremely positive. We have a disciplined, rigorous LMR process that we have refined over our previous product launches, including AngioVac Gen3, NanoLife 3.0, and Aurion. We expect the LMR process to extend for six to eight weeks. with full market launch planned after that. As a reminder, AlphaVac expands the breadth of our AngioVac platform and provides us access to a much larger segment of the DVT venous thromboembolism market. As we discussed during our Investor in Technology Day, we estimate that the DVT segment of the venous thromboembolism market is roughly $1.5 billion. Our current AngioVac platform addresses the more limited right atrium focused market, which we estimate to be approximately $75 million. The launch of our first AlphaVac product, the 22 French cannula, increases our addressable market, but still only unlocks a portion of this market. We plan to unlock full access to the full DVT VTE market with our upcoming 18 French and then smaller size AlphaVac devices that set forth in our Investor and Technology Day presentations. In addition, we are progressing towards IDE studies for the pulmonary embolism market that will ultimately unlock an additional $1.5 billion market. We anticipate that our mechanical thrombectomy platform comprising AngioVac and AlphaVac will grow approximately 30% year-over-year in FY22. NanoKnife probe sales for the first quarter grew 34% year-over-year worldwide and 63% in the US. The continued positive momentum in the US was supported by our expanded capital base But the primary driver was meaningful growth in procedural volumes driven by increased awareness, which we believe was fostered by our direct study. NanoKnife capital sales were strong year over year, off a low comp, as we made several capital sales and placements during the quarter. We remain focused on investing in the NanoKnife platform as we progress with our clinical studies aimed at expansion into potential new indications and an improving OUS environment in the future. On the internal R&D investment front, we continued to strategically invest in growth initiatives during the first quarter as we supported our MedTech platforms already in the market as well as products in our development pipeline in order to expand into larger, faster-growing addressable markets. This investment spans both R&D, which includes clinical, and selling and marketing as we introduce these products into the marketplace. While we remain focused on balancing growth and profitability in the face of COVID-related challenges, we did make a tuck-in acquisition related to the Ariane platform during the fiscal first quarter. This acquisition is a support catheter that we expect to launch in early calendar year 2022. While we don't expect it to be a meaningful contributor to revenue in FY22, it is an investment that gives us another tool in our bag in support of our continued build-up and growth of our Ariane platform. Strategic and tuck-in M&A remains a piece of our long-term growth strategy, and we regularly monitor the landscape for these opportunities. In the near term, we anticipate maintaining our disciplined approach to capital allocation and expense management. Turning to our clinical programs, we continue to make good progress initiating our 100-patient nanoknife prostate IDE study, Preserve. We believe this study will help illustrate that nanoknife's unique mechanism of action can provide a focal ablation option for improved patient outcomes including enhanced quality of life that is not available today. As a reminder, we are partnering with the Society of Urologic Oncology for this important study. Our co-principal investigators are Drs. Jonathan Coleman at Memorial Sloan Kettering Cancer Center and Dr. Arvind George at the University of Michigan. We're excited that these and other leading institutions are interested in partnering with us for this study. In terms of study progress, we have obtained central IRB approval and plan to work with up to 20 sites with respect to contracting and local IRB approvals. We look forward to updating you on our progress as we pursue this expanded indication. Consistent with where we were at the end of our last fiscal quarter, we currently have 26 active sites in our direct study and are encouraged by the overall execution of the study in the current environment. And finally, we expect to file an application for an IDE study for the use of AlphaVac to treat pulmonary embolism during our second fiscal quarter. 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. Steve?

