Q3 2022 AngioDynamics Inc Earnings Call
Okay.
Good morning, and welcome to the Angio dynamics fiscal year 2022 third quarter earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
The news release detailing the fiscal 2022 third quarter results crossed the wire earlier. This morning and is available on the Companys website. This conference call is also being broadcast live over the Internet at the investors section of the company's website at Www Dot and Urodynamics Dot com and the webcast replay of the call.
It'll be available at the same site approximately one hour after the end of today's call.
Before we begin I'd 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 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 actual results 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.
Review operational performance and believes that these measures may assist investors in analyzing the underlying trends in the company's business overtime.
Investors should consider these non-GAAP measures in addition to not as a substitute for or 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 operations results and financial performance. During this morning's conference call.
I'd now like to turn the call over to Jim Clemmer, and your dynamics, President and Chief Executive Officer, Mr. Clemmer.
Thank you Melissa and good morning, everyone and thank you for joining us for Andrew dynamics fiscal 'twenty, two third quarter earnings call.
Joining me on today's call are Steve Trowbridge, Andrew dynamics, Executive Vice President and Chief Financial Officer, who will provide a detailed analysis of our third quarter financial performance and our reaffirmed FY 'twenty two guidance.
Our third quarter saw continued excellent progress in our transformation into a high growth innovation driven Med Tech company.
We are reporting another quarter of solid revenue growth despite significant headwinds related to the COVID-19, global pandemic and the omicron variant Spike which were particularly pronounced in December and January during our quarter ended February 28.
We credit our team's resiliency and focus on driving our transformation to a higher growth med tech platforms, including Oregon, nano knife and thrombectomy.
We ended the quarter with revenue of $74 million representing growth of about 4% year over year.
Net sales from our med tech platforms were $19 $6 million representing growth of about 29% over the previous year.
Through Q3, our med Tech business grew about 42% year over year and year to date comprise approximately 24% of our overall revenue base up from 18% in the prior year period.
During our Q3, our med Tech revenue was 27% of our total revenue and as we've highlighted as part of our corporate strategy, we expect that ratio will grow over time.
Our ARIA Atherectomy business continued its impressive performance with revenue of $7 $3 million for the quarter up.
Up sequentially from $6 $3 million in our second quarter.
<unk> performed well, particularly in light of the tough environment in January when hospitals, and Obl's were significantly impacted by Covid spikes. Both in terms of patient in minutes and health care worker shortages due to nurses and providers falling ill.
Are you on procedures remained fairly evenly divided between above and below the knee demonstrating the versatility of both our technology and platform.
The breadth of our addressable market and opportunities for continued growth.
We continue to expect <unk> to generate robust revenue growth during the fourth quarter and.
And as a result of the strong performance, we are raising our guidance to a range of 26 and a half to 'twenty six 'twenty seven and a half million dollars for the year.
From our prior range of $24 million to $26 million.
Our mechanical thrombectomy business grew 14% year over year.
Right. The fact that it was one of our businesses that was most impacted by almond crop during the quarter.
As other participants in the market have noted D.
DVT thrombectomy procedure volumes were significantly impacted during the December and January period.
But we have seen an improving environment beginning with the back half of February which has continued through March.
We are pleased with the resiliency of this business along with the feedback we have received from physicians regarding alpha back.
We will provide more detail on alpha back a bit later in the call.
Turning to nano knife disposable sales grew 11% during the quarter.
Year to date nano knife disposables have grown 17% year over year.
Growth during the third quarter was driven by strength in the United States with U S disposable sales growing 56% over the prior year.
International markets, most notably in China, and Europe were impacted by the continuing global Covid headwinds.
We remain very excited about the opportunities for an antibody.
Particularly in prostate.
Our med device business, which includes the remainder of our portfolio declined approximately 3% year over year in the quarter.
Our med device third quarter performance continued to be impacted by a larger than typical backlog.
During our second fiscal quarter call, we discussed the tight labor market and the impact on our manufacturing capacity.
As we anticipated the backlog at the end of Q2 did rise through our third quarter and we continued implementing our response plans, including increasing manufacturing capacity through our Costa Rican partnership and increasing wage rates and retention bonuses at our facilities.
I'm pleased to tell you that as we exited Q3.
Our production hours were up by 20% relative to the December January timeframe, and we're making great headway on that side of the equation.
As was the case last quarter the demand environment for our med device products remained strong while our response plans are taking hold.
