Q2 2022 AngioDynamics Inc Earnings Call

January 6, 2022

[music].

Good morning, and welcome to the MTO dynamics fiscal year 2022 second quarter earnings call.

At this time all participants are in a listen only mode.

<unk> and answer session will follow the formal presentation.

Anyone should require operator assistance during the conference. Please press star zero from your telephone keypad.

As a reminder, this conference call is being recorded.

The news release detailing the fiscal 2022 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 <unk>.

Mr Section of the company's website at Www Dot angio dynamics Dot com and the webcast replay of this call will be available at the same site approximately one hour after the end of today's call.

Before we begin I would like to caution listeners that during the course of this conference call. The company will make projections or forward looking statements regarding future events, including statements about expected revenue adjusted earnings and gross margins for the fiscal year 2022, as well as trends that may continue.

Management encourages you to review the Companys 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 the underlying trends in the comps.

Ladies business overtime.

You 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 would now like to turn the call over to Jim Clemmer, and Geodynamics, President and Chief Executive Officer, Mr. Clemmer.

Thank you Rob.

Good morning, everyone and thank you for joining us for <unk> dynamics fiscal 2022 second quarter earnings call.

Joining me on today's call is Steve Trowbridge, Andrew dynamics, Executive Vice President and Chief Financial Officer, who will provide a detailed analysis of our second quarter financial performance and our revised FY 'twenty two guidance.

I am pleased with our second quarter performance as we have continued to progress along our strategic transformation and we have delivered strong revenue growth. Despite the ongoing challenges related to the COVID-19 global pandemic.

And other macro related headwinds these.

These results are a direct reflection of our team's commitment to and our execution of our long term strategic plan to transfer our major dynamics into a high growth Med Tech company.

We ended the quarter with revenue of $78 $3 million representing growth of seven 6% year over year.

Net sales from our Med Tech business, which as a reminder includes argon nano knife and our thrombectomy platform.

Were $18 9 million.

A 36% increase over the previous year.

Our med device business, which includes the remainder of our portfolio grew approximately 1% year over year. Despite a 4 million dollar backlog.

The ongoing disruptions from the Covid pandemic, and resulting supply chain headwinds led to this backlog.

And naturally also had an impact on gross margin and earnings during the second quarter.

We ended the quarter with adjusted EPS of negative <unk> and gross margin of 51, 8%.

Before I go into more specific results across our businesses I'd like to talk to the current macro environment the resulting.

<unk> disruptions and how we are addressing those in a little more detail.

As we have discussed during previous quarters, we have been impacted by and we are working through supply chain disruptions stemming from COVID-19.

Specifically, we have discussed the tight labor market, increasing labor costs raw material inflation and escalating freight costs.

Like many other businesses, we are filling the supply chain impacts.

Two of our main challenges our staffing from our internal manufacturing and operations teams.

And increasing levels of production disruption.

Cause by our employees being exposed to Covid.

We are also facing similar dynamics with some of our supply partners, who are struggling to service our needs.

Due to similar factors within their production environments.

These factors contributed to a more difficult environment in our second quarter, which accelerated in November.

In order to address this disruption we are focused on increasing manufacturing capacity, improving efficiencies and making adjustments to pricing and shipping terms.

All of us have been dealing with the ever changing impacts of Covid for nearly two years.

But we have managed through it well and will continue to drive our business with the same disciplined approach, while continuing to appropriately prioritize the investments intended to support the long term growth of our business.

Earlier this year as we saw these macro pressures building, we began to identify and implement solutions to address them.

In the second quarter, we initiated a plan to increase manufacturing capacity through our partner in Costa Rica.

We are pleased with the pace of this project and we will keep you updated on progress of this initiative and others during subsequent quarters.

To be clear, we are not moving all of our manufacturing offshore and have no plans to close our existing facilities.

We are qualifying additional manufacturing capacity to not only address the short term supply chain disruption.

But also to enhance our ability to supply our customers as we grow our business over the medium and long term in accordance with our strategic plan.

In addition to increasing capacity in Costa Rica, we have continued to actively pursue programs to improve our supply chain.

These initiatives include SKU rationalization, and other targeted projects to increase capacity and efficiency in our manufacturing process.

As we discussed last quarter, we have recently implemented targeted revisions to our pricing and shipping terms in response to the increased cost of doing business.

While the increases in operating costs have affected our business and we have taken actions to address these.

Excuse me access to address these challenges to minimize any potential long term effects.

The majority of the supply chain challenges and cost increases.

Our med device portfolio.

And have a lesser impact on our med tech portfolio as the investment and design processes for our med Tech products integrated robust supply chain planning.

We are continuing to pursue our strategic plan.

Including funding our core transformational investments.

As we know they are vital to driving our growth and the value of our company over the long term.

Now turning back to our detailed results for the second quarter.

Our <unk> business saw continued sequential growth during the second quarter with revenue of $6 $3 million up from $5 9 million in the first quarter of FY 'twenty to <unk>.

Despite increased pressure on procedure volumes stemming from Covid and hospital staffing challenges.

The continued highly positive feedback from the market confirms our belief that are already on platform offers differentiated technology through a broad suite of treatment options that drive positive patient outcomes.

At the end of the second quarter, Oregon had been used in over 13000 procedures and.

And we estimate that Oregon now represents about 5% share of this market.

As we've mentioned on previous calls already on procedures have been fairly divided between above and below the knee.

We think this demonstrates both the versatility of our technology and the unique breadth of our addressable market.

And opportunities for continued growth.

We continue to expect <unk> to generate robust revenue growth for the balance of FY 'twenty two.

And we believe we've appropriately considered the current headwinds as part of our revenue guidance.

As a result, we are reiterating a revenue range of $24 million to $26 million for Oregon for fiscal 2022.

We continued to see strong year over year growth within our thrombectomy portfolio, which generated approximately 21% revenue growth over the second quarter of FY 'twenty one.

Fight the challenging environment.

This included 29% year over year growth.

From our mechanical thrombectomy portfolio.

Comprising <unk> and alphabet.

We are also pleased that we recently completed a limited market release of our Alpha Vac mechanical thrombectomy system.

This highly effective LMR process generated valuable insights, including the highly positive responses from physicians regarding their clinical outcomes, which led us to commence our full market launch of alpha back in early December.

While it has only been a few weeks we have received excellent feedback from physicians and are very pleased with the pace of the launch.

As a reminder.

<unk> expands our thrombectomy opportunity.

By addressing a much larger segment of the DVT venous thromboembolism market.

As we've discussed the DVT segment of this market represents an approximately $1 5 billion dollar market opportunity.

Well the initial alphabetic product of.

22, French cannula device increases our addressable market.

It's still only unlocks a portion of this $1 5 billion dollar opportunity.

We plan to unlock full access to the DVT V T market.

Through the upcoming launches of our 18, French device and subsequent smaller French alpha back devices. As we've described in our Investor Technology day presentation.

In addition, we plan to use the 18 French device for a pulmonary embolism IV study that upon clearance will provide us access to an additional $1 $5 billion market.

We have filed the application for this I D. E study and are in discussions with the FDA to support approval.

Nano knife probe sales for the second quarter increased 9% year over year.

Year to date nano knife probe sales have increased by 20%.

We're pleased with our sales of nano life probes. Despite the increased COVID-19 related challenges, we faced during the second quarter.

One dynamic we've seen as a result of these challenges is an increase in case cancellations for pancreatic procedures due to disease progression.

In certain instances, we've noticed that treatment delays throughout the pandemic have led to disease progression in many patients.

Some physicians have reported that when they finally try to perform a nano knife procedure following our staffing or COVID-19 related delay they often discover metastases in the operating room and cancel the ablation.

Which is a very difficult situation for patients their families and the physicians.

Despite the challenges of the current market environment, We believe probe volume growth benefited from the tailwind of a larger capital base and increased data driven awareness from our direct study.

The inner life capital sales were down year over year against a difficult comp in the second quarter of FY 'twenty one following the trend of general quarter to quarter variability in capital placements.

We remain excited and committed to investing in our nano <unk> platform as we continue to make progress with our clinical studies, which will support our planned expansion into new indications such as prostate.

And we also look forward to exploring new geographic opportunities as the O U S environment improves.

Our med device business grew approximately 1% in the second quarter, which was in line with the long term trajectory of the business that we laid out for you at our Investor Technology day.

Our medical device performance was impacted by the challenging supply chain environment in Q2 that resulted in the backlog that I discussed earlier.

Turning to internal R&D during the quarter, we continued to invest in our key strategic priorities, which are first to support our existing platforms to facilitate physician adoption and improve patient outcomes.

