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Edited Transcript of ANGO earnings conference call or presentation 27-Sep-18 12:00pm GMT

Q1 2019 AngioDynamics Inc Earnings Call

NEW YORK Sep 28, 2018 (Thomson StreetEvents) -- Edited Transcript of AngioDynamics Inc earnings conference call or presentation Thursday, September 27, 2018 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* James C. Clemmer

AngioDynamics, Inc. - CEO, President & Director

* Michael C. Greiner

AngioDynamics, Inc. - Executive VP & CFO

* Stephen A. Trowbridge

AngioDynamics, Inc. - Senior VP, General Counsel & Assistant Secretary

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Conference Call Participants

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* Brett Adam Fishbin

KeyBanc Capital Markets Inc., Research Division - Associate

* Jason Richard Mills

Canaccord Genuity Limited, Research Division - MD of Research & Analyst

* Jayson Tyler Bedford

Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst

* Lucas Grant Baranowski

Craig-Hallum Capital Group LLC, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to AngioDynamics First Quarter Fiscal Year 2019 Earnings Call. (Operator Instructions) As a reminder, this conference call is being recorded.

The news release detailing the first quarter 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.angiodynamics.com. The webcast replay of the call will be available at the same site approximately 1 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, free cash flow for the fiscal 2019 year. Management encourages you to review the company's past and future filings with the SEC, including, without limitation, the company's Form 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.

A slide package offering insight into the company's financial results is also available on the Investors section of the company's website under 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 would now like to turn the call over to Jim Clemmer, AngioDynamics' President and Chief Executive Officer. Mr. Clemmer?

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James C. Clemmer, AngioDynamics, Inc. - CEO, President & Director [2]

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Thank you, Sherry. Good morning, everyone, and thank you for joining us for AngioDynamics' First Quarter Fiscal Year 2019 Earnings Call. With me on the call is Michael Greiner, AngioDynamics' Executive Vice President and Chief Financial Officer. Today, I'll provide a brief overview of the operating highlights for the quarter. Michael will then provide a detailed analysis of our financial performance and our fiscal 2019 financial guidance. After that, we will open the call to your questions.

Our operating and financial accomplishments during the first quarter reflect our ongoing commitment to operational excellence and to building a more cohesive patient-focused product portfolio. As evidenced by our 2 recently announced acquisitions, we are making progress with our portfolio optimization efforts and focusing on the continuum of care within oncology as well as other disruptive and innovative technologies.

Our net sales for the first quarter of fiscal 2019 were $85.3 million, driven by better-than-expected growth across all 3 businesses. Our fluid management, angiographic catheter, AngioVac and NanoKnife product lines continued to experience solid growth, offsetting the ongoing headwinds in our Venous business and the anticipated slowing of sales in our radiofrequency ablation products. We were pleased with both our revenue and free cash flow during the quarter. Although it is worth noting that a reported free cash flow was negatively impacted by the DOJ payment of approximately $12.7 million, which Michael will detail in his remarks. As you saw in the earnings release, we have increased our revenue targets for the year as a result of the 2 acquisitions we closed in the past 45 days. Our first quarter results give us continued confidence in meeting our financial goals for the fiscal year of 2019.

Now focusing on the performance of each of our businesses. Our Vascular Interventions and Therapies business was flat year-over-year, as growth in the fluid management, angiographic catheter and AngioVac product lines was largely offset by declines in the Venous Insufficiency business. We expect continued weakness in Venous in the second quarter, but we will see more favorable comps in the third quarter. We will continue to work diligently to stabilize growth in our Venous business by the end of our fiscal year. AngioVac procedural volume growth remains strong with procedures increasing 16% year-over-year in the first quarter. We are making targeted R&D investments in our thrombus management portfolio, while also identifying external growth opportunities as we seek to build out a franchise around our AngioVac offering. You'll recall, in June, we reorganized our VIT sales team to ensure enhanced focus on our thrombus category, which we believe will benefit from future product launches and facilitate a continuation of growth achieved in the recent quarters.