At the end of March the backlog was approximately $11 million clear.
Clearly increased demand also impacts the rate at which we are able to work down our backlog.
Year to date, our med device business declined 1%.
When adjusting for the onetime 5 million dollar order from NHS during the prior period prior year period.
Our med device business grew 2% year to date.
As we stated during our Investor in technology data last summer we.
We expect our med device business to grow 1% to 3% over our three year strategic plan period.
We are very pleased with this performance, particularly in light of the challenging supply chain environment.
As was the case last quarter, while the demand environment remains strong.
Related factors weighed on margins, which Steve will discuss in more detail.
Over the last few quarters, we have noted several macro related headwinds, including interruptions to the supply chain due to COVID-19 .
Tight labor market.
And inflationary pressures on wages raw materials and freight.
We saw Covid and particularly the omicron variant.
Tribute to delays of elective procedures during the third quarter.
However, we continue to manage through it well.
Sally meaningful improvement beginning in late February and.
And we are pleased that our procedural volumes continue to increase in March.
That has been the case throughout the past two years, we are working through these challenges while simultaneously, making the necessary investments in our med tech businesses to drive growth and facilitate our strategic transformation.
Turning to earnings.
We generated an adjusted EPS of three cents in the quarter.
This result was positively impacted by a benefit from the employee retention credit under the cares Act, which resulted in a fractional reimbursement of expenses that we actually incurred during the first two calendar quarters of 2021 .
This reimbursement related to maintaining employee.
Employment for sales.
R&D and support functions.
Charlie impacted by restrictive state and federal Covid rules and regulations.
We made the decision to maintain our employment and investment levels before we knew this benefit was available to us and we are appreciative of the assistance and maintaining our hardworking talented workforce and our investment in Paradise.
The cares act had an approximately eight cent positive impact on adjusted EPS in the quarter.
While we didn't contemplate this relief in our original earnings guidance. It has allowed us to maintain and even accelerate certain investments across a number of areas in our business.
As a result, we do not expect this to be additive to our full year adjusted EPS guidance.
And we continue to expect full year adjusted earnings per share.
To be in the range of a loss of <unk> to a gain of two cents.
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 the 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.
One Great example is how we were recently have received FDA clearance of our Alpha <unk> F 18, mechanical thrombectomy system for use in the venous vasculature.
The F 18 is a unique design that was purpose built to allow physicians to treat V. T E without lytic with the control and the power they seek when utilizing mechanical thrombectomy as a first line treatment for patients.
The <unk> device is also the subject device for our P E I E.
We currently plan to initiate a limited market release later this quarter.
With a full market release at the pace anticipated in the first fiscal quarter of 2023.
We are excited about our progress in the mechanical thrombectomy market.
Look forward to continuing to open up a larger faster growing segments of this market through new product clearances and subsequent launches.
Regarding our clinical programs, we remain in investment mode.
Five of our Med Tech platforms, and we are excited by our continued progress with respect to our clinical initiatives associated with our thrombectomy and then a knife platforms.
We are pleased to announced that the FDA has approved our <unk> study.
The use of our Alpha <unk> F 18 system to treat acute pulmonary embolism.
The study is named apex, a V and we.
To start enrollment in the second half of this calendar year.
We are proud to announce a partnership with the pulmonary embolism response team part.
Consortium.
In this important study.
Apex is a single arm multicenter investigational study of 122 subjects.
We expect to initiate approximately 20 sites.
The primary efficacy endpoint is the reduction in RV L V ratio.
Between baseline and 48 hours post procedure.
As assessed by C D and geography.
Subjects will be followed for 30 days post procedure.
We are also excited to announce that we have enrolled our first patients in a preserved study.
Fernando knife treatment of prostate cancer.
We have more than 20 sites in the initiation process for preserve and we are excited about our progress.
They had a nice unique mechanism of action enables it to be used as a focal option for physicians and patients.
[laughter] alternatives to radical prostatectomy.
We think the nanometer system can grow the focal treatment market due to its ease of use and unique mechanism of action.
Can potentially serve as a more favorable treatment option for patients and physicians alike.
This could open up a potential addressable market for nano life, which we believe is more than $600 million in the U S alone.
We currently have 22 active sites and our direct study.
And we remain excited by the awareness generated by this study.
We also note that.
The U S. Direct study has pond interest and initiating similar research in other countries.