And second.

To continue the development of new products in order to expand into larger faster growing addressable markets.

These investment initiatives include clinical research.

Product development and selling and marketing.

As we prepare to introduce these new products into the market.

We also continue to look for opportunities externally and strategic tuck in M&A remains a component of our long term growth strategy.

We regularly monitor the landscape for the right opportunities, while also maintaining a disciplined approach to capital allocation and cost management as we do so.

Turning to our clinical programs. We currently have 22 active sites and our direct study and are encouraged by the overall execution of the study.

We also note that the U S. Direct study spawned interested in initiating similar research and other countries.

For example, the multicenter direct inspire study in Australia recently enrolled its first patient.

I'd like to take a moment to discuss the progress regarding our prostate initiative for the nano life system.

The nano life's unique mechanism of action enables it to be used as a focal option for physicians and patients seeking alternatives to radical prostatectomy.

Current focal treatment options have been limited in their ability to grow to no more than 5% of the addressable market.

We believe the nano <unk> system has the potential to grow the focal treatment market.

Due to its ease of use and unique mechanisms mechanism of action to serve as a more favorable treatment for patients and physicians alike.

In order to prove this belief we have partnered with the society of Urologic oncology to launch the preserve study.

The preserve study is designed to assess local cancer control in patients with intermediate risk disease with a secondary endpoint measuring quality of life outcomes.

This study will be led by our principal investigators Dr. Jonathan Coleman from Memorial Sloan Kettering and Doctor Arvin, George from the University of Michigan.

We will keep you up to date on this important study and we expect to begin patient enrollment in Q3.

We believe that the preserve study can provide valuable evidence proving the nano knife system as a focal treatment option and expand the potential target market to <unk>.

Greater than $500 million.

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.

Thanks, Jim.

Everyone.

Before we 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 fiscal year 'twenty, two increased seven 6% year over year to $78 3 million driven by continued strength in our med tech businesses, including <unk> nano knife in angio back.

Med Tech revenue was $18 9 million or 36, 4% year over year increase while med device revenue was $59 4 million growing approximately 1% over the second quarter of fiscal year 'twenty one.

For the first six months of the year Med Tech grew 50%.

That device was flat compared to the prior year period.

Grew roughly 5% year over year, when excluding last year's NHS order.

Year to date through the end of the second quarter, our Med Tech platform comprised 24% of our total revenue compared to 17% at this time last year.

Revenue in our Endovascular therapies business increased 17% year over year to $39 7 million benefiting from the continued adoption of Oregon, and our thrombectomy portfolio.

<unk> contributed $6 $3 million in revenue during the second quarter, continuing the momentum that we've been building since last year's launch.

And we did see some impact from the ongoing Covid pandemic on Orient Hospital procedure volume during the quarter. Despite this.

Challenging market environment, we continue to place new lasers during the quarter and as of today. Our installed base is 242 lasers with 35 lasers placed during the second quarter.

We view <unk> as a key growth driver going forward and we continue to invest in the platform building out our commercial infrastructure and generating clinical evidence to drive further adoption.

Jim stated earlier, we continue to expect <unk> to generate revenue in the range of $24 million to $26 million for the year.

Mechanical thrombectomy revenue, which includes angio back and alphabet LMR sales grew 29% over the second quarter of FY 'twenty, one as related procedure volumes improved sequentially with robust demand for the platform.

When including Uni fuse thrombectomy revenue grew 21% year over year.

Well in the current environment, we have seen some softening in procedure volumes in the month of December we're very excited about thrombectomy is a key growth platform.

Vascular access revenue increased four 8% versus the prior year period, continuing the solid performance of this business even in the face of hospital staffing shortages and manufacturing delays, which have resulted in a portion of the backlog that Jim discussed previously.

Revenue from our oncology business declined nine 3% during the quarter as compared to prior year, primarily driven by fewer capital sales in the quarter as well as general procedural pressures related to Covid and hospitals hospital staffing disruptions.

In addition sales of microwave remain challenged declining 3%.

Nano knife disposable revenue increased 9% driven by increased awareness from our direct study and a growing installed base.

Year to date nano like disposable sales are up 20%.

Moving down the income statement, our gross margin for the second quarter of fiscal year 'twenty. Two was 51, 8% a decrease of 340 basis points compared to a year ago.

Accelerating increases in labor and manufacturing costs continued to negatively impact our gross margin, resulting in an approximately 170 basis point headwind versus the prior year.

Inflationary pressures on raw material prices resulted in an approximately 60 basis point negative impact to gross margin.

Higher freight costs had an approximately 10 basis point impact versus the prior year.

As we anticipated at the beginning of the year already on an alphabetic startup costs accounted for approximately 100 basis points impact versus the prior year.

We expect these dynamics to continue to pressure our margins near term.

Given these ongoing headwinds we now expect fiscal year 'twenty, two gross margin to be in the range of 52% to 54%.

The decrease from our prior guidance of approximately 55%.

Over the long term, we expect our gross margin to expand as growth in our higher margin med tech platforms accelerates and the manufacturing initiatives, Jim mentioned earlier have an increasing impact.

Our operations team remains focused on driving labor and service efficiencies and seeking material pricing opportunities.

We've also implemented modifications to our pricing and shipping terms in an effort to offset some of these ongoing headwinds.

We'll continue to monitor the dynamic environment closely and provide updates.

Our research and development expense during the second quarter of fiscal year 'twenty, two was $8 2 million or 10% of sales compared to $9 7 million or 13% of sales a year ago.

We continue our disciplined investment in R&D focused on driving our key technology platforms, including the clinical spend for alphabet P E and then like prostate.

For fiscal year 'twenty, two we continue to anticipate R&D spend to target, 10% to 13% of sales.

SG&A expense for the second quarter of fiscal 'twenty, two was $33 3 million, representing 43% of sales compared to $29 4 million, representing 40% of sales a year ago.

The increase in SG&A year over year reflects the strategic investments, we discussed during our Investor technology day, including head count investments in areas such as Oregon.

We continue to anticipate fiscal year, 'twenty, two SG&A spending to approximate 40% to 45% of revenue.

Our adjusted net loss for the second quarter of fiscal 'twenty, two was <unk> 9 million or a loss of <unk> <unk> per share compared to adjusted net income of $6 million or earnings per share of <unk> <unk> in the second quarter of last year.

The COVID-19 related headwinds with respect to gross margin that I previously discussed equated to approximately a <unk> <unk> impact on second quarter results.

Adjusted EBITDA in the second quarter of fiscal year 'twenty, two was $4 4 million compared to $5 2 million in the second quarter of fiscal 'twenty one.

In the second quarter of fiscal 'twenty, two we generated $1 9 million in operating cash had capital expenditures of $1 1 million. In addition to Ari on placement and evaluation units of $2 7 million.

As of November 32021, we had $34 3 million in cash and cash equivalents compared to $35 5 million in cash and cash equivalents on August 31 2021.

Our debt outstanding remained consistent at $25 million.

And we do expect to see a higher than normal cash utilization during the third quarter as a result of both the backlog and funding the initiatives that Jim and I have discussed today.

Turning now to guidance, we continue to anticipate that fiscal year 'twenty two net sales will be in the range of $310 million to $315 million.

We now expect that full year adjusted earnings per share will be in the range of a loss of <unk> <unk> to a gain of <unk> <unk> compared to our prior guidance of zero to <unk> as.

As we continue to invest in driving sustainable growth in our key med Tech platforms. While also managing the continued headwinds that we discussed today.

In the current and evolving environment, we expect potential headwinds to persist during the third quarter with a subsequent recovery as our internal initiatives take hold and the external environment improve.

We plan to manage through these headwinds in a consistent fashion.

Through two quarters of our fiscal 'twenty, two we're pleased with our progression along our strategic transformation.

We continue to balanced prioritizing top line growth with managing profitability.

<unk> eight 6% growth year to date and continuing to make investments that support our future growth initiatives.

With that I'll turn it back to Jim.

Thanks, Steve This is an incredibly exciting time at Ames geodynamics. Despite all of the challenges in today's operating environment. We are dedicated to transforming Andrew dynamics into an innovative medical technology company with solutions that address some of the most dynamic opportunities in health care.

We can improve patient outcomes and drive highest physician satisfaction.

Our second quarter results are evidence of our progress towards that goal and we plan to continue to deliver on our strategic plan initiatives in the coming quarters.

I want to thank everyone here at angio dynamics for their dedication and commitment to serving our customers. During these challenging times our employees face the same challenges that the world faces with Covid.

