AngioDynamics, Inc. (NASDAQ:ANGO) Q2 2023 Earnings Call Transcript January 5, 2023

AngioDynamics, Inc. beats earnings expectations. Reported EPS is $0.01, expectations were $-0.01.

Operator: Good morning, and welcome to the AngioDynamics Fiscal Year 2023 Second Quarter Earnings Call. At this time all participants are in listen-only-mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded. The news release detailing our fiscal 2023 second 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, and 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 and gross margins for fiscal year 2023 as well as trends that may continue.

Management encourages you to review the company's past and future filings with the SEC including, without limitation, the company's Forms 10-Q and 10-K which identify specific factors that may cause the actual results or events to differ materially from those described in the forward-looking statements. The company will also discuss certain non-GAAP financial measures during this call. Management uses these measures to establish operational goals and review operational performance and believes that these measures may assist investors in analyzing 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, AngioDynamics' President and Chief Executive Officer. Mr. Clemmer?

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Jim Clemmer: Thank you, Rob, and good morning, everyone, and thanks for joining us today for AngioDynamics' Fiscal 2023 second quarter 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 second quarter financial performance. Turning to our results. We ended the quarter with revenue of $85.4 million, representing growth of over 9% year-over-year led by growth of about 30% from our Med Tech segment over the second quarter of last year. I am pleased with our second quarter performance as we generated strong financial results and continued to make meaningful progress in our clinical initiatives that support our long-term goals.

Our Med Tech segment continues to drive strong year-over-year growth, led by Auryon, AlphaVac and NanoKnife, reflecting our ongoing investment and commitment to building out leading technology platforms in attractive end markets. During the second fiscal quarter, we generated over $5 million of net cash and delivered adjusting earnings per share of $0.01, continuing to illustrate solid execution of our strategy to invest for the long-term growth of the company. As has been the trend in recent quarters, hospitals and care locations are managing through staffing issues that continue to impact procedural volumes. As expected, we are seeing hospitals become more adept at managing through these issues, and we anticipate that this trend will continue to slowly but steadily improve.

Auryon continued its impressive performance during the quarter, growing approximately 61% over the prior year and growing $1.3 million sequentially over our Q1. To date, we have treated more than 25,000 patients since launch. During the quarter, we initiated a limited market release of our hydrophilic coated catheters in the quarter which provide for improved steerability and deliverability and we plan for a full market release in the second half of this fiscal year. This launch further demonstrates our commitment to innovation in the PAD market and our ability to deliver these innovations to our customers. We believe that the hydrophilic coating will be an additional driver of continued share growth for Auryon. Our mechanical thrombectomy business, comprising AngioVac and AlphaVac, declined 1% during the quarter.

AlphaVac revenue for the quarter was $1.6 million. We are very pleased with this performance following the full market release of our F18 product last quarter. Our launch is progressing according to plan and we are on track to meet our AlphaVac revenue expectations for the full year. With respect to AngioVac, there are two key dynamics at work. First, AngioVac treats complex situations and requires perfusion, anesthesia and nursing support. Staffing challenges during this period have led some customers to choose alternative treatment options. And second, we are still evolving our commercial use case approach with AngioVac and AlphaVac now on the same sales bag. Our NanoKnife disposable sales grew approximately 45% during the quarter with strong growth globally.

We saw strong performance from prostate in the U.S. driven by increasing visibility within urology practices stemming from the PRESERVE trial. During Q2, physicians completed 111 prostate cases with our NanoKnife, up from 100 prostate cases treated in the first quarter and an increase of more than 80 cases over Q2 of last year. I'm also thrilled to announce that we have surpassed the halfway mark in enrollment of our PRESERVE clinical trial during the quarter which I will discuss in more detail later in my remarks. Our Med Device segment grew 3% and remains an important part of our business. We have solid product platforms and excellent business teams that enable us to be successful while also leveraging this segment to fund other investments, including our key Med Tech platforms.

International markets had a strong quarter, growing 7% year-over-year, primarily driven by strong NanoKnife capital and disposable sales. We expect our international business to be a positive growth contributor in FY '23 as our team continues to strengthen our sales network and expand our global scientific presence. During the quarter, our team hosted our second life science symposium which brought together global thought leaders who are exploring and supporting the use of our technologies. Generating clinical data plays a key role in our ability to effectively develop our Med Tech platform technologies and expand into larger, faster growing, higher margin addressable markets. Our teams continue to execute on our clinical trials, including our 3 IDE studies, our PRESERVE study for the treatment of prostate cancer with NanoKnife, our APEX study for the treatment of pulmonary embolism with our AlphaVac F18 and our DIRECT study for the treatment of pancreatic cancer with NanoKnife.

