Q3 2020 Earnings Call
Good morning, and welcome to the Angiodynamics fiscal year, 2023rd 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 on your telephone keypad.
As a reminder, this conference is being recorded.
The news release detailing the fiscal 2023rd quarter results crossed the wire earlier. This morning and is available in 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 Dot Angiodynamics Dot 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. If 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 2020.
Management encourages you to review the company's pass in future filings with the FCC, including without limitation to the company's most recent annual report on form 10-K as well its most recent form 10-Q for the quarter ending February 29, 2020, which identifies specific factors that may cause the actual results.
Sense to differ materially from those described in the forward looking statements.
Aside package offering insight into the Companys financial result is also available on the Investor section.
The company's website under events and presentations. This presentation should be read in conjunction with the press release discussing the companies operating results and financial performance. During this morning's conference call I.
I'd now like to turn the call over to Jim Cramer, Andrew dynamics, President and Chief Executive Officer Mr. Klema.
Thank you Melissa and good morning, everyone. Thank you for joining us.
Your dynamic stressful 2023rd quarter earnings call [noise].
Joining me on todays call it Steve Trubridge, Angiodynamics Executive Vice President and Chief Financial Officer.
Provided detailed analysis of our third quarter financial performance.
Given the impact that the cobot 19 pandemic, it's having all our company and our customers. During this call Steve and I will take it appeared approach for assessing our third quarter results discussing our perspectives on the business moving forward.
With respect to the third quarter.
We'll discuss our results through the lens of the fact, they existed at that time.
With respect to our business moving forward.
Discuss our perspectives looking through the lens of the facts are they exist today.
While acknowledging that the facts or circumstances and situations for everyone.
Remain highly forward and dynamic and are likely to change significantly.
The short and medium term.
With that said.
I'd now like to provide an overview of our operating and execution highlights for the core.
Well it some commentary on the impacts of the covert 19 pandemic on our company [noise].
We had a strong third quarter.
We reported solid topline performance during the quarter.
Our revenue increased 6.5% year over year.
And increased 9.3%.
When excluding Asclera [noise].
And it was driven by growth in all three of our businesses.
In addition.
We are pleased to report.
That we that we delivered adjusted EPS of a penny per share.
We believe this clearly demonstrates our ability to simultaneously investing in those businesses that will fuel our transformation into a growth company.
Well being thoughtful and disciplined about our overall spending.
We believe these results provide continued evidence of our successful ongoing transformation into a more focused medical technology company.
Living unique innovative health care solutions into larger and faster growth markets.
During the quarter.
We remain focused on three drivers to continue this transformation.
Internal research and development [noise].
Okay.
And clinical and regulatory pathway expansion.
Let me update you on our accomplishments in each of these areas.
On the R&D front.
We continue to focus investment on our three key technologies.
Angiovac.
Oh, sorry, and NATO night.
While seeking out ways to increase the profitability profile of our their products.
Earlier this year.
We announced that we had lost Nanoknife 3.0.
Angiovac 3.0 [noise].
And we spoke with you about expanding our Andrew back platform through the continued commitment to focus internal research and development [noise].
I'm happy to say that we remain on track to deliver two new angiovac products and the next 12 to 18 months.
And we look forward to sharing these developments with you in the future [noise].
In terms of our recent M&A activities.
We continue to advance the already on technology and progress towards commercial launch through investment in three primary areas.
Ensuring a strong and robust supply chain.
Building physician and sales training programs [noise].
Building, a dedicated selling and marketing channel to take this product to the market in the proper way.
[noise]. Additionally.
The integration of our recently acquired C wave pick tip location system is progressing nicely and customers have already began to expressed interest in this new product.
[noise] M&A will continue over the medium and long term to play an important role that our transformation.
However, we are clearly in uncharted territory.
Due to the Cobot 19 global pandemic.
While we will maintain our disciplined approach of identifying appropriate M&A targets.
And we'll continue to assess opportunities.
We're also prioritize the strength of our balance sheet amid this rapidly evolving macroeconomic climate.
Steve will provide more details and perspectives on our liquidity position later in the call.
Given that backdrop.
I'm comfortable saying that we will be more conservative with respect to M&A opportunities in the current environment.
Heightened uncertainty.
The third quarter.
Our driver of our transformation, its clinical and regulatory expansion and data generation.
Which are foundational pillar is through our strategic transformation.
I'd like to update you on our two most important efforts underway.
Pathfinder indirect.
