AngioDynamics, Inc.

Good morning and welcome to the NGO Dynamics fourth quarter and fiscal year 2023 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 on your telephone keypad. As a reminder, this conference call is being recorded. The news release detailing NGO Dynamics fourth quarter and fiscal year 2023 results crossed the wire earlier this morning and is available on the company's website. This conference call is also being broadcast live over the Internet at the Investors section of the company's website at www.ngodynamics.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, 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 the call. Management uses these measures to establish operational goals and review operational performance and believes that these measures may assist investors in analyzing the underlying trends in the company's business over time. Investors should consider these non-GAAP measures in addition to, not as a substitute for or as superior to, financial reporting measures prepared in accordance with GAAP. A slide package offering insight into the company's financial results is also available on the Investors section of the company's website under Events and Presentations. This presentation should be read in conjunction with the press release discussing the company's operating results and financial performance during this morning's conference call. I'd now like to turn the call over to Jim Clemmer, Angio Dynamics President and Chief Executive Officer. Mr. Clemmer?

Good morning, everyone, and thank you for joining us. for AngioDynamics' fourth quarter and fiscal 2023 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 and fiscal year financial performance and our fiscal 2024 guidance. FY23 saw continued progress against our long-term strategy And we have already had an exciting start to FY24 with the strategic divestiture that we announced on June 8th and are looking forward to delivering solid pro forma revenue growth this year. We ended the fourth quarter with revenue of $91.1 million, representing growth of 4.7% year over year, led by growth of 17.2% from our MedTech segment. For the full fiscal year, our revenue was $338.8 million, representing growth of 7.1% over the previous year. Our med tech segment grew 22.8%, and our med device segment grew 1.9%. We are now 24 months into our 36-month plan, and we are progressing at or ahead of our long-term revenue targets that we provided in July of 2021. We are very pleased with the results from our Arion PAD business as we finish the year with revenue of $41.1 million, which was an increase of 41% over FY 2022. We are continuing to gain share in this category based upon the science behind Arion, which provides physicians with the power they seek and the safety they require when treating patients with peripheral artery disease. In less than three years since launch, Ariane is becoming a trusted tool, and many physicians are also sharing their positive experiences with Ariane. In addition, we are excited about early findings published in the Cardiovascular Revascularization Medicine outlining the ability of the Ariane laser to fracture medial arterial calcification in small vessels. We will continue to invest in this unique platform, and we have plans to launch a venous thrombectomy version of Ariane, as well as pursue a pathway to launch a coronary arthrectomy version of Ariane in the future. These launches will exponentially increase the addressable markets in which Ariane competes. We also anticipate receiving CE mark for Arion in the first half of fiscal 2024. Our nanoknife business grew nearly 19% in FY23. And most importantly, sales of probes grew 27% over prior year, ahead of our goal. Nanoknife growth from our international team came as they established new relationships with partners who assist in supporting our procedures. And our U.S. growth was driven by continuing interest in this technology as more physicians become aware of our direct and preserved trials. We are really excited to report that our preserved trial, studying the use of NanoKnife to treat intermediate-risk prostate cancer, is now fully enrolled, and we are on track to finish our study and present our results to the FDA in calendar Q3 of 2024. Additionally, in July, in the UK, the National Institute for Health and Care Excellence, or NICE, Interventional Procedures Committee, finalized guidance for IRE in prostate, moving nanoknife from research only to special arrangements. We believe this change in guidelines will help improve access for patients within the UK and represents another positive step towards our ultimate goal of having the NanoLife system being recognized as a standard of care for patients with intermediate-risk prostate cancer. NICE guidance is recognized as a leading authority in healthcare decision-making due to its rigorous evaluation process and evidence-based approach, and we are encouraged knowing that many regulatory bodies around the world may consider NICE guidance when reviewing healthcare interventions for approvals or when making policy decisions. We believe that Nanolife has the potential to be one of the most important breakthroughs for men who qualify for a focal treatment approach to their disease by driving beneficial outcomes and offering significant quality of life benefits. It also has the potential to open up a roughly $700 million market here in the U.S. and potentially a $2 billion market globally for those intermediate risk patients. In FY23, our international business grew an impressive 12% over prior year and 14% on a constant currency basis. Growth came both from our MedTech and MedDevice segments, and was also very balanced throughout the geographies that we support. Our team is strong, and we will continue to grow in international markets through our strategy that employs key partners to support our products, continued exposure through our series of scientific symposiums, and further expansion of our MedTech