For example, the multi center of direct inspire study in Australia.
Recently enrolled its first patient.
Finally.
I'd like to congratulate our international team for their very successful International Life Symposium held March 10 through 12 in Barcelona, Spain.
This international Symposium brought together leading experts.
And our surgery oncology urology and vascular fields to discuss the latest clinical learning and explore new and exciting directions for future patient care.
Physician and partner feedback has been exceedingly positive.
This is a testament to the investments that we've made in building out our talented international team.
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 good.
Good morning, everyone.
Before I begin I'd like to direct everyone to the presentation on our Investor Relations website summarizing the key items from our quarterly results.
Our revenue for the third quarter of FY 'twenty, two increased three 9% year over year to $74 million driven by continued strength in our med tech business, including ARIA had a knife and thrombectomy.
Med Tech revenue was $19 6 million, a 28, 6% year over year increase while med device revenue was $54 4 million declining approximately two 8% compared to the third quarter of FY 'twenty one.
For the first nine months of the year Med Tech grew 41, 8%.
The device was down 8% compared to the prior year period and grew roughly 2% year over year, when excluding last year's NHS order.
For our third fiscal quarter, our med Tech platform comprised 27% of our total revenue year.
Year to date, our med Tech platform comprised 24% of our total revenue compared to 18% at this time last year.
Overall demand during the quarter was impacted by both macro level and company specific dynamics.
Macro level demand was clearly challenged in December and January but did improve during the second half of February as Omicron cases declined and hospital access improved.
Staffing remains a headwind and likely will remain so through the rest of this calendar year.
Customer demand for Andrea dynamics products has been resilient as evidenced by our results for the quarter and the status of the backlog that Jim mentioned.
Revenue in our Endovascular therapies business increased 14, 5% year over year to $38 1 million benefiting from the continued adoption of Oregon, and our thrombectomy portfolio.
Alright, and contributed $7 3 million in revenue during the third quarter continuing the momentum we've been building since last year's launch as of today. Our installed base is 285 lasers with 43 lasers placed during the third quarter.
As planned we continued to build out our commercial infrastructure during the third quarter in order to drive ongoing consistent growth.
As Jim stated earlier, we now expect to generate revenue in the range of 26, and a half to $27 5 million for the year.
Mechanical thrombectomy revenue, which includes <unk> and Alphatec sales grew 14% over the third quarter of FY 'twenty one.
When including Uni fuse thrombectomy revenue grew 7% year over year.
As Jim noted DVT thrombectomy procedures were negatively impacted during the quarter, particularly in December and January we did see improvement beginning in the second half of February which continued through March.
For our fiscal year to date, mechanical thrombectomy grew 18% and when including unit views grew 12%.
Given the acute demand disruption due to lower procedure volumes, particularly during that December and January timeframe. We now expect mechanical thrombectomy to grow approximately 20% for the full year as opposed to the 30% growth we expected before the omicron disruption.
We remain confident that it will it will be a significant contributor to our overall growth and we plan to continue to invest in the platform as a key driver of our transformation as evidenced by the recent clearance of our alphabet F 18 system and the approval of our P E E.
The launch of our alphabetic F 18 system provides an initial entry into expanded portions of the DVT market and the IV for P. As we've indicated in the past gives us the opportunity to more than double our overall available peripheral market.
Vascular access revenue decreased five 6% during the prior year period.
Vascular access is one of the three businesses along with our core angiographic catheter business and our <unk> business that felt the most impact of the supply chain headwinds and tight labor market that resulted in our backlog.
Demand has remained strong for VA products and we expect this business to return to growth as we implement our supply chain improvement plans and work through the backlog.
For our fiscal year to date, our VA business is down four 4% and when accounting for the one time $5 million or any just order last year, our VA business is up two 5%.
Revenue from our oncology business declined 5% during the quarter as compared to prior year as oncology related procedures, we're acutely impacted by Covid and hospital staffing disruptions.
And then a nice disposable revenue increased 11% driven by 56% growth in the United States.
The Internet growth was driven by increased awareness from our clinical studies and a growing installed base.
Year to date nano knife probe sales were up 17%.
The capital environment remained challenged with capital sales during the quarter of $1 million.
Sales of our microwave products declined 6%.
Now moving down the income statement as illustrated in the gross margin bridge included in the earnings presentation posted this morning, our gross margin for the third quarter of fiscal year 'twenty. Two was 52, 2% a decrease of 190 basis points compared to a year ago, but up 40 basis points sequentially, including the impact of the.
