AngioDynamics, Inc.

Good morning and welcome to the AngioDynamics fiscal year 2023 third quarter earnings call. At this time, all participants are in a listen-only mode. The question and answer session will follow the form of presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded. The news release detailing our fiscal 2023 third quarter results crossed the wire earlier this morning and it's 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 10-Q and 10-K, which identify specific factors that may cause the actual results or events to differ materially from those described in the forward-looking statements. The company will also discuss certain non-GAAP financial measures during this call. Management uses these measures to establish operational goals and review operational performance and believes that these measures may assist investors in analyzing the underlying trends in the company's business over time. Investors should consider these non-GAAP measures in addition to, not as a substitute for, or as superior to, financial reporting measures prepared in accordance with GAAP. A slide package offering insight into the company's financial results is also available on the investor section of the company's website under events and presentations. The 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 now like to turn the call over to Jim Clemmer, NGO Dynamics President and Chief Executive Officer. Mr. Clemmer.

Thank you, Daryl. Good morning, everyone, and thank you for joining us. for Angio Dynamics Fiscal 2023 Third Quarter Earnings Call. Joining me on today's call is Steve Trowbridge, Angio Dynamics Executive Vice President and Chief Financial Officer, who will provide a detailed analysis of our third quarter financial performance. Turning to our results, we ended the quarter with revenue of $80.7 million, representing growth of 9% year over year, led by growth of about 17% from our MedTech segment over the third quarter of last year. We continue to make progress towards our strategic goals during the quarter, including solid growth from our Arthrectomy and Nanomife platforms, as well as our recently launched AlphaVac system. Year-to-date, our net sales have grown 8%, with our MedTech segment growing 25%, and our med device segment growing 2.5%. We are now 21 months into our 36-month plan that we launched in July of 21, and we are progressing at or ahead of our revenue targets. Our med tech segment drove growth in the quarter, led by Arion, AlphaVac, and NanoKnife. AngioVac was a soft spot in the quarter, offsetting the strength we saw in the rest of the MedTech portfolio. Arion continued its impressive performance in the quarter, growing approximately 43% over the prior year and increasing sequentially over Q2. To date, we have treated more than 35,000 patients since launch, and we remain on track to achieve our full-year target for Arion. Our mechanical thrombectomy business comprising AngioVac and AlphaVac increased 4.5% during the quarter. AlphaVac revenue for the quarter was $2 million. Our launch is progressing according to plan and we remain on track to meet our AlphaVac revenue expectations for the full year. But that being said, our mechanical thrombectomy business growth fell short of our expectations during the quarter due to AngioVac performance. AngioVac sales declined 16% in the quarter and are down 8% year to date. As we stated last quarter, AngioVac is the most sensitive of our products to hospital staffing challenges due to the complex nature of the procedure requiring numerous support specialties, including perfusionists, and usually requiring an ICU bed. However, This is not the sole driver of AngioVac's softness. Our execution has played a role in the softness as well. As we discussed last quarter, we are focused on optimizing our commercial strategy and implementing the most effective approach to selling AngioVac and Alphavac from the same sales bag. Based on customer feedback, as well as our own market observations, we are enhancing our selling process, which includes improved messaging and targeting, as well as Salesforce and customer training, with the goal of improving execution as we head into the fourth quarter of our fiscal year and our first quarter of fiscal 2024. These are growing pains that come with the launch and integration of any new platform, and I am confident that we have the tools in place to support our really talented commercial team to resolve them. While we are reducing our fiscal 2023 revenue expectations as a result of this angioVac softness, which also flows down to impact our margin and EPS outlook, we remain very bullish about the mid-term and long-term prospects for our mechanical thrombectomy business. AngioVac is just one component of our mechanical thrombectomy platform, which is still in the early stages of development. We continue to work closely with our customers to generate additional data to support future indications while also working toward international expansion beyond our current US market. Turning to our oncology segment, NanoKnife disposable sales grew approximately 22% during the quarter. with strength both domestically and internationally. We saw a continued uptick in prostate cases during the quarter, and physicians completed over 100 cases with NanoKnife, an increase of more than 70 cases over Q3 of last year. We believe that the continued strong performance of our NanoKnife platform is an illustration of the platform's ease of use combined with positive patient outcomes. Doctors appreciate that a NanoKnife procedure