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spk02: Good morning, and welcome to the NGO Dynamics Fiscal Year 2022 Second Quarter Earnings Call. At this time, all participants are in listen-only mode. In question and answer session, we'll follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. As a reminder, this conference call is being recorded. The news release detailing the fiscal 2022 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.angiodynamics.com, and the webcast replay of this 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 the 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 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. 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 I believe 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. 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?
spk01: Thank you, Rob. Good morning, everyone, and thank you for joining us for Angio Dynamics Fiscal 2022 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 of our second quarter financial performance and our revised FY22 guidance. I am pleased with our second quarter performance as we have continued to progress along our strategic transformation and we have delivered strong revenue growth despite the ongoing challenges related to the COVID-19 global pandemic and other macro-related headwinds. These results are a direct reflection of our team's commitment to and our execution of our long-term strategic plan to transform angiodynamics into a high-growth med-tech company. We ended the quarter with revenue of $78.3 million, representing growth of 7.6% year-over-year. Net sales from our med-tech business, which, as a reminder, includes Arion, NanoKnife, and our thrombectomy platform, were $18.9 million, a 36% increase over the previous year. Our med device business, which includes the remainder of our portfolio, grew approximately 1% year over year, despite a $4 million backlog. The ongoing disruptions from the COVID pandemic and resulting supply chain headwinds led to this backlog and naturally also had an impact on gross margin, and earnings during the second quarter. We ended the quarter with adjusted EPS of negative two cents and gross margin of 51.8%. Before I go into the more specific results across our businesses, I'd like to talk through the current macro environment, the resulting disruptions, and how we are addressing those in a little more detail. As we have discussed during previous quarters, We have been impacted by and we are working through supply chain disruptions stemming from COVID. Specifically, we have discussed the tight labor market, increasing labor costs, raw material inflation, and escalating freight costs. Like many other businesses, we are feeling these supply chain impacts. Two of our main challenges are staffing from our internal manufacturing and operations teams. and increasing levels of production disruption caused by our employees being exposed to COVID. We are also facing similar dynamics with some of our supply partners who are struggling to service our needs due to similar factors within their production environments. These factors contributed to a more difficult environment in our second quarter, which accelerated in November. In order to address this disruption, we are focused on increasing manufacturing capacity, improving efficiencies, and making adjustments to pricing and shipping terms. All of us have been dealing with the ever-changing impacts of COVID for nearly two years, but we have managed through it well and will continue to drive our business with the same disciplined approach while continuing to appropriately prioritize the investments intended to support the long-term growth of our business. Earlier this year, as we saw these macro pressures building, we began to identify and implement solutions to address them. In the second quarter, we initiated a plan to increase manufacturing capacity through our partner in Costa Rica. We are pleased with the pace of this project, and we will keep you updated on progress of this initiative and others during subsequent quarters. To be clear, we are not moving all of our manufacturing offshore and have no plans to close our existing facilities. We are qualifying additional manufacturing capacity to not only address the short-term supply chain disruption, but also to enhance our ability to supply our customers as we grow our business over the medium and long term in accordance with our strategic plan. In addition to increasing capacity in Costa Rica, we have continued to actively pursue programs to improve our supply chain. These initiatives include SKU rationalization and other targeted projects to increase capacity and efficiency in our manufacturing process. As we discussed last quarter, we have recently implemented targeted revisions to our pricing and shipping terms in response to the increased costs of doing business. While the increases in operating costs have affected our business and we have taken actions to address these, excuse me, actions to address these challenges to minimize any potential long-term effects. The majority of the supply chain challenges and cost increases affect our med device portfolio and have a lesser impact on our med tech portfolio as the investment and design processes for our med tech products integrated robust supply chain planning. We are continuing to pursue our strategic plan, including funding our core transformational investments, as we know they are vital to driving our growth and the value of our company over the long term. Now, turning back to our detailed results for the second quarter. Our Arion business saw continued sequential growth during the second quarter, with revenue of $6.3 million. up from 5.9 million in the first quarter of FY22, despite increased pressure on procedure volumes stemming from COVID and hospital staffing challenges. The continued highly positive feedback from the market confirms our belief that our Arion platform offers differentiated technology through a broad suite of treatment options that drive positive patient outcomes. At the end of the second quarter, Arion had been used in over 13,000 procedures, and we estimate that Arion now represents about 5% share of this market. As we've mentioned on previous calls, Arion procedures have been fairly divided between above and below the knee. We think this demonstrates both the versatility of our technology and the unique breadth of our addressable