AngioDynamics, Inc.

Good morning and welcome to AngioDynamics' fourth quarter and fiscal year 2022 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 from your telephone keypad. As a reminder, this conference call is being recorded. The news release detailing our fourth quarter and fiscal year 2022 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 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 2023, 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 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. The 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 call. I'd now like to turn the call over to Jim Clemmer, NGO Dynamics President and Chief Executive Officer. Mr. Clemmer?

Thank you, Rob. Good morning, everyone. And thank you for joining us for AngioDynamics Fiscal 2022 Fourth 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 fourth quarter financial performance and our FY23 guidance. We had a strong end to Fiscal 2022 as we delivered solid revenue growth in the face of significant supply chain and operations headwinds, as well as challenges that our customers are facing in delivering care to patients. We ended the quarter with revenue of $87 million, representing growth of more than 13% year over year. Net sales from our MedTech platforms were $22.6 million, representing growth of 40% over the fourth quarter of last year. Revenue for the full fiscal year was $316.2 million, representing growth of almost 9% over the previous year. Our MedTech platforms grew more than 41% compared to fiscal 2021, and comprised approximately 25% of our overall revenue base for the full year, up from 19% a year ago. As we've highlighted in the past, as part of our corporate strategy, we expect this percentage to grow over time. Fiscal 2022 once again presented a unique challenge with historically high inflation rates, staffing and procedure headwinds, and supply chain disruptions persisting throughout the year with varying intensity. Throughout all of this, we continue to prioritize the growth of our Arion, NanoKnife, and Thrombectomy platforms, while keeping a focus on our cash position and profitability. Through our R&D programs, we launched innovative new products, including two sizes of our AlphaVac mechanical thrombectomy device that will help round out physicians' arsenal to treat venous thromboembolism and advance our position in this exciting market in fiscal 2023 and beyond. We also launched two studies, including our preserved clinical study for the use of NanoKnife as a focal treatment option for men with prostate cancer that we believe can provide significant quality of life benefits over other treatment options. I am very proud of our team's dedication and ability to remain focused and deliver for customers and patients in this difficult macroeconomic climate. We continue to drive impressive performance in our Ariane Arthrectomy business with revenue of $9.6 million for the quarter up sequentially from $7.3 million in our third quarter. For the year, Ariane revenue was $29.1 million, exceeding the top end of our guidance range. In the fourth quarter, Ariane procedure volume and market adoption continued to gain momentum. We are excited about the steady trajectory of this business, having treated more than 21,000 people since we launched this platform, approximately 21 months ago. We believe our differentiated offering with demonstrated clinical benefits continues to gain traction with new and existing customers based on its efficiency, efficacy, and ability to treat any lesion type or length anywhere in the peripheral vasculature. For fiscal 2023, we expect Arion sales in the range of $40 to $45 million. Our mechanical thrombectomy business, comprising AngioVac and AlphaVac, grew 10% year-over-year in the fourth quarter. When including Unifuse, this business grew 11% in the quarter. For the year, mechanical thrombectomy grew 16%, and when including Unifuse, it grew 12%. While total growth in thrombectomy was below our expectations due in part to the procedural volume challenges, impacting the DVT space. We are pleased with the overall performance of this business and remain bullish on the growth trajectory into FY23 and beyond as we continue to work towards expanding our product offerings to open up additional total addressable markets in the VTE space. Specifically, we are excited about the early performance of our AlphaVac system during FY22 we launched the 22 French AlphaVac and completed the limited market release of our 18 French AlphaVac and are now in full market release. Total AlphaVac revenue for the year was $2.2 million. AngioVac sales declined 4% in the quarter against a strong comparable and due to the headwinds I just mentioned. For the full year, AngioVac sales grew 7%. On June 1, at the start of our fiscal year, we reorganized our thrombus management sales bag, shifting responsibility for our core angiographic catheter business to our vascular access team. This move facilitates a dedicated focus on our thrombus business and increases our effective sales efforts by roughly 10% to 15% without adding any additional headcounts. This dedicated sales structure is similar to the proven approach that we took with Aurion and will allow our Thrombus team to better serve our customers and communicate the clinical value of AngioVac and AlphaVac in treating different types of VTE in this highly competitive market. Moving CORE into vascular access will allow that team to leverage its deep relationships with interventional radiologists and its strong experience with GPO and IDN contracts. We believe this team is well-suited to drive these synergistic businesses efficiently. Turning to Nanomife, disposable sales grew 16% during the quarter. For the year, Nanomife disposals grew 17% compared to fiscal 2021. Growth during the fourth quarter was driven by strength in the United States, with