Cares Act reimbursement Jim mentioned earlier.
In accordance with our strategy, we expect our gross margin to expand as growth in our higher margin med tech platforms accelerates and our manufacturing initiatives have an increasing impact.
And our third quarter, we did see approximately 100 basis points of a benefit from product mix.
Benefit was offset by a continuation of the headwinds we discussed during our second quarter call, including the ongoing COVID-19 impact increases in labor and manufacturing cost inflationary pressures and freight costs.
For our third quarter gross margin was negatively impacted by approximately 110 basis points versus the prior year period due to increased labor and manufacturing cost.
Inflationary pressures on raw material prices resulted in another approximately 100 basis point negative impact.
Higher freight costs had an approximately 10 basis point negative impact in production volume had an approximately 40 basis point negative impact.
On an alphabetic startup costs accounted for an approximately 50 basis point negative impact. These headwinds were partially offset by an approximately 20 basis point incremental tailwind provided by the cares Act benefit.
We began to see the positive impacts from our capacity improvement initiatives during the second half of the quarter. As an example, excluding the cares act benefit gross margin in the month of February was 53, 7%.
We expect these dynamics to continue depression pressure margins near term and still expect FY 'twenty to gross margin to be in the range of 52% to 54%.
Our research and development expenses during the third quarter of fiscal year, 'twenty, two with $7 3 million or nine 8% of sales compared to $8 6 million or 12% of sales a year ago.
We continued our disciplined investment in R&D focused on driving our key technology platforms, including the clinical spend for our med Tech businesses.
Slide 22, we continue to anticipate R&D spend to target, 10% to 13% of sales.
SG&A expense for the third quarter of FY 'twenty, two was $29 1 million, representing 39, 4% of sales compared to $28 6 million, representing 42% of sales a year ago.
We continue to anticipate FY 'twenty, two SG&A spending to approximate 40% to 45% of revenue.
Our adjusted net income for the third quarter of fiscal year 'twenty, two was $1 3 million or adjusted earnings per share of <unk> <unk>.
Third to adjusted net income of <unk> 7 million or adjusted earnings per share of <unk> in the third quarter of last year.
Covid relief expense reimbursement under the cares act in the third quarter of FY 'twenty, two and FY 'twenty, one were $4 2 million and $1 9 million respectively.
Adjusted EBITDA in the third quarter of fiscal year 'twenty, two was $6 7 million compared to $5 4 million in the third quarter of fiscal year 'twenty one.
In the third quarter of fiscal year 'twenty, two we used $8 8 million in operating cash had capital expenditures of $1 1 million. In addition to the Oregon placement and evaluation units of $1 5 million.
As of February 28, 2022, we had $23 9 million in cash and cash equivalents compared to $34 3 million in cash and cash equivalents on November 30th 2021 as.
As we discussed in Q2 cash utilization was higher in Q3, primarily as a result of our manufacturing enhancement initiatives.
In addition in line with our expectations Dsos have increased largely due to customary market terms associated with our young customers and the growing revenue contribution of that business.
Our debt outstanding remained consistent at $25 million.
Turning now to guidance.
We continue to anticipate that fiscal year 'twenty, two revenue will be in the range of $310 million to $315 million.
And this does imply a significant step up in revenue from our Q3.
Our fourth quarter has four additional selling days relative to our third quarter and in addition to the improving procedural environment. We continue to add manufacturing capacity and worked through the backlog.
We also continue to expect full year adjusted earnings per share to be in the range of a loss of <unk> to a gain of <unk> as we continue to invest in driving sustainable growth in our key med Tech platforms. While also managing to continue headwinds we discussed.
As Jim mentioned, while we saw an eight cent tailwind from the impact of the cares Act during the third quarter. We use this as an opportunity to continue and accelerate investment in R&D and SG&A across certain areas of the business and this is contemplated in our full year guidance range.
Accordingly, our guidance range remains a loss of two cents to a gain of <unk>. Despite the cares Act impact.
Overall, we've seen steady improvement in procedural volumes during February and March and even here in the first week of April and are confident in our ability to continue to grow the business.
And we're pleased with the progress we've made towards our strategic transformation. We continue to balance our priorities are achieving top line growth in the near term with investments that will create sustainable profitable growth over the long term.