takes roughly 45 minutes versus over two hours for other focal treatments, while being safe for patients and preserving the quality of life. NanoKnife is currently trending ahead of the three-year plan that we shared with you at our investor day in 2021, and I'm thrilled with the progress our team has made with this platform. During the quarter, our med device segment grew 6% compared with the year-ago period when the med device segment declined due to headwinds associated with the tight labor market and supply chain disruptions. Our teams have done a great job working their way diligently and deliberately through this environment. While we have seen improvements in a number of macro areas, Specifically, with the respect of availability of manufacturing labor and freight costs, our teams continued to navigate inflationary and supply chain pressures. During our third quarter, we were backwarded on components that impacted approximately $3 million of revenue, which we expected clear during our fourth quarter. International markets had a strong quarter. growing 14% year over year, again, driven by nanonife and solid contributions from our med device business. We expect our international business to be a positive growth contributor in FY23. And as our team continues to strengthen our sales network and expand our global scientific presence, our team continues to work hard to bring our products to international markets and we expect to receive regulatory approvals to launch Arion and AlphaVac internationally during our fiscal year 2024. Generating clinical data plays a key role in our ability to effectively develop our MedTech platform technologies and expand into larger, faster growing, higher margin addressable markets. Our teams continue to execute on our clinical trials including our three IDE studies, our PRESERVE study for the treatment of prostate cancer with NanoKnife, our APEX study for the treatment of pulmonary embolism with our AlphaVac F18, and our DIRECT study for the treatment of pancreatic cancer with NanoKnife. We continue to be very pleased with the pace of enrollment in the PRESERVE study during the quarter. In partnership with the Society of Urologic Oncology's Clinical Trial Consortium, this study aims to demonstrate that NanoKnife can be an effective focal treatment option for men with intermediate risk disease and provide favorable quality of life outcomes. We remain on track to finish enrollment in this study around the end of June. And as a reminder, the study has a one-year follow-up. we estimate that the total potential market for focal treatment of prostate cancer that can be addressed by Nanonife may exceed $700 million in the US alone. With respect to our APEX study, we are pleased with the pace of enrollment and we are particularly encouraged by the feedback we are receiving about our technology from the treating physicians. We currently have 17 activated sites in the APEC study. This study is in partnership with the PERT Consortium and has a 30-day follow-up. At the current pace of enrollment, we expect to close enrollment early, calendar year 2024. We believe that our APEC study will prove that our unique AlphaVac products can effectively treat PE, providing ease of use while unlocking an opportunity in a large addressable market that we estimate to be more than $1.5 billion in the U.S. alone. These studies will bolster the scientific and clinical body of evidence that drives adoption, worldwide regulatory clearances, and patient access. We are targeting regulatory approval for both the prostate tissue indication for Nanomife and the PE indication for Alphavac in the United States by the end of calendar 2024. We look forward to providing you with additional details over the coming quarters. We'd like to highlight a few recent publications describing the use of Nanonife in men with prostate cancer. Professor De La Rosette et al. recently published a multicenter randomized single-blind study in the Journal of Urology that evaluates the safety and quality of life profile after IRE for the ablation of localized low to intermediate risk prostate cancer. In summary, the article publishes work conducted by the Clinical Research Office of Endo-Urological Society, or CROWS. We believe it shows a very favorable safety and quality of life profile and 106 men. The same data set was also published in JAMA Surgery. This article focuses on the oncological control after IRE, finding more than 80% of patients were free from clinically significant cancer at six months. In addition, senior author, Professor Philip Stricker, et al., published in the British Journal of Urology International, a median five-year outcomes of primary focal IRE for localized prostate cancer in 229 patients. In this long-term study, the authors also conclude that IRE is a good treatment option with the avoidance of radical treatment in 80% of the patients at five years. We are proud to support this work and continue to anticipate great results from the clinical studies of our products. Before turning the call over to Steve, I'd like to recognize our team here at AngioDynamics for the continued hard work as we pursue our goals of becoming a high growth, profitable med tech company. As I mentioned in my remarks, the team has made incredible progress on our initiatives as we continue to build life-saving technology that improves upon the existing standard of care. With that, let me turn the call over to Steve Trowbridge, our Executive Vice President and Chief Financial Officer, to review the quarter in more detail.