Any of them have family members, who have contracted COVID-19 and they work through this with a commitment to our customers and supporting their work to help patients in need.

With that I'd like to turn the call back to you Rob for questions.

Thank you well now be conducting a question and answer session. If you'd like to ask a question today. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.

You May press star two if he would like to move your question from the queue.

For patients that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys one.

One moment, please while we poll for questions.

Thank you and our first question today comes from the line of Phil plant.

<unk> <unk> with Canaccord. Please proceed with your question.

Great. Thanks, Good morning can you hear me okay.

Good morning.

Hey, good morning so.

The first question is.

The current wave of Covid is is feels like it's very different from anything else and you have the dubious honor of being the first company to really presents some numbers.

You may be your last quarter didn't really get hit as much by omicron, but as we sit here in the middle.

We're getting into January and this is hitting into full swing might be helpful. If you could maybe compare and contrast, how this wave of COVID-19 is different versus the prior and impact on your business and then that.

That you've seen thus far and then secondly, you talk about the $4 million backlog was.

Is that any specific product line and what product lines, what did that relate to and then have you fulfilled and ship those products. Thank you.

Okay. Thanks for the questions builds Jim a couple of things Bill back to the omicron variant or the variant. We're all facing now we've seen increased activity, obviously with the variant I'll talk externally and then internally externally our customers are under increasing pressure similar to what it was like early on.

<unk> now the benefit is that our customers in the health care networks have gotten better and learn how to deal with this but they are facing staffing challenges probably at a higher level today than they were then as many of their employees are faced with Covid restrictions. So we've seen higher levels of breakout with a lot of our customers.

So consequently.

A lot of the large healthcare delivery networks are asking us again, and probably other companies to stand down a little bit slowdown as some cases.

I am canceling elective procedures are occurring even this week, we got word from a couple of the large delivery networks that theyre going to put a hold on elective quarter CRO procedures, which was done as you know last year. So we are watching this very closely as you know our people are very close to our customers. We are watching it globally as well our teams around the globe, we're finding similar spots now.

The good news is there are some spots around the globe that are kind of bent the curve already are getting a little bit better but here in the U S. The acuity is still high as far as the customer disruption factor that being said I think you saw we still have strong demand for our products through the cycle. So we've had less of a COVID-19 impact on our demand now flipping.

To the internal side as you saw earlier on back to your question on the backlog in the back order.

That's affected this year I mentioned earlier the pieces were dealing with are number one first of all recruiting employees to come to work to fill open jobs, we have in our operations quality and logistics teams that's been a challenge for us and as you know many other companies in during this environment and number two also dealing with the disruption when our employees are exposed to.

Covid, giving them the space they need to clear and recover from any COVID-19 effects that impacted our operations that are playing our plans to make.

<unk> products. So bill you asked about one product over another.

Identified in the call earlier, Bill, it's mostly affected our device products less on the med Tech products. We have we've done different levels of the supply chain planning as we launch those new tech products that have kept us little more immune to these.

So I'll go back to the device products.

Worth affect us more and build the move that we announced this morning, moving some operations to Costa Rica that takes some pressure off our internal capabilities. It will free up new opportunities for us to reassign people within our operations teams. When we have the Costa Rica operation up and running and that was planned for a long time ago, our operations team we all.

We have had a labor challenge. So our teams have had this plan and others kind of teed up in their pocket for a while we decided to implement the plan and move into action recently as we saw the effects of Covid on labor environment increase.

But I don't think were going to call out any one category or the other the other bill there's a little bit of pressure in each of the categories and device and Bill just to follow up on the last piece of it at about that $4 million backlog. It hasn't cleared so it was $4 million at the end of our second quarter.

It's actually gotten a little higher it's increased a little bit through December as we're implementing and finalizing the moves that Jim talked about we.

We expect it to.

Plateau this quarter, and then and then start to get better through through the year. As we continue to also focus the consistent kind of run rate demand that we're seeing.

And then if I could just as we think about the impact of <unk> in the quarter and you've reiterated the revenue guidance of $3 10 to $3 15, but should we think that this is going to have a pretty significant impact on the February ended quarter and maybe we will see.

Historically you're down.

One to two percentage points sequentially at least last fiscal year, I mean could we see it more pronounced effect. This year given the omicron as we think about just the February quarter.

Yes, it's a good question Bill it's something that we're obviously focused on we're very.

Keenly keeping an eye on.

I think the seasonality that you mentioned is fair and we expect to see continue to see that same pattern.

Really the issue that we're seeing most is not as much as on the demand side, Jim announced Jim was discussing more on our ability to kind of clear the backlog and get the labor into our plan. So as we continue to execute and finalize these plans, we do expect that our third quarter, maybe a little bit choppy.

I don't think its going to be tremendously different than some of the seasonality that you had mentioned before when you think about sequential quarter over quarter. That's what we're seeing now that thats kind of our expectation as we move through this there's no doubt it will be a little bit choppy, we're seeing someone who's omicron effects.

But as we're working through this and finalizing and then getting into the running and running up those plans and start to see that recovery come out as you head into the end of our Q3 and into Q4.

Thank you.

Okay.

Our next question is from the line of Matthew Mission with Keybanc. Please proceed with your question.

Hey, good morning, guys.

I guess on Oreo.

You mentioned that you were 5% share at this point I'm, just trying to understand like what.

Your installed base, what percentage penetration of the of the office based labs or the.

The hospital systems that are actually performing these procedures, where are you have you are you at more than 5% penetration of what.

People the majority of people that have or are performing these procedures or do you still have a lot of room to go as far as placements go.

Hey, Matt.

No. So it's interesting we feel that we've got about 5% of the stated market as we've talked about it when we when we launched this product and what our goal was to get to that 10% by the end of year three.

What's really driving that is the versatility of the technology and as Jim mentioned, we've been very pleased to see the breakdown of procedures with roughly half being above and roughly half being below the knee, which is something that the other technologies really can't do so that's what's driving our estimation of the share gain there we still have plenty of room we.

Think in terms of getting to the share of the market. That's out there. We are of course, as we said much more heavily weighted in our product and OBL than hospitals, given the dynamics that we have been in the macro environment from when we launched the product. So we were heavier in the OBL started sees some some nice momentum in the hospitals I think youre going to see that.

A little bit challenged given the current environment just as they are dealing with with the omicron uptick over the last month or two and then maybe the next couple of months.

But we still think there's runway in terms of getting into new customers and that's going to go along with the plans that we have to continue to place lasers. You saw that we placed 35 this quarter and we placed 52 last quarter. We said, we probably weren't going to be at that pace that we saw some opportunities to get into some of those accounts earlier, but we want to continue to support those accounts and drive utilization and we will.

We continue to place new lasers as we as we go through our Q3 and Q4 as we continue to add those new customers and moving into market share that way. So we like the flexibility that this product has shown to really drive that market share through the first.

Eight months or so of our launch.

Okay.

Excellent.

So sort of your thoughts on how AUM across an endless.

Serge.

It could impact the.

<unk> commercial levels the full commercial release.

Got it.

Sure Matt We did mention I think Steve mentioned that we saw it a little softness in December in our <unk> cases.

Some of the procedures a little softer there so.

I don't think its going to affect Alfa vac much Matt because we're just launching it and if you look back on the information we've put out in our public guidance and in our Investor Day Remember. This first version of the 22 Fringe Alba is still limited and the DVT potential market that it serves so right now I don't think <unk> pushed now will affect that a whole lot like anything in may.

A little there are value analysis committees that may be postponed or canceled it may drag yourself getting approved was a little bit and it may hold back on some of the conversations that wed like to have with physicians, but over time, what will open up for us. The larger markets are later in this calendar year, when we launched the 18 French.

And then work towards our <unk> indication work and then launching another smaller device.

So sure it's going to affect that I don't know if its a whole lot right now because we have so much work on our plate independent of <unk>.

<unk>, yes.

More color to that I think Jim hit on the value analysis Committee value analysis committees, which I think is an important point. So we don't see <unk> as being something that's derailing to our plans for Alphatec as Jim mentioned, we've got a lot of activity going and we're very pleased with the feedback we're getting from our physicians and the results that they're getting when they are using <unk> in the <unk>.

<unk>.

You may see a little bit of an extended period.

That ramp because there might be some slight delays in those value analysis committees, given the hospital activity, but it's not the railing at all to our current plans we've been really pleased with the way the process has been moving.

All right excellent and then last question just give an update on the timeline.

The direct study where you got.

Thank you very much.

Sure.

So with direct this is clearly a challenging environment.

With hospitals, and how they're handling clinical trials and getting patients in there with that said on the registry side, which is the side that we've talked about.