U.S. disposable sales growing 64% over the prior year. international markets, most notably in China and Europe, remain impacted by the continuing global COVID headwinds and resulting disruption. Nanolife performance in the United States has been fueled by more than 130 prostate procedures performed in FY22, representing growth of more than 500% in this disease states. These results and the progress of our preserved trial for the treatment of prostate cancer have us very excited about the opportunities for Nanolife. During the fourth quarter, our med device businesses, which include the remainder of our portfolio, grew approximately 6% over the prior year. For FY22, our med device businesses grew 1%. When adjusting for the one-time $5 million order from NHS during the prior year period, our MedDevice business grew 3% year over year. As we stated during our Investor in Technology Day last summer, we expect our MedDevice business to grow 1% to 3% over our three-year strategic plan period. We are very pleased with this performance, particularly given the challenging macro environment. On our third quarter fiscal call, we discussed the tight labor market the impact on our manufacturing capacity and our response plans. As we anticipated, the backlog at the end of Q3 did rise during the beginning of our fourth quarter. However, our manufacturing teams did an excellent job executing on our response plans, increasing manufacturing capacity through our Costa Rican partnership and stabilizing our employee base. I'm pleased to tell you that as we exited Q4, Our production hours were up by more than 40% relative to this December-January timeframe. As was the case last quarter, the demand environment for our med device products remained strong, while our response plans enabled us to work through a portion of the backlog. At the end of May, backlog was approximately $8.4 million, compared to $11 million at the end of March. While we're pleased with our progress with respect to our supply chain stabilization and manufacturing capacity, given the macroeconomic challenges, we expect to see some variability in these areas. These productivity gains had a positive impact on our gross margins sequentially from our second and third quarters. Gross margin for the fourth fiscal quarter was 53.4%, resulting in a full-year gross margin of 52.4%. in line with our revised guidance. Turning to earnings, we generated an EPS of one cent in the quarter. Adjusted EPS for the year was breakeven. As a reminder, this includes a positive impact of about eight cents from the CARES Act on our fiscal third quarter adjusted EPS. As mentioned on our third quarter earnings call, While we didn't contemplate this relief in our original earnings guidance, it allowed us to maintain and even accelerate certain investments across a number of areas of our business while offsetting a portion of the COVID-related headwinds that we faced during the year. Now, regarding our investments during the quarter, we continue to focus on our key strategic priorities, which are to support our existing platforms to facilitate physician adoption and improve patient outcomes, and also to continue the development of new products to expand into larger, faster-growing addressable markets. These investment initiatives include clinical research, product development, selling and marketing, and regulatory pathway expansion as we prepare to introduce these new products into the market and work towards expanding indications and geographies. Our teams continue to execute on our clinical trials, including our two new IDE studies, our PRESERVE study for the treatment of prostate cancer with NanoKnife, and the recently launched APEX study for the treatment of pulmonary embolism with our AlphaVac F18, as well as our DIRECT study for the treatment of pancreatic cancer with NanoKnife. We believe that PRESERVE will demonstrate that NanoKnife can be an effective focal treatment option for men with intermediate risk disease and provide superior quality of life outcomes when compared to other focal treatment options for surgery. We estimate that the total potential market for focal treatment of prostate cancer that can be addressed by NanoKnife may exceed $700 million. We believe that our APEX study for pulmonary embolism will prove that our unique AlphaVac products can be an effective treatment for PE, providing ease of use and another treatment option while also unlocking an opportunity in a large addressable market that we estimate to be in excess of $1.5 billion. I'd also like to provide you with an update on our legal action against Becton Dickinson's CR Bard business as it relates to our VA business. We were scheduled for trial to begin on July 5th. The court recently rescheduled our trial date to September 19th, 2022. We have waited a long time to get our day in court and are looking forward to the opportunity to present our antitrust case. Before turning the call over to Steve, I would like to once again thank our team here at AngioDynamics for their continued persistence and commitment to achieving our goals regardless of what challenges lie in front of them. Without their tireless effort, Angio Dynamics would not be the company it is today. 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, everybody. 