While we continue to focus on these areas.
The current environment, obviously requires flexibility.
With CMS and hospitals throughout the country seeking.
To prioritize critical care procedures and seeking to preserve treatment capacity.
Additional site initiation activities and patient enrollment efforts in both Pathfinder indirect have been paused.
We are working internally to be in a position to ramp up these efforts as quickly as possible wants the situation allows us to do so.
In mid January we lost the Pathfinder one registry.
Pilot study to evaluate the safety and efficacy of our already on atherectomy system.
We believe this study will provide valuable scientifically backed the data.
To further differentiate the already on the system from competitive products in this space.
And to build upon the excellent long term results that patients experienced during the I'd.
The Nanoknife direct I'd saw solid progress through the third quarter.
As of today 19 study sites have secured IR be approval.
We remain very pleased with the pace at which leading institutions have committed to our comprehensive clinical study and securing higher be approval.
Before I turn the call over to Steve.
I'd like to provide an update on how the cobot 19 pandemic is currently impacting our business.
Our office based employees are working remotely and doing so efficiently and effectively.
From a manufacturing standpoint, we have employees on the manufacturing for.
To ensure that our products are available help save lives.
Given the nature of this pandemic.
Well, we've effectively implemented the business continuity and contingency plans that we've had in place.
We've also had to create some new ones to help to protect our employees, while they protect our supply chain.
And ensure that production of our critical care products continues uninterrupted.
In the interest of their safety.
At the request of our customers.
Grounded all of our field based sales reps in order to help reduce transmission of the virus and free up hospital resources to focus on caring for patients with cobot 19.
Despite these challenges I'm very proud of our team.
They've done a terrific job and adjusting and providing remote support to our global customers.
We have been very proactive around CRM activities and business development planning.
So that we are prepared to spring into action once our customers are ready and elective procedures resume.
We have had great momentum heading into this and we want to be sure. We're ready to continue to build upon that momentum as we exit whenever that may be.
From a procedural impact perspective.
Our business includes products that fall on both sides of the critical care necessary line.
Angiovac cases saw strong growth during the third quarter and into the early days of the fourth quarter driven by Angiovac 3.0.
But over the past few weeks, we have seen procedure slow at hospitals have rightfully shifted their focus to preparing for cobot 19 patients.
We have seen some slowing of E B L T procedures, and even some labs closing their doors in the past couple of weeks.
We anticipate that this business will be softer in the fourth quarter.
Oncology procedures are struggling to line between acute and elective like.
We expect this trend to continue with some case is proceeding as planned and others seeing delays.
We do believe that these are delays not cancellations.
As these are treatments that the majority of patients will proceed with.
Laser atherectomy procedures with our already on laser have been continuing and patches.
System with other procedures that and are still in the very early ramp up stage.
And lastly sales of our VA products, including picks.
Lines imports remains strong.
Even over the past few weeks driven by our new agreement with Premier in a couple of new line extensions for our picks.
While the current environment is certainly unprecedented.
We are taking the necessary steps to prioritize the health and safety of our employees.
While also ensuring.
We are positioning ourselves for continued innovation and growth as the environment returns to normal overtime.
With that I'd like to turn the call over to Steve Trowbridge, Our executive Vice President and Chief Financial Officer.
Thanks, Jim and good morning, everyone.
Before I begin I'd like to point you to the presentation on our Investor Relations website summarizing the key items associated with our quarterly and year to date results.
I'd like to reiterate something that Jim mentioned earlier, which is that with respect to the third quarter. We will discuss our results looking through the lens of the facts as they existed at that time.
With respect to our business moving forward, we will discuss our perspectives looking through the lens are the facts as they exist today.
Additionally, unless otherwise noted all prior year results and comparisons exclude the contribution of our name it fluid management business, which we divested at the end of our fiscal year ended May 31 29 team.
Our net sales for the third quarter fiscal 2020 increased 6.5% year over year to 69.8 million.
Excluding the fiscal 2019 revenue contribution from the it's clear Asclera therapy product, which we stopped distributing during the fourth quarter fiscal year 2019.
Revenue for the third quarter was 9.3%.
As Jim mentioned earlier, all three of our businesses posted solid growth during the quarter led by strong performances by Angiovac and Nanoknife as well as our core picks and ports products.
Our total VIP business grew 4.3% year over year and when excluding Asclera grew 10.5% driven by higher sales of Angiovac, which are up 44% year over year, and a second straight quarter growth of our core products.