As reported, revenue from our oncology business decreased 6%. However, when adjusted for initial stocking orders related to the transition from Acculis to Solero 1 year ago, it actually grew 7.5%. In addition, adjusting for this transition, our Solero Microwave product line grew just over 23%, driven by increased adoption of this technology in the marketplace. NanoKnife revenue grew approximately 7% as we are seeing increasing global adoption of our technology. We also reported 2 weeks of revenue from our new BioSentry products, and we are pleased with the initial top line contribution from this acquisition. Vascular Access revenue was up over 2% during the first quarter, as we grew our dialysis products, our ports and our Midline products. What drove that growth was the continued market adoption of our BioFlo, our market-leading thrombus reduction technology. Additionally, PICC sales declined at a slower-than-expected rate.

Before I turn the call over to Michael, I would like to provide a brief update on our progress with the FDA regarding NanoKnife. We are continuing discussions with the FDA regarding our NanoKnife pancreas clinical study design. We recently met with the FDA to refine what we believe is the primary remaining issue, regarding comparison of NanoKnife-treated patients to control patients. To address potential confounders, we have enhanced our propensity score matching process and added a randomized control arm to our next-generation registry design. This design clearly illustrates our commitment to demonstrate this technology's substantial promise to all stakeholders, including regulators, clinicians and patients. We're in the final stages of reaching an agreement on our study design, and we expect to begin enrolling patients during the early part of calendar 2019.

With that, I'd like to turn the call over to Michael Greiner, our Executive Vice President and the Chief Financial Officer.

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Michael C. Greiner, AngioDynamics, Inc. - Executive VP & CFO [3]

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Thanks, Jim, and good morning, everyone. Before I begin, I want to remind everyone that we posted a presentation on our Investor Relations website, summarizing the key items associated with our first quarter results as well as an update to our financial guidance. This information is intended to complement our prepared remarks. Please note that we experienced solid growth in 8 of our 11 product categories.

As Jim mentioned, our net sales for the first quarter of fiscal 2019 totaled $85.3 million, which is flat on a year-over-year basis and better than we anticipated.

Our gross margin for the first quarter of fiscal 2019 expanded 380 basis points to 52.1% from 48.3% a year ago. This improvement was primarily attributable to all the work we've done over the past 18 months around facility consolidation, the expiration of a royalty arrangement and our continued operational and supply chain improvements. Our first quarter gross margin was in line with our expectations, and we continue to anticipate our fiscal year 2019 gross margin to be in the range of 54% to 56%.

Our research and development expenses during the first quarter of fiscal 2019 increased to $7.7 million compared to $6.4 million a year ago. We continue to expect an uptick in R&D spend as a percentage of sales for this fiscal year with R&D spend between $28.5 million and $29.5 million or approximately 8% of net sales. This contemplates additional spending related to both our NanoKnife study and support of our new acquisitions during the back half of this fiscal year.

Moving down the income statement, SG&A expense for the first quarter of fiscal 2019 increased slightly to $27.9 million compared to $27.5 million last year, primarily related to variable compensation expenses. We expect SG&A expense overall to increase approximately $5 million for the duration of the fiscal year as a result of the 2 acquisitions.

Our adjusted net income for the first quarter of fiscal 2019 was $6.2 million or $0.16 per share compared to adjusted net income of $5 million or $0.13 per share in the first quarter of last year. Please note that last year in the first quarter, we reported 6.4 -- $4.6 million or $0.12 per share based on the then enacted 36% statutory tax rate. The updated report of adjusted net income for the first quarter of last year is now at the post-tax reform blended rate of 30.62%.

Adjusted EBITDAS in the first quarter of fiscal 2019, excluding the items shown in the reconciliation table in our presentation, was $12.6 million compared to $11.3 million in the first quarter of fiscal 2018.

In the first quarter of fiscal 2019, we used $8.9 million of cash in operating activities and our free cash flow was negative $9.6 million. These results were significantly impacted by the $12.7 million payment we made in the first quarter for the DOJ for the previously disclosed legal matters that we accrued for over a year ago. Excluding this payment, we had free cash flow of $3.2 million in the first quarter, a 25% increase over the prior year.

