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.

Thanks, Steve. In closing, I'd like to say, while I'm pleased with many of the things that we're doing at AngioDynamics and our progress that we're making to becoming a long-term, high-growth, profitable company, we have also identified and put plans in place for areas that we can do better. So our focus will turn to those areas. We want to bring value to our customers, our employees, and our investors. We know that we have a great plan. We'll work hard to do that for each of those three constituencies over time. Thank you for listening today. Daryl, I'll turn the call back to you.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would 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 key. One moment, please, while we poll for your question. Our first questions come from the line of Matthew Michon with KeyBank Capital Markets. Please proceed with your questions.

Hey guys, this is Brett Fishman on today for Matt. Thanks so much for taking the questions. Just wanted to start off a little bit on some of the broader macro trends. Just given, you know, a lot of the moving pieces discussed today, like staffing constraints and then inflation, supply chain and free costs have kind of been themes for several quarters. Just wondering a little bit like what changed incrementally versus January around some of those dynamics and how you're looking at them moving forward.

Hey, Brett, it's Jim. So a couple things. You know, we actually think that the macro environment from our customer angle, from the hospital side, is getting better. We think that their staffing challenges are getting better. It's regional in approach when we speak to our customers. We think it's in a better spot than it was three or six months ago. So we've seen some of the dynamics from that. The angiovac challenge we mentioned, again, part of that's due to that, but we don't want to put all the attention there. We also know we can do better, and we will, in how we execute therapy. Also, Brett, we talked about it. We have more stabilization in our internal supply chain from the employee side, and we've seen freight costs abate a bit, which is terrific. But we're still seeing some disruptions from our supply chain partners. Sometimes we're not getting all the parts we order or the raw materials we order, and we're also seeing still inflation hit there. So things are better, but they're still not back to what we'd call normal.

All right, thank you. And then just shifting over a bit to mechanical thrombectomy, Just wondering if you could also expand a bit on some of the new selling processes you mentioned for anti-OVAC. And would it be challenging to do some of this in the current environment, given all the staffing that's involved in the procedure, which is limiting current procedural dynamics? And then also, just how are you thinking about anti-OVAC from here? Could we see some sequential growth into 4Q? And early thoughts on maybe FY24 as well. Thank you. Sure, good questions.

So a couple things. So we've taken a look at how we've integrated this sales bag going back to last June 1, our fiscal year, putting the new AlphaVac products in the bag with AngioVac. Remember, we're also running our APEX study aligned with this because we'd love to get that PE indication for AlphaVac F18. But we're being very cautious as we enter this market. We're learning from our customers, learning how great our devices are, but also how to sell them combined in a bag. And again, we only have limited indications at this point, We don't have the full bag we'd like to have as we've identified Brett. Over time, we're looking to launch our Arion for thrombectomy for small vessel over time. So we're in the kind of the middle innings of our whole mechanical thrombectomy program. What we can do better is our internal messaging to our customers, making sure we're clearly identifying what we do and what we don't do and how we can do that better. We also believe we can train our own people and our customers better. We have a great team of clinical resources in the field to work with our customers. We'll make sure that we can get our sales force and our customers trained properly. And we'll watch AlphaVac and AngelVac together grow sequentially. We're actually off to a good start this quarter, so it's a good sign that we think the improvement program we put in place is working, as we're seeing already a positive sign and the uptick back to where we expect performers to be as we look at the current quarter we sit in today.

All right, awesome. And then last question from me. Just, you mentioned some possible international approvals in the coming quarters for Ariane and Alphaback. Are there any particular markets that you think investors should be focusing on as bigger opportunities or ones that could come earlier in the timeline? Thank you very much for taking the questions.

Thanks, Brett. Good questions. We actually think we have a great team now in Western Europe, and today we're actually holding, right as we speak, in Rome, our third scientific clinical symposium that Angel Dynamics is hosting with over 200 world-renowned key opinion leaders and clinicians and professors who are attending our symposium today to be trained in our products and speak to some of the outcomes that they've foreseen when they use our products. So we're going to focus on our Western European growth first, where we have a lot of opportunity for these products that are unique, and there's a lot of need that we're going to align to. So we'll see, Brett, indications next calendar year, starting with Ariane, then Alphavac as the first two products we'll get launched, which are important. because we think they can be global growth drivers for a company for years to come. We'll also then make sure we have the right indications in Canada, in Latin America, in Asia Pacific, in the Middle East as well.

Thank you. Our next question has come through the line. It's Stephen Lippman with Oppenheimer. Please proceed with your questions.

Hi, guys. Thank you, and thank you for taking the question. I wanted to ask a little bit about Nanonite. You've had strong disposable sales so far and attributed it to the halo effect from the ongoing studies. How much of a runway do you guys see for that continuing after trial enrollment completes and before you get indication of expansion approved?