market and opportunities for continued growth. We continue to expect Arion to generate robust revenue growth for the balance of FY22, and we believe we've appropriately considered the current headwinds as part of our revenue guidance. As a result, we are reiterating our revenue range of $24 to $26 million for Arion for fiscal 2022. We continued to see strong year-over-year growth within our thrombectomy portfolio which generated approximately 21 percent revenue growth over the second quarter of FY21, despite the challenging environment. This included 29 percent year-over-year growth from our mechanical thrombectomy portfolio, comprising AngioVac and AlphaVac. We are also pleased that we recently completed the limited market release of our AlphaVac mechanical thrombectomy system. This highly effective LMR process generated valuable insights, including the highly positive responses from physicians regarding their clinical outcomes, which led us to commence our full market launch of AlphaVac in early December. While it has only been a few weeks, we've received excellent feedback from physicians and are very pleased with the pace of the launch. As a reminder, AlphaVac expands our thrombectomy opportunity by addressing a much larger segment of the DBT venous thromboembolism market. As we've discussed, the DBT segment of this market represents an approximately $1.5 billion market opportunity. While the initial AlphaVac product, a 22 French cannula device, increases our addressable market, it still only unlocks a portion of this $1.5 billion opportunity. We plan to unlock full access to the DVT VTE market through the upcoming launches of our 18 French device and subsequent smaller French AlphaVac devices as we've described in our Investor and Technology Day presentation. In addition, we plan to use the 18 French device for a pulmonary embolism IDE study that upon clearance would provide us access to an additional $1.5 billion market. We have filed the application for this IDE study and are in discussions with the FDA to support approval. Nano knife probe sales for the second quarter increased 9% year over year. Year to date, nano knife probe sales have increased by 20%. were pleased with our sales of nanodive probes, despite the increased COVID-related challenges we faced during the second quarter. One dynamic we've seen as a result of these challenges is an increase in case cancellations for pancreatic procedures due to disease progression. In certain instances, we've noticed that treatment delays throughout the pandemic have led to disease progression in many patients. Some physicians have reported that when they finally try to perform a nanolife procedure, following a staffing or COVID-related delay, they often discover metastases in the operating room and cancel the ablation, which is a very difficult situation for patients, their families, and the physicians. Despite the challenges of the current market environment, we believe probe volume growth benefited from the tailwind of a larger capital base and increased data-driven awareness from our direct study. NanoKnife capital sales were down year over year against a difficult comp in the second quarter of FY21, following the trend of general quarter-to-quarter variability in capital placements. We remain excited and committed to investing in our NanoKnife platform as we continue to make progress with our clinical studies which will support our planned expansion into new indications, such as prostate. And we also look forward to exploring new geographic opportunities as the OUS environment improves. Our med device business grew approximately 1% in the second quarter, which was in line with the long-term trajectory of the business that we laid out for you at our Investor and Technology Day. Our medical device performance was impacted, by the challenging supply chain environment in Q2 that resulted in the backlog that I discussed earlier. Turning to internal R&D during the quarter, we continued to invest in our key strategic priorities, which are, first, to support our existing platforms to facilitate physician adoption and approve patient outcomes, and second, to continue the development of new products in order to expand into larger, faster-growing addressable markets. These investment initiatives include clinical research, product development, and selling and marketing, as we prepare to introduce these new products into the market. We also continue to look for opportunities externally, and strategic tuck-in M&A remains a component of our long-term growth strategy. We regularly monitor the landscape for the right opportunities while also maintaining a disciplined approach to capital allocation and cost management as we do so. Turning to our clinical programs, we currently have 22 active sites in our direct study and are encouraged by the overall execution of the study. We also note that the US direct study spawned interest in initiating similar research in other countries. For example, the multicenter direct INSPIRE study in Australia recently enrolled its first patient. I'd like to take a moment to discuss the progress regarding our prostate initiative for the NanoKnife system. The NanoKnife's unique mechanism of action enables it to be used as a focal option for physicians and patients seeking alternatives to radical prostatectomy. Current focal treatment options have been limited in their ability to grow to no more than 5% of the addressable market. We believe the NanoLife system has the potential to grow the focal treatment market due to its ease of use and unique mechanism of action to serve as a more favorable treatment for patients and physicians alike. In order to prove this belief, We have partnered with the Society of Urologic Oncology to launch the PRESERVE study. The PRESERVE study is designed to assess local cancer control in patients with intermediate risk disease with a secondary endpoint measuring quality of life outcomes. This study will be led by our principal investigators, Dr. Jonathan Coleman from Memorial Sloan Kettering and Dr. Arvin George from the University of Michigan. We will keep you up to date on this important study, and we expect to begin patient enrollment in Q3. We believe that the PRESERVE study can provide valuable evidence proving the nanolife system as a focal treatment option and expand the potential target market to greater than $500 million. 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.