We've been very pleased with the current environment with the pace that we've seen and so we're continuing to treat and enroll patients in that registry side. There is no doubt that it's a little bit challenged given the current environment in the hospital staffing challenges that Jim mentioned, which is what really is different this time versus maybe earlier on in the pandemic.

Getting the the hospital workers in the staffing challenges that hospitals have as they are trying to treat their patients.

But we're still pretty pretty pleased with the clip that we're seeing are patients being enrolled now that being said as we mentioned the RCT, we expect it to be more challenge that's absolutely been the case.

And I think thats, even been more of the case in the current environment with Covid. So we're continuing to focus on what we're seeing we can get through which is.

Enrolling patients in that registry side will continue to post you keep you updated on conversations as we address the fact that we always knew the RCT was going to be a bit harder.

Okay. Thank you.

Okay.

Thank you. Our next question is from the line of Jason Bedford with Raymond James. Please proceed with your questions.

Good morning, and happy New year, So I have a few questions here just on the backlog the $4 million.

What what is a normal backlog at quarter end I'm, just curious with $4 million mentioned as can.

It can be viewed as excess backlog beyond the.

The amount that you typically carry into the new quarter.

Hi, Jason This is Jim.

It is Jason.

We target.

A soft target of about half a day sales, which you go that would be if you look at our average run rate so call. It 6% to 700000 in that range across we think Thats, where we kind of a backwater with as many skus in a complex business. So Jason This is significantly higher that's why we wanted to call it out.

Because it is significantly higher than what we try to target for a workable run rate with our customers. So this built during the quarter and that's why we implemented those plans and I mentioned is really some of the reasons why it's mostly labor related and in some cases as I mentioned some of our material suppliers are having challenges getting us some of the materials.

But our operations quality and logistics teams are working through I gave one or two examples earlier, but they have many other planes are working on.

To bring this down by the end of our fiscal year, Yes, Jason Jim Jim is exactly right that typically we target that six to 700 backlog getting to the $4 million, we really saw that accelerate in November.

As Jim mentioned, we saw this quarter, a bigger impact for our employees being impacted by Covid. A great example of that is we had an entire line of products in our facility that we couldnt make for over a week in November because everybody that was on that line ended up coming down with Covid.

Tough scenario.

As mentioned through the beginning of this pandemic, we're doing everything we can to support the health and safety of our employees.

But that's a good example, and a good kind of anecdote of how some of these things can accelerate and hidden and Thats. What we saw in November which led to that increase in the backlog.

Okay.

You mentioned I think increasing capacity improving efficiency.

And adjustment to pricing and shipping is finished.

Initiatives to help the supply chain dynamic.

Unclear, what's the specific factor that allows these supply constraints to ease and that's $4 million to get shipped.

Good question, Jason I'll give you a few one is first the additional capacity that we're bringing online with our new Costa Rica partner just gives us more capacity gives us really access to more labor. So we can reassigned some of the labor in our internal operations that are making those processes to other things Thats number one number two we're talking about efficiencies increase efficiencies quote unquote.

That's a few that's a bucket to count a few things and one of those we decided to also to reduce skus. We have a lot of skus here and we reduced a bunch of Skus. When you do that makes our operations team.

<unk> a little easier so less changeovers every time, we build products are building less.

Less excuse so we build more of the same products hopefully now theres always a little customer disruption when that occurs but if streamlines our operations and Jason. We've also seen in some of our products in the device area. Some of the old angiographic catheters in areas. We've seen some of our competitors have severe back order problems and customers have turned to us they used to buy other companies.

Products and its almost led to this that's why we've had really strong demand.

Across our board not just from that it's a small piece, but a demand has stayed high so things like those Jason that we're doing internally to streamline our operations increased capacity to deal with this backorder.

In different ways again, some of the labor component, we hadn't seen it come to this level before and then again with the Covid effect and as Steve mentioned, we have many of our employees affected by it we have to follow the protocols internally, which led to.

A decrease of our ability to produce.

Okay.

In answering one of the earlier questions you talked about.

Your IBM asking you to kind of hold down on elective procedures.

How would you characterize your portfolio kind of.

Percentage of your portfolio, that's exposed to quote unquote elective procedures.

Yes.

The good news bad news with that Jason its a smaller percent. If you look at really as we're growing our med tech portfolio as you see it become a larger portion of our business, that's really strong and thats our future, but those are the ones. We are seeing that could be more effect that an example that Steve gave earlier was we saw softness.

In our <unk> business, a little bit in December we saw some physicians treat patients in different means and.

We're seeing that a little bit now as well so as far as our portfolio goes it's only a percentage of what we do you look at our vascular access business, we're treating patients still on a routine basis, who need access to getting medication in their bodies. So that hasnt really slowed if anything that may pick up in some cases and offset some of the other slowness. So it's a challenge.

Jason we have great Intel from our customers through our salespeople talk to them every day and our clinical teams that are in the field globally.

And we balance that and that's why we've also reiterated the revenue guidance. We gave today with a lot of thought on the pro and con that we're all facing these challenges, but the demand remains strong overall for our products.

Okay, and then a couple of Alpha about question.

The timing on the 18 French launch I think you said later this calendar year.

Still the right interpretation.

It is I guess, it's a little unfair being it's only January six to say later in the calendar here. So I'll tell you that it will be in the first half of this calendar year it would be fair okay.

Yes.

Okay, and then is there any way to kind of frame the scope of.

The LMR versus a full market release.

There's a couple ways Jason.

A couple of simple ways to frame. It is we only give access to a limited portion of our sales team, especially trained to kind of be an advanced team to get out in front of us because our initial goal isn't to sell as many as we can is to gain as much info as we can and to engage with our customers to get their feedback we want to confirm our assumptions on the product design and development of our <unk>.

Launch and training procedures. So that's what we did we only gave it to a limited piece of the sales force and they can only take it as a preapproved customers that we knew would give us the feedback that we're seeking so that process went very well we have enabled this process. Now. This is the fourth product we've launched at Angel dynamics in last couple of years with this process, we put in place and it worked very well and that gave us.

The confidence in early December to go to the full launch now so all of our sales reps now can engage with customers of their choice.

Okay. Thank you.

Thank you.

Next question comes from the line of Steve Lichtman with Oppenheimer. Please proceed with your questions.

Yes.

Hi, Good morning, this is actually David on for Steve.

I had a few questions.

Let's start off with the Covid impact on angio back in the quarter.

Been lots of headwinds sequentially with a pickup in growth.

Can you just talk about what youre seeing on the ground now as it relates to COVID-19 impacts on the NGL back.

Yeah, Hi, David Good morning, It's Jim as we said earlier, we're very close to our customers.

Unfortunately, this is kind of a grey area, where it falls into an elective procedure quote unquote. Unfortunately, it's not everybody looks at it that way, but it's definitely win.

The root cause is the staffing challenges in the health care centers I believe so when they have such stress on their systems. They have.

Large swaths of nurses being out with COVID-19 in their own hospitals, putting pressure on the ICU beds and their capacity to serve their patients in the ICU. So when you do that it kind of backtracked backwards to procedures because they don't want to do a procedure that may have a patient that go to an ICU. That's under challenge. So we're in that kind of care.

Continuum piece, where we watch that very closely so when a doctor can say, what I would love to do an <unk> on this patient, but I could treat it with the lytic, maybe a little longer and watch it.

You free up that's kind of the effects was really really hard to measure that exactly but I'm trying to give you a real world situations as to what's happening. So we're very engaged with our customers.

And we're also working as a partner with them.

But during this process.

To be at their side, when they're ready for us David and a little extra color on that one so as you mentioned sequentially from Q1, we definitely saw an uptick in terms of the market demand for <unk> you will recall in our Q1, we said that there was some softness that we saw in the summer, but we saw procedure volumes pick up in September.

We definitely saw that through most of our Q2, where kind of highlighting again today, we're seeing a little bit of that softness in December and as Jim mentioned, a lot of what's what's driving this in our estimation is that.

Those hospital staffing pressures and so when you've got the ICU nurses as you know <unk> is a very complicated procedure you, bringing in perfusion is you have a number of different specialties that are working through that and so when there is these acute hits of staffing pressures because the health care providers are sick, we start to see some of those blips, but then they tend to reverse as you look.

At our at our cadence that we saw a little bit of softness in the summer we expected that to pick up. It did we saw that we're not seeing a little softness in December we expect that to pick up through the rest of our fiscal year kind of in a very similar fashion.

Okay, Great that's helpful and then.

Just moving on the Oregon are you able to talk about how many reps you ended the quarter with.