Angiovac procedural volume remains strong with procedures, increasing 33% year over year, representing our 10th consecutive quarter of double digit volume and revenue growth.
Vascular access revenue increased 10.3% during the quarter driven by double digit growth in sales of Piccs ports and mid lives.
We continue to integrate our recently acquired C wave tip location system and are already seeing positive impact of this product on our PICC business together with a value picked distribution relationship we entered two in the third quarter.
Revenue from our oncology business increased 5.1% primarily related to growth from Nanoknife, which was driven by both strong capital and disposable sales.
It'll nanoknife sales grew 47% year over year, including growth in disposable sales of 21%.
Total Nanoknife capital sales were 1.4 million in the quarter.
This growth was somewhat offset by continued anticipated decline in sales of our radio frequency ablation product as well as softness in the performance of our Biocentury end balloon businesses.
Moving down the income statement, our gross margin for the third quarter fiscal 2020 was 57.8%.
Decreased to 40 basis points compared to a year ago, driven primarily by product mix.
As we discussed during our call last quarter. This decrease was inline with our expectations.
Our research and development expenses during the third quarter fiscal 2020 were 8.4 million or 12% of sales compared to 6.9 million or 10.6% of sales a year ago.
We're continuing to invest strategically and R&D and clinical with a focus on further developing our nanoknife angiovac and oriented products, while focusing on driving profitability of our other businesses.
Prior to the current environment, we continued to expect R&D spend to be between 30 to 34 million in fiscal year 2020, including investments related to our acquisition of XOMA medical now Aryan.
And the current environment, we're looking to maintain investment in our three key technologies, while being more measured in our investments in other areas.
As gene a expense for the third quarter fiscal 2020 increased to 31.1 million, representing 44.6% of sales compared to 27.1 million, representing 41.4% of sales a year ago.
Prior to the current environment. We continue to anticipate has seen a spend between 126 and 130 million for fiscal year 2020.
We will support our upcoming product launches as well as the needed investments for a commercial release of already on heading into fiscal 2001.
Given the current environment, we're continually assessing controllable discretionary spend with an eye toward spend and cash management, while maintaining investment in our key technologies.
Our adjusted net income for the third quarter fiscal 2000, 21.4 million or one cents per share compared to adjusted net income of 1.9 million or five cents per share in the third quarter of last year.
Adjusted EBITDA in the third quarter fiscal 2020 was 3.8 million compared to 7.7 million in the third quarter fiscal 2019.
Turning to our balance sheet and the third quarter fiscal 2020, we began with roughly 41.2 million in cash and we used 17.8 billion of cash in operating activities.
During the third quarter, we used 10 million of cash to fund the acquisition of the C wave pick tip location system.
As of February 29, 2020, we had 27.2 million in cash and cash equivalents and 15 million in debt outstanding.
We entered this current environment with a strong foundational position, having a net cash position and a revolver with meaningful available capacity.
In addition inventory levels were elevated in anticipation of completing our move out of the Glens falls facility that we sold to Medline at the end of fiscal 19.
In the current environment, we have continued to increase inventory levels as an aspect of our evolving business continuity plan.
We've been in contact with our strong and longstanding banking group that are keeping a close eye on the environment.
We're taking a thoughtful and disciplined approach to our balance sheet, we're focusing on our collections and while we will continue to keep a close eye on them. We are pleased to say that commerce continues to be moving.
We're also paying close attention to our payables.
We're not taking a cynical approach and we have positioned ourselves to be a good customer while also being proactive.
Overall, we believe we're at a solid position and we'll remain focused on maintaining dry powder and being proactive in the current environment.
Consistent with this approach we have initiated a modest dropped 25 million on our revolver. We believe it. This is a prudent move illustrating both our focus on cash and liquidity and our strong foundational position.
Turning now to guidance as Jim and I have discussed on this call. We're pleased with our third quarter results. In addition, we were encouraged by our sales in the month of March both on the run merits and in light of the current environment. However, we have seen a slowdown and a shift in procedures. During the last couple of weeks.
Given the raining uncertainty, we don't believe it is possible to provide substantiated fourth quarter or full year guidance at this time.
As a result, and as noted in our press release issued this morning, we are officially withdrawing our full year guidance. However, I will discuss some directional color to help provide insight into what we're seeing in the market.
As we've discussed throughout this call. The covert 19 situation is incredibly dynamic which mandates.
And recommend changing on a daily basis on both a national and state by state level with no from insight.