spk05: Thanks, Jim. Good morning, everyone. Before I begin, I'd like to direct everyone to the presentation on our Investor Relations website, summarizing the key items from our quarterly results. Our revenue for the second quarter of fiscal year 22 increased 7.6% year-over-year to $78.3 million, driven by continued strength in our medtech businesses, including Arion, NanoKnife, and AngioVac. MedTech revenue was $18.9 million, a 36.4% year-over-year increase, while MedDevice revenue was $59.4 million, growing approximately 1% over the second quarter of fiscal year 21. For the first six months of the year, MedTech grew 50%. MedDevice was flat compared to the prior year period, but grew roughly 5% year-over-year when excluding last year's NHS order. Year-to-date through the end of the second quarter, our MedTech platform comprised 24% of our total revenue, compared to 17% at this time last year. Revenue in our endovascular therapies business increased 17% year-over-year to $39.7 million, benefiting from the continued adoption of Arion in our thrombectomy portfolio. Arion contributed $6.3 million in revenue during the second quarter, continuing the momentum that we've been building since last year's launch. And we did see some impact from the ongoing COVID pandemic on Arion hospital procedure volume during the quarter. And despite this challenging market environment, we continued to place new lasers during the quarter, and as of today, our installed base is 242 lasers, with 35 lasers placed during the second quarter. We view Arion as a key growth driver going forward, and we continue to invest in the platform, building out our commercial infrastructure and generating clinical evidence to drive further adoption. As Jim stated earlier, we continue to expect Arion to generate revenue in the range of $24 to $26 million for the year. Mechanical thrombectomy revenue, which includes angiovac and alphavac LMR sales, grew 29% over the second quarter of FY21, as related procedure volumes improved sequentially with robust demand for the platform. When including unifuse, thrombectomy revenue grew 21% year over year. While in the current environment, we have seen some softening in procedure volumes in the month of December, we're very excited about thrombectomy as a key growth platform. Vascular access revenue increased 4.8% versus the prior year period, continuing the solid performance of this business, even in the face of hospital staffing shortages and manufacturing delays, which have resulted in a portion of the backlog that Jim discussed previously. Revenue from our oncology business declined 9.3% during the quarter as compared to prior year, primarily driven by fewer capital sales in the quarter, as well as general procedural pressures related to COVID and hospital staffing disruptions. In addition, sales of microwave remained challenged, declining 3%. NanoKnife disposable revenue increased 9%, driven by increased awareness from our direct study and a growing installed base. Year-to-date, nanonite disposable sales are up 20%. Moving down to the income statement, our gross margin for the second quarter of fiscal year 22 was 51.8%, a decrease of 340 basis points compared to a year ago. Accelerating increases in labor and manufacturing costs continue to negatively impact our gross margin, resulting in an approximately 170 basis point headwind versus the prior year. Inflationary pressures on raw material prices, resulted in an approximately 60 basis point negative impact to gross margin, and higher freight costs had an approximately 10 basis point impact versus the prior year. As we anticipated at the beginning of the year, Ariane and Alphavac startup costs accounted for approximately 100 basis points impact versus the prior year. We expect these dynamics to continue to pressure our margins near term. Given these ongoing headwinds, we now expect fiscal year 22 gross margin be in the range of 52% to 54%, a decrease from our prior guidance of approximately 55%. Over the long term, we expect our gross margin to expand as growth in our higher margin MedTech platforms accelerates and the manufacturing initiatives Jim mentioned earlier have an increasing impact. Our operations team remains focused on driving labor and service efficiencies and seeking material pricing opportunities. We've also implemented modifications to our pricing and shipping terms in an effort to offset some of these ongoing headwinds. We'll continue to monitor the dynamic environment closely and provide updates. Our research and development expense during the second quarter of fiscal year 22 was $8.2 million, or 10% of sales, compared to $9.7 million, or 13% of sales, a year ago. We continue our disciplined investment in R&D, focused on driving our key technology platforms, including the clinical spend for AlphaVac PE and NanoKnife Prostate. For fiscal year 22, we continue to