And what are your expectations in terms of.

Your year end target.

Yes, so we talked about before having about 40 based field based salespeople.

Salespeople, including our territory managers regional managers.

Where we ended the second quarter to support that we also have.

Clinical specialists and per Dms. Another 30 field based reps that are supporting the field based people that are supporting our reps too. So all in all we've got about 74 field based employees.

Employees today.

That will probably be a little bit more as we get into back half of the year, but I think we've done a good job preparing that team for the growth that we're expecting for this year David as Jim a question was asked earlier I think bill asked as well about that already on.

And how we'll grow it again, we'll grow it as we've shown you by increased demand and increased interest in our product that people want us to place lasers. That's one way, we will grow but really number two we're watching we measure every every time, we place a laser we are measuring how many procedures. They do on a monthly basis. We are watching that go up as people get confidence when they see the outcomes of what our product does.

<unk>, so we see a lot of upside potential in the current base of lasers, we have as our clients get more and more confidence in product develop great outcomes. So we're going to see demand come in again from new laser placements and also more use in current laser so and we'll make sure we have the field people to support that growth.

Got it and just last.

One for me are you expecting the relief.

On your registry data on near term.

Thanks.

And we've started to see publications come out from Pathfinder, you've already seen a handful of those over the last few Trey.

Tradeshows and expect to see a few more coming so yes. The data is coming out of Pathfinder as we speak and we expect it to continue.

Okay. Thanks.

Okay.

Thank you.

I would like to turn the call back over to Mr. Clemmer for any closing remarks, Mr. Clemmer.

Thanks, Rob and thanks for joining us on our call today again Andrew.

<unk> dynamics as a company in transformation to becoming a high growth innovation driven Med Tech company.

What we deliver today is really solid results you can see the revenue growth that we exhibited that's really driven by the demands of our customers.

Demand of our customers are having our products and the interest they have in our technologies. So we're working through these difficult headwinds and challenges like other companies are and I. Once again, thank our people for their resilience and their commitment to our business. Thanks again for joining us today to talk to you soon.

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

[music].

Good morning, and welcome to the MTO dynamics fiscal year 2022 second quarter earnings call.

At this time all participants are in a listen only mode.

Question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero from your telephone keypad.

A reminder, this conference call is being recorded.

The news release detailing the fiscal 2022 second quarter results crossed the wire earlier. This morning and is available on the Companys website. This.

This conference call is also being broadcast live over the Internet at the investors section of the company's website at Www Dot Angio dynamics Dot com and the webcast replay of this call will be available at the same site approximately one hour after the end of today's call.

Before we begin I would like to caution listeners that during the course of this conference call. The company will make projections or forward looking statements regarding future events.

Shipments about expected revenue adjusted earnings and gross margins for the fiscal year 2022, 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.

He will also discuss certain non-GAAP financial measures during this call.

It uses these measures to establish operational goals and review operational performance and believes that these measures may assist investors in analyzing the underlying trends of 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, and Youre, Dynamics', President and Chief Executive Officer, Mr. Clemmer.

Thank you Rob.

Good morning, everyone and thank you for joining us for <unk> dynamics fiscal 2022 second quarter earnings call.

And our revised FY 'twenty two guidance.

And other macro related headwinds.

These results are a direct reflection of our team's commitment to and our execution of our long term strategic plan to transform Andrew dynamics into a high growth Med Tech company.

We ended the quarter with revenue of $78 3 million representing growth of seven 6% year over year.

Net sales from our Med Tech business, which as a reminder includes argon nano knife and our thrombectomy platform.

Were $18 9 million.

A 36% increase over the previous year.

Our med device business, which includes the remainder of our portfolio grew approximately 1% year over year, despite a $4 million backlog.

The ongoing disruptions from the Covid pandemic, and resulting supply chain headwinds led to this backlog.

And naturally also had an impact on gross margin and earnings during the second quarter.

We ended the quarter with adjusted EPS of negative <unk> and gross margin of 51, 8%.

Before I go into the more specific results across our businesses I'd like to talk through the current macro environment, the resulting disruptions and how we are addressing those in a little more detail.

As we have discussed during previous quarters, we have been impacted by and we are working through supply chain disruptions stemming from COVID-19.

Specifically, we have discussed the tight labor market, increasing labor costs raw material inflation and escalating freight costs.

Like many other businesses, we are filling the supply chain impacts.

Two of our main challenges our staffing from our internal manufacturing and operations teams.

And increasing levels of production disruption caused by our employees being exposed to COVID-19.

We are also facing similar dynamics with some of our supply partners, who are struggling to service our needs due to similar factors within their production environments.

These factors contributed to a more difficult environment in our second quarter, which accelerated in November.

In order to address this disruption we are focused on increasing manufacturing capacity.

Improving efficiencies and making adjustments to pricing and shipping terms.

All of us have been dealing with the ever changing impacts of Covid for nearly two years, but.

But we have managed through well and will continue to drive our business with the same disciplined approach, while continuing to appropriately prioritize the investments intended to support the long term growth of our business.

Earlier this year as we saw these macro pressures building, we began to identify and implement solutions to address them.

In the second quarter, we initiated a plan to increase manufacturing capacity through our partner in Costa Rica.

We are pleased with the pace of this project and we will keep you updated on progress of this initiative and others during subsequent quarters.

To be clear, we're not moving all of our manufacturing offshore and have no plans to close our existing facilities.

We are qualifying additional manufacturing capacity to not only address the short term supply chain disruption.

But also to enhance our ability to supply our customers as we grow our business over the medium and long term in accordance with our strategic plan.

In addition to increasing capacity in Costa Rica, we have continued to actively pursue programs to improve our supply chain.

These initiatives include SKU rationalization, and other targeted projects to increase capacity and efficiency in our manufacturing process.

As we discussed last quarter, we have recently implemented targeted revisions to our pricing and shipping terms in response to the increased cost of doing business.

While the increases in operating costs have affected our business in <unk>.

And we have taken actions to address these.

Excuse me access to address these challenges to minimize any potential long term effects.

The majority of the supply chain challenges and cost increases.

Our med device portfolio.

And have a lesser impact on our med tech portfolio as.

As the investment and design processes for our med tech products integrated robust supply chain planning.

We are continuing to pursue our strategic plan, including funding our core transformational investments as we know they are vital to driving our growth and the value of our company over the long term.

Now turning back to our detailed results for the second quarter.

Our <unk> business saw continued sequential growth during the second quarter with revenue of $6 $3 million up from $5 9 million in the first quarter of FY 'twenty two despite increased pressure on procedure volumes stemming from Covid and hospital staffing challenges.

At the end of the second quarter <unk> had been used in over 13000 procedures and.

And we estimate that Oregon now represents about 5% share of this market.

As we've mentioned on previous calls already on procedures have been fairly divided between above and below the knee.

We think this demonstrates both the versatility of our technology and.

And the unique breadth of our addressable market and.

And opportunities for continued growth.

We continue to expect <unk> to generate robust revenue growth for the balance of FY 'twenty two.

And we believe we've appropriately considered the current headwinds as part of our revenue guidance.

As a result, we are reiterating a revenue range of $24 million to $26 million for Oregon for fiscal 2022.

We continued to see strong year over year growth within our thrombectomy portfolio, which generated approximately 21% revenue growth over the second quarter of FY 'twenty one despite the.

The challenging environment.

This included 29% year over year growth.

From our mechanical thrombectomy portfolio, comprising <unk> and alpha back.

We are also pleased that we recently completed a limited market release of our Alpha Vac mechanical thrombectomy system.

While it has only been a few weeks we have received excellent feedback from physicians and are very pleased with the pace of the launch.

As a reminder.

<unk> expands our thrombectomy opportunity.

By addressing a much larger segment of the DBT venous thromboembolism market.

As we've discussed the DVT segment of this market represents an approximately $1 $5 billion market opportunity.

While the initial alpha backed product of.

22, French cannula device increases our addressable market.

Only unlocks a portion of this $1 $5 billion opportunity.

We plan to unlock full access to the DVT <unk> market through.

Through the upcoming launches of our 2018, French device and subsequent smaller French Alpha Vac devices as we've described in our Investor Technology day presentation.

In addition, we plan to use the 18 French device for a pulmonary embolism IV study that upon clearance will provide us access to an additional $1 $5 billion market.

We have filed the application for this IV study and are in discussions with the FDA to support approval.

Nano knife probe sales for the second quarter increased 9% year over year.

Year to date nano knife probe sales have increased by 20%.

We're pleased with our sales of Manulife robes. Despite the increased COVID-19 related challenges, we faced during the second quarter.