So from end to say excuse me.
The primary unknowns at this point are twofold. The first is the duration of the covert 19 pandemic and the impact it will have an elective procedures.
The second is that we are unsure when our reps will be allowed to get back on the road and gain access to our hospitals and physicians offices.
Potential range of outcomes given these unknowns is so broad and far reaching that we are unable to provide an accurate guidance range at this time.
As we mentioned earlier, we had a strong third quarter and saw that strength continued through the majority of the month of March.
We're encouraged by this but we saw declining procedural volumes in late March and into the first week of April which we anticipate will continue throughout the fourth quarter.
Well this is incrementally more granularity on the current quarter than we would normally provide we felt it was important to share this given the context.
As Jim mentioned earlier, we established exciting momentum through the end of Q3, and we're working hard to ensure that we will be well positioned to sustain and build on that momentum once the situation allows.
With that I'd like to turn the call back to the operator to open the call for questions.
Thank you at this time of the conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad a confirmation total indicate your line is in the question can you.
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Our first question comes from the line of Jason Bedford with Raymond James. Please proceed with your question.
Good morning, guys I Hope you and your families are all doing well so just a few questions.
I was surprised with the strength in the vascular access business can you just give us a little more detail on kind of the drivers of the strength and if you could.
Maybe quantify the impact from the Premier agreement on the Port business and also you mentioned some sort of value pick distribution agreement in the quarter and I was a little unclear as to what that was so a little detail on that would be helpful.
Hi, Jason Good morning, Hovenier family are well.
Couple of things so in our VA business as we mentioned in the fall the port win on the Premier business was important for us, but it wasn't the only piece of strength, we saw during the quarter because really this quarter was more getting those customers that are part of the two premier compliant agreements to get signed on with US and started.
Conversion process is so there was some growth there, but not a whole lot. Good news was the growth was balanced so our base pick a business both our bioflo non bioflo also experienced a strong quarter and a lot of that Jason. So we haven't talked a lot about it but we have a couple of really good partners in immobile PICC business.
And these partners are committed to our Bioflo piccs and some of these partners have been gaining market share over the past year or so building up their markets as they provide that valuable service to many hospitals looking to outsource that technique not procedure to these mobile pick teams. So again, they choose bioflo most of those cases.
Finally, we did add some new products, we talk a little bit about it just around that are picked portfolio.
Bioflo, we have a high end deck with unique capabilities, but we had some gaps in our picking line. So we just drilled and a couple of the gaps with some other products.
As we expected the business.
To grow the areas that we guided last year as you know in 2019 was the first year growth in many and I think we anticipated growth about that same level. This year and going forward. It will be a business thats very well run in the portfolio has been more balanced and now we may be the acquisition of the C wave tip location system again takes out one more barrier and we've had there.
Jason we did see strength throughout the VA portfolio throughout the third quarter. It was pretty balanced as Jim mentioned with our Piccs ports Midlines in dialysis businesses all growing.
So we hit a little bit on the value picks that Jim talked about filling in the gaps in those lines. We had mentioned C. In the prepared remarks.
As we talked about before we don't really expect to see a big inflection potential from C until we get to the point, where we're adding navigation to that technology. So we've seen strength in the base picks business moving in throughout this third quarter and we see that strength continuing as we head into the fourth quarter. So what are the things that Jim talked about in his remarks was that line that would you.
Drying between products that fall on the elective like or those that can be delayed and those that are clearly acute in critical care.
We've been seeing the VA business in those picks midlines clearly falling on that line of critical care and we expect to see that strength continued throughout our fourth quarter.
Okay. So I guess just to summarize the points Steve the growth that you saw this quarter's seems pretty durable at least for the next few quarters. We believe so yes okay.
Then I'll just ask one more and then I'll get back in queue can you just update us on the status of the already on launch here I'm, just a little unclear as to.
The rep build out that complete given the dynamic with co bid when do you expect a full commercial launch.
So Jason good 0.16 month data when that we've owned.
Hello business in the on product. So as we told you before the first three parts of the move where a supply chain buildout. So now we're manufacturing the laser hardware to our specs and our supply chain. We're also manufacturing now the disposable catheters are specs and our supply chain. So our supply chain team has done a great job with our quality partners last.
Six month building us out number two we needed to build the sales training program in a physician training program, we've done those as well so already prepared to communicate those the field and finally number three with a dedicated commercial team as we communicated we've built so today, we have 15 people dedicated to this already on business and over time.