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 fourth quarter of FY22 increased 13.2% year-over-year to $87 million, driven by continued strength in our MedTech platforms, including Arion, NanoKnife, and Thrombectomy. MedTech revenue was $22.6 million, a 40% year-over-year increase, while MedDevice revenue was $64.4 million, growing 6.1% compared to the fourth quarter of FY21. For FY22, our MedTech platform grew 41.2%, Our med device business grew 0.9% compared to the prior year period and grew 3.2% year-over-year when excluding last year's NHS order. For our fourth fiscal quarter, our med tech platforms comprised 26% of our total revenue. In FY22, our med tech platforms comprised 25% of our total revenue compared to 19% in fiscal 2021. Overall demand during the quarter remained strong. I will discuss in more detail a little later. We ended May with an $8.4 million backlog, which represents a meaningful reduction in the total backlog from the levels we reported for March. When taken with our fourth fiscal quarter revenue result of $87 million, the $8.4 million backlog provides clear evidence of both our improving manufacturing capacity and a continued strong demand environment. Revenue in our endovascular therapies business increased 18.5% year-over-year during the fourth quarter to $45.1 million, benefiting from the continued growth of Aurion and our thrombectomy portfolio. Aurion contributed $9.6 million in revenue during the fourth quarter, continuing the momentum we built since our launch in FY21. As of today, our installed base is 306 lasers, with 31 lasers placed during the fourth quarter. We're very pleased with the growth that our Aurion teams have achieved, and new laser placements, along with increased penetration with respect to prior placements, were a significant driver of that growth. Total lasers placed since launch have utilized approximately $19 million of cash, consequently adding quarterly depreciation expense to our gross margins. As we've previously discussed, we do not expect to place lasers at new accounts in FY23 at the same pace we did in FY22. In FY23, our teams will absolutely continue to open new accounts, but will be highly focused on increasing penetration in existing accounts. As Jim stated earlier, we expect Arion to generate revenue in the range of $40 to $45 million in fiscal 2023. Mechanical thrombectomy revenue, which includes angioVac and alphaVac sales, grew 10% over the fourth quarter of FY21. When including unifuse, thrombectomy revenue grew 11.4% year-over-year. Procedure volume for angioVac during the fourth fiscal quarter was slightly behind last year, We believe that staffing challenges at hospitals have continued to have an outsized impact on angiovec procedure volume due to the complexity of angiovec procedures, which require perfusionists and typically an ICU bed. We're very encouraged by the results of the limited market release for our AlphaVac F18. Physician feedback has been very positive. We moved to a full market release for AlphaVac F18 in June and are encouraged by the large number of hospital value analysis committees currently assessing the AlphaVac platform. For FY22, mechanical thrombectomy grew 16%, and when including unifuse, grew 12.1%. Mechanical thrombectomy growth fell short of our expectations for the year due to COVID disruptions to the complex angioVac procedures. For fiscal 2023, we expect mechanical thrombectomy to grow 30% to 35%. AlphaVac revenue from both the FY22 and F18 LMR was $2.2 million in FY22. For FY23, we expect angiovac revenue to be in the range of $27 to $29 million, and alphavac revenue to be in the range of $7 to $9 million. We continue to expect our mechanical thrombectomy platform to be a significant contributor to our overall growth, and we plan to continue to invest in the platform as a key driver of our transformation. Bath gear access revenue in our fourth quarter increased 9.3% versus the prior year period. Vascular Access is one of the three businesses, along with our core angiographic catheter business and our EVLT business, that felt the most impact of the supply chain headwinds and tight labor market through our first three fiscal quarters. Our fourth quarter results in Vascular Access were positively impacted by a reduction in the overall backlog for VA products during the quarter, while demand remained strong. For FY22, our VA business is down 1.1%, but when accounting for the one-time $5 million NHS order last year, This business is up 4%. Revenue from our oncology business grew 5.8% during the quarter as compared to prior year. NanoKnife disposable revenue increased 16%, driven by 64% growth in the United States. NanoKnife growth was driven by increased awareness from our clinical studies, continued increasing adoption from urologists, and a growing installed base. For the year, NanoKnife probe sales were up 17%, driven by 43% growth in the United States. Now moving down the income statement, as illustrated in the gross margin bridge included in the earnings presentation posted this morning, our gross margin for the fourth quarter of FY22 was 53.4%, a decrease of 170 basis points compared to a year ago, but an increase of 120 basis points sequentially as our capacity improvement initiatives yielded benefits for us in the fourth quarter. As we move into our FY23 in accordance with our strategy, we expect our gross margin to expand as sales in our higher-margin MedTech platforms grow. As Jim said, while we're pleased with our progress on manufacturing, we expect to continue to see some variability in FY23 as a result of supply chain and other macroeconomic headwinds. In the fourth quarter, on a year-over-year basis, the impact on gross margins from product mix was a net benefit of approximately 70 basis points, which was partially impacted by the timing of MedDevice business sales as we reduced the backlog. The increase in production capacity from our initiatives provided a benefit of approximately 100 basis points. These tailwinds were offset by the continuation of the headwinds we discussed during our third quarter call, including the ongoing COVID impact, increases in labor and manufacturing costs, staffing challenges, inflationary pressures, and freight costs. For our fourth quarter, gross margin was negatively impacted by approximately 125 basis points versus the prior year period due to increased labor and manufacturing costs. Inflationary pressures on raw material prices resulted in another