anticipate R&D spend to target 10% to 13% of sales. SG&A expense for the second quarter of fiscal 22 was $33.3 million, representing 43% of sales, compared to $29.4 million, representing 40% of sales, a year ago. The increase in SG&A year-over-year reflects the strategic investments we discussed during our Investor and Technology Day, including headcount investments in areas such as Ariane. we continue to anticipate fiscal year 22 SG&A spending to approximate 40% to 45% of revenue. Our adjusted net loss for the second quarter of fiscal 22 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 $0.01 in the second quarter of last year. The COVID-related headwinds with respect to gross margin that I previously discussed equated to approximately a $0.03 impact on second quarter results. Adjusted EBITDA in the second quarter of fiscal year 22 was $4.4 million compared to $5.2 million in the second quarter of fiscal 21. In the second quarter of fiscal 22, we generated $1.9 million in operating cash, had capital expenditures of $1.1 million, and additions to Arianne placement and evaluation units of $2.7 million. As of November 30th, 2021, we had $34.3 million in cash and cash equivalents compared to $35.5 million in cash and cash equivalents on August 31st, 2021. Our debt outstanding remained consistent at $25 million. Now, we do expect to see a higher-than-normal cash utilization during the third quarter as a result of both the backlog and funding the initiatives that Jim and I have discussed today. Turning now to guidance. We continue to anticipate that fiscal year 22 net sales will be in the range of $310 to $315 million. We now expect that full-year adjusted earnings per share will be in the range of a loss of $0.02 to a gain of $0.02 compared to our prior guidance of $0 to $0.05 as we continue to invest in driving sustainable growth in our key MedTech platforms while also managing the continued headwinds that we discussed today. In the current and evolving environment, we expect potential headwinds to persist during the third quarter, with a subsequent recovery as our internal initiatives take hold and the external environments improve. We plan to manage through these headwinds in a consistent fashion. Through two quarters of our fiscal 22, we're pleased with our progression along our strategic transformation. We continue to balance prioritizing top-line growth with managing profitability, delivering 8.6% growth year-to-date, and continuing to make investments that support our future growth initiatives. With that, I'll turn it back to Jim.
spk01: Thanks, Steve. This is an incredibly exciting time in angiodynamics. Despite all of the challenges in today's operating environment, we are dedicated to transforming angiodynamics into an innovative medical technology company with solutions that address some of the most dynamic opportunities in healthcare. We can improve patient outcomes, and drive high physician satisfaction. Our second quarter results are evidence of our progress towards that goal, and we plan to continue to deliver on our strategic plan initiatives in the coming quarters. I want to thank everyone here at AngioDynamics for their dedication and commitment to serving our customers during these challenging times. Our employees face the same challenges that the world faces with COVID. Many of them have family members who've contracted COVID and they work through this with a commitment to our customers and supporting their work to help patients in need. With that, I'd like to turn the call back to you, Rob, for questions.
spk02: Thank you. We'll now be conducting the question and answer session. If you'd like to ask a question today, please press star 1 from your telephone keypad, and the confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to move your question from the queue. For participants in raising speaker equipment, It may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. And our first question today comes from the line of Bill Planvenick with Canaccord. Please proceed with your question.
spk04: Great. Thanks. Good morning. Can you hear me okay? Hi, Bill. Good morning. Hi. Good morning. So the first question is, The current wave of COVID feels like it's very different from anything else, and you have the dubious honor of being the first company to really present some numbers. Maybe your last quarter didn't really get hit as much by Omicron, but as we sit here in the middle, as we're getting into January and this is hitting into full swing, it might be helpful if you could maybe compare and contrast how this wave of COVID is different versus the prior and impact on your business. and then that you've seen thus far? And then secondly, you talk about the $4 million backlog. Was that any specific product line? And what product lines did that relate to? And then have you fulfilled and shipped those products? Thank you.
