AngioDynamics, Inc.

Good morning, and welcome to the AngioDynamics Fiscal Year 2024 Second Quarter Earnings Call. At this time, all participants are in 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 newest release detailing AngioDynamics' Fiscal Year 2024 Second Quarter Earnings Call 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.angeodynamics.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 2024, 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 and pro forma 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 and pro forma 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. 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, angiodynamics president and chief executive officer. Mr. Clemmer?

Thank you, Rob. And good morning, everyone, and thanks for joining us today for our fiscal 2024 second quarter earnings call. Joining me on today's call is Steve Trowbridge, InterDynamics Executive Vice President and Chief Financial Officer, who will provide a more detailed analysis of our second quarter financial performance, as well as the manufacturing and restructuring that we announced this morning. Unless otherwise noted, all financial metrics and growth rates provided during the call today with respect to our results, will be on a pro forma basis, which excludes the impact of our divested dialysis and biosensory businesses. Before digging into our quarterly results, we are announcing significant steps in our long-term strategic transformation. During the second quarter, we continued to actively pursue portfolio optimization opportunities, and we made progress on that front. In addition, This morning, we announced a planned restructuring of our manufacturing footprint by moving to a fully outsourced model. With these moves, we will remain focused on generating continued growth across both our med tech and med device businesses while simultaneously driving margin expansion. Importantly, when the dust settles from our initiatives at the end of our two-year plan, We expect to achieve full-year profitability in FY2027. Both Steve and I will go into additional details later in the call, but now let me get back to Q2. Our second quarter of fiscal 24 saw year-over-year growth, but we also faced headwinds, particularly in our thrombectomy business. We ended the second quarter with revenue of $79.1 million, representing growth of approximately 3% over a year, led by growth of approximately 4% from our MedTech segment. While growth of the MedTech segment was behind our expectations, particularly in mechanical thrombectomy, our adjusted EPS was a loss of 5 cents as we remained focused on our spending and managing operating expenses while still investing in long-term growth. Our mechanical thrombectomy business, which includes AngioVac and AlphaVac, declined 4.7% year over year. We are disappointed by these results, as clearly the growth trajectory of this business is taking longer to inflect than we had expected. We attribute some of the softness to slightly weaker than anticipated procedural volumes late in our quarter, but we also believe the steps we are taking to drive this business are gaining positive traction. For example, following on the heels of receiving the breakthrough designation for the use of AngioVac to remove right heart vegetation, we continue working diligently with the FDA toward receiving final approval to begin our IDE study. While AlphaVac revenues were softer than we would have liked this quarter, What we've learned over the past 18 months is that physicians value their sterability, simplicity, and safety of the device, and we look forward to the introduction of two new second-generation design enhancements that will make the product even more appealing later in calendar 2024. As announced in early December, we enrolled our final patient in our APEX AV study, which is designed to assess the performance of the AlphaVac F18 system in reducing thrombus burden and improving right ventricular function. We look forward to collecting data from this study at the 30-day follow-up stage, then submitting our data to the FDA in the early part of calendar year 2024 to support an expanded indication for AlphaVac F18 to treat pulmonary embolism. We believe the softer than anticipated AlphaVac sales during the quarter partially stem from a wind down at many of our sites as we approach the completion enrollment in the APEX PE trial. And we expect some continued softness between the completion of the trial and the FDA approval of the PE indication as the device does not have a specific PE clearance and is competing against two existing products that do. we fully expect that once we receive our anticipated approval letter later this calendar year, we will have a highly competitive and differentiated product in what remains a large, under-penetrated, high-growth market. Because of the tremendous interest from the physician community, we were able to complete our study as quickly as we did in a time that outpaced the previous competitive studies, and we are excited about the path ahead. Turning to our nanonife business, we saw sales grow approximately 2.8% during the second quarter, with sales of probes declining 3.6%. Probe sales grew in the U.S., but declined internationally due to timing of both bringing on new distributors during the previous year's quarter and distributor orders during this year's quarter. Stronger international capital sales during the quarter offset the decline in probes and will drive additional probe growth. in future periods as those units come online. Year to date, nanoknife probes are up 12.9 percent and total nanoknife sales are up 16.7 percent. We continue to expect strong growth from this business on an annual basis while anticipating quarter-to-quarter fluctuations in both probes and capital sales as historically has been the case. During the second quarter, we saw solid growth of our Arion platform, up 12.9% year-over-year, and we're excited to tell you that in November, we reached an important milestone, having achieved $100 million in