approximately 135 basis point negative impact. Higher freight costs had an approximately 10 basis point negative impact. Ariane and Alphavec startup costs accounted for approximately 40 basis point negative impact. Gross margin for the full year was 52.4%, a 150 basis point decrease compared to the previous year, driven by the same headwinds that I just mentioned. Our research and development expense during the fourth quarter of FY22 was $7.9 million, or 9% of sales, compared to $9.1 million, or 11.8% of sales, a year ago. R&D expense for the year was $30.7 million, or 9.7% of sales, compared to $36.4 million, or 12.5% of sales, in the previous year. And we continue our disciplined investment in R&D, focused on driving our key technology platforms, including clinical spend, for our MedTech portfolio. For FY23, we anticipate R&D spend to target 10 to 12% of sales. SG&A expense for the fourth quarter of FY22 was 37.9 million, representing 43.6% of sales, compared to 33 million, representing 42.9% of sales a year ago. For the year, SG&A expense was 133.8 million, representing 42.3% of sales, compared to 117.2 million, representing 40.3% of sales in FY21. The increase in SG&A spending for our FY22 was primarily driven by investments in our sales teams, particularly Arion. For FY23, we anticipate SG&A spend to target 40 to 45% of revenue. Our adjusted net income for the fourth quarter of FY22 was 0.3 million, or adjusted earnings per share of one cent, compared to an adjusted net loss of 0.1 million, or roughly break even adjusted earnings per share in the fourth quarter of last year. For the full year FY22, adjusted net loss was 0.2 million, which led to a roughly break even adjusted earnings per share. Adjusted EBITDA in the fourth quarter of FY22 was 6.2 million compared to 4.5 million in the fourth quarter of FY21. For the year, adjusted EBITDA was 20.9 million compared to 19.5 million in FY21. In the fourth quarter of FY22, we generated $8.6 million in operating cash, had capital expenditures of $1 million, and additions to Arianne placement and evaluation units of $2.7 million. As of May 31, 2022, we had $28.8 million in cash and cash equivalents compared to $23.9 million in cash and cash equivalents on February 28, 2022. Our debt outstanding remained consistent at $25 million. As we stated, our strategic plan contemplates funding development of our growth initiatives with internally generated cash. We began FY22 with $48.2 million in cash and ended FY22 with $28.8 million in cash, resulting in a net reduction of cash of about $19.3 million. The earnings presentation posted this morning includes a cash walk for our FY22. As illustrated in that walk, there were a number of factors during our FY22 that impacted cash that we don't anticipate will recur at those same levels during FY23. For FY23, we expect net operating cash generation to be break-even to slightly positive. Now, to provide some additional color, during FY22, Arion laser placements used 11.4 million of cash. As I mentioned, we do not expect to place as many Arion lasers in the field in FY23 as we did in FY22. The net increase in accounts receivables for the year exceeded the net increase in accounts payables by 11.9 million. This was primarily driven by timing of sales related to the backlog and strong demand in the fourth quarter, driving AR balances up late in the year. As this reverses, we expect it will become a source of cash in FY23. Inflation and increased labor and freight costs stemming from COVID disruptions, as well as costs associated with ramping up our Costa Rican manufacturing strategy, used $8.5 million of cash during the year. We do expect inflationary pressures to persist throughout our FY23, but we do not expect them to be as pronounced as during our FY22. Our current outlook on inflation and labor costs, as well as the timing of certain inventory purchases, is reflected in our expectation that FY23 net operating cash generation is breakeven to slightly positive. As is typical, we expect cash utilization to be higher in the early part of our fiscal year, with increasing cash balances in the later part of the year. During the back half of our FY23, we currently expect to achieve the aggregate revenue milestone target for Arion, which would trigger a contingent consideration payment of 10 million. Now, this contingent consideration payment is excluded from our operating cash expectations. In the face of unprecedented market challenges still stemming from the global COVID-19 pandemic, We're pleased with our ability to utilize internally generated cash to remain in investment mode to drive our growth targets in our MedTech platforms. We'll continue to balance making the investments necessary to drive growth with prudent cash management and profitability. Turning now to guidance. We anticipate that FY23 revenue will be in the range of 342 to 348 million, and we expect full year adjusted earnings per share to be in the range of one to six cents as we continue to invest in driving sustainable growth in our key MedTech platforms, while also managing continued headwinds. While the macroeconomic environment has improved in certain areas, it remains uncertain due to inflation, supply chain disruptions, the tight labor market, and pressures facing our customers. We expect FY23 gross margins to be in the range of 52.5 to 54.5. As we move into FY23, we are providing you with increased visibility into the gross margin profiles for our higher growth MedTech platform and our MedDevice businesses. For FY23, we expect MedTech gross margins to be in the range of 65% to 68%, and MedDevice gross margins to be in the range of 45% to 48%. I'm proud of our team's ability to continue working towards our goals despite a very challenging operating environment. We look forward to continuing this progress in fiscal 2023. With that, I'll turn it back to Jim.