spk01: Thanks for the questions, Bill. It's Jim. A couple of things, Bill. Back to the Omicron variant or the variant we're all facing. Now, we've seen increased activity Obviously, with the variant, I'll talk externally and then internally. So externally, our customers are under increasing pressure, similar to what it was like early on in the pandemic. Now, the benefit is that our customers and the healthcare networks have gotten better and learned how to deal with this. But they are facing staffing challenges probably at a higher level today than they were then, as many of their employees are faced with COVID restrictions. So we've seen higher levels of breakouts. with a lot of our customers. So consequently, a lot of the large healthcare delivery networks are asking us again, and probably other companies, to stand down a little bit, slow down, as some cases of them canceling elective procedures are occurring. Even this week, we got word from a couple of the large delivery networks that they're gonna put a hold on elective quote-unquote procedures, which was done, as you know, last year. So we're watching this very closely. As you know, our people are very close to our customers. We're watching it globally as well. Our teams around the globe are finding similar spots. Now the good news is there's some spots around the globe that are kind of bent the curve already and getting a little bit better. But here in the US, the acuity is still high as far as the customer disruption factor. That being said, I think you saw we still have strong demand for our products through this cycle. So we've had less of a COVID impact on our demand. Now flipping to the internal side, as you saw earlier, Back to your question on the backlog and the backorder, that's affected us here. I mentioned earlier, the pieces we're dealing with are, number one, first of all, recruiting employees to come to work to fill open jobs we have in our operations, quality, and logistics teams. That's been a challenge for us, and as you know, many other companies during this environment. And number two, also dealing with the disruption when our employees are exposed to COVID, giving them the space they need to clear and recover from any COVID effects. That impacts our operations and our plans to make products. So, Bill, you asked about one product over another. We identified in the call earlier, Bill, it's mostly affected our device products, less on the med tech products. We've done different levels of supply chain planning as we've launched those new tech products that have kept us a little more immune to these. So I'll go back to the device products. That's where it's affected us more. And Bill, the move that we announced this morning, moving some operations to Costa Rica, that takes some pressure off our internal capabilities. It'll free up new opportunities for us to reassign people within our operations teams when we have the Costa Rica operation up and running. And that was planned for a long time ago. Our operations team, we always have had a labor challenge. So our teams have had this plan and others kind of teed up in their pocket for a while. We decided to implement the plan and move into action recently as we saw the the effects of COVID and labor environment increase. But I don't think we're going to call out any one category of the other bill. There's a little bit of pressure in each of the categories and device.
spk05: And Bill, just to follow up on the last piece, you'd asked, you know, about that $4 million backlog and has it cleared. So it was $4 million at the end of our second quarter. It's actually gotten a little higher. It's increased a little bit through December as we're implementing and finalizing the moves that Jim talked about. We expect it to, you know, plateau this quarter and then start to get better through the year, you know, as we continue to also focus the consistent, you know, kind of run rate demand that we're seeing.
spk04: And then, if I could, just as we think about the impact of Omicron in the corner, and, you know, you've reiterated the revenue guidance of 310 to 315. But, you know, should we think that this is going to have a pretty significant impact on the February-ended quarter? And maybe we'll see, you know, I think historically you're down, you know, maybe one to two percentage points sequentially at least last fiscal year. I mean, could we see a more pronounced effect this year given Omicron as we think about just the February quarter?
spk05: Yeah, it's a good question, Bill. It's something that we're obviously focused and we're very keenly keeping an eye on. I think the seasonality that you mentioned is fair, and we expect to continue to see that same pattern. Really, the issue that we're seeing most is not as much on the demand side that Jim was discussing, but more on our ability to kind of clear the backlog and get the labor into our plant. So as we continue to execute and finalize these plans, we do expect that our third quarter may be a little bit choppy, I don't think it's going to be tremendously different than some of the seasonality that you had mentioned before when you think about sequential quarter over quarter. That's what we're seeing now. That's kind of our expectation as we move through this. There's no doubt it'll be a little bit choppier. We're seeing some of those Omicron effects. But as we're working through this and finalizing and then getting into the running and running up those plans, you'll start to see that recovery come out as you head into the end of our Q3 and into Q4.
spk04: Thank you.
spk02: Our next question is from the line of Matthew Mission with KeyBank. Please just use your question.
spk06: Hey, good morning, guys. I'm just on Orion. I think you mentioned that you're at 5% share at this point. I'm just trying to understand, like, what your installed base, kind of what percentage penetration of the office-based labs or the hospital systems that are actually performing these procedures you're at. Are you... are you at more than 5% penetration of the majority of people that are performing these procedures, or do you still have a lot of room to go as far as placements go?
spk05: Hey, Matt. No, so it's interesting. We feel that we've got about 5% of the stated market, as we've talked about when we launched this product and what our goal was to get to that 10% by the end of year three. What's really driving that is the versatility of the technology, and as Jim mentioned, And we've been very pleased to see the breakdown of procedures with roughly half being above and roughly half being below the knee, which is something that the other technologies really can't do. So that's what's driving our estimation of the share gain there. We still have plenty of room, we think, in terms of getting to the share of the market that's out there. We are, of course, as we said, much more heavily weighted in our product in OBLs than hospitals, given the dynamics that would have been in the macro environment from when we launched the product. So we're heavier in the OBL. Started to see some nice momentum in the hospitals. I think you're going to see that be a little bit challenged given the current environment just as they're dealing with the Omicron uptick over the last month or two and then maybe the next couple months. But we still think there's runway in terms of getting into new customers, and that's going to go along with the plans that we have to continue to place lasers. You saw that we placed 35 this quarter, and we placed 52 last quarter. We said we probably weren't going to be at that pace, and that we saw some opportunities to get into some of those accounts earlier, but we want to continue to support those accounts and drive utilization. And we'll continue to place new lasers as we go through our Q3 and Q4, as we continue to add those new customers in moving into market share that way. So, you know, we've liked the flexibility that this product has shown to really drive that market share through the first, you know, eight months or so of our launch.