portfolio as we gain important regulatory approvals around the globe. We believe this is the right approach as it allows us to leverage our partners in both the med tech and med device segments without the significant investment that would be required to build out a fully direct global sales force. Our mechanical thrombectomy business, which includes AngioVac and AlphaVac, finished the fiscal year with growth of 9.7% over prior year. which was below our expectations. We believe that we have great products that offer excellent clinical outcomes with strong patient safety profiles. And we will be launching enhancements to these products that incorporate feedback and insights from our customers and other interested physicians. As we have previously discussed, we are in the early stages of developing our product portfolio in the thrombectomy space. Today, our AlphaVac product offerings are utilized in the large bore subsection of the market and are subject devices for our APEX study. Looking ahead, we are preparing to launch a new version of our Aurion product for use in the lower extremity segment of the venous thrombectomy market. We believe that this will be a disruptive technology, giving customers an option to treat small vessel clots using the power, energy, and aspiration capabilities of Aurion, which will be unlike anything else currently on the market. We are planning to launch this product in calendar year 2025. On the clinical front, we are also pleased to report that our APEX study evaluating AlphaVac F18 as a treatment for pulmonary embolism is more than 50% enrolled. and we expect to complete enrollment this winter and submit our results to the FDA in the first half of calendar year 2024. To achieve our expectations for our thrombectomy business, we are continuing to improve our customer messaging, our training, our field performance, especially for angiovec. As we discussed on last quarter's call, We are taking steps to address each of these areas to ensure that this important business meets our expectations in the future. The thrombectomy opportunity is very important to our company. We are confident that our unique designs and ultimately our comprehensive offering will enable us to drive significant profitable growth in this business for years to come, even with strong competition in the market. our med device segment grew 1.9% over prior year, in line with the expectations that we set during our Investor and Technology Day in July of 2021. This important segment will continue to provide a stable cash generation and earnings profile, as it does not require the same level of annual investment as our med tech platforms require. On June 8th, we announced the divestiture of our dialysis and biocentury businesses to merit medical. These businesses were divested for two reasons. First, it will allow us to focus on fewer product categories and allocate our resources to areas that are better aligned with our long-term portfolio objectives. And second, we were able to strengthen our balance sheet. And today, we are in a strong net cash position with no need to utilize outside sources to fund our investments in the future. We have always said that we would be active portfolio managers, and this move shows that when value-generating opportunities arise to better align our portfolio with our long-term strategic goals, we'll execute upon them. And finally, on June 1, 2023, in our ongoing IP lawsuit with BD Bard, the United States District Court in Delaware granted our motion for a judgment as a matter of law, declaring that the patents asserted by Bard are invalid as anticipated, indefinite, and ineligible, and not infringed. The decision is consistent with our position and our arguments in the case since it was brought in 2015. We expect this decision to be appealed by Bard But we believe that it is supported by the facts and reflects our meritorious defenses and positions in the other cases pending with Bard in Delaware and Utah. While the case may not be definitively over yet, we believe that the judge's ruling is accurate and gets us one step closer to finally putting this matter to rest. Before I turn the call over to Steve, I'd like to thank our team here at AngioDynamics for their commitment to executing upon our strategy and becoming a high-growth, profitable medtech company. We are excited about last month's divestiture announcement and the fact that we are now in a net cash position with a simpler, more well-defined portfolio. With that, let me turn the call over to Steve Trowbridge. Steve?

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 and Fisker year results. Our revenue for the fourth quarter of FY23 increased 4.7% year-over-year to $91.1 million, driven by continued strength in our MedTech platforms, including Arion, NanoKnife, and Thrombectomy. We are pleased with the growth year-over-year, particularly in light of the fact that we had a very strong Q4 last year as our capacity improvement initiatives significantly reduced the existing backorder at that time. Last year's Q4 exhibited growth of 13.2% over the prior year, so our results for our Q4 of FY23 illustrate continued strong execution against our strategic plan. MedTech revenue was 26.5 million, a 17.2% year-over-year increase, while MedDevice revenue was 64.6 million, growing 0.3% compared to the fourth quarter of FY22. For the full year 2023, our MedTech platform grew 22.8%, and our MedDevice businesses grew 1.9% compared to the prior year period. Through the first two years of our three-year plan, our MedTech segment has grown at a CAGR of 33.1%. For the fourth fiscal quarter, our MedTech platforms comprised 29% of our total revenue. For the full year 2023, our MedTech platforms comprised 29% of our total revenue compared to 25% for fiscal 2022. Our Arion platform contributed $11.8 million in revenue during the fourth quarter, growing 22% compared to last year. As Jim mentioned, we are very pleased with the trajectory of