Thank you, Steve. I am very proud of our performance over the past year as we worked to overcome a host of macro challenges while continuing our transformation into an innovative, growth-oriented medical technology company. We delivered on the strategic objectives for FY22 that we laid out for you in last year's Investor in Technology Day. We provided revenue guidance last summer and we were able to raise that guidance after Q1, and we finished the year $1 million above that increased guidance range. We were able to report full-year EPS that was within the range of original guidance, despite facing macroeconomic headwinds, as well as labor and supply chain disruptions that pressured profitability and required us to lower expectations around gross margins during the year. As we've maintained, we remain in investment mode prioritizing investments in our people and capabilities, both of which are foundational to our transformation. The results of these investments bore out over the course of the year and included the launch of our AlphaVac F22 and our AngioVac and AlphaVac F18 products. We have also focused our investment on clinical trials to generate data that we believe will drive physicians and patients to our platforms. We are excited about our AlphaVac Apex Pulmonary Embolism Study and our Preserve NanoKnife Prostate Study. We remain on track to meet the long-term financial goals that we laid out for you last July, as evidenced by an increase to our FY23 revenue range and the ongoing mix shift toward our higher growth and higher margin MedTech platforms and products. We believe that these goals contemplate the investment needed to transform the company and introduce new products in higher growth markets while expanding indications for existing products, setting us up for sustainable growth. Slide 12 of our earnings presentation is a great example of this, showing the incremental pipeline and platform opportunities. During our Investor and Technology Day, we described how we were transforming our company and our product portfolio to increase the aggregate total addressable markets in which we compete. In our FY 2018, our aggregate total addressable markets were less than $1.5 billion. Through portfolio optimization, R&D and clinical initiatives, and regulatory pathway expansion, our aggregate total addressable markets for FY 23 exceeds $6 billion, and we are on track to expand that to more than $8 billion in 2025. In addition, our three MedTech platforms offer opportunities to leverage their unique science and capabilities to expand into future market potentials that are in excess of $8 billion market goal that we articulated at the beginning of our strategic transformation. Future opportunities for our Ariane platform include applications in coronary procedures and thrombectomy. Potential future applications for our thrombectomy platforms include applications in the left heart. And all of our med tech platforms, including NanoKnife, have significant growth potential in urine pee in markets, which we feel are under-penetrated today. While we believe that it is vital to serve larger, faster-growing markets, our ability to compete and win is equally as important. And we are building out those capabilities as evidenced by the growth of our MedTech portfolio. We remain committed to improving patient care and physician satisfaction through the solutions that address some of the most dynamic opportunities in healthcare. And we are supporting data collection initiatives and research studies to demonstrate the clinical efficacy of our technologies. I would like to thank everyone on the angiodynamics team for all of their hard work during the quarter and their ongoing commitment to our mission. I'd also like to recognize global caregivers and acknowledge the challenges that they face in delivering patient care. With that, I'd like to turn the call back to Rob for more questions. Rob?