One dynamic we've seen as a result of these challenges is an increase in case cancellations for pancreatic procedures due to disease progression.

In certain instances, we've noticed that treatment delays throughout the pandemic have led to disease progression in many patients.

Some physicians have reported that when they finally try to perform a nano like procedure following our staffing or COVID-19 related delay they often discover metastases in the operating room and cancel the ablation.

Which is a very difficult situation for patients their families and the physicians.

Nano knife capital sales were down year over year against a difficult comp in the second quarter of FY 'twenty one following the trend of general quarter to quarter variability in capital placements.

We remain excited and committed to investing in our nano life platform.

As we continue to make progress with our clinical studies, which will support our planned expansion into new indications such as prostate.

And we also look forward to exploring new geographic opportunities as the O U S environment improves.

Our med device business grew approximately 1% in the second quarter, which was in line with the long term trajectory of the business that we laid out for you at our Investor Technology day.

Our medical device performance was impacted by the challenging supply chain environment in Q2 that resulted in the backlog that I discussed earlier.

Turning to internal R&D during the quarter, we continued to invest in our key strategic priorities.

Which are first to support our existing platforms to facilitate physician adoption and improve patient outcomes.

And second.

To continue the development of new products in order to expand into larger faster growing addressable markets.

These investment initiatives include clinical research.

Product development, and selling and marketing as.

As we prepare to introduce these new products into the market.

We also continue to look for opportunities externally and strategic tuck in M&A remains a component of our long term growth strategy.

We regularly monitor the landscape for the right opportunities, while also maintaining a disciplined approach to capital allocation and cost management as we do so.

Turning to our clinical programs. We currently have 22 active sites and our direct study and.

And are encouraged by the overall execution of the study.

We also note that the U S. Direct study spawned interest in initiating similar research and other countries.

For example, the multicenter direct inspire study in Australia recently enrolled its first patient.

I'd like to take a moment to discuss the progress regarding our prostate initiative for the nano knife system.

The nano life's unique mechanism of action enables it to be used as a focal option for physicians and patients seeking alternatives to radical prostatectomy.

Current focal treatment options have been limited in their ability to grow to no more than 5% of the addressable market.

We believe the nanometer system has the potential to grow the focal treatment market do.

Due to its ease of use and unique mechanisms mechanism of action to serve as a more favorable treatment for patients and physicians alike.

In order to prove this belief we have partnered with the society of Urologic oncology to launch the preserve study.

The preserved study is designed to assess local cancer control in patients with intermediate risk disease with a secondary endpoint measuring quality of life outcomes.

This study will be led by our principal investigators Dr. Jonathan Coleman from Memorial Sloan Kettering and Dr. Arvind George from the University of Michigan.

We will keep you up to date on this important study.

And we expect to begin patient enrollment in Q3.

We believe that the preserve study can provide valuable evidence proving the nano knife system as a focal treatment option and expand the potential target market to greater than $500 million.

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.

Thanks, Jim.

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.

Med Tech revenue was $18 9 million or 36, 4% year over year increase while med device revenue was $59 4 million growing approximately 1% over the second quarter of fiscal year 'twenty one.

For the first six months of the year Med Tech grew 50%.

Med device was flat compared to the prior year period.

Grew roughly 5% year over year, when excluding last year's NHS order.

Year to date through the end of the second quarter, our Med Tech platform comprised 24% of our total revenue compared to 17% at this time last year.

Revenue in our Endovascular therapies business increased 17% year over year to $39 7 million benefiting from the continued adoption of Oregon, and our thrombectomy portfolio.

<unk> contributed $6 $3 million in revenue during the second quarter, continuing the momentum that we've been building since last year's launch.

And we did see some impact from the ongoing COVID-19 pandemic on already on hospital procedure volume during the quarter. Despite this.

Challenging market environment, we continue to place new lasers during the quarter and as of today. Our installed base is 242 lasers with 35 lasers placed during the second quarter.

We view <unk> as a key growth driver going forward and we continued to invest in the platform building out our commercial infrastructure and generating clinical evidence to drive further adoption.

As Jim stated earlier, we continue to expect <unk> to generate revenue in the range of $24 million to $26 million for the year.

Mechanical thrombectomy revenue, which includes <unk> and alphabet LMR sales grew 29% over the second quarter of FY 'twenty, one as related procedure volumes improved sequentially with robust demand for the platform.

When including unit views Thrombectomy revenue grew 21% year over year.

While in the current environment, we have seen some softening in procedure volumes in the month of December we're very excited about thrombectomy is a key growth platform.

In addition sales of microwave remain challenged declining 3%.

Nano nice disposable revenue increased 9% driven by increased awareness from our direct study and a growing installed base.

Year to date nano night disposable sales are up 20%.

Moving down the income statement, our gross margin for the second quarter of fiscal year 'twenty. Two was 61, 8% a decrease of 340 basis points compared to a year ago.

Accelerating increases in labor and manufacturing costs continued to negatively impact our gross margin, resulting in an approximately 170 basis point headwind versus the prior year.

Inflationary pressures on raw material prices resulted in an approximately 60 basis point negative impact to gross margin and higher freight costs had an approximately 10 basis point impact versus the prior year.

As we anticipated at the beginning of the year are you on an alpha <unk> startup costs accounted for approximately 100 basis points impact versus the prior year.

We expect these dynamics to continue to pressure our margins near term.

Given these ongoing headwinds we now expect fiscal year 'twenty two gross margin to be in the range of 52% to 54% a decrease from our prior guidance of approximately 55%.

Our operations team remains focused on driving labor and service efficiencies and seeking material pricing opportunities.

We've also implemented modifications to our pricing and shipping terms in an effort to offset some of these ongoing headwinds.

We will continue to monitor the dynamic environment closely and provide updates.

Our research and development expense during the second quarter of fiscal year 'twenty, two was $8 2 million or 10% of sales compared to $9 7 million or 13% of sales a year ago.

We continue our disciplined investment in R&D focused on driving our key technology platforms, including the clinical spend for Alphatec P/e and then on prostate.

For fiscal year 'twenty, two we continue to anticipate R&D spend to target, 10% to 13% of sales.

SG&A expense for the second quarter of fiscal 2002 was $33 3 million, representing 43% of sales compared to $29 4 million, representing 40% of sales a year ago.

The increase in SG&A year over year reflects the strategic investments, we discussed during our Investor technology day, including head count investments in areas such as Oregon.

We continue to anticipate fiscal year, 'twenty, two SG&A spending to approximate 40% to 45% of revenue.

The COVID-19 related headwinds with respect to gross margin that I previously discussed equated to approximately a <unk> <unk> impact on second quarter results.

Adjusted EBITDA in the second quarter of fiscal year 'twenty, two was $4 4 million compared to $5 2 million in the second quarter of fiscal 'twenty one.

In the second quarter of fiscal 'twenty, two we generated $1 9 million in operating cash had capital expenditures of $1 1 million and additions to Ari on placement and evaluation units of $2 7 million.

As of November 32021, we had $34 3 million in cash and cash equivalents compared to $35 5 million in cash and cash equivalents on August 31 2021.

Our debt outstanding remained consistent at $25 million.

Now, we do expect to see a higher than normal cash utilization during the third quarter as a result of both the backlog and funding the initiatives that Jim and I have discussed today.

Turning now to guidance, we continue to anticipate that fiscal year 'twenty two net sales will be in the range of $310 million to $315 million.

We now expect that full year adjusted earnings per share will be in the range of a loss of <unk> to a gain of <unk> <unk> compared to our prior guidance of zero to <unk> as.

As we continue to invest in driving sustainable growth in our key med Tech platforms. While also managing to continued headwinds that we discussed today.

We plan to manage through these headwinds in a consistent fashion.

Through two quarters of our fiscal 'twenty, two we're pleased with our progression along our strategic transformation.

We continue to balanced prioritizing top line growth with managing profitability, delivering eight 6% growth year to date and continuing to make investments that support our future growth initiatives.

With that I'll turn it back to Jim.

Thanks, Steve This is an incredibly exciting time at an geodynamics. Despite all of the challenges in today's operating environment. We are dedicated to transforming Andrew dynamics into an innovative medical technology company with solutions that address some of the most dynamic opportunities in healthcare.

We can improve patient outcomes and drive highest physician satisfaction.

Our second quarter results are evidence of our progress towards that goal and we plan to continue to deliver on our strategic plan initiatives in the coming quarters.

I want to thank everyone here at Amgen dynamics for their dedication and commitment to serving our customers. During these challenging times our employees face the same challenges that the world faces with Covid.