spk06: Excellent. And then on Alphabet, just your thoughts on the how Omicron and this surge could impact the commercial release, the full commercial release of the products.
spk01: Sure. And, Matt, we did mention, I think Steve mentioned, that we saw a little softness in December in our angioVac cases. And some of the procedures a little softer there. So, but, you know, I don't think it's going to affect AlphaVac much, Matt, because we're just launching it. And if you look back on the information we put out in our public guidance and in our investor day, remember this first version, the 22 French AlphaVac is still limited in the DVT potential market that it serves. So right now, I don't think the Omicron push now will affect that a whole lot. Like anything, it may affect a little. There are value analysis committees that may be postponed or canceled. It may drag us out from getting approvals a little bit, and it may hold back on some of the conversations that we'd like to have with physicians. But over time, what will open up for us, the larger markets, are later in this calendar year when we launch the 18 French and then work towards our PE indication work and then launching another smaller device So, Matt, sure, it's going to affect it. I don't know if it's a whole lot right now because we have so much work on our plate independent of the Omicron variant.
spk05: Yeah, Matt, just to add a little bit more color to that, I think Jim hit on the value analysis committees, which I think is an important point. We don't see Omicron as being something that's derailing to our plans for Alphavac. As Jim mentioned, we've got a lot of activity going, and we're very pleased with the feedback we're getting from our physicians and the results that they're getting when they're using Alphavac in the LMR. You may see a little bit of an extended period of that ramp because there might be some slight delays in those value analysis committees given the hospital activity, but it's not derailing at all to our current plans. We've been really pleased with the way the process has been moving.
spk06: Excellent. And then last question, just to give an update on the timeline around the direct study, where you're at with that, and thank you very much.
spk05: Thanks. Sure, Matt. So with direct, you know, this is clearly a challenging environment with hospitals and how they're handling clinical trials and getting patients in there. With that said, on the registry side, which is the side that we've talked about, You know, we've been very pleased with the current environment with the pace that we've seen. And so we're continuing to treat and enroll patients in that registry side. There's no doubt that it's a little bit challenged given the current environment and the hospital staffing challenges that Jim mentioned, which is what really is different this time versus, you know, maybe earlier on in the pandemic. You know, it's hitting the hospital workers and the staffing challenges that hospitals have as they're trying to treat their patients. But we're still pretty pleased with the clip that we're seeing of patients being enrolled. Now, that being said, as we mentioned, the RCT, we expected to be more challenged. That's absolutely been the case, and I think that's even been more the case in the current environment with COVID. So we're continuing to focus on what we're seeing we can get through, which is enrolling patients in that registry side. We'll continue to keep you updated on conversations as we address the fact that we always knew the RCT was going to be a bit harder.
spk02: Thank you. Thank you. Our next question is from the line of Jason Bedford with Raymond James. Pleased to see with your questions.
spk07: Uh, good morning and happy new year. So, uh, I have a few questions here just on, on the backlog, the 4 million, what, what is a normal backlog at quarter end? Uh, I'm just curious if the 4 million mentioned is, is, is, can be viewed as excess backlog beyond, uh, the amount that you typically carry into a new quarter.
spk01: Hi, Jason. It's Jim. It is, Jason. You know, we target kind of a soft target of about half-day sales. So you go, that would be, you look at our average run rate, so call it $600,000 to $700,000 in that range across. We think that's, you know, we're always going to have a back order with this many SKUs in a complex business. So, Jason, this is significantly higher. That's why we wanted to call it out, because it is significantly higher than what we try to target for a workable run rate with our customers. So this built during the quarter, and that's why we implemented those plans. And I mentioned really some of the reasons why. It's mostly labor-related, and in some cases, as I mentioned, some of our material suppliers are having challenges getting us some of the materials. But our operations, quality, and logistics teams are working through. I gave one or two examples earlier, but they have many other plans they're working on to bring this down by the end of our fiscal year.