Now turning to the balance sheet. As of August 31, we had $24.8 million in cash and cash equivalents and $91.3 million in debt, excluding the impact of deferred financing costs. As previously reported, we recently acquired the BioSentry Technology from Surgical Specialties and also acquired RadiaDyne. The combined trailing 12 months revenue from these product lines is approximately $12 million, for which we paid a combined $87 million upfront with an additional $43 million in potential earnouts related to both technical milestones and sales-related targets. These acquisitions, which will be neutral to adjusted earnings in fiscal year 2019, are expected to be accretive by more than $0.05 beginning in fiscal 2020. Additionally, we anticipate that revenue associated with both of these acquisitions combined will increase by over 50% year-over-year on annualized basis in fiscal 2020. Subsequent to completing these 2 acquisitions in the past 45 days, we now have approximately $95 million in available liquidity with the ability to add to that if needed. As such, we will continue pursuing value creating highly selective M&A in order to add complementary products to our current portfolio as well as seek to divest assets when we can generate appropriate value for those assets.

With these deals in mind, I would like to update our financial guidance for fiscal 2019. We are raising our 2019 net sales guidance to a range of $354 million to $359 million to reflect incremental revenue from both the BioSentry and RadiaDyne acquisitions. However, as a result of higher interest expense and upfront investments in these businesses, we continue to expect adjusted EPS between $0.82 and $0.86. As I mentioned earlier, we also continue to anticipate full year gross margin in the range of 54% to 56%. Finally, we are also updating our free cash flow guidance to account for the recent payment to the DOJ and now expect to generate between $26 million or $31 million in free cash flow in fiscal 2019 inclusive of this payment.

With that, I'd like to turn the call back to Jim.

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James C. Clemmer, AngioDynamics, Inc. - CEO, President & Director [4]

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Thanks, Michael. And before we open the call to your questions, I wanted to discuss in more detail the 2 recent acquisitions we made in our oncology business. As we have discussed in recent quarters, one of our top strategic priorities has been portfolio optimization, both internally and through value creating M&A or divestitures. During the first quarter, we acquired the BioSentry Tract Sealant System technology from Surgical Specialties. This acquisition immediately enhances our oncology business, adding a commercialized clinically proven product that minimizes the occurrence of pneumothorax, or PTX, the most common complication of CT-guided percutaneous lung biopsy. The technology delivers a proprietary hydrogel plug, which prevents air leakage during a CT-guided percutaneous lung biopsy and helps mitigate the risk of PTX. In addition to acquiring the BioSentry technology, Surgical Specialties' 12-person commercial organization will join our company and expand the reach of our oncology business.

Additionally, on September 21, we closed the acquisition of RadiaDyne, a privately held medical diagnostic and device company, with 2 different product lines. The first are balloon stabilization devices, which are designed to stabilize and protect organs during radiation procedures. The second is an innovative product that allows for real-time monitoring of radiation delivered during the procedure. These 2 acquisitions deliver on our commitment to build a world-class oncology portfolio. We believe that together these disruptive, patient-focused technologies will deliver safer, clinically relevant, economically favorable solutions for our patients. They truly bolster our current oncology portfolio, and we look forward to capitalizing on these superior technologies.

With that, Sherry, we'll end the session and open it up to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Matt Hewitt with Craig-Hallum.

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Lucas Grant Baranowski, Craig-Hallum Capital Group LLC, Research Division - Research Analyst [2]

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This is Lucas Baranowski on for Matt here at Craig-Hallum. Just a couple of questions today. Congrats on the acquisitions. And looking at these 2 companies, could you tell us how many customers they had between them? And maybe how much overlap there is with your existing customer base?

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James C. Clemmer, AngioDynamics, Inc. - CEO, President & Director [3]

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Lucas, good morning. This as Jim. So first, we're not going to disclose customer base either from the acquisitions or our current customer base. But we can tell you, we did in the diligence process, we looked at the overlap, that was important for us to understand it. But really, what we found -- part of our strategy in acquiring these 2 unique technologies was to expand AngioDynamics from what we were yesterday, which is one of the world's leading ablation companies with our microwave and RF technology in thermal, and obviously, NanoKnife being non-thermal, we feel we have the best ablation technology portfolio on the market. But today, now we're really an oncology company. And there is some crossover in customers, but what's more important too, this gets us into new discussions with different caregivers, different call points, and we think it's really helping us set a stronger foundation for even more future growth opportunities over time.