Most people are dedicated field sales reps each of those have been hired they have experienced in their past life working for probably want to other companies. In this space. These folks are already experienced atherectomy salespeople they have relationships in their field in the areas that we've hired demand and we expected performance from them as we get closer to full laslo Jason.
We'll give you a little more timeline as to when will add more people. So we're not at a full launch yet we're right on track where we'd be with this process. So we're excited when we've learned soon as we get through a little bit of is this covert 19 situation. We can ticket the BRAF and we'll share with you a little more details around the next phase of the launch but.
Podium presence speaker to talk about the product how it works and how it's being received in the market.
Yes.
It is because kobe the gating factor here, meaning ones cobot is.
I don't want to say over but once this everything relaxes will you be able to launch the product.
Well, it's Jason I don't think cobot hasn't changed our plans I think we told you guys. When we bought it needed about a six month window for start to launch in the last couple of weeks, we've slowed down spending here in a responsible fashion.
And slowed down some of the investments, we're making just to make sure we're disciplined with our cash management and our balance sheet, but.
But probably not going to be part of Dvrs story really we're building the story around those three areas I can't wait to begin to share more with you it's really going into pace. We expected that we're excited to keep building a team there.
Okay. Thank you, Jason we continue to invest in Aryan.
So as we talked about our cash management priorities, we want to make sure that we're ready to hit the ground running when market dynamics allow us to do that so we've continued to as Jim mentioned build up our supply chain, bringing the salespeople be ready to go we do see the atherectomy procedures as some that are on that line tending to be delayed during the current environment.
While healthcare systems are looking to build up capacity. So once that does ease a bit.
Given the investments, we're making we'll be ready to hit the ground running as Jim said according to our original plans.
Thanks, Steve.
Thank you. Our next question comes from line of Jason Mills with Canaccord Genuity. Please proceed with your question.
Hi, Thanks, Good morning dismisses this was used for your seat.
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Thanks for taking the questions.
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As much as we can.
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Sure, Jason as Jim and I Hope you and everyone is healthy.
Your office and your family.
Jason Good question.
I had a conversation three days ago I think it was with.
Chief of surgery at one of the large Boston hospitals, who had mentioned for the past three or so weeks. They spent so much time gearing up to be ready to attitude to care for the covert 19 patients that they've asked some of the other doctors to stand out.
Not just because they need to free up I see you space, but they want to free up PE equipment to that level further caregivers that are carrying for people in their critical care environments. So we've talked to many of our physician partners and we mentioned to you saw in Q3 really dynamic growth with the Angiovac product and really well received but even here now we've seen some.
Cases slow down a bit I think physicians are being told to stay home stand down in many cases that we say that to you knowing the severe acuity that many of the patients in our products treat half the physician I spoke to last week, even said Jim we're treating now people are diagnosing people with stage, one cancers and asked them.
To go home and we'll call you back with the treatment plan soon in the past. They would have had an initial treatment plan. We made them part of this treatment plants. So Jason I think we like you're looking for looking for that that clarity from our customers. We're speaking to a lot of our customers because we're trying to gain that clarity and be ready to support them. Because we are also expected.
Their expectations of our support may be different coming out of this we want to make sure we can align with their expectations, our with our resources.
You also asked about kind of geographic or regionally Jason in the U.S., we've seen the pockets that I think we've all seen as a collective body around the hot spots. Some are more severe than others, but really I guess, even well talk about us only kind of all of our doctors and physician partners are telling us the same thing they've been asked a step aside a little bit and.
As a hold off treatments when they can not all cases, you can as we know depending on this the patient acuity.
But I think we're going to see at some point I think some hospitals. There were speaking with we're also planning now to get back into a treatment protocol in the catch up for some of these treatments that have been delayed so I would expect at one point, we're going to see.
Not just a normalized treatment plan again, but even a little catch up period I believe from our conversations with customers to make sure. They can treat the people who have had a stand down for a little bit longer and Jason outside of the U.S. as you know 80% of our revenue is us based but our global partners of telling a similar stories, we've even seen a couple of maybe situations where in Europe.
Treatments I've come back maybe a little sooner in the last week or two.
People being treated with oncology products.
Jason This is Steve you had mentioned pulmonary embolism, our current angiovac product.
It is not really a pulmonary embolism product for the most part or current Angiovac is use with tumbling ready atrial masses and.
Tricuspid valve vegetation.
Well, we the product the market that we play and I think are good example of what we're seeing this dynamic environment early on in this process early in March.