Thank you. We'll now be conducting the question and answer session. If you'd like to ask a question, please press star 1 from your telephone keypad And a confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using 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. Our first question is coming from the line of Jason Bedford with Raymond James. Please receive your question.

Hi, good morning, and thanks for all the detail. I guess just a few for me to start. On the fiscal 23 guide, do we assume that the backlog gets exhausted during the year?

Hey, Jason, good morning. So I think it's similar to how we thought about FY24. We're going into FY, I'm sorry, Q4 of FY22. We're going into FY23 with respect to the backlog. So As we worked through the backlog in Q4, we saw some of that come down, and that was beneficial to our results. We're not fully banking on 100% of that in our FY23 guide. Now, as Jim and I have talked in the past, we think that there's probably some double ordering in there as we work through this. We don't know exactly how much. So we're going to be thoughtful as we work through that backlog. Sure, it provides a little bit of a safety net. But a lot of our FY23 guidance was really built from the bottom up. So I do expect that we're going to continue to work through that backlog over the course of the first two quarters of FY23. But it's not like all of what's left of that backlog we consider to be incremental to where our results were heading. We really did build it up from the bottom up.

Okay. And just thinking through the revenue bridge, is there an expectation contemplated in the guide that oncology and vascular access growth? year-over-year in fiscal 23?

Yes. You know, as we've talked about when you think about our med device businesses, you know, we have the same view of that business that we had when we came out with our investor on Technology Day in July. We see that business as a 1% to 3% grower. Oncology, other than nanonife, is included in that device business category along with VA and our core angiographic catheter business. And we do expect nanonife is going to continue to be a strong double-digit grower on top of that. So, You know, you could use that 1% to 3% range for all devices, and then some of the other detail that we gave you in our MedTech products together to get to that guide that we gave you, 342 to 348.

Okay, and not to get too granular here, but when you say double-digit nanoknight growth, is that total nanoknight or is it just procedure growth?

It's procedures. Primarily we're talking disposables, right? So that, you know, solid double-digit growth primarily coming from disposables. Well, all coming from disposables.

Okay, helpful. Just on the thrombectomy category, you mentioned the procedure challenges impacting the space. Is this largely in reference to the staff shortage dynamic at hospitals, or are there other factors here that are impacting growth?

We do think it's largely coming from those staffing challenges at hospitals. You know, we've talked about AngioVac in the past as being a complex procedure. It can do things that other competitive technologies cannot do, but it does require additional staffing at the hospital when you have to bring in the perfusionist and you're working through the anesthesia and then a lot of times moving into an ICU bed. And we think that that did weigh on procedure volume for AngioVac as hospitals were dealing with their staffing challenges.

Okay. And then just last question and I'll get back in queue. Just on angiovac and the softness there. Are you seeing any, I know it's tough here, but any alpha vac cannibalization of angiovac in any way?

Jason, we're watching. It's Jim. We expect there to be some we built into our models because we think the AlphaVac is so strong and powerful. It may do some things where AngioVac may have been utilized before. So we modeled that. We learned some of that in our limited market release. So we'll watch it over time, Jason. There will be a gap between a crossover between where AlphaVac can serve and AngioVac can serve. But we're being real close with our customers. We think it's far offset. but the open markets it helps us to get into, and the new patients we think Alphavac can treat. Okay, thank you.

Our next question comes from the line of Bill Planovic with Canaccord. Mr. Shearer, your question.

Great, thanks. Good morning. Just to drill down a little more, the Arion has, I mean, far exceeded our expectations. And just curious is, I was looking, you've been taking share originally, I think you said, in the laser market. Now that's moving into the other more mechanical type of devices. But as you think about the future with less placements and increased utilization, I mean, how much utilization do you think you can see per system? How many procedures are you kind of you know, getting with a given customer versus what you could penetrate with that customer. I was wondering if you could give us a little more flavor maybe on, you know, what we should expect. I know you gave us numbers, but how that kind of plays out executionally in the accounts.