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Lucas Grant Baranowski, Craig-Hallum Capital Group LLC, Research Division - Research Analyst [4]

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That's helpful. And then also on the topic of oncology, can you provide an update on the discussions you're having with CMS regarding reimbursement?

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James C. Clemmer, AngioDynamics, Inc. - CEO, President & Director [5]

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Sure, Lucas, we can do that. What I'll do is pass it to Steve Trowbridge for a brief comment.

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Stephen A. Trowbridge, AngioDynamics, Inc. - Senior VP, General Counsel & Assistant Secretary [6]

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Thanks, Jim. And Lucas, similar to what Jim has said in his prepared remarks, the conversations we're having with CMS are progressing along the same lines as the conversations that we're having with FDA. As you know, we -- the last time we had talked to you, we had indicated that there were ICD-10 codes that CMS was issuing for NanoKnife. Those codes will go into effect this October. They also published in the interim the DRGs that those ICD-10 codes will be mapping into, and we were very pleased with that decision. We think it's the right DRGs at the right paying levels for the complexity of the procedure and the health of the patients that were being treated with the technology. That being said, that's 2 of the 3 legs of the stool. We've always talked about a reimbursement with coding and payment coverages with the conversation that we're in with CMS and it's progressing along the lines of the trial design that we're already discussing with the FDA. So we think it's moving clearly in the right direction. And as we can get back to you with more definitive answers on the FDA process in the manner that Jim had described in his prepared remarks, we'll also be talking about CMS in that same timeframe.

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Operator [7]

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Our next question is from Matthew Mishan with KeyBanc Capital Markets.

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Brett Adam Fishbin, KeyBanc Capital Markets Inc., Research Division - Associate [8]

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This is Brett Fishbin on the line for Matt. First question, we were wondering if you could elaborate a little bit on the discussions with the FDA regarding the NanoKnife trial, and specifically, how are the changes to the propensity score matching and the addition of the randomized control arm improving the overall trial?

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James C. Clemmer, AngioDynamics, Inc. - CEO, President & Director [9]

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Sure. Go ahead, Steve.

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Stephen A. Trowbridge, AngioDynamics, Inc. - Senior VP, General Counsel & Assistant Secretary [10]

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Yes, thanks, Jim. Thanks, Brett, I appreciate the question. So as Jim mentioned, we were engaged in discussions with the FDA, and we do feel right now that we're at the final stages of reaching agreement on that study design. The last time we talked with you, we went into fair detail around our study design using a next-generation registry format and then having NanoKnife-treated patients in that registry compared to control patients in the registry, and the control patients are the patients that have Stage III pancreatic cancer but are not treated with NanoKnife. Given what we think are some of the difficulties with randomization, the primary structure of our design was to use patients that are not at NanoKnife sites and then use this propensity score matching process that is well known within the clinical studies to come up with that comparison so that you're matching patients as close to apples-to-apples as possible. In the conversations that we were having with FDA, this was one of the issues that they were raising not because it was a problem. I think that our conversations with FDA have actually been very collaborative and very progressive in terms of making sure that whatever study design we run, can get you a final approval of the PMA process that we had talked about. So there was a number of questions raised about potential confounders when you're doing that matching process. So in the last conversation that we had with FDA, we addressed it in 2 ways. One by adding some enhancements to our propensity score matching process to make sure that we had pinned it down to as close to an apples-to-apples comparison as possible with some pretty esoteric statistical analysis that you'll do, but then also making sure that the sites that are the non-NanoKnife sites are the right sites. And so we think that the sites that we're going to include in this study are some of the world's leading treatment centers to make sure that we're comparing apples-to-apples. But then second, we've added a randomized arm to our study design. Now the question that you asked about how does that enhance our study, we think it enhances it quite a bit. We think it really does give us the best of both worlds. As we've discussed historically, we really do feel that there are traditional bias problems when you go from a randomized study to using that in the real world and it doesn't always translate, which is why we'd like our next-generation registry designed specifically for this product given that there has been a long history of patients being treated with it. That being said, we also understand that a randomized arm is the best method to eliminate as many variables as possible to isolate the benefit that the technology that you're studying gives to its patients. And so we get to do both of that with our study design. We've got the real world structure with its embedded RCT arm. So we think from a regulatory perspective, it gets us to the point where everyone is comfortable that we'll have the full panegyric of data in front of us to get to an approval, but then from articulating the benefit of this technology to clinicians, it also gives us the best of both worlds of that randomized arm as well as the real world arm.