I'm proud of our team's ability to continue working towards these goals, despite a very challenging operating environment.
With that I'll turn it back to Jim.
Thank you Steve.
This is an incredibly exciting time at Angel dynamics, we are continuing to prove our ability to service our growing demand through our manufacturing capacity expansion programs and increased capabilities of our sales marketing and clinical support teams.
Covid pandemic presented unprecedented challenges we are proud of how we're managing through it.
As a resilient company committed to supporting physicians, who treat our patients with our unique technologies.
We remain focused on transforming Andrea dynamics into an innovative medical technology company with solutions that address some of the most dynamic opportunities in health care.
Want to improve patient outcomes and drive high physician satisfaction.
We are committed to improving patient care.
And proving our ability to do so by supporting data collection and research studies.
Our third quarter results are evidence of our progress towards that goal and we plan to continue to deliver on our strategic initiatives in the coming quarters.
I'd like to thank everyone on the Android dynamics team for all their hard work during the quarter and their ongoing commitment to our mission.
With that I'd like to turn the call back to our operator.
Open up the call for questions.
Awesome.
Thank you if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Jayson Bedford with Raymond James. Please proceed with your question.
Good morning, guys hope you're doing well so a few questions first on the $11 million backlog, what's the timing and I guess more importantly, the key steps into bringing this down.
Hi, Jason It's Jim Good morning, key steps are expanding our capacity Jason to do so some of those we outlined on the January call some of which we have reinforced today to ask Jason the largest part of the backlog. There's really two factors. One is still really strong demand not just in our med tech products, but our med device.
Our our VA team has done a great job articulating the value of our products as you know there and very strong demand in our VA business. Our <unk> laser is a strong demand in our core angiographic catheters. When this company was founded upon so really strong demand. Jason is one half of that second side, obviously is our ability to produce which has been challenged by COVID-19 I'm not just with accidents.
He has them in employees, having issues with dealing with Covid and recovering safely return to work, but also us attracting the level of employees that we'd like to have so we made the decision to move some processes to our Costa Rican partner and we'll continue that process until we get to a stabilized workforce across our facilities that can support a growing demand.
So it's been a challenge Jason that's part of it we believe now as I mentioned on the call. We're now producing 20% more than we were in the past quarter and we're starting to eat into that backlog it'll take a while Jason we don't believe will be cleared by the end of Q4, you don't bleed into the first quarter or so of next year, we have a detailed recovery plan internally we know when we're.
Recovered each of those three categories.
Okay. So.
The assumption here is that the.
Backlog doesn't grow exiting the fiscal fourth quarter, you eat into a portion of that here in the fiscal fourth quarter.
So our assumption here, Jason it'll be lower at the end of the fourth quarter than it is today okay. Okay.
Jason just to add.
Just to add one piece of clarity to that we do expect that it will be lower as we exit Q4 than it is today, but one thing I want to emphasize is we are not expecting that we have to clear a significant portion of that to be in line with the guidance that we gave you for Q4.
Right, Okay, that's fair.
From a macro standpoint, you'd called out staff shortages.
The continued issue can we make the assumption that it's better today than it was in January .
It's kind of the single biggest macro weight on demand right now.
Yes, Jason It is better our employees are healthier so they're back to work in a more consistent basis.
So that's a good sign and we've attracted new in place and then maybe not at the rate we'd love to as we know there is still a challenge getting labor for some roles that we offer we're not the only company having that challenge of attracting employees in this environment to come work for US. So we've also done things as we mentioned earlier, we've increased wage rates other things as Steve mentioned, which impacted gross margin.
But we are better today than we were three months ago adjacent certainly on the macro side of the equation staff shortages at hospitals and Obl's were particularly pronounced in December but more even more so in January that dynamic has changed as we've come out of February and into March and April . So we have seen that as a as a lifting pressure.
On the macro side that isn't there quite as acutely today as it was back in our third quarter.
Okay, and then maybe last one and I'll jump back in queue.
On the mechanical Thrombectomy guide the delta between kind of the old and the new guidance is it more of a more of a reflection of softness in alpha back and you back or is it almost all of them.
Is it almost all COVID-19 related.
Yeah.
It is primarily COVID-19 related the difference in the guide is really stemming from the procedural pressures that we saw in Q3 and if you think about that a lot of that is angio back because we're in the very early stages of the alpha launch, but we definitely saw the DVT procedure volume be impacted in that December January .