Yeah, good question. Again, we're really pleased with the Arianne business. As you know, a couple years ago, we were attracted to this asset due to the way it operates, how it treats, and also the market potential that we saw for disruptive technology such as this. And now that's proving to be what's happening. So back to your question, as you know, we identified over 300 lasers already placed in less than two years from our full launch. We'll still continue a curve, but we'll bend it a little bit. We want to make sure now we're focused on the efficacy of each account. As you said, we have internal metrics that we track and trace. We know by the end of every month how many hospital customers or OBLs treated how many patients with our product. We don't release all that information publicly, but we do have goals we've set there to expand that. The reasons why, Bill, that's important to us, because we find that when customers get access to the technology, after a few months, they gain increasing confidence. not just in the safety profile of how our product works and keeping the vessel wall protection, integrity, and safety profile up to their standards, but also the power that it delivers to treat above, below the knee, and to instant retinosis, and as we're now learning other things. over time as we identified on our pipeline chart. So we'll probably not release exact detail, Bill, as to how many procedures we do monthly by each customer, but we're really confident we're getting not just more procedures by each customer, we're finding new and larger customers get attracted to this technology and come on board. So that's why with Steve identified, we're not going to hold back on putting more lasers in the field. There's a strong demand, but we also want to make sure that we gain efficiency in current customers.

Okay, and then on AlphaVac, you know, $2.2 million in the year, going to $7 to $9 million, you know, going into full market launch with the 18 French. And just as you think about that step up from, you know, year one to year two, how much of that is, you know, with the existing 22 French or is it mostly incremental with the 18 French and just, you know, getting into different parts of the body?

Yeah, Bill, good question. We're excited. The 18 French we think will be integral to get us into more areas of the body, more treatment potential for us. So the 22 is very powerful, and that was our first device. But as you saw in our strategy, the 18 is really, really important to us, and we thought that was the perfect device for the APEC study. That's why we launched the APEC study. We feel the 18 can be a really important tool to treat P.E., And as you know, over time, Bill, we have in our plans to launch a smaller size to round out the alpha vac potential. But again, each time we open up a smaller size, we expect that market to expand for us over time.

And just to kind of wrap it up for me with financial, just as we think of the August quarter in guidance you gave the year, but You know, given all the puts and takes, just wondering if you give us maybe a little more granularity on how that will look sequentially from May to August. And then on the tax rate, you know, just I don't think you gave tax rate guidance, but if you could help us out. I think you've been averaging, you know, in the low, you know, 12, 13 percent historically on a gap. And, you know, is that what we should kind of model going forward? Thanks.

Yeah. Hey, Bill. This is Steve. So we give annual guidance. We don't give the quarterly guidance. But what I would say is we've had pretty identifiable seasonality patterns in the past. You typically see Q4 being our highest quarter, Q1 sequentially down, two up from one, three down from two, and then back to four being the highest quarter. I would expect that you're going to see similar patterns. Now, we've seen a little bit of a smoothing of that in our growth trajectory coming from the launch of our new products. And so You may see some tempering, but all in all, I think it's a good idea to continue to expect to see some of that same seasonality as we move forward. And you're right, we identified there's still moving parts. We're not out of COVID yet. You know, as much as we'd like to be, there's still some lingering disruptive effects that are out there that we continue to manage through, and we'll manage through the way that we have the last couple years. On tax rate, I think the thing to do is continue to model it the way that you've modeled it and, you know, be consistent with what we've done going forward. You know, the one point I want to reiterate is that's a gap rate. We're not a cash taxpayer. We still have a lot of NOLs coming from historical transactions. So that is not a use of cash as we go forward, and we're able to offset any taxable income from a NOL basis, you know, for several years going forward still.

Great. Thanks.

The next question is from the line of Matthew Mission with KeyBank. Please receive your question.

Hey, good morning, guys.

Thank you for taking the questions.

I think I'm going to start off with Nan and I. You guys spent a lot of time on the call talking about prostate more than usual. What do you think is driving the increase in the number of prostate procedures? Is it specifically the PROSERVE study?

Hi, Matt. Thanks for the question. It's a few things going on at once. We think PROSERVE is highlighting now our commitment to the space to become a focal treatment option. But it probably goes back a little before that. I think doctors still understand the mechanism of action of nanolife. How it does what it does is vitally important. And we've seen other work being published by physicians globally who've done really important work and collected data on the efficacy and the safety profile that's been generated by utilizing nanolife and prostate outside of the US. So I think some of the physicians here have seen that data. It helped encourage us to pursue the IDE that we did with the FDA. And now I'm at this kind of a halo effect. And I've talked to a lot of these physicians to understand it myself. Physicians believe that focal treatment needs a better option. And they want to give patients that option for a really effective focal treatment. And it hasn't really existed with the other two main platforms in the focal arena. We're really encouraged, Matt. We're seeing really big facilities come online, seeing a lot of enthusiasm around our product as it's used. It's simple to use. It's easy. The patients get benefit pretty much immediately. So we're really excited to track the preserved study. As identified in our call, we think the intermediate risk patients are about 40%, about 100,000 of the quarter million patients identified in the U.S. annually. that we think those folks could be potential treatment options for this focal treatment over time. And that's why we also share with you a market in excess of maybe $700 million over time. So we're going to work towards that, Matt. That's why we're excited. We think it gives patients that option.