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Brett Adam Fishbin, KeyBanc Capital Markets Inc., Research Division - Associate [11]

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All right. And then looking at gross margin compared to the full year objective, was there some seasonality or any other headwinds you could call out that impacted this quarter? And then looking forward, the confidence in achieving the 54% to 56% target for the full year?

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Michael C. Greiner, AngioDynamics, Inc. - Executive VP & CFO [12]

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Yes, Brett, thanks for that question. In the first quarter, we had a couple of items that come up each first quarter. One was our standard reevaluation process and the amortization of that. That accounted for about 50 basis points. We also had a small backorder situation as we exited the fourth quarter of last year. And we had some extra freight, in order to expedite, in order to meet some of those customer orders during the first quarter and that was another 40-or-so basis point, so some headwinds there as you compare to 53.7% of the fourth quarter versus where we were in the first quarter. Regarding confidence on the 54% to 56%, we remain very confident that the 52% as I alluded to in our prepared commands was in line with our internal expectation, understanding some of these items I just referenced. And so we see a ramp of our gross margin as we go into the second, third and fourth quarter. And as a blended rate then we feel very confident of the 54% to 56%, which by definition means that our back half of the year will be in excess or around 55%, 56%.

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Brett Adam Fishbin, KeyBanc Capital Markets Inc., Research Division - Associate [13]

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All right. And then last question for us. Did you see any benefit this quarter to the catheter business from the disruption over at Terumo? And if so, do you know if this is an issue that's been resolved or if it could continue to be a benefit for you guys going forward?

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James C. Clemmer, AngioDynamics, Inc. - CEO, President & Director [14]

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So we don't have a large crossover in the specific products where Terumo had the backorder. I think maybe 1 or 2 other companies might have a better crossover there, may have reported a little bit of sales increase. We probably had a small increase and a pick up there on some of our product categories, but it was a very small amount.

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Operator [15]

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Our next question is from Jason Mills with Canaccord Genuity.

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Jason Richard Mills, Canaccord Genuity Limited, Research Division - MD of Research & Analyst [16]

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Jim, can you hear me, okay?

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James C. Clemmer, AngioDynamics, Inc. - CEO, President & Director [17]

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Jason, good morning.

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Jason Richard Mills, Canaccord Genuity Limited, Research Division - MD of Research & Analyst [18]

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Just a couple of questions for me, Jim. First on gross margin. Good uptick year-over-year, but really with the same revenue figure, it was down from the last couple of quarters. Can you talk about that as well as what you're expecting it to trend for the balance of the year and also maybe give us an update on what your thinking is for the next couple of years on the gross margin line.

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Michael C. Greiner, AngioDynamics, Inc. - Executive VP & CFO [19]