this business and are developing additional indications in the VTE space as well as international opportunities in atherectomy that we think will open up additional significant addressable markets. Mechanical thrombectomy revenue, which includes angioVac and alphaVac sales, increased 3.7% over the fourth quarter of FY22. AlphaVac revenue for the fourth quarter was $1.8 million, Both the F22 and F18 versions of AlphaVac are performing well and receiving positive physician feedback. For the full year 2023, revenue for AlphaVac was $7.2 million. AngioVac revenue was $6.1 million in the quarter, representing a decline of 8.3% over the prior year, but up sequentially from the third quarter. As Jim mentioned, AngioVac saw ongoing challenges during the year, and we've taken meaningful action to address these challenges and are committed to executing against them in 24. For the full year 2023, angioVac revenue was $24.5 million, a decline of 8.2%. We remain confident that mechanical thrombectomy will be a significant contributor to our growth strategy, and we will continue to prioritize investments in this platform, including the new product introductions that Jim mentioned, as well as our clinical initiatives, such as the APEX PE study. Nano knife disposable revenue during the quarter increased 28% year-over-year. For the full year 2023, sales of nano knife disposables grew 27.1%. We continue to see this business perform very well both in our U.S. and in international markets, and we're pleased to announce that enrollment in preserve is now 100% complete. In the fourth quarter, our med device segment grew 0.3% year-over-year, led by strength in our angiographic products and the dialysis business. As of the end of the fourth quarter, our backlog stood at 2.7 million. For the full year 2023, our med device segment grew 1.9% in line with our long-term target of 1% to 3% growth. Moving down the income statement, our gross margin for the fourth quarter of FY23 was 50.9%, a decrease of 250 basis points, compared to the year-ago period. For the full year 23, gross margin was 51.4%, a decrease of 100 basis points compared to fiscal year 2022. For the fourth quarter, MedTech gross margin was 64.7%, a decrease of 400 basis points, and MedDevice gross margin was 45.2%, a decrease of 280 basis points, each one compared to the fourth quarter of last year. For the full year, MedTech gross margins were 64.1%, a decrease of 270 basis points, and MedDevice margins were 46.4%, a decrease of 120 basis points, again, each one compared to the full year 22. As we've discussed, our strategic business model contemplates gross margin expansion as our higher margin MedTech segment continues to become a larger portion of our overall revenue base. We have seen this dynamic, However, the overall impact has been mitigated by the supply chain disruptions and inflationary pressures that we've experienced over the past two years. When looking specifically at the MedTech segment, gross margins remain significantly ahead of overall corporate margins. The quarterly and year-over-year performance was negatively impacted by the revenue performance of AngioVac and increased capital placements. The paydown of the IIA royalty that we discussed in Q1 provided approximately a $1 million benefit over the course of the year, partially offsetting these headwinds. Med device margins were positively impacted by increased productivity, but this benefit was more than offset by the continued inflationary environment, the hurdle created by the CARES Act benefit in FY22, and the mix shift resulting from increased international growth. Turning to R&D, our research and development expenses during the fourth quarter of FY23 was $7.9 million or 8.6% of sales compared to $7.9 million or 9% of sales a year ago. Our disciplined investment in R&D will continue to drive growth across our key technology platforms and includes the clinical and product development spend for our MedTech portfolio. R&D expense for the full year 2023 was $29.9 million or 8.8% of sales, compared to $30.7 million, or 9.7% of sales, in the previous year. For FY24, we anticipate R&D spend to target 9 to 11% of sales. When accounting for the divestiture of our dialysis and biocentury businesses that was completed in June of this year, R&D spend in FY23 on a pro forma basis was 9.6% of sales. SG&A expense for the fourth quarter of FY23 was $36.5 million, representing 40.1% of sales, compared to $37.9 million, or 43.6% of sales, a year ago. For the full year 2023, SG&A expense was $144.3 million, representing 42.6% of sales, compared to $133.8 million, representing 42.3% of sales in FY22. For FY24, we anticipate SG&A spend to target 45% to 48% of revenue. When accounting for the divestiture, SG&A spend in FY23 on a pro forma basis was 47.1% of sales. As we stated at the time of the divestiture, there was not a significant amount of direct costs that were associated with the dialysis and biocentury businesses. As a result, our expectations for SG&A spend in FY24 were do include leverage with respect to G&A spending, but also include an increase as a percent of sales in sales and marketing. Our adjusted net income for the fourth quarter of FY23 was 0.7 million, or adjusted earnings per share of two cents, compared to an adjusted net income of 0.3 million, or adjusted earnings per share of one cent in the fourth quarter of last year. For the full year 2023, adjusted net loss was 2.4 million, or adjusted loss per share of $0.06 compared to an adjusted net loss of $0.2 million or approximately break even on a per share basis a year ago. As a reminder, our adjusted earnings per share in FY22 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 with no corresponding benefit in our FY23 numbers. GAAP net income, as reported in our earnings release this morning, included a goodwill impairment related to our med device segment in connection with the divestiture of our dialysis and biocentury businesses. These