Steve Trowbridge 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. Now, while we had a softer quarter than we would have liked, there were a number of strong points during the quarter. Revenue in the quarter increased 9.1% year-over-year to $80.7 million, driven by growth in Arion and NanoKnife, as well as a strong performance from our med device business. Med tech revenue was $22.9 million, a 16.6% year-over-year increase, while med device revenue was $57.8 million, an increase of 6.4% year-over-year. For the quarter, our MedTech segment comprised 28% of our total revenue, compared to 27% of total revenue a year ago. Year-to-date, FY23 revenue increased 8.1% year-over-year, driven by MedTech segment revenue growth of 25.1% and MedDevice segment growth of 2.5%. Our Arion platform contributed $10.4 million in revenue during the third quarter, a 42.8% increase compared to last year. We continue to be pleased with the growth of the platform and remain confident in our ability to achieve full year Arianne revenue in the range of 40 to 45 million. We head into fiscal 2024 and beyond. There are a number of positive indicators supporting the continued performance of this business. First, we're seeing an accelerated shift towards hospitals from OBLs. Second, we're seeing consistent strength in below-the-knee procedures, which are now outpacing above-the-knee procedures for Ariane. Third, we have completed supply chain enhancements for our disposables, which will drive improved margins over time. And finally, we expect regulatory clearance to enter international markets during our fiscal 2024. Mechanical thrombectomy revenue, which includes angiovac and alphavac sales, increased 4.5% over the third quarter of FY22. AlphaVac revenue for the third quarter was 2 million. We remain very pleased with the performance of our AlphaVac products, including the F22 and F18 versions. Physician feedback continues to be very positive with respect to usability, features, and outcomes. Year-to-date revenue for AlphaVac is 5.4 million, and we remain on track to generate AlphaVac revenue for the full fiscal year of 7 to 9 million. AngioVac revenue was 5.5 million in the quarter, representing a decline of 15.7% over the prior year. As Jim discussed, AngioVac faced challenges during the quarter. We've taken action to address it. Year-to-date, AngioVac revenue is $18.4 million, a decline of 8.2%. We now anticipate our mechanical thrombectomy platform, led by growth in AlphaVac, to grow 10% to 20% in fiscal 2023, below our prior expectation of 25% to 30%. In spite of this change, we remain confident that mechanical thrombectomy will be a significant contributor to our growth strategy over the medium and long term and will continue to prioritize investments in this platform. NanoKnife disposable revenue increased 22.2% year-over-year. Year-to-date, sales of NanoKnife disposables grew 26.7%. As Jim mentioned, we're very pleased with the pace of sales growth as well as clinical enrollment of our NanoKnife platform. Our med device segment grew 6.4% year over year, with strength in our angiographic products, ports, dialysis, and microwave, offsetting a decline in our EVLT business during the quarter. The growth in the third quarter was positively impacted by a less challenging comp due to the headwinds we faced stemming from the tight labor market and supply chain disruptions during last year's third quarter. Nonetheless, we are pleased with our team's continued progress in driving operational capacity and supply chain strategies. As of the end of our third quarter, our backlog stood at 5.4 million. Year-to-date, our med device segment has grown 2.5%. Moving down the income statement, our gross margin for the third quarter of FY23 was 50.2%, a decrease of 200 basis points compared to the year-ago period. As a reminder, gross margin in the third quarter of fiscal 2022 included a roughly 115 basis point benefit from the CARES Act. Gross margins for the third quarter of fiscal 23 were positively impacted by increased production and sales mix of roughly 225 basis points. However, this benefit was offset by roughly 210 basis