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Sure. Jason, it's Michael. So coming out of the fourth quarter, we had a couple of items that we anticipated. One was around our standard reevaluation process as we got into the year and got into the first quarter. And then the other item, we had a small backlog in the fourth quarter that we expedited some freight in the early parts of the first quarter. Those are one-time items that we don't anticipate obviously repeating as the year goes on. As we ramp through the year, obviously, gross margins will be well in excess of 52.1% over the course of the second, third and fourth quarter. And so we feel confident in our 54% to 56% range that we just reannounced today. As far as going out beyond that, I think what we've stated before is that we believe there is still some movement for upside with some of the operational and supply chain work we're doing. We have not put an exact number to that, but we've stated somewhere in the 150, 200 basis points. But then getting beyond that and into 60%-plus gross margins as we hope we can do over the successive years, that will be primarily related to mix of our portfolio. And so if you think about -- we talked about this morning, we talked about the NanoKnife opportunity, we talked about Solero and the growth there, the 2 acquisitions that we just made have gross margins well in excess of our current gross margin as an aggregate portfolio. So that mix will have a nice pull effect to get us into that 60% plus over time. But in the near term, meaning this next 3 quarters, we do anticipate 54% to 56%. And obviously, we'll provide updates on 2020 and beyond once we feel that's appropriate to give a more holistic view of our financial outcomes then.

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Jason Richard Mills, Canaccord Genuity Limited, Research Division - MD of Research & Analyst [20]

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That's helpful. It's good answer. So Jim, on the AngioVac side, I know it's a small business for you, but it's a market that's seemingly growing quite fast with a lot of attention being paid to getting clot out of the body, not only in the stroke market, which is growing great, but obviously in the peripheral market where AngioVac is playing. Can you talk about that business specifically, what the customer base is looking like, growth in that as well as any clinical studies you have planned to show the benefit of AngioVac usage in certain geographies of the body, whether it be deep vein thrombosis or pulmonary embolism where I know the device is used occasionally. Can you just talk about what your clinical trial plan is for that? And where you see -- foresee that business going, that product line going? Can that be multiples bigger than it currently is? Just broad thoughts on AngioVac would be helpful.

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James C. Clemmer, AngioDynamics, Inc. - CEO, President & Director [21]

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Yes, it's a good question, Jason. So a couple comments here. So first, if you look back, we've talked about this space with our Uni-Fuse catheter in the low end for low acuity patients. A gap beyond Uni-Fuse where other companies currently fill that gap for midsize acuity, midsize clots and then our AngioVac kind of at the high end for severe cases and high levels of acuity. AngioVac, again, growing 16% year-over-year on actual procedure volume to us is very important. It's also the first quarter now, I think we mentioned in June when our fiscal year started, we split our VIT sales force, so people could focus on our venous products primarily and then people could focus on AngioVac. So we think we're having more relevant conversations with physicians delivering care for clot removal. From here, we don't have any short-term clinical studies that you're going to see. What you'll see from us soon is new R&D products coming out of our pipeline that are really designed by our customers. So we've listened to our customers, they want some other kind of user-friendly aspects to the device that allow them to try to use it in situations where they'll feel more confident because what the technology does is unique as you know, how it works. There's nothing else that does that, that recirculates the blood back in body, allows them to go after large clots, others don't do that. So we think now by being a little more user-friendly, we'll capture many more procedures. Ultimately, Jason, we like this space a lot. We think AngioVac and Uni-Fuse give us 2 reasons to be a major player there, so we look to fill that gap in the middle of the technology probably through M&A here in the short term. Steve, do you want to comment on the...

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Stephen A. Trowbridge, AngioDynamics, Inc. - Senior VP, General Counsel & Assistant Secretary [22]

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Yes. One thing I would add is, we don't have any large-scale clinical trials scheduled right now. But that being said, we understand the requirement to have data that's meaningful to our patients and our customers around this product line. And so we're currently collecting the data in a smart way for the uses that are out there now. Then Jim talked about R&D future and AngioVac as a platform for additional technological innovations, which could also lead into different regulatory indications, and at that point, it may be appropriate to support the larger scale clinical trials, but I think it depends upon where we take the technology in the future. Where we stand today, we're certainly collecting the data because we know that it has to be a data-driven sale, but that's -- there is a lot of varieties and flavors of data that are meaningful.