spk05: Yeah, and Jason, Jim's exactly right, you know, that, you know, typically we target that 600 to 700 backlog, you know, getting to the 4 million. And we really saw that accelerate in November. You know, as Jim mentioned, you know, we saw this quarter a bigger impact for our employees being impacted by COVID. A great example of that is we had an entire line of products in our facility that we couldn't make for over a week in November because everybody that was on that line ended up coming down with COVID. tough scenario. As Jim has mentioned, through the beginning of this pandemic, we're doing everything we can to support the health and safety of our employees. But that's a good example and a good kind of anecdote of how some of these things can accelerate and hit. And that's what we saw in November, which led to that increase in the backlog.
spk07: Okay. And you mentioned, I think, increasing capacity, improving efficiency, and an adjustment to pricing and shipping as initiatives to help the supply chain dynamic? I'm a little unclear. What's the specific factor that allows the supply constraints to ease in this 4 million to get shipped?
spk01: Good question, Jason. I'll give you a few. One is, first, the additional capacity that we're bringing online with our new Costa Rica partner just gives us more capacity, gives us really access to more labor so we can reassign some of the labor in our internal operations that are making those processes to other things, that's number one. Number two, talking about efficiencies, increased efficiencies, quote unquote. That's a bucket to count a few things. And one of those, we decided also to reduce SKUs. We have a lot of SKUs here. And we reduced a bunch of SKUs. When you do that, that makes our operations team complexity a little easier, so less changeovers every time we build products. We're building less SKUs, so we build more of the same products, hopefully. Now there's always a little customer disruption when that occurs, but it streamlines our operations. And Jason, we've also seen in some of our products in the device areas, some of the old angiographic catheters in areas, we've seen some of our competitors have severe backorder problems, and customers have turned to us. They used to buy other companies' products. That's almost led to this. That's why we've had really strong demand across our board, not just from that, it's a small piece, but the demand has stayed high. So things like those, Jason, that we're doing internally to streamline our operations, increased capacity to deal with this backorder in different ways. Again, some of the labor component, we hadn't seen it come to this level before and then hit again with the COVID effect. And as Steve mentioned, we have many of our employees affected by it. We have to follow the protocols internally, which led to a decrease of our ability to produce. Okay.
spk07: In answering one of the earlier questions you talked about, your IDN asking you to kind of hold down on elective procedures. Just how would you characterize your portfolio as a kind of presenting your portfolio that's exposed to quote unquote elective procedures?
spk01: Yeah, I mean, the good news, bad news with that, Jason, it's a smaller percent. If you look at really, you know, as we're growing our med tech portfolios, you see it become a larger portion of our business. That's really strong and that's our future. But those are the ones we're seeing that could be more effective. An example that Steve gave earlier was we saw a softness in our AngioVac business a little bit in December. We saw some physicians treat patients in different means and we're seeing that a little bit now as well. So as far as our portfolio goes, it's only a percentage of what we do. You look at our vascular access business, we're treating patients still on a routine basis who need access to getting medication in their bodies. So that hasn't really slowed. If anything, that may pick up in some cases. and offset some of the other slowness. So it's a challenging thing, Jason. We have great intel from our customers through our salespeople that talk to them every day and our clinical teams that are in the field globally. And we balance that, and that's why we've also reiterated the revenue guidance we gave today with a lot of thought on the pro and con that we're all facing in these challenges. But the demand remains strong overall for our products. Okay.
spk07: And then a couple of alphabet questions. The timing on the 18 French launch, I think you said later this calendar year. Is that still the right interpretation?
spk01: It is. I guess it's a little unfair being it's only January 6th to say later in the calendar year. So I'll tighten that up. It'll be in the first half of this calendar year. It'll be fair. Okay.
spk07: Yeah. Okay. And then is there any way to kind of frame the scope of the LMR versus a full market release?
spk01: There's a couple of ways, Jason. A couple of simple ways to frame it is we only give access to a limited portion of our sales team that's specially trained to kind of be an advanced team to get out in front of this. Because our initial goal isn't to sell as many as we can. It's to gain as much info as we can and to engage with our customers to get their feedback. We want to confirm our assumptions on the product design and development and our launch and training procedures. So that's what we did. We only gave it to a limited piece of the sales force, and they can only take it to pre-approved customers that we knew would give us the feedback that we were seeking. So that process went very well. We've enabled this process now. This is the fourth product we've launched at Angio Dynamics in the last couple years with this process we put in place, and it worked very well, and that gave us the confidence in early December to go to the full launch now. So all of our sales reps now can engage with customers of their choice.
spk07: Okay. Thank you. Yeah, thank you.
spk02: Next question comes from the line of Steve Lichtenman with Oppenheimer. Please proceed with your questions.