Any of them have family members, who have contracted COVID-19 and they work through this with a commitment to our customers and supporting their work to help patients in need.

With that I'd like to turn the call back to you Rob for questions.

Thank you.

Inducting a question and answer session, if you'd like to ask a question today. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.

You May press star two if he would like to move for your question from the queue.

Participants are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

Thank you and our first question today comes from the line of Bill <unk> with Canaccord. Please proceed with your question.

Great. Thanks, Good morning can you hear me okay.

Good morning.

Hey, good morning so.

First question is yes.

The current wave of Covid is feels like it's very different from anything else and you have the dubious honor of being the first company to really presents some numbers.

You may be your last quarter didn't really get hit as much by omicron, but as we sit here in the middle as.

As we're getting into January and this is hitting into full swing might be helpful. If you could maybe compare and contrast, how this wave of COVID-19 is different versus the prior and impact on your business and then debt.

<unk> seen thus far and then secondly, you talked about the $4 million backlog.

Is that any specific product line and what product lines. What is did that relate to and then have you fulfilled and ship those products. Thank you.

Great. Thanks for the questions builds Jim a couple of things build back the omicron very annoyed ovarian we're all facing now we've seen increased activity, obviously with the variant I'll talk externally and then internally externally our customers are under increasing pressure similar to what it was like early on.

So consequently.

A lot of the large healthcare delivery networks are asking us again, and probably other companies to stand down a little bit slowdown as some cases.

I am canceling elective procedures are occurring even this week, we got worse from a couple of large delivery networks that theyre going to put a hold on elective quarter grow procedures, which was done as you know last year. So we're watching this very closely as you know our people are very close to our customers. We are watching it globally as well our teams around the globe, we're finding similar spots now.

To the internal side as you saw earlier on back to your question on the backlog in the back order.

That's effective this year I mentioned earlier the pieces were dealing with are number one first of all recruiting employees to come to work to fill open jobs, we have in our operations quality and logistics teams that's been a challenge for us and as you know many other companies in during this environment and number two also dealing with the disruption when our employees are exposed to.

<unk>, giving them the space they need to clear and recover from any COVID-19 effects that impacted our operations that are playing our plans to make.

<unk> products. So bill you asked about one product over another.

Identified in the call earlier, Bill, it's mostly affected our device products less on the med Tech products. We have we've done different levels of the supply chain planning as we launched those new tech products that have kept us little more immune to these.

So I'll go back to the device products.

Worth affect us more and built the move that we announced this morning, moving some operations to Costa Rica that takes some pressure off our internal capabilities. It will free up new opportunities for us to reassign people within our operations teams. When we have the Costa Rica operation up and running and that was planned for a long time ago, our operations team we.

But I don't think were going to call out any one category or the other the other bill there's a little bit of pressure in each of the categories and device and bill just to follow up on the last piece you'd asked about that $4 million backlog. It hasn't cleared so it was $4 million at the end of our second quarter.

Actually gotten a little higher.

It's increased a little bit through December as we're implementing and finalizing the moves that Jim talked about.

We expect it to.

Plateau this quarter, and then start to get better through through the year as we continue to also focus the.

Consistent kind of run rate demand that we're seeing.

And then if I could just as we think about the impact of <unk> in the quarter and you've reiterated the revenue guidance of $3 10 to $3 15, but should we think that this can have a pretty significant impact on the February ended quarter and maybe we will see.

I think historically you are down.

Maybe 1% to two percentage points sequentially at least last fiscal year, I mean could we see a more pronounced effect. This year given the omicron as we think about just the February quarter.

Yes, it's a good question Bill it's something that we're obviously focused on we're very.

Keenly keeping an eye on.

I think the seasonality that you mentioned is fair and we expect to see continue to see that same pattern.

Really the issue that we're seeing most is not as much as on the demand side that Jim announced that Jim was discussing more on our ability to kind of clear the backlog and get the labor into our plant. So as we continue to execute and finalize these plans, we do expect that our third quarter, maybe a little bit choppy.

I don't think it's going to be.

Tremendously different than some of the seasonality that you had mentioned before when you think about sequential quarter over quarter. That's what we're seeing now that thats kind of our expectation as we move through this there's no doubt it will be a little bit choppy as we're seeing some of those omicron effects.

But as we're working through this and finalizing and then getting into the running and running up those plans and start to see that recovery come out as you head into the end of our Q3 and into Q4.

Thank you.

Okay.

Our next question is from the line of Matthew Mission with Keybanc. Please proceed with your question Hi.

Hey, good morning, guys.

I guess on Oreo.

You mentioned that you were 5% sure at this point.

I'm just trying to understand like what.

Your installed base.

What percentage of penetration of the.

The office based labs or.

The hospital systems that are actually performing these procedures are out are you have you are you at more than 5% penetration of the <unk>.

People the majority of people that have or are performing these procedures or do you still have a lot of room to go as far as placements scale.

Hey, Matt.

In terms of getting to the share of the market. That's out there. We are of course, as we said much more heavily weighted in our product and OBL than hospitals, given the dynamics that would have been in the macro environment from when we launched the product. So we are heavier in the OBL started sees some some nice momentum in the hospitals I think youre going to see that.

Little bit challenge given the current environment, just as they're dealing with with the omicron uptick over the last month or two and then maybe the next couple of months.

But we still think there's runway in terms of getting into new customers and thats going to go along with the plans that we have to continue to place lasers. You saw that we placed 35 this quarter and we placed 52 last quarter. We said, we probably weren't going to be at that pace that we saw some opportunities to get into some of those accounts earlier, but we want to continue to support those accounts and drive utilization.

And we will continue to place new lasers as we as we go through our Q3 and Q4 as we continue to add those new customers and moving into market share that way. So we like the flexibility that this product has shown to really drive that market share through the first.

Eight months or so of our launch.

Thank you.

Excellent.

Go back just your thoughts on how omicron.

It's Serge.

It could impact.

<unk> commercial levels the full commercial release.

Bonds.

Sure Matt We did mentioned I think Steve mentioned that we saw it a little softness in December in our Ames U a VAT cases.

Some of the procedures a little softer there so.

I don't think its going to affect <unk> much Matt because we're just launching it and if you look back on the information we put out in our public guidance and in our Investor Day Remember. This first version that 'twenty two fringe Alban back is still limited and the DVT potential market that it serves so right now I don't think Youll macrame pushed now will affect that a whole lot like anything in may.

Backed a little there are value analysis committees that may be postponed or canceled it may drag yourself getting approved was a little bit and it may hold back on some of the conversations that wed like to have with physicians, but over time, what will open up for us. The larger markets are later in this calendar year, when we launched the 18 French.

And then work towards our PE indication work and then launching another smaller device.

So sure it's going to affect that I don't know if its a whole lot right now because we have so much work on our plate independent of the AUM of <unk>, Yes, and just to add a little.

That will come out of that I think Jim hit on the value analysis Committee value analysis committees, which I think is an important point. So we don't see <unk> as being something that's derailing to our plans for alphabet as Jim mentioned, we've got a lot of activity going and we're very pleased with the feedback we're getting from our physicians and the results that they're getting when they are using <unk> in the <unk>.

<unk>.

You may see a little bit of an extended period of that ramp because there might be some slight delays in those value analysis committees, given the hospital activity, but it's not the railing at all to our current plans we've been really pleased with the way the process has been moving.

All right excellent and then last question.

I'll give an update on the timeline.

The direct study.

Got it.

Thank you very much.

Sure.

So with direct.

There is clearly a challenging environment.

With hospitals, and how they're handling clinical trials and getting patients in there with that said on the registry side, which has decided that we've talked about.

<unk> been very pleased with the current environment with the pace that we've seen and so we're continuing to treat and enroll patients in that registry side. There is no doubt that it is a little bit challenged given the current environment in the hospital staffing challenges that Jim mentioned, which is what really is different this time versus maybe earlier on in the pandemic hit.

The the hospital workers in the second challenges that hospitals have and theyre trying to treat their patients.

And I think thats, even been more of the case in the current environment with Covid. So we're continuing to focus on what we're seeing we can get through which is.

Enrolling patients in that registry side, we will continue to post you keep you updated on conversations as we address the fact that we always knew the RCT was going to be a bit harder.

Okay. Thank you.

Okay.

Thank you. Our next question is from the line of Jason Bedford with Raymond James. Please proceed with your questions.

Good morning, and happy New year, So I have a few questions here just on the backlog the $4 million.

What is a normal backlog at quarter end I'm, just curious with $4 million mentioned as can.

It can be viewed as excess backlog beyond the.

The amount that you typically carry into new quarter.