Our angiovac sales volume and the procedure volume that we were supporting with our clinical specialist remain quite strong and so we were initially looking at those right heart and tricuspid valve vegetation cases, as being on that necessary acute side of the line that we talked about.
A trend that we clearly have seen over the last couple of weeks that line has moved or the physicians have defined where that line is getting that continues to change and we have seen a drop off in those procedures.
Oncology procedures or another example of ones that we're seeing changed throughout this time based mostly on what Jim talked about which as physicians looking to build up their capacity, but when you think about the oncology cases, and when you think about those cases that the current angiovac product plays and we do see those as delays and not lost procedures that are coming back now as we mentioned in the path.
Yes, and Jim talked about the two angiovac product extensions that we expect to see the next 12 to 18 months. Those are the products that we expect to be able to allow us entrance into the pulmonary embolism space and to get into that middle section of the thrombus management space, where we think theres a lot of a lot of cases to be a to b to be done.
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You as validation so to do things. So again I don't want to speak for the caregivers the hospitals I will speak for how you doing it but I can share with you. The conversations we're having a tone that we're getting because it's been pretty consistent Jason someone who is right exactly what you're asking for so we've seen some for those as well some hospitals I think if you.
See the root cause of that it's because some of the census is a very low some of the hospital telling us there. The patient census is down because they tried to move people out of the hospitals get them back home and they try to free up or create more I see you are critical care spaces preparing for an influx of coven 19 patients sorry.
Hey, good the care to delivering on a routine basis is as much lower than it was a month ago. They need less people, we hope again by talking to our hospital customers and partners that when this thing settles they can be higher people back to get back to normal care standards that they would operate in we also believe to even.
Some of the conversations I think they're doing some of that contingency planning now speak to some of those hospitals, they've told us they're doing some of that contingency planning and how they can get back in a rapid fashion. Some people have told us. They may go to a seven day operating schedule in their operating rooms to.
Good to go back and treat people have had to stand down for a little bit sort of macro scale, Jason I think we're all learning together of how we're going to treat.
Treat the situation, but we are hearing things and after we close enough to the market that gives us that hope that when people are ready to start treating people again, a normal situation, we want to be their partner and we will be ready to partner as you've seen with momentum. We've already generated this year now back to your initial question I Angiovac, we're not ready to discuss all the details what we have we have talked.
Hopefully in the past publicly the next two products will launch. So angiovac 3.0 that was launched in the fall is extremely successful and how was launched we redesigned the funnel tip and did a few other things that are physician partners asked us to do the next version that comes out which we're not naming angiovac Ford will probably have been away by the time, we want.
Yeah.
Turning to smaller version our physicians as to how you could give us the same great features and is still on pump on circuit. So good Reaper fuse the patients blood, which makes the procedure much less complicated based recovery aspect.
We're going to have the angiovac for will be different sizing to allow them to treat more people and may be opened a preclinical pathway for Ross indications back to the areas that you and I spoke you Minatome, Steve did with PE and other places now the other product, which is really special and unique we've talked about we want to also use some of you dig features of Angiovac, but ticket off the.
Often circuit and it's on today, so we want to be able to visit that larger space of people, maybe less acute situations of thrombus and we'll be able to treat a lot of those patients where we've seen mechanical thrombectomy options in the marketplace being chosen in selected by physicians as a better care treatment and some of that I think is due to.
Some of the good options other companies have come out with we think we take Angiovac off circuit with its other unique features will be a really really competitive option in that space. We think a lot of physicians would like to try our product in that space.
And we'll get back to you assume launch stakes there, but thats, what we said Jason 12 to 18 months, we expect both of those products to launch.
Thank you. Our next question comes from the line of Matthew Mission with Keybanc Capital markets. Please proceed with your question I'm. Good morning, and then thanks for taking the questions.
Good morning, Matt Hey, Jim switch over to two oncology first let me give an expectation coming into the year, where you thought you could do about 20% growth in that area.
Definitely looks like it's it's fallen short over the first three quarters it really outside of just.
Great Big numbers in Nanoknife it looks like the other areas. There are are coming in negative can you go through the puts and takes of.
The balloon biocentury and and microwave as well.
Yeah, Matt Good question. So hope your hope you're feeling well doing well couple of things we've learned during the course this year, Matt We did set high expectations based upon our technologies in these areas. What we've learned let me get back to balloons and Biocentury right now I think our sales reps, we probably put too much in the bag and eye on that one I thought while were there in some of the call points. We're in.