Frame because of the macro COVID-19 headwinds and then that will have kind of just the lingering effect as you push those procedures out does not change our perspective at all in terms of this market or the products that we have to go into this market and the benefits that that will drive for us over our strategic planning horizon.
But it does impact it is a follow on impact from what we saw in Q3.
Okay. Thank you.
Yeah.
Okay.
Thank you, ladies and gentlemen, as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad. Our next question comes from the line of Bill <unk> with Canaccord Genuity. Please proceed with your question.
Great. Thanks for taking my questions good morning.
One clarifying question on the backlog.
You ended at $9 6 million, you're at $11 million. The commentary was that it would be lower at the end of the fourth quarter than it is today versus the end of the third quarter like.
How much do we expect to bleed off over the next quarter is my first question.
Hey, good morning, it's Jim.
The comment I made is lower than it is today. So we expect and as you know the two inputs Bill we can't control one of them, we can't control our order on a demand rate. We're fortunately, it's very strong and our tech and our device platforms, but number two we can control our output and our capacity expansion programs and those are growing as we speak.
Okay, and then you made some commentary specifically I think this hits, mostly the vascular access does this have any impact on any of the other.
Areas or.
If you could quantify it isn't like 70, 80% into the vascular access and are there any one or two products it's impacting.
So bill it's clearly.
Holy resident within our Med device segment and its fairly evenly split among the three product lines in that device segment of our angiographic catheters E V. L. T and then vascular access. So you can think about it as being relatively a third a third a third.
[laughter].
Great. Thank you.
And then in terms of the mechanical thrombectomy just for clarity.
It seems.
The December January commentary was that relative to the NGL back product in how is alphabet.
Wrapping against your initial plans at this point.
So bill if most of the commentary made is regarding angio back and as you know.
We have products that are okay to using the right heart and that was with <unk>. We're looking at T V. T. As the first line of V. T. We're trading as you know we have the Pea study kicking off to prove it for Outback F 18 for P. So ultimately what we saw was some DVT procedures were being postponed or suspended or people who are treated differently with the hospital shortly.
Age in ICU for beds, I think on the <unk> side, there was a more acute other companies. We're treating p/e, maybe they are more acute space and what we saw for DVT. So that was the experience. We had built in the last three months of really related back to the shortage, we had a little bit on procedures on angi <unk> second part of your.
Question was on alphabet, we have terrific feedback from Alba Vac, you can probably go online and read what doctors are saying, we're really pleased not just with the F. 22 that was launched in the first week of December . We also remind everybody. We knew that was a limited opportunity market as it only can treat certain parts of the anatomy and allow our product up for 'twenty two free.
<unk> catheter designed to answer the body now with the new F. 18, we will be able to go lower into the body treat more parts for people with DVT and ultimately startup <unk> study.
So we feel we're off to a great start feedback is terrific and we're excited now to get the F 18 product in a limited market release in full release in the summer.
Great and then last question for me if I may.
<unk> continues to just blew away our expectations and I'm. Just curious is this a you know as you look back is this the same store sales I mean, I know the unit placements new placements have been very strong how would you categorize the driver of this.
Great question Bill we are pleased to its a combination of an amazing product. It is truly amazing and we have more to come on what it can do beyond its current atherectomy.
Indication, we think it can do other things, we'll talk more detail.
Out of another time, so number one the product it does a really effective job in some of the proof of that is the ratio of the below the knee procedures that patients now are being treated for because there weren't a lot of other options before in that space. They may have been one or maybe two devices that can do that now we're offering customers.
Safety and security of a laser with the power are you on brings so it's really a combination of both we are expanding the usage based on demand. While we highlighted another 43 lasers placed strong demand is there for the product and number two back to your same store sales comment we agree and we're getting more and more people once they get the units in house, they get confidence in using it and try.
And more situations, we're seeing increases in the procedures on a monthly basis and our current settings and that's really our goal over time built overtime.
We're not going to keep putting 43 or 45 lasers in every quarter, we want to work on that utilization and getting customers confidence to use <unk> as their first line treatment in their care settings will take will grow same store sales over time at a more robust rate and it would be more important part of our growth for years to come.
Thank you very much.
Yeah.
Thank you. Our next question comes from line of Steven Lichtman with Oppenheimer and company. Please proceed with your question.
Thank you good morning, guys.
Yes, just building on the worry on.