And, Matt, what I would add to that is, you know, we've talked about this in the past. We really like and are excited about the opportunity of NanoKnife as a focal treatment option. And we think the timing is actually working really well today. So as Jim mentioned, urologists are looking for a focal treatment option, something that can fit in between watchful waiting or active surveillance and going to a radical prostatectomy, given all of the side effects that are typical when you go to surgery. So you've got the industry looking for a focal treatment option. Over the last handful of years, there's been significant advancements in imaging technology, which are giving those urologists the opportunity to pinpoint the lesions and maybe go after those areas with a focal treatment option that they're looking for a little bit more so than they could have in the past. And as we've also talked about in the past, the regulatory environment has shifted where it's more conducive to going and getting an indication to go after prostate tissue. Whereas in the past, if you couldn't bifurcate the difference between oncology outcomes and overall survival, that versus the efficacy of just treating tissue getting an indication probably would have been cost as well as time prohibitive. So all three of those things are coming together at the right time, and we also think we've got the right technology given all of the experience that Jim talked about. We know that we can preserve some really good quality of life for those intermediate risk patients, and so we think the timing is right.

And the docs that are doing these procedures in the prostate, are they utilizing the existing installed base of nanoknife that's already placed in multiple hospital systems. Are the consumables fairly interchangeable between those two procedures? And then how are you thinking about potentially differentiating between price of prostate versus a pancreas procedure?

The disposables are absolutely transferable. So the disposables that are out in the market today are perfectly suitable for the prostate procedures. You know, the installed base is growing with urologists. I mean, you know, our historical base when we've been focusing on the liver and pancreatic market were usually those hepatobiliary surgeons in the hospital. Now, it could be in the same hospital, but it is a little bit of a different call point with urologists. So we see an opportunity to really expand that installed base as we drive our prostate procedures. And then the question around... timing as well as pricing. There will be some differences, especially as we get through our trial and we get to the point that we have a specific indication for prostate. Absolutely, there's gonna be market-specific pricing that makes it the most appropriate for the use of those physicians as well as the patients that differentiates between an in-surgery setting versus the prostate setting.

Okay. Moving to AlphaVac, I think you said the total sales for the year were about 2.2 million. What is implied in the FY23 guidance for AlphaVac F18 and F22?

Yeah, so we said about $7 to $9 million is what you should expect for AlphaVac in FY23. Okay.

And last question, on the MedTech gross margins in the 65% to 68% range, I'm assuming that that's currently with supply chain and ramping. Where do you think that can go over the next several years if sales are as you think they can?

Yeah, we think those high 60s is a good way to think about this business. Now, there's some puts and takes. You know, we've talked about some of the startup costs as it relates to installing. The Arian lasers are there, although that's been abating over the last year. I talked about the depreciation expense that you're going to have running through gross margins based upon the lasers that we place. So that's going to be one factor. We had some pickups in margin with moving manufacturing of the Alphaback lines from a third-party supplier to in-house. So we'll do all those things that you would expect us to do for kind of typical gross margin improvement over time as we see appropriate. But in the level that we gave you, we think you can can model the idea of our med tech business at being at that level of a gross margin. You can see the difference between tech and device.

Thank you very much, guys. Thanks, Matt.

Thank you. At this time, we've reached the end of our question and answer session. I'll hand the floor back to Mr. Clemmer for closing remarks.

Thanks, Rob, and thanks for those who joined us. Again, we're really proud of our company, really from our people that serve our customers who serve patients in need. We hope you'll see that we're creating value for those patients as they can get better faster through the use of our technology. We think you'll also see we're giving our employees a place where they can shine and engage them with their talents and do what they do best here at Angio, and they'll have a place to thrive. And finally, for our investors, we hope you'll see we're creating a company that we think is more interesting and more valuable over time as we continue our transformation to be a high-tech, high-growth, profitable med-tech company. Thanks for joining us today.

This will conclude today's conference.

Thank you for your participation.

You may now disconnect your lines at this time.