Thank you, 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. During the quarter, we continued to face COVID-related headwinds that impacted both our revenue and our margins, and we expect these headwinds to persist in the near and medium term due to the uptick in cases associated with the Delta variant. The good news is that we are not currently seeing across the board impacts, but are instead seeing localized geography specific slowdowns in elective procedures. At this point in the pandemic, hospitals have more refined protocols in place, and we are not seeing full across the board shutdowns. As certain hospital systems see increasing numbers of Delta cases, they are pulling back on elective procedures temporarily, which is a very different dynamic than what we saw 18 months ago. We plan to continue to maintain the same disciplined approach to driving growth and expense management that we employed in the first quarter and throughout FY21 in the face of the current environment. As Jim noted, our revenue for the first quarter of FY22 increased 9.6% year-over-year to $77 million. Our growth was driven by continued strength in our med-tech businesses, including Arion, NanoKnife, and AngioVac. as well as solid performance from our med device businesses. Med tech revenue was $17.6 million, a 68% year-over-year increase, while med device revenue was $59.4 million, roughly flat compared to the first quarter of FY21, which included that $5.2 million NHS order. Revenue in our endovascular therapies business, formally named our VIT business, increased 27.5% year-over-year, to $38.1 million. This business benefited from continued strong growth of our Ariane platform and a greater impact of COVID-19 on the prior year period. Ariane contributed $5.9 million in revenue during the first quarter, building upon the momentum of the product's official commercial launch and strong performance in FY21. As we discussed at our Investor in Technology Day in July, Arion remains a key growth driver as we continue to invest in the platform, build out our commercial infrastructure, and generate clinical evidence. We were pleased with the pace of new lasers placed during the quarter, and as of today, our installed base is 205 lasers. As Jim mentioned, based on the strong first quarter performance, we now expect Arion to generate revenue in the range of $24 to $26 million for the year. AngioVac revenue grew 12% over the first quarter of FY21. This first quarter revenue growth was somewhat lighter than previous quarters as we felt the impacts from the challenging procedural environment that other medical device companies have publicly described. As Jim noted, we are encouraged by the performance we have seen so far in September with AngioVac. Vascular access revenue declined 11.2% versus the prior year period, excluding that NHS order vascular access revenue increased 9%. This performance was driven by strength in sales of PICs, midlines, and particularly ports during the quarter. Revenue from our oncology business increased 13.9% during the quarter compared to prior year, driven by strong growth in both nanonife capital and disposable sales, as well as strong sales of our biosensory tract sealant system. This was offset by lower sales of our microwave product, which is a more mature technology, and has proven to be more susceptible to COVID disruption. The first quarter saw strong nanonife growth across procedures, probes, and installations. We reported 34% growth in probe sales, which we believe is driven by two primary factors, increased awareness from direct and the increasing installed base, which drives higher utilization. The new capital installations during the quarter drove some startup probe orders, but more importantly, we saw greater than 30% procedure growth in the U.S., Moving down the income statement, our gross margin for the first quarter of FY22 was 52.1%, an increase of 120 basis points compared to a year ago. Gross margin in the quarter was positively impacted by product mix as sales in our med tech business became a larger contributor to overall revenue. In addition, the first quarter of last year included costs related to our COVID-related operating plan that did not recur in the first quarter of FY22. Now, on the other hand, as anticipated, during the first quarter, we experienced accelerating increases in labor and manufacturing costs as a result of the tight labor market. We also continued to see elevated raw material inflationary pressures and a stronger headwind in the first quarter from higher freight costs. To quantify these, we experienced about 40 basis points of headwind related to the tight labor market, 10 basis points of headwind related to raw material pricing, and 60 basis points of headwind related to higher freight costs, both in and out of our facilities. As we've said previously, we anticipate that these pressures will continue to impact our business throughout this fiscal year, but we still expect that over the long term, our gross margin will expand as our MedTech platforms comprise an increasing percentage of our overall revenue. Our operations team remains focused on labor and service efficiency, material pricing opportunities, and make versus buy analysis. With all that in mind, we continue to expect FY22 gross margin of approximately 55%, but we will be monitoring this dynamic environment closely. Our research and development expense during the first quarter of FY22 was 7.4 million or 9.6% of sales compared to 9 million or 12.8% of sales a year ago. We continue our disciplined investment in R&D focused on driving our key technology platforms. For FY22, we continue to anticipate R&D spend to target 10% to 13% of sales, as the pace for clinical spending, including for AlphaVac PE and nanoknife prostate, accelerates throughout the fiscal year. SG&A expense for the first quarter of FY22 was $33.4 million, representing 43.4% of sales, compared to $26.3 million, representing 37.4% of sales a year ago. we are beginning to see the results of our heightened investment in sales and marketing across the revenue line as evidenced by our growth this quarter. We remain pleased with our ability to control general and administrative spending amid COVID-related disruptions and remain focused on disciplined expense management and managing our cash while investing in our key technology platforms. Accordingly, we anticipate FY22 SG&A spending to approximate 40% to 45% of revenue. Our investments in our MedTech platforms reach across both R&D and SG&A with the clinical spending included in our R&D line. We will continue to make these investments as we remain focused on driving sustainable growth from our MedTech platforms. Our adjusted net loss for the first quarter of FY22 was $0.9 million or a loss of $0.02 per share compared to adjusted net income of $0.6 million or earnings per share of $0.02 in the first quarter of last year. Adjusted EBITDA for the first quarter of FY22 was $3.6 million compared to $4.5 million in the first quarter of FY21. In the first quarter of FY22, we used $8.9 million in operating cash, had capital expenditures of $1 million, and additions to ARION placements and evaluation units of $4.5 million. Typically, the first quarter sees heavier cash utilization for us given annual year-end incentive comp and other annual expenses such as D&O insurance. As of August 31st, 2021, we had $35.5 million in cash and cash equivalents compared to $48.2 million in cash and cash equivalents on May 31st, 2021. We had debt outstanding of $25 million on August 31st compared to $20 million on May 31st with the $5 million draw on our credit facility linked to the acquisition that Jim mentioned. Turning now to guidance. We anticipate that FY22 net sales will be in the range of $310 to $315 million, an increase from our prior range of $305 to $310 million. We continue to expect that full-year adjusted earnings per share will be in the range of zero to five cents as we invest in R&D and sales and marketing to drive sustainable growth in our key MedTech platforms. With that, I'll turn it back to Jim.