points of inflationary pressures, including 110 basis points of raw material inflation, 90 basis points of labor inflation, and 10 basis points of increased freight costs and depreciation from hardware placements. The benefit from MIX was offset by lower angioVac sales. Gross margin for our MedTech segment was 64.6%, a decrease of 150 basis points compared to the year-ago period. The year-over-year decrease was driven by lower sales of angioVac and depreciation costs from the growing Arion installed base. Gross margin for our MedDevice segment was 54.5%, a 260 basis point decrease compared to the year-ago period. The drivers for MedDevice were those that I had mentioned previously. Our research and development expense during the third quarter of FY23 was $6.9 million, or 8.5% of sales, compared to $7.3 million, or 9.8% of sales, a year ago. We'll continue our disciplined investment in R&D, focused on driving our key technology platforms, including the clinical and product development spend for our MedTech portfolio. For FY23, we anticipate R&D spend to target 8% to 10% of sales. SG&A expense for the third quarter of FY23 was $34.2 million, representing 42.4% of sales, compared to $29.1 million, or 39.4% of sales, a year ago. The year-over-year increase in SG&A spending was primarily driven by the annualization of investments in our sales team, particularly Ariane. For FY23, we continue to anticipate SG&A spend to target 40% to 45% of revenue. Our adjusted net loss for the third quarter of FY23 was $1 million, or adjusted loss per share of $0.03, compared to an adjusted net income of $1.3 million, or adjusted earnings per share of $0.03, in the third quarter of last year. Our adjusted earnings this quarter were directly impacted by the NGOVAC revenue shortfall, as well as roughly $900,000 of inflation in excess of our expectations. In addition, as a reminder, our adjusted earnings per share in the third quarter of last year included a $4.2 million or $0.08 per share benefit related to the reimbursement of certain expenses under the employee retention credit as part of the CARES Act. Adjusted EBITDA in the third quarter of FY23 was $4.3 million compared to 6.7 million in the third quarter of FY22, which included the 4.2 million from the CARES Act. During the third quarter, we generated 1.4 million of cash from operations, increasing net cash by 250,000. Turning to our FY23 outlook, we are revising our full-year revenue guidance to a range of 338 million to 342 million from our prior guidance of 342 million to 348 million. We're revising our FY23 adjusted earnings guidance to a range of a loss of $0.06 to a loss of $0.01 per share from our prior guidance of earnings of $0.01 to $0.06 per share. This reduction in our guidance is fueled primarily by the weaker than anticipated NGOVAC performance and secondarily by higher inflationary pressure than previously anticipated. Year-to-date, we've absorbed over $7 million of inflation, roughly half of which was contemplated in our original guidance for the year. As a result of this, we expect fiscal year 2023 gross margin to be in the range of 51% to 52%, down from 52.5% to 54.5%. On July of 2021, we said we're building a very different company, and we're doing just that. Year to date, our revenue has grown 8.1%, or $18.5 million over last year. We did expect that this would drop additional EBITDA and profitability, However, inflation has taken a significant amount of costs right off the top. Through three quarters, total inflation has exceeded $7 million, leading to excess inflationary costs of approximately $0.07 of adjusted EPS. In spite of this, our EBITDA and adjusted EPS are up year over year when accounting for last year's CARES impact. We'll continue to manage costs and the external environment while prioritizing investments to drive the growth depicted in our three-year plan. I'll wrap up my comments by highlighting the entire AngioDynamics team for their ongoing persistence and dedication to achieving our goals as we pursue our transformation towards becoming a platform-focused medical technology company. With that, I'll turn it back to Jim.