We have similar discussions based upon how these two next two new technologies are unique in worked well, but in all cases, not the synergies aren't there as much as we want to focused on speaking about what nanoknife those with a new registry based approach and the I'd. So what we're doing Mac differently.
Now I have learned these lessons, we're going to we're investing in its creating a new inside sales group that are going to handle the majority of our balloons and biocentury business to take them out of the field sales back we know right now how effective these products are when used for patient care and treatment, but we've got to do a better job of commercial.
Lives in that conversation. So we missed the boat a little bit there. So missed it youre right. What are we doing about it we're changing how we go to market. That's number one for balloons and Biocentury number two for microwave we know we believe deeply our microwave is better than the offerings from Medtronic in JNJ, what I think we've learned Matt it's not that much.
It's better to offset some of the market size cloud and Resourcing that those two giant companies.
So our microwave is better I think if you Massimo physicians will say, it's a great product, but same thing that I don't know if we can go toe to toe with these guys as the way we thought we could because we're very encouraged about a year ago with some really good conversion some big medical centers coming over buying our microwave versus some of the competitors and that is still occurring but not at the rate we thought we could.
Doing well so we're taking a step back amount over the course the summer we lost year whenever we can talked about a 21 planned we'll show you how our realigning ourselves well, we believe that is over time microwave growth probably be closer to market growth, whereas at 20%. We pointed to this year, we thought we could really exceed market based on how good our technology was submitted.
So conversations I don't know if we can do that math sustainably, that's why we're going to bring down our own expectations for that product. It will grow nicely with market. It's a great product, but we're going to ship more of our resources to making sure. We support nanoknife growth support those customers that are choosing to enter our registry three people and the collective data to do so and then the five.
Focus there on Nanoknife, we've already seen how the 3.0 version has been so successfully received.
We've seen after three quarters, we sold record amounts of capital in either new Nanoknife for upgrades to the new Nanoknife platform, that's encouraging to US people really love this new platform, but Matt. We've Gotta go one step further nanoknife is really affect but it's also complicated to use and is tricky so training and development of those physician practices are important.
Also need to debate the next step in technology to make nanoknife easier to use and we have that design, it's got h. fire or high frequency IRA. So we're going to a more though time and developments developing the next platform, which we call each fire and get this new platform to market.
As soon as we can then we think we'll then maybe match up really nicely with the combination of our direct study in a couple of years and we see more more people who want to use nanoknife to treat maybe other organs overtime. We won't have a platform that is ready to help support that and it's easier to use some out of gave you a lot right there, but some of that are showing you where we missed why we missed and what we're doing about going forward.
Okay.
Yeah.
That's right.
I think that's all that's all that's all fair now and a very helpful are then overnight.
Could you give a sense of how do.
And the number the numbers or the numbers are very strong and as far as the placements going and and the.
The number of probe and the recurring revenue.
Just a sense of how you doing with that in the U.S. person you are like internationally.
So good question, Rob I'll look to see maybe Steve has a more of a split on the Geographics Matt.
Right now we've seen a balanced sell with with our capital this year, both us and you us it's been encouraging though that some of the systems that have been bought in the us recently.
Full systems you know these are expensive products I think people that are getting interested in our direct studying the ability for them to be part of the study the set of a treatment protocol in the facility. So again as we close early this year. We knew the Q3, we just reported this morning had very strong disposable sales you saw on a nanoknife probes which were.
As our expectation as we talk to you after Q2 I selling record hardware in the first half of the year, we knew disposables we carry on.
I want to predict how they'll be down this quarter in front of us.
Hi, it's what we expected yeah, and I think that we are seeing strength, both in the United States and outside the United States. You can think of our current breakdown at about 60%.
You asked about 40% outside the us.
We've seen some particular strength in the Asia Pac area outside the U.S.
I think we've modified a little bit mitigated a little bit vice.
Yes.
But we think thats, a temporary trend and we expect to see EMEA catch up and also being a big contributor going forward. So we have seen strength throughout the globe driven by the U.S., but but definitely some strength of U.S. as well.
Okay. Then on men are nice and answer your back book do you need a clinically trained sales person.
In the procedure room to two to to make it that it does does effective or are the doctors that are performing they capable of doing that without without an angio representative in there.
So it's interesting that before the world changed recently I think the answer from both our physicians as well as us in terms of what we are seeing at the time to that question would have been yes, you need clinical specialists in those cases.