As I noted earlier, we achieved an important milestone in our PRESERVE study during the quarter, surpassing the midpoint of our enrollment goals. We believe PRESERVE will demonstrate that NanoKnife can be an effective focal treatment option for men with intermediate risk disease and provide favorable quality-of-life outcomes when compared to other focal treatment options or radical prostatectomy. We estimate that the total potential market for focal treatment of prostate cancer that can be addressed by NanoKnife may exceed $700 million in the U.S. alone. With respect to our APEX study, we are pleased with the pace of enrollment and are particularly encouraged by the feedback we are receiving about our technology from the treating physicians.

We believe that our APEX study will prove that our unique AlphaVac products can be an effective treatment for PE, providing ease of use while unlocking an opportunity in a large addressable market that we estimate to be in excess of $1.5 billion in the U.S. alone. When discussing our PRESERVE and APEX studies, I highlighted the total addressable markets that our technologies and associated solutions are targeting. We believe that this is a clear illustration of our strategy of leveraging our proprietary technology platforms to deliver disease state solutions in attractive markets. Our robust R&D pipeline is a further illustration of this. For example, Auryon has proven to be a disruptive technology entrant into the PAD market. Auryon is the only atherectomy device that can treat hard and soft calcifications above and below the knee and can be used to treat in-stent restenosis.

We believe that this versatility has the potential to be equally effective on the venous side. Our AngioVac and AlphaVac portfolio currently provides clinicians with versatile options to treat large vessel DVTs and complex right atrium cases utilizing various cannula sizes as well as on-circuit and off-circuit options. Because of what we and our physician partners have learned about the effectiveness of Auryon, we believe that the technology can complement this offering with the potential to provide a solution for small vessel DVT that takes advantage of Auryon's precision and aspiration capabilities. Given those advantages and the versatility of the Auryon platform, we've shifted development efforts to Auryon from the 14 French AlphaVac because we see a compelling opportunity to drive better patient outcomes in small vessel DVT.

We are currently targeting a commercial launch by the end of calendar year 2024 which would give us a portfolio of three platform solutions with different modalities for the treatment of VTE . Let me share another example of our robust R&D pipeline and platform opportunities with you. We believe that the unique mechanism of action of AngioVac that makes it safe and effective in complex right atrium cases has the potential to be a disruptive technology solution for left atrium interventions. We estimate that this addressable market makes c $400 million, and we are targeting entering this market by the end of calendar year 2023. Before turning the call over to Steve, I'd like to thank our team here at AngioDynamics for their continued persistence and commitment to achieving our goals.

Their hard work is essential to the success of AngioDynamics as we continue to build leading medical technology platforms that improve patients' quality of life. With that, I'd like to turn the call over to Steve Trowbridge, our Executive Vice President and Chief Financial Officer, to review the quarter in more detail.

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Steve Trowbridge: Thanks, Jim, and 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. Our revenue for the second quarter of FY '23 increased 9.1% year-over-year to $85.4 million, driven by continued strength in our Med Tech platforms, including Auryon, NanoKnife and Thrombus Management. Med Tech revenue was $24.5 million, a 29.7% year-over-year increase, while Med Device revenue was $60.9 million, an increase of 2.6% compared to the second quarter of FY '22. For the quarter, our Med Tech segment composed 29% of our total revenue compared to 24% of total revenue a year ago. Year-to-date, for the first half of our FY '23, our revenue increased 7.5% year-over-year driven by Med Tech segment revenue growth of 29.7% and Med Device segment growth of 0.7%.

Our Auryon platform contributed $10.1 million in revenue during the second quarter, a 60.6% increase compared to last year. We're very pleased with the continued growth of the Auryon platform, and we remain on track to generate full year revenue in the range of $40 million to $45 million. As of today, our installed base is approximately 370 lasers. Mechanical thrombectomy revenue, which includes AngioVac and AlphaVac sales declined 1.1% over the second quarter of FY '22. When including Unifuse, thrombus management revenue declined 0.3% year-over-year. AlphaVac revenue for the second quarter was $1.6 million. We remain very pleased with the performance of our AlphaVac products, including the F22 and F18 versions. Physician feedback continues to be very positive with respect to usability, features and outcomes.

Year-to-date revenue for AlphaVac is $3.4 million, and we remain on track to generate AlphaVac revenue for the full fiscal year of $7 million to $9 million. AngioVac revenue was $6 million in the quarter, representing a decline of 16.2% over the prior year as a result of the two dynamics that Jim mentioned earlier. Year-to-date, AngioVac revenue was $12.9 million, a decline of 4.6%. As I stated previously, we expect mechanical thrombectomy to be a significant contributor to our growth strategy and we will continue to prioritize investments in this platform. We currently anticipate our mechanical thrombectomy platform, led by growth in AlphaVac, to grow 25% to 30% in fiscal 2023, below our prior expectation of 30% to 35%. NanoKnife disposable revenue increased 45.4% year-over-year as our clinical studies continue to drive enrollment and increase awareness of the platform.