cumulative revenue since we launched this product in September of 2020. We did experience some delays in sales related to the recent increased attention around pre-authorizations, but we believe that over the long term, The unique way that we deliver laser energy and safely treat disease vessels will continue to drive increased share and provide the foundation for continued strong growth. Growth of approximately 2% in our med device segment was primarily driven by angiographic catheter products and our ports, which grew 8% and 5.5% respectively. In the second quarter of FY2024, Our international business grew 12.6% year-over-year with double-digit growth from both our med tech and our med device segments. We also hosted our third International Clinical Life Symposium, which has led to increased interest in our med tech products, and we have generated a meaningful pipeline of global physicians who are excited to utilize our products in caring for their patients. Now turning to our strategic initiatives that I mentioned earlier, we told you over the past several quarters that we were further evaluating the products in our med device portfolio, and we remain engaged in active discussions to do just that. We advanced this initiative during the second quarter, and we look forward to providing you with additional sales soon when we are able to. In addition to our continued portfolio optimization efforts, We are also increasing our focus on reducing structural costs within our manufacturing footprint and transitioning our upstate New York manufacturing operations to a fully outsourced model over the next two years. As a reminder, roughly 80% of our MedTech revenue is already leveraging this third-party manufacturing model. As many of you already know, We began moving some of our med device manufacturing capacity to Costa Rica over the past couple of years as we began to see labor shortages in our upstate New York facilities. Fully moving both med tech and med device to this model will drive an annualized savings of roughly $15 million by our FY27, driving significant gross margin improvement and equally as important, giving us a pathway to full-year profitability by FY27. Steve will cover this in more detail, but we believe this is a significant advancement of our long-term strategy that simplifies our operations while allowing us to invest in the long-term growth of our MedTech portfolio and the overall business while still driving profitability. Shifting back to the near term, we're excited for what lies ahead in calendar 2024. This month, we will commence the limited market release of our Arion radial catheter, which will provide physicians an access point at the wrist, enabling faster, less invasive procedures. This release will be the first of six planned product releases for Arion during calendar year 2024. In the second half of calendar year 2024, we will launch two new design enhancements for AlphaVac, designed around physician feedback we've received, and we'll provide more details on those as we get closer to launch. We've also got an exciting schedule of regulatory clearances on the horizon. We are projecting EU approval of Ariane and AlphaVac PE in the first half of calendar year 2024. Next, we also expect U.S. approval of AlphaVac PE mid-calendar year. And then finally in July, the preserved 12-month follow-up will be complete, putting us on track for potential FDA approval in late calendar 2024 or early calendar 2025. These introductions and regulatory clearances are critical parts of the strategy that we laid out for you in our July 2021 Investor and Technology Day. These open up significantly larger, higher growth addressable markets. We are excited about the strategic initiatives that we've shared with you this morning and about the future of our portfolio. And we hope the impacts of our strategic transformation are becoming more apparent each quarter. With that, I'll turn the call over to Steve Trowbridge to review the quarter in more detail. 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 results. As Jim mentioned, unless otherwise noted, all metrics and growth rates mentioned during today's call are on a pro forma basis and exclude the results of the dialysis and biocentury businesses that we divested in mid-June. Similar to Jim, I'll start with the second quarter before shifting to today's strategic announcements. Our revenue for the second quarter of FY24 increased 2.7% year over year to $79.1 million, driven by growth in both our MedTech and MedDevice platforms. MedTech revenue was $25.4 million, a 3.5% year over year increase, while MedDevice revenue was $53.7 million, growing 2.3% compared to the second quarter of FY23. Year to date, our overall revenue is up 4.2% year over year, with our MedTech segment up 8.3% and our MedDevice segment up 2.3%. For the second fiscal quarter, our MedTech platforms comprised 32.1% of our total revenue compared to 31.8% of total revenue a year ago. For the six months ended November 30th, 2023, our MedTech segment comprised 32.6% of our total revenue base versus 31.4% as of one year ago. Our Arion platform contributed $11.4 million in revenue during the second quarter, growing 12.9% compared to last year. Year-to-date, our Arion platform is up 18.9% year-over-year. Mechanical thrombectomy revenue, which includes AngioVac and AlphaVac sales, declined 4.7% over the second quarter of FY23. AlphaVac revenue for the second quarter was $1.9 million. AngioVac revenue was $5.4 million in the quarter, representing a decline of 10.8% over the prior year. We did not see the rebound in angiovec revenues that we had anticipated as procedure volumes came in lighter than expected, particularly late in the quarter. We remain confident that mechanical thrombectomy will be a strategic contributor to our long-term growth strategy, and we are excited about the new product introductions that Jim mentioned, as well as our clinical initiatives, such as the APEX pulmonary embolism studies. Nanonex disposable revenue during the quarter decreased 