As those world has changed we we've noticed that both our customers as well as our own clinical specialists have been very creative in providing that case support in this dynamic environment.
So I think the answer is at a very high level, yes, I do think that these nanoknife procedures as well as angiovac are complicated procedures that there is a tremendous value provided by our clinical specialists in the knowledge that they have I think what we're seeing through this new environment is the manner in which we support those cases.
Can be somewhat dynamic I think that there's an opportunity to be.
Creative and how we do that support going forward, but ultimately in the type of procedures that they have with the deferring disease states and the complexity of our products. There is a role that that is necessary for us for some level of support okay.
And then just last question on the cash on the cash flow.
Yeah, you were able to you were able to do breakeven on a net income to free cash flow was negative 20 million Oh.
Bit more color on.
Right.
Really what drove that and then from here I mean, if you have the levels of inventory in place. It you anything it how how kids, but you guys have managing a several quarters downturn in the business, where you don't really you really don't know how much is kind of how much it swings.
Well also preserving your current balance sheet position.
That's a great question, Matt and it's absolutely something that we've been focused on over the last four weeks.
So I think you kind of hit the point that we were looking at pretty critically over the last several weeks and looking at the cash flow versus the net income there are a couple points that that feed into that change in cash.
I think our temporary and I think you would you would talk Chuck was at the temporary so we talked about the inventory build that's actually being part of it right four to 5 million of that much of that cash usage was in inventory build now as we talked about going into the current environment. We were planning to increase our inventories in anticipation of moving all of our lines out of the Glenn.
Falls facility that we sold to Medline into Queensbury. So we had a big build and you're coming in we have continued to build in the first several weeks of this process.
The next.
Aspect of that that is going to be okay that you've got the inventory as a as a backstop to what it could be some potential disruptions depending upon what what happens at least in terms of our production process you want to than burn off at inventories that were focusing on that.
There was some short term additional funding that was acquired during the third quarter related to Ari on into our the Israeli R&D.
Aspects there I think that will pull back a little bit. There was also an him a lot of timing $7 million to $8 million of that caste patients I would say was in timing related to the TSA days and some of this aggregation activities coming out of the Medline divestiture. So that won't repeat so we talked earlier about focusing on our cash understanding where we want to continue.
Due to invest so we don't lose momentum in areas like Angiovac Ari on and Nanoknife, but then being much more controlling in terms of that discretionary spend a third party R&D spend in all the other products.
The other thing we're keeping close eye on you've got a whole bunch of expenses that ended up not being spent just by the very nature of the situation that we're in the fact that nobody can be traveling teeny goes way down. So we're keeping a close eye on that we feel really good that we're going to be able to maintain our strong foundational cash position through this downturn.
And we talked a little bit about initiating that draw as as a as both an opportunity to keep our eye on the cash flow and make sure that we've got the right cash balances that we need but then also illustrate our strength, we're not looking to draw the entire revolver aside the prudent thing to do at this time is not something that we need to do at this time so.
So we feel pretty comfortable that we'll be able to maintain that cash position by reducing our expenses that we've talked about not cutting or not not cutting into those areas that we want to make sure are going to maintain momentum when it's time to come out of that I'd also seeing some of those onetime timing things that we saw in Q3 not repeat as we head into Q4, and then into the first half of our appetite.
Anyone.
Thank you very much Stephen and everyone Bye bye.
Thank you.
Thank you ladies and gentlemen, this concludes our question and answer session I'll turn the floor back to Mr. clamor for any closing remarks.
So thank you for joining us today for our quarter 320, 20 call I'd like to again call out of the dedication and commitment of our employees, we have manufacturing quality and distribution people working today.
In Queensbury Glens Falls, New York, they've worked over the past three or four weeks during the spring demick process with their commitment to manufacturing high quality products that are used around the globe mccarran treatment of those in kicking in need of care. We've done a good job getting into dynamics, helping to make their workplace save as we can make it and reduce risk.
So transmission internally, we've changed how we do what we do we made sure that our people are thought to first so we've got a great group of people. We're proud to report our good Q3 results today, we look forward to sharing with you our Q4 results and beyond and I think we did a good job highlighted today just some of the uncertainty we see from our customers.
And as we get better clarity and transparency from our customers be happy to share with you our new thinking when that occurs but today. Our company is driven by a belief that our products make a difference in the well doesn't care of others accompanies committed to that I want to thank our employees working through this difficult process. Thank you will speak with you soon.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.