Hi, Jason This is Jim it is Jason.

We target.

A soft target of about half a day sales, which a year ago that would be if you look at our average run rates. So call. It 6% to 700000 in that range across we think Thats, where we kind of a backwater with as many skus in a complex business. So Jason This is significantly higher that's why we wanted to call it out.

Because it is significantly higher than what we try to target for a workable run rate with our customers. So this built during the quarter and that's why we implemented those plans and I mentioned that really some of the reasons why it's mostly labor related and in some cases as I mentioned some of our material suppliers are having challenges getting us some of the materials.

But our operations quality and logistics teams are working through I gave one or two examples earlier, but they have many other planes are working on.

To bring this down by the end of our fiscal year, Yes, Jason Jim Jim is exactly right that typically we target that 6% to 700 backlog getting to the $4 million, we really saw that accelerate in November.

As Jim mentioned, we saw this quarter, a bigger impact for our employees being impacted by Covid. The Great example of that is we had an entire line of products.

Our facility that we couldnt make for over a week in November because everybody that was on that line ended up coming down with Covid.

Tough tough scenario.

Jim had mentioned through the beginning of this pandemic, we're doing everything we can to support the health and safety of our employees.

That's a good example, and a good kind of anecdote of how some of these things can accelerate and hit and that's what we saw in November which led to that increase in the backlog.

Okay.

You mentioned I think increasing capacity improving efficiency.

And the adjustment to pricing and shipping is.

Initiatives to help the supply chain dynamic.

A little unclear, what's the specific factor that allows the supply constraints to ease and that's $4 million to get shipped.

Good question, Jason I'll give you a few one is first the additional capacity that we're bringing online with our new Costa Rica partner just gives us more capacity gives us really access to more labor. So we can reassigned some of the labor in our internal operations that are making those processes to other things. That's number one number two we're talking about efficiencies increased efficiencies quote unquote.

That's a few that's a bucket to count a few things and one of those and we've decided to also reduce skus. We have a lot of skus here and we reduced a bunch of Skus. When you do that makes our operations team complexity, a little easier. So less changeovers every time, we build products are building less less excuse so.

More of the same products hopefully now theres always a little customer disruption when that occurs but a streamlined our operations and Jason. We've also seen in some of our products in the device area. Some of the old angiographic catheters in areas. We've seen some of our competitors have severe back order problems and customers have turned to us they used to buy other companies products that's almost <unk>.

So this is why we've had really strong demand.

Across our board not just from that it's a small piece, but the demand has stayed high so things like those Jason that we're doing internally to streamline our operations increased capacity to deal with this backorder.

A decrease of our ability to produce.

Okay.

In answering one of the earlier questions you talked about.

Your IBM asking you to kind of hold down on elective procedures.

How would you characterize your portfolio.

The percentage of your portfolio, that's exposed to quote unquote elective procedures.

Yes.

The good news bad news with that Jason It is a smaller percent. If you look at really as we're growing our med tech portfolio as you see it become a larger portion of our business, that's really strong and thats our future, but those are the ones. We're seeing that could be more effect that an example that Steve gave earlier was we saw softness.

In our <unk> business, a little bit in December we saw some physicians treat patients in different means and.

We're seeing that a little bit now as well so as far as our portfolio goes it's only a percentage of what we do you look at our vascular access business, we're treating patients still on a routine basis, who need access to getting medications on their bodies. So that hasn't really slowed if anything that may pick up in some cases and offset some of the other slowness. So it's a challenge.

Jason we have great Intel from our customers through our salespeople that talk to them every day and our clinical teams that are in the field globally.

Okay, and then a couple of Alpha about question with.

The timing on the 18 French launch I think you said later this calendar year.

It still is the right interpretation.

It is I guess, there is a little unfair because it's only January 6th to say later in the calendar here. So I'll tell you that it will be in the first half of this calendar year it would be fair okay.

Yes.

Okay, and then is there any way to kind of frame the scope of.

The LMR versus a full market release.

There's a couple of ways Jason.

Launch and training procedures. So that's what we did we only gave it to a limited piece of the sales force and they can only take it as a preapproved customers that we knew would give us the feedback that we are seeking so that process went very well. We've enabled this process. Now. This is the fourth product we've launched at Angio dynamics in the last couple of years with this process, we put in place and it worked very well and that gave us.

The confidence in early December to go to the full launch now so all of our sales reps now can engage with customers of their choice.

Okay. Thank you.

Thank you.

Next question comes from the line of Steve Lichtman with Oppenheimer. Please proceed with your questions.

Hi, Good morning, this is actually David I'll Steve.

I had a few questions.

Let's start off with the Covid impact on.

<unk> in the quarter.

Been less of headwind sequentially with a pickup in growth.

Can you just talk about what youre seeing on the ground now as it relates to Covid impact on the NGL back.

Yeah, Hi, David Good morning, It's Jim as we said earlier, we're very close to our customers.

Unfortunately, this is kind of a grey area, where it falls into an elective procedure quote unquote. Unfortunately, its not not everybody looks at it that way, but it's definitely win.

The root cause is the staffing challenges in the health care centers I believe so when they have such stress on their systems. They have.

Piece, where we watch that very closely so when a doctor can say, while I would love to do an <unk> on this patient, but I could treat them with the lytic, maybe a little longer and watch it my ICU free up that's kind of the effect. So it's really really hard to measure that exactly but I'm trying to give you a real world situations as to what's happening. So we're very engaged with our customers.

And we're also working as a partner with them.

But during this process.

It could be at their side, when they're ready for us David and a little extra color on that one so as you.

<unk> sequentially from Q1, we definitely saw an uptick in terms of the market demand for <unk>, you'll recall in our Q1, we said that there was some softness that we saw in the summer, but we saw procedure volumes pick up in September we definitely saw that through most of our Q2, where kind of highlighting again today, we're seeing a little bit of that softness in December.

And as Jim mentioned, a lot of what's what's driving this.

Our estimation is that.

Those hospital staffing pressures and so when you've got the ICU nurses as you know <unk> is a very complicated procedure you, bringing in profusion is you have a number of different specialties that are working through that and so when there's these acute hits of staffing pressures because the health care providers are sick, we start to see some of those blips, but then they tend to reverse as you.

Look at our at our cadence that we saw a little bit of softness in the summer we expected that to pick up. It did we saw that we're not seeing a little softness in December we expect that to pick up through the rest of our fiscal year kind of in a very similar fashion.

Okay, Great that's helpful.

And then moving on the Oregon are you able to talk about how many reps you ended the quarter with and what are your expectations in terms of.

Your year end target.

Yes, so we talked about before having about 40 based field based salespeople, including our territory managers regional managers.

Kind of where we ended the second quarter to support that we also have.

Clinical specialists and per Dms. Another 30 field based reps that are supporting the field based people that are supporting our reps too. So all in all we've got about 74 field based employees.

Employees today.

That will probably be a little bit more as we get into back half of the year, but but I think we've done a good job preparing that team for the growth that we're expecting for this year David as Jim. My question was asked earlier I think bill asked as well about that.

And how we'll grow it again, we'll grow it as we've shown you by increased demand and increased interest in our product that people want us to place lasers. That's one way, we will grow but really number two we're watching we measure every every time, we place a laser re measuring how many procedures. They do on a monthly basis. We are watching that go up as people get confidence when they see the outcomes of what our product does.

<unk>, so we see a lot of upside potential in the current base of lasers, we have as our clients get more and more confidence in our product developed great outcomes. So we're going to see demand come in again from new laser placements and also more use in current laser so and we'll make sure we have the field people to support that growth.

Got it and just last one for me are you expecting the relief on your registry data on near term.

Thanks.

We've started to see publications come out from Pathfinder, you've already seen a handful of those over the last few trade.

Tradeshows and expect to see a few more coming so yes. The data is coming out of Pathfinder as we speak and we expect it to continue.

Okay. Thanks.

Thank you I would now like to turn the call back over to Mr. Clemmer for any closing remarks, Mr. Clemmer.

Thanks, Rob and thanks for joining us on our call today again Andrew.

<unk> dynamics as a company in transformation to becoming a high growth innovation driven Med Tech company.

What we deliver today is really solid results you can see the revenue growth that we exhibited that's really driven by the demand of our customers.

Demand that our customers are having our products and the interest they have in our technologies. So we're working through these difficult headwinds and challenges like other companies are I don't want again, thank our people for their resilience and their commitment to our business. Thanks again for joining us today to talk to you soon.

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

Q2 2022 AngioDynamics Inc Earnings Call

Request a DemoDemo

ANGO

AngioDynamics

Earnings