spk03: Hi, good morning. This is actually David on for Steve. I've got a few questions. I want to start off with the COVID impact on the angiovax, and the quarter seems to have been less of headwinds sequentially with a pickup in growth. Can you just talk about what you're seeing on the ground now as it relates to COVID impact on the angiovax business?
spk01: Yeah. Hi David. Good morning. It's Jim. As we said earlier, you know, we're very close to our customers. Um, and unfortunately this is kind of a gray area where it falls into an elective procedure, you know, quote unquote, unfortunately it's not, not everybody looks at it that way, but it's definitely when, you know, the root cause is the staffing challenges in the healthcare centers, I believe. So when they have such stress on their systems, they have, you know, large swaths of nurses being out with COVID in their own hospitals. putting pressure on the ICU beds and their capacity to serve their patients in the ICUs. So when you do that, it kind of backtracks backwards to procedures. They don't want to do a procedure that may have a patient then go to an ICU that's under challenge. So we're in that kind of care continuum piece where we watch that very closely. So when a doctor can say, well, I'd love to do an angiovac on this patient, but I could treat it with a lytic maybe a little longer and watch it, then have my ICU free up, That's kind of the effect, so it's really, really hard to measure that exactly, but I'm trying to give you real-world situations as to what's happening. So we're very engaged with our customers, and we're also working as a partner with them during this process to be at their side when they're ready for us.
spk05: Yeah, David, and a little extra color on that one. So, you know, as you mentioned, you know, sequentially from Q1, we definitely saw an uptick in terms of the market demand for AngioVac. You'll recall... In our Q1, we said that there was some softness that we saw in the summer, but that we saw, you know, procedure volumes pick up in September. We definitely saw that through most of our Q2. We're kind of highlighting again today. We're seeing a little bit of that softness in December. And as Jim mentioned, a lot of what's driving this in our estimation is that those hospital staffing pressures. And so when you've got the ICU nurses, you know, as you know, angiovac is a very complicated procedure. You're bringing in perfusionists. You have a number of different specialties that are working through that. And so when there's these acute hits of staffing pressures because the healthcare providers are sick, we start to see some of those blips, but then they tend to reverse. You know, as you look at our cadence, we saw a little bit of softness in the summer. We expected that to pick up. It did. We saw that we're not seeing a little softness in December. We expect that to pick up through the rest of our fiscal year, you know, kind of in a very similar fashion.
spk03: Okay, great. That's helpful. And then just moving on to Orion, you ended the quarter with, and what are your expectations in terms of your year-end target?
spk05: Yeah, so, you know, we talked about before having about, you know, 40 field-based salespeople, including our territory managers and regional managers. That's kind of where we ended the second quarter. You know, to support that, we also have clinical specialists and per diems. you know, another 30 field-based reps that are supporting the – or field-based people that are supporting our reps too. So all in all, you know, we've got about 74 field-based Arian employees today. That will probably be a little bit more as we head into the back half of the year, but I think we've done a good job, you know, preparing that team for the growth that we're expecting for this year.
spk01: Yeah, David, it's Jim. A question was asked earlier, I think Bill asked as well, about Arian and how we'll grow it. Again, we'll grow it, as we've shown you, by increased demand. increased interest in our product and people who want us to place lasers. That's one way we'll grow. But really, number two, we're watching, we measure every time we place a laser, we're measuring how many procedures they do on a monthly basis. We're watching that go up as these people get confidence when they see the outcomes of what our product delivers. So we see a lot of upside potential in the current base of lasers we have as our clients get more and more confidence in the product, develop great outcomes. So we're going to see demand come in, again, from new laser placements and also more use in current lasers. And we'll make sure we have the field people to support that growth.
spk03: Got it. And just last one for me. Are you expecting the release of the Pathfinder registry data near term?
spk05: Thanks. We've started to see publications come out from Pathfinder. You've already seen a handful of those over the last few trade shows and expect to see a few more coming. So yeah, the data is coming out of Pathfinder as we speak, and we expect it to continue.
spk03: Okay, thanks.
spk02: Thank you. I'd now like to turn the call back over to Mr. Clemmer for any closing remarks. Mr. Clemmer?
spk01: Thanks, Rob, and thanks for joining us on our call today. Again, AngioDynamics is a company in transformation to becoming a high-growth, innovation-driven medtech company. I think what we delivered today is really solid results. You can see the revenue growth that we exhibited. That's really driven by the demand of our customers, the demand that our customers have in our products and the interest they have in our technologies. So we're working through these difficult headwinds and challenges like other companies are. And I want to again thank our people for their resilience and their commitment to our business. Thanks again for joining us today. Talk to you soon.
spk02: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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