businesses that were divested on June 8, 2023, subsequent to our fiscal year end, were accounted for as held for sale as of May 31, 2023. So as a result, we reported a goodwill impairment during the fiscal fourth quarter ended May 31, 2023. The impairment resulted in a loss of 14.5 million or 37 cents per share on a GAAP basis. Due to the timing of the transaction, the loss is recorded in our fourth fiscal quarter for FY23, but the offsetting gain on the sale of the assets won't be recorded until our first fiscal quarter of FY24. Result is a large GAAP loss in the fourth quarter of 23, but then what will be a larger GAAP gain in the first quarter of FY24. Adjusted EBITDA in the fourth quarter of FY23 was $7.9 million compared to $6.2 million in the fourth quarter of FY22. For the full year 23, adjusted EBITDA was $22.6 million compared to $20.9 million in FY22, representing year-over-year growth of over 8.3%. In the fourth quarter of fiscal 23, we generated $16 million in operating cash had capital expenditures of $1.1 million and additions to Arion placement and evaluation units of $0.5 million. At May 31, 2023, which is prior to the divestiture, we had $44.6 million in cash and cash equivalents compared to $30.1 million in cash and cash equivalents at February 28, 2023. We had $25 million outstanding under our revolving credit facility and $25 million outstanding under our delayed draw term loan at May 31st, 2023, equal to the amounts outstanding under these facilities at February 28th. Subsequent to quarter end, we used part of the proceeds from the divestiture to extinguish our debt. As a result, we currently have significant cash balances and zero debt. As is always the case, we expect our first fiscal quarter to have the highest utilization of cash during the fiscal year, with cash balances building throughout the remainder of the fiscal year. So we expect to finish fiscal year 2024 with cash balances in the range of $65 to $70 million, and we expect to be approaching cash flow positive by the end of FY25, having utilized an aggregate of $10 to $20 million over the two-year period. Now, said another way, immediately after the transaction, when accounting for tax and deal costs, we had $90 million of cash, In June, we paid the $10 million Arianne earn-out and expect to pay the next $5 million Arianne earn-out by the end of our fiscal 24, with a final $5 million payment expected to occur in FY25. So that $15 million of 24 milestone payments brings that $90 plus million down to $75 million in FY24. We expect to end our fiscal year 24 with cash balances of $65 to $70 million, reflecting operating cash usage of $5 to $10 million for the year. Again, given the timing of Q1 payments and managing our working capital, Q1 will exhibit cash utilization with balances then growing throughout the year. We believe that we have more than sufficient cash to execute on our strategic initiatives as we move to generating positive cash flow toward the end of our FY25. In 2019, we began a transformation of Angio Dynamics. The first step of the transformation was to fundamentally change our portfolio to incorporate platform technologies that can provide a unique advantage and compete in higher growth, high margin, large total addressable markets. We began the transformation by selling our largest business at the time, our name is Fluid Management Business, and then investing a third of the proceeds from that sale to buy Eximo Medical, an early stage Israeli startup which led to the Ariane PAD laser. We've continued our strategic transformation, reporting our business in two segments, MedTech and MedDevice, using internal R&D to launch our AlphaVac mechanical thrombectomy device, and by investing in clinical initiatives to expand into specific uses, including our APEX study for PE and our PRESERVE study for the use of NanoKnife to treat intermediate-risk prostate cancer patients. In July of 2021, we articulated a goal of executing to a three-year CAGR for our MedTech segment of 30% to 35%. Through two years of that three-year plan, our MedTech segment has a CAGR of 33%. We've indicated that we would be active portfolio managers with the goal of focusing our company on our strategic objectives. In June of this year, we completed the divestiture of our dialysis and biocentury businesses, which recapitalized our balance sheet and enhanced our MedTech focus. Gross margin expansion has proved challenging. Coming out of the COVID global pandemic, We've been impacted by the tight labor market, which has not fully rebounded. In addition, our med device businesses contain a wide and varied product offering that leaves us under scale, and it makes us susceptible to inflationary pressures limiting our ability to drive efficiencies. The next phase of our transformation is to address the scale and structural limitations of our operating footprint in a capital-efficient manner. And we look forward to continuing to update you on our plans and actions to drive margin enhancement in the short and medium term. Turning now to guidance, we anticipate that FY24 revenue will be in the range of $328 million to $333 million, and we expect full-year adjusted loss per share to be in the range of $0.28 to $0.34. As a reminder, this compares to fiscal year 23 pro forma revenue of $306.3 million and pro forma loss per share of $0.43. when excluding the recently divested assets. Those divested assets carry very little direct cost, which means while the transaction provided significant cash proceeds, it is dilutive to both corporate margins and at a larger clip to the earnings line. We expect FY24 gross margin to be in the range of 50% to 52% compared to pro forma FY23 gross margin of 50.5%. For FY24, we expect MedTech revenue growth in the range of 20 to 25% and MedDevice revenue growth in the range of 1 to 3%. We expect MedTech gross margins in the range of 63 to 65% and MedDevice gross margins in the range of 43 to 45%. With that, I'll turn it back to Jim.