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Jason Richard Mills, Canaccord Genuity Limited, Research Division - MD of Research & Analyst [23]

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Great. Just a couple broad more 20,000 foot questions, then I'll get back in the queue. I'll just ask them and get out of the way. First, on M&A, obviously, valuations in med tech are what they are, they are impressively high, I think there is decent reason for that. But just curious what you're seeing in the private markets in and around the size that you're contemplating for your own acquisitions, what the valuations have been looking like or the conversations? And then, a second more broad question, more speaks to group purchasing organizations and integrating networks. What in the way of any pendulum shift you've seen there in light of the Terumo supply constraints that we talked about earlier in this call. I know that didn't affect you generally. But I'm wondering if you're seeing a shift back to dual sourcing or anything like that, that -- actually I think if it were to occur, would help smaller companies a little bit in the marketplace in the United States. Just curious your thoughts.

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James C. Clemmer, AngioDynamics, Inc. - CEO, President & Director [24]

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Yes, Jason, good question. As you know from my background, I have a good knowledge of the GPO marketplace and how it affects the customer and supplier dynamics. Here at AngioDynamics, it's not a major part of what we do. We have some really good people that are specialized, understand at the top end of GPO dynamics, a layer below the IDN or the Integrated Delivery Network dynamics, and we're very close to those. Ultimately, where we go though, we'll find our technology is so unique, it really allows, I think, our customers to decide upon the technology not be driven completely by contracts or at least in areas we've identified to our investor base, areas we're investing in are less contract-driven and more technology driven. So that being said, your comment at the end about some new dual sourcing opportunities or some of these new innovation clauses do help companies like AngioDynamics. I think we'd rely on those for some of those foot-in-the-door opportunities as we launch some of our new technology. So you're correct, in a macro scale, Jason, some of the trends have shifted a bit and may be favorable for us or companies like us as we launch new technology. Now going back to your first question on valuation. Sure, we see what you see. Valuations are rich in the med device segment for a good reason. We think we've paid fair market value for the 2 assets we bought. And again, we think we bought 2 really dynamic assets. The first of which -- BioSentry was a tremendous asset, a great product, but it was buried within a company that had a different commission. So we're now taking this company into AngioDynamics, there's some really good people they have there. We're excited to integrate their team with our team to watch how we can grow that business now that we're focused on oncology. And secondarily, RadiaDyne. We did the deal and Michael mentioned a minute ago, how we did it with a 2-step, with a upfront payment and an earnout based upon technology and revenue achievement hurdles. We think that's important because we bought a great base technology in there balloon stabilization product, which we think is dynamic. And then secondarily, with the new dosage monitoring product called OARtrac, we think it's really innovative. And if we're as successful as we believe we'll be and RadiaDyne believes it will be, the earn outs will be paid and everybody will be pleased.

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Operator [25]

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(Operator Instructions) Our next question is from Jayson Bedford with Raymond James.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [26]

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So just a few. On the NanoKnife trial, can you remind us what's the anticipated size of the trial?

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James C. Clemmer, AngioDynamics, Inc. - CEO, President & Director [27]

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Sure, Jayson. Steve?

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Stephen A. Trowbridge, AngioDynamics, Inc. - Senior VP, General Counsel & Assistant Secretary [28]

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Yes, the size that we had talked about the last time was roughly 200 patients in each arm at the nano and the control arm. I think the final numbers, we're still looking to determine, but that's a fair ballpark, maybe a little bit up by us adding the RCT arm, but not meaningfully.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [29]

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Okay. And how long do you think it'll take to complete the study?

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Stephen A. Trowbridge, AngioDynamics, Inc. - Senior VP, General Counsel & Assistant Secretary [30]

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Well, as we said, there are a couple of different milestones to think about in this study. There is the ultimate milestone, which would be approval of the PMA, that takes a while. That could be 3 to 4 years. However, with the current strategy that we're employing to start the study, allow us to do tissue-specific training and then potentially with reimbursement falling into place, there, the milestone becomes starting the trial, which as we said, we're hoping to do in the first quarter of '19.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [31]

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Okay. Jim, you mentioned portfolio optimization, and I can appreciate the 2 deals, they look like good ones. But is there an active process around trimming the portfolio? Or is this the group of assets that you'll have going forward?