So, good question. So, if you look back at last fiscal year, we guided about 20% disposable growth, and we overachieved that. This year, again, we guided about 20% disposable growth, and we're overachieving that as well. So, we think just due to some of it's the halo effect from the direct study on the pancreatic cancerous patients, and now are preserved. People are just getting more awareness about how nano knife works, why it's so special, and can treat very delicate organs in a unique manner. So I think that when there's more awareness generated, I think there's more interest generated, we're seeing more inbound interest from physicians, and we're able to train them properly, let them choose how they want to treat and where they treat, while we're committed to getting the data published to prove these sources can be areas. We also know, as we identified, when we complete enrollment and complete the final study 12 months later on Preserve, we believe that we'll open up about a $700 million market in the U.S., for those intermediate-risk patients, give them a chance for a good focal treatment. So it's going to be a combination of a few factors. We think we'll continue to grow the business at about this rate up until we get that indication end of next year, and we'll give you more guidance there as to what we can do. We're trying to align the indication of regulatory approvals with reimbursement and then patient and customer awareness. And when we do those together, we really think we have a special product that can grow in this market.

That's very helpful. Thank you. And then my other question was about the Orion small vessel DDT. You guys have said that you've gotten feedback from docs saying that they want this and you're pursuing that opportunity. But this is pretty new in the field. Can you let us know a little bit about how the development process is unfolding? Have you reached a point where you can say this is feasible and definitely going to be followed through?

Yeah, so let me take a swing at it. If I get your question wrong, please stop me or chime in again. So we're hearing a lot of great feedback. Again, you know, we launched Arion in September of 2020 when the pandemic hit and we were rolling out this product. And there's good competitors in this field. There's good anthrectomy systems out there. But we knew ours was special. We knew it was different. And the physician feedback we received from that date has been really tremendous. So we also told our physicians, this is a platform technology. We're going to grow what we do first in PAD and anthrectomy. And we've done that already with the hydrophilic coating catheters we launched this year. Later this calendar year, we're looking to launch radial products, give our physicians a new access point, a new way to use arthrectomy tools, a new way to use Arion in the anatomy. So we'll continue to develop not just the products, but we're also working with the science behind it. You've seen and will see during the course of this year more publications driven by some of our physicians who believe in the science and have seen unique elements of how it treats the anatomy. We're also committed, as you know, we believe that Arion will complement a mechanical thrombectomy platform with an Arion version of mechanical thrombectomy coming near the end of calendar year 2024 for small vessel DVT, utilizing the power and energy that Arion delivers and the safety efficacy within the vessel wall in a manner that we believe will give physicians a new way to treat thrombectomy. Thank you.

Okay, thank you so much for taking that question.

Thank you. Our next question has come from the line of Jason Bedford with Raymond James. Please proceed with your question.

Hi, good morning. I guess just a few questions. Maybe to start on gross margin, I understand some of the headwinds, but I'm a bit surprised at the acute nature of some of the inflationary dynamics, meaning Med device gross margin kind of down quarter-on-quarter, down year-over-year. Is there anything, what was new that popped up more on the med device gross margin side in the quarter?

Hi Jason, this is Steve. Jim had mentioned in his prepared remarks some of the disruption that we're seeing from some of our supply chain partners and our component suppliers. That has been part of it. As he mentioned, There's about $1.5 million of components that we were expecting to get in that would have allowed us to get about $3 million in revenue out in the quarter. They were scheduled to be earlier in the quarter. We were told that they were going to be pushed out. We do expect those to come into Q4. So some of that was tied up in terms of the WIP and coming from the supply chain disruption. And the other piece really is the raw material inflation. As we've talked about specifically in the device business, we've got a large number of SKUs in that business all throughout the different products that are there. And we're just not the largest purchaser for most of our suppliers. And so as the macro environment continues, we're finding that we're a little bit in the middle of the line there, not enough to really drive extensive volume benefits. We're not at the end of the line, but at the same time, dealing with some of those price increases, which we found to be stickier this year than we were expecting in the summer. And we'll probably extend a little bit into the next year as well. We expect that's going to happen as we build into thinking about the next year. So those raw material components have driven a big part of that, as well as just some of the timing and mix of turning product into finished goods and getting them out the door.

Okay. And the $3 million... that was lost here or pushed out here and loss is probably not the right word, but yeah, the 3 million that you mentioned battle all, um, benefit the fourth quarter. Is that the expectation?

We definitely expect it to clear in the fourth quarter. Now, we don't expect it to be at that same level, but as we've said, it's not like the component supplier issues are going to completely vanish. We're going to be dealing with component supplier issues for a while, and our team is managing that on a day-to-day basis. But yes, we do expect those to clear into the fourth quarter.

And just on the backlog, I think you talked about a little over $5 million in total. Is the math here? You ate into it with a reduction of $3 million from the last quarter, but you added another $3 million? Is that kind of the math on it?

The timing that you're talking about is the right way to think of it. So if you think about where the back order stood at the end of the quarter, although the numbers were relatively consistent from the end of Q2 to Q3, the mix of that was very different. And so the way you describe it is exactly right. We were eating into it, clearing it, kind of at the same pace that we had been over the past few quarters. And then, you know, some of the timing on the component supply means that you end up with a different mix at the end of the quarter.