3.6% year-over-year. Disposable growth of 4% in the U.S. was offset by a year-over-year decline in international markets. As Jim said, the year-over-year quarterly decline in international markets was primarily driven by timing of distributor orders, although procedure volume remained very strong during the quarter. Capital sales were robust in the quarter, growing 22.8%, and this is a strong driver of future disposable sales. Year-to-date, nanonife disposable sales are up 12.9%, and total nanonife sales are up 16.7%. In addition, as a reminder, earlier this year, we announced that enrollment in Preserve is now 100% complete, and as this data starts to be made public over the course of this year, we look forward to sharing it with you. In the second quarter, our med device segment grew 2.3% year-over-year, led by strength in our angiographic catheter and port products. Moving down the income statement, our gross margin for the second quarter of FY24 was 50.9%, a decrease of 80 basis points compared to the year-ago period. For the second fiscal quarter, MedTech gross margin was 62.4%, a decrease of 130 basis points, and MedDevice gross margin was 45.5%, a decrease of 60 basis points, each one compared to the second quarter of last year. A year-to-date gross margin for FY24 was 50.8%, a decrease of 60 basis points versus prior year, with MedTech gross margins of 63.5% and MedDevice gross margins of 44.7%. Year-over-year gross margins for both the quarter and year-to-date were positively impacted by sales volume, production volume, and reduced cost for both freight expenses and direct labor retention payments. but we're offset by sales mix, hardware placements, and continued, albeit reduced, material and labor inflation. 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. As mentioned last quarter, the next phase of our transformation is to address the scale and structural limitations of our operating footprint in a capital efficient manner. This morning's announcement regarding restructuring our manufacturing footprint and transitioning our upstate New York manufacturing operations to a fully outsourced model will address these structural cost limitations, meaningfully improve gross margins, and lead to full-year adjusted EPS profitability in FY27. We expect that our manufacturing restructuring will result in annualized savings of roughly $15 million, with the full annualized impact being realized in FY27. In addition, as we previously discussed, we're continuing to have productive conversations around further optimizing our portfolio, and we will provide you with more details when appropriate. Turning to R&D, our research and development expense during the second quarter of FY24 was $8.7 million, or 10.9% of sales, compared to $6.8 million, or 8.8% of sales, a year ago. Spending on clinical programs was 18.8% of total R&D spend during the second quarter of fiscal 24, compared to 14.1% during the second quarter of last year, and 18.6% for the full fiscal year 2023. This mixed shift within our R&D spending is well aligned with our long-term strategy to support increased physician adoption of our MedTech platform technologies through the generation of data and clinical evidence. SG&A expense for the second quarter of FY24 was $34.8 million, representing 44% of sales compared to $36.8 million or 47.8% of sales a year ago. Our adjusted net loss for the second quarter of FY24 was $2 million or adjusted loss per share of $0.05 compared to an adjusted net loss of $3.6 million or adjusted loss per share of $0.09 in the second quarter of last year. Adjusted EBITDA in the second quarter of FY24 was $1.8 million compared to adjusted EBITDA of $2.3 million in the second quarter of FY23. In the second quarter of fiscal 24, we generated $5.3 million in operating cash, had capital expenditures of $0.6 million, and additions to ARION placement and evaluation units of $1.2 million. At November 30, 2023, we had $60.9 million in cash and cash equivalents compared to $44.6 million in cash and cash equivalents at May 31, 2023. And as a reminder, we have zero debt on the balance sheet. Turning now to guidance, we now anticipate that FY24 revenue will be in the range of $320 to $325 million below our prior guidance of $328 to $333. This accounts primarily for the softer thrombectomy sales during the fiscal second quarter, which we now expect will continue throughout the back half of the year, as well as certain SKU rationalization, and other impacts associated with the manufacturing restructuring we announced this morning. We now expect full-year adjusted loss per share to be in the range of $0.35 to $0.42. We expect FY24 gross margin to be in the range of 49% to 51% compared to pro forma FY23 gross margin of 50.5%. As a result of the mix shift occurred due to the lower expected MedTech revenue. For FY24, we now expect MedTech revenue growth in the range of 10% to 15%, down from 20% to 25% to account for the thrombectomy weakness we saw during the second quarter, persisting through the remainder of this year. We continue to expect MedDevice revenue growth in the range of 1% to 3%. We now expect MedTech gross margins in the range of 61% to 63%, and MedDevice gross margins in the range of 43% to 45%. As we mentioned earlier, we expect the manufacturing restructuring to have a meaningful impact on our margin structure over the coming years and look forward to providing you with more details as that work gets underway in the coming months. Today's announcement is a significant step in our strategic transformation that gets us closer to the company we strive to be, a profitable business focused on unique medical technology platforms that improve patient outcomes in large, underpenetrated, high-growth markets. Finally, I would like to thank our team here at Angio Dynamics for their hard work and commitment, and we're looking forward to sharing more about these initiatives with you in the coming months while executing further on our strategy and delivering a strong second half for fiscal 24. With that, I'll turn it back to Jim.