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James C. Clemmer, AngioDynamics, Inc. - CEO, President & Director [32]

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Jason, as we said, and -- we wouldn't say if weren't always looking, so what we want to do is discipline portfolio management here at AngioDynamics. When our company was founded, there were some really great assets. You go back to our NAMIC products, they go back over 40 years, where -- the AngioDynamics platform, which is our 30th year as a company. So we have such a great foundation of technology and trust with our customers, but over time, things shift. So we are constantly doing what you just said. We're looking at our portfolio, looking at what should be here as we transform our company to more higher tech, clinician-driven, outcome-driven technology company. So with that, there may be opportunities where other assets may have better homes, and we're looking at that as we speak.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [33]

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Okay. A few kind of product-related questions. Fluid management, it's grown quite well, and obviously, the 5% here is still in that -- solidly in that mid-single digit range, which I believe is above market. What's the sustainability of mid-single digit growth in fluid management?

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James C. Clemmer, AngioDynamics, Inc. - CEO, President & Director [34]

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It's a good question. We're really fortunate not just to have the great suite of products from NAMIC and great technology, but it is a tough market. We have a really, really good sales and marketing team and a great manufacturing and quality team. So our products are the best on the market. That's really well known by our customers, and our people do a great job servicing those customers. But over time, Jayson, your question is fair. I don't think the market itself is growing at that rate. We're outperforming the market and you probably see over time that come down a little bit. So without true technology innovation, I don't think we'll sustain a growth rate as you've seen from us in the long term. Short term, as Michael said, we'll give 2020 guidance coming up soon, but I think, your assumptions are probably correct of what we'll see in the market.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [35]

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Okay. And it's fair to assume market is low single in terms of growth?

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Michael C. Greiner, AngioDynamics, Inc. - Executive VP & CFO [36]

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Yes, probably.

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James C. Clemmer, AngioDynamics, Inc. - CEO, President & Director [37]

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Probably, it's hard to see. There is one other kind of direct competitor. You've got kit packers now who are nibbling at the edges of this from some of the large distributors. So it's probably lower, flattish to up 1% or 2% may be at the most.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [38]

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Okay. And then last question for me. You saw a pretty decent uptick in dialysis and port growth in the quarter. Was there anything driving that?

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James C. Clemmer, AngioDynamics, Inc. - CEO, President & Director [39]

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So a couple things. If you look back even a few quarters, you'll see slowly we've had a little trend build in those 2 categories. So again, really good execution by the sales and marketing team. We have some new people there doing a great job. And -- but to the foundation of what we've always talked about, Jayson, there really is BioFlo. BioFlo is the best catheter we think on the market, it does what nothing else does. Now we're telling the story in a more complete fashion, doing a better job at it. And in this case, it's really unique because if you look back on the PICC market, there's a couple reasons why AngioDynamics has struggled in PICCs. But the foundational reason is -- for many years has been because we didn't have a navigation or placement device. Now as you also know, we believe Bard is marketing their PICC product illegally, we've addressed that with you. But really when you strip those things away, and a customer can choose a catheter attached to a dialysis or a port and they choose BioFlo at a much higher rate. So really it's a great base technology delivered by a company like us that can really talk to clinicians about the outcomes and benefits.

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Operator [40]

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Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the call back to over to management for closing remarks.

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James C. Clemmer, AngioDynamics, Inc. - CEO, President & Director [41]

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Thank you, Sherry. So folks, thanks for joining us today. As you can see, AngioDynamics is a company in transition, and we've made significant progress in positioning our company for long-term growth and success. We've improved our R&D and our regulatory processes as well as our manufacturing structure and our organizational efficiency. We've added talent to our team while maintaining the high quality of the products that we produce, which is our most important mission. Now with that as our foundation, we've turned our focus to our product portfolio, and we will invest where we believe technology and opportunity meet. We're excited to welcome our new colleagues and our 2 new acquisitions. The folks at BioSentry and RadiaDyne are now part of our team, and we're happy to have them join our team. This past quarter was a good start to what we believe will be a great year. Many of you, like our team, are enthusiastic about our future, and we will continue to deliver for our customers, our employees and our shareholders. Thanks for your time today, and we'll talk to you soon.

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Operator [42]

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Thank you. This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.