Okay. Maybe just switching gears to the other dynamic here in the quarter. AngioVac. I guess the question for me is, do you have fewer users of the technology or do you have the same number of users just using it for fewer cases? If that question makes sense.

It does make sense, Jason, this, Jim. It's a mix of everything. So we're always gaining new users, and sometimes you lose users too. So it's just kind of a mix that happens all the time. The product is so unique and special that we're always getting new interest, new users, and sometimes we've been under challenge to continue that usage to make sure that the physician is trained and can use it. With other things happening, there's also a gray area between where AngioVac works our alphabet can work, or other competitive products can work. So as we're learning that and getting our customers better aligned to the change of markets, better trained, we'll see a little of choppiness there. We've learned a lot. It's funny, I had a master class two weeks ago where I sat in, again, over a weekend with some new users. And right afterwards, a couple users used it the first week right after the master training class. So we know that people see the value of it, how easy it is to use, although it's complex from a user standpoint. The benefits, the drives, and patient outcomes are dynamic. So, Jason, it's choppy. You know, there's always some accounts leaving, some accounts coming in. I'm trying to give you a straight answer, but it's a moving target.

Okay. And I don't think I heard you mention left heart and where you are with AngioVac or timeline regulatory process.

Yeah, you know, we're really excited by what we believe AngioVac can do in the left heart, the size of the market, we believe how it can treat. What we've gotten from the FDA is different guidance than they gave us initially. They've kind of rethought the approach that they want us to take and have given us different guidance. So it's changing our approach towards it. So we have to look at the timeline again and how that will affect the new level of really they've raised the bar and what they want, what they initially communicate with us. So we've got to come back, Jason, and communicate to you what that means from a timeline perspective, because it'll push our timeline out. What they've asked us for is a little more comprehensive than the initial request was.

Okay, thank you.

Thank you. Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next questions come from the line of Bill Plavonic with Canaccord. Please proceed with your questions.

Great, thanks. Good morning. My first question is, as we look at guidance for the year, that'll be a pretty big jump in the fourth quarter. Just to get to the low end, so help us understand what you're contemplating in terms of getting to the low end, meeting the low end, or even getting to the high end of that updated guidance.

Yeah, Bill, it's a good question. I mean, you know, part of the things I understand is structurally the fourth quarter has about four more selling days in it than the third quarter, and it doesn't have the same holiday cadence that the Q3 had. So we typically see a big jump going into the Q4 from Q3 every year given our typical seasonality. So I think that's, you know, that's the first part of it. Second part is if you look at some of the products like Arianna NanoKnife that are on their growth trajectory, you know, we're very excited, and they're going to continue their sequential growth, which is going to add to that increased selling days. We do expect we're going to see a pickup in AngioVac, as Jim mentioned, and we have seen that here in the first month of March so far. We've been very pleased with the pace that we've seen at AngioVac coming from some of those changes that Jim had mentioned. And then when you build into that some of the dynamics that we were talking about with Jason on the previous call around the backorder, getting some of those components in and clearing that, all those dynamics together give us confidence, certainly to what you were asking too, is the bottom end of the range. But as you can imagine, we put the range out there, and we're looking at that range and targeting midpoint.

Okay, and then from a cash flow standpoint, I think – And correct me if I'm wrong, originally you were targeting that you would end the year being cash flow neutral for the year. Given where you sit today, how do you feel about that? Do you still think that's the case?

Look, we're still striving for that. I think given the revenue change that we talked about here, if you look at the midpoint to midpoint from our original guidance to where we're going, we We do think that we may be, you know, maybe $5 million or so off of that, but we're still going to continue to strive for it. We do expect we're going to see significant cash generation in Q4, and we'll continue to push towards that.

Okay. And then, you know, just with the AlphaVac and AngioVac communities, you look at the AlphaVac growth and the kind of decrease in the AngioVac You know, do you think this is just cannibalization of the same doctors and customers, or is AlphaVac really drawing in a new customer and you're just kind of, you know, with the AngioVac just going down and kind of losing some of that share?

So, Bill, a little bit of both. Back when we launched the AlphaVac last summer, we tracked every procedure that we've done, tracked who did the procedure, which specialty, which physician had performed the procedure, and and what they would have used as an alternative. And early on, we saw some of that cannibalization. Now, that was also when last summer and last fall, there was a little more pressure in the hospitals as far as employee staffing and some challenges there. Lately, we've seen that shift change, and we're finding less and less. We knew there'd be some cannibalization. It's gotten a lot less, though. We're finding we're replacing a potential other product or other technology or other treatment protocol than we were six or nine months ago. So we like the way that shift is occurring. It has been a challenge for us during this year, and it will always remain there. But we think the shift is working well as we educate our teams and our customers as to when to use which product and how.

Okay. Thanks for taking my questions.

Thank you. Thank you. I'd now like to turn the call back over to Mr. Clemmer for any closing remarks. Mr. Clemmer?

Thanks, Daryl, and thanks to the listeners today. We appreciate the feedback we've received. We'll work hard to continue to grow our company and show our investors we can become a growth and profitable company as we treat patients in need around the globe. Thank you for listening today.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.