Year-to-date, sales of NanoKnife disposables grew 28.9%. U.S. NanoKnife disposable sales grew 44.2% during the second quarter and are up 24.3% year-to-date. International NanoKnife disposable sales grew 46.8% during the second quarter and are up 35.8% year-to-date. Turning to our Med Device segment. Our angiographic products, ports, dialysis and microwave all achieved solid growth in the quarter. This growth was partially offset by modest declines in other areas of the segment, resulting in an increase of 2.6% for the segment overall. During the quarter, we reduced our backlog from $7.1 million to $5 million as operational capacity and supply chain strategies continue to provide positive results. Year-to-date, our Med Device segment has grown 0.7%.

Moving down the income statement. Our gross margin for the second quarter of FY '23 was 52.8%, an increase of 100 basis points compared to the year ago period and up sequentially from Q1 by 90 basis points. Gross margin for our Med Tech segment was 63.7%, a decrease of 290 basis points compared to the year ago period but an increase of 50 basis points sequentially over Q1. The year-over-year decrease was primarily driven by increased depreciation costs from growing Auryon installed base. Gross margin for our Med Device segment was 48.4%, a 130 basis point increase compared to the year ago period, driven by improved operational capacity and our supply chain strategies as we've managed through the ongoing inflationary environment. Med Device gross margins were up 90 basis points sequentially over Q1.

Our consolidated corporate gross margin in the quarter was positively impacted by increased efficiency in our manufacturing operations and product sales mix. These improvements were partially offset by headwinds from costs associated with the continued tight labor market, raw material inflation and increase in freight costs. In the second quarter, on a year-over-year basis, the increase in production capacity from our initiatives and increased efficiencies provided a benefit of approximately 465 basis points. The impact on gross margin from product mix was a benefit of approximately 35 basis points. These benefits were offset by approximately 140 basis points versus the prior year period due to increased labor and manufacturing costs. Inflationary pressures on raw material prices resulted in approximately 120 basis point negative impact and higher freight costs had an approximately 35 basis point negative impact.

Foreign currency fluctuations and hardware depreciation reached roughly 50 basis points of headwind. Our research and development expense during the second quarter of FY '23 was $6.8 million or 8% of sales compared to $8.2 million or 10.5% of sales a year ago. We continue our disciplined investment in R&D focused on driving our key technology platforms, including the clinical and product development spend for our Med Tech portfolio. For the full year FY '23, we still anticipate R&D spend to target 10% to 12% of sales. SG&A expense for the second quarter of FY '23 was $36.8 million, representing 43.1% of sales compared to $33.3 million or 42.5% of sales a year ago. The year-over-year increase in SG&A spending was primarily driven by the annualization of investments in our sales teams, particularly Auryon.

For FY '23, we continue to anticipate SG&A spend to target 40% to 45% of revenue. Our adjusted net income for the second quarter of FY '23 was $356,000 or adjusted earnings per share of $0.01 compared to an adjusted net loss of $856,000 or adjusted loss per share of $0.02 in the second quarter of last year. Adjusted EBITDA in the second quarter of FY '23 was $7.5 million compared to $4.4 million in the second quarter of FY '22. In the second quarter of FY '23, we generated $7.5 million in cash from operating activities and our net cash position increased by $5.3 million from the end of Q1. Capital expenditures were $1.3 million and additions to Auryon's placement and evaluation units totaled $1.2 million for the quarter. As of November 30, 2022, we had $29.9 million in cash and cash equivalents compared to $28.8 million in cash and cash equivalents on May 31st, 2022.

We continue to expect our net cash position, which is cash net of debt, by the end of our FY '23 to be flat to slightly up from where we exited FY '22. As a reminder, during the back half of our FY '23, we expect to achieve the aggregate revenue milestone target for Auryon which would trigger a contingent consideration payment of $10 million. This contingent consideration payment is excluded from our operating cash expectations. Turning to our FY '23 outlook. We are reiterating our full year revenue guidance in the range of $342 million to $348 million as well as our FY '23 adjusted earnings guidance in the range of $0.01 to $0.06 and as we continue to invest in driving sustainable growth in our key Med Tech platforms while also managing cash and profitability.

I want to wrap up my comments by thanking the entire AngioDynamics team for all of their hard work and commitment as we continue our growth as a platform-focused medical technology company. With that, I'll turn it back to Jim.

Jim Clemmer: Thanks, Steve. We are a company with a diverse portfolio and we will continue to try to communicate with you in a transparent and clear manner. I hope that this call gave you insight to our performance and our future opportunities for value creation. We are a company that has continued evolving our platform technologies. We will continue to develop pathways to prove that our products make a difference in the lives of patients around the world. We have worked hard to earn the trust of caregivers who choose us as their care delivery partner. We have built upon a foundation that are centered by our products and our people, they are the source of our strength. We are a really good company. I'm proud of our teams and how they deliver to the patients and customers that we serve. I thank them for their steadfast commitment to our mission. Thank you for joining our call today. With that, Rob, I'll turn it back to you.

Q - Jayson Bedford: Good morning and Happy New Year, guys.

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