What what success are you seeing and in stent restenosis and is that playing out as you expected is it better than expected in terms of how much you're you're gathering of that portion of the market.
Hi, Steve Good morning.
Please see one of the things that drew us to the device. Initially was the fact that it could do ISR was approved by the FDA. During the study to do ISR. So we're really pleased so what do you do you know, what's funny, Steve and I quote about half are positively need half below the knee that's taking out about 10% of the overall procedures that are done for in stent restenosis. So so so.
When you look at it on a macro scale, Steve 10% of the overall procedures that we track are really for ISR and then the ones. The other 90% are split about half and half above and below the knee. So that's about what our expectations were were pleased with that ratio. It's a great question, Steve and it's important to to to realize that.
Laser technologies are the only technology that are out there that can do ISR and so getting that segment of the market with this particular product.
It really does help us, but then you add into that the fact that we can go above and below the knee. It really does highlight the versatility of the <unk> technology.
Hum.
Thanks.
You also mentioned commercial investment in Oregon.
How many sales reps did you reach in the quarter in that business and where do you anticipate ending the fiscal year.
Yeah. So it's a good question. So we have 77 dedicated employees in that business as of today that includes roughly 40 field based sales reps quota carrying reps. We also have the 14.
Employees at our clinical field specialists and then we have a number of proteins that are helping support that business.
We're going to continue to invest in that business, probably not exactly at the same pace that we have over the last two years.
As we continue up our ramp on this business, but we're really pleased with the trajectory we've seen in this business and we wanted to make sure that we continue that trajectory going forward. So we're going to continue those investments I would expect we will end the year, a little higher than the numbers I just quoted you.
As we continue to be very thoughtful about how we invest in the business.
Got it thanks, and then lastly, how should.
We focused a lot on the macro dynamics in the U S to make sense given the proportion of sales in the U S for you guys, but.
How are things trending internationally or are you seeing improvement there as well in terms of the end markets.
We're starting to get very choppy I'm sure others would probably comment in a similar fashion, but they're still a regional challenges as you know China is a massive challenge with you know the issues they've had and the way they're trying to take care of their population there presents challenges for us on a commercial scale.
You look at areas like our Latin America business, our Canadian teams have done an excellent job a lot of parts of Europe , our European teams in our middle East teams have done a really really good job. So we have a lot of not just solid business, but people really interested now nano life adoption has been very high and we're really pleased with that goes on over time.
We're building out a commercial team with a new international leader and we're putting a lot of resource deployment into that team behind her strategy.
More to come and we'll share more with you over time.
Okay, great. Thanks.
Thank you Steve.
Thank you. Our next question comes from the line of Matthew <unk> with Keybanc capital markets. Please proceed with your question.
Morning, guys.
One of the questions. We're getting this morning is around the free cash flow, what's the free cash flow expectation for the remainder of the year and it seems like spending isn't is increasing here to fund growth kind of how are you thinking about funding the growth into next year.
Yeah. It's a great question. So you know as we had talked about coming out of Q2. We did expect that we were going to seek higher cash utilization in our Q3 investments that we needed to make to bring the additional manufacturing capacity online was a big part of that.
The disruption that we've talked about is also going to have an impact in that quarter and so we're seeing an improving environment as we move out of Q3 into Q4, one of the other things to point to is we saw that increase in our receivables, particularly in our days sales outstanding that was expected that's something that we see with that Ari on customer base, becoming a larger portion of our.
Overall customer base those are customary in market terms to give them a little bit longer payment cycles.
So you see some element that was coming from the additional cost to bring the capacity online and some being a little bit more structural in terms of timing, but that we were expecting that we do expect you're going to see a reversal of that trend as we head into Q4.
And so some of those spending will abate and then as we move into into Q4, I expect to see a different profile in terms of cash utilization.
Question on investment in into the growth drivers and I think one of the things I would point to is the balancing that we had mentioned coming from some of the cares Act.
We do expect that that cash will be coming in as we as we get towards the end of our fiscal year or into next fiscal year, but it shows some of the balancing that we do is we handled the EPS question. We're always looking at prioritizing first and foremost those investments that are necessary to drive short and medium term growth in our growth drivers.
And then we're looking from their ways to balance that with other areas of Opex in the business. So we're still confident that we're on track to fund the investments that are necessary to drive our long term growth initiatives as set out in our Investor Day plan.
We're always looking at it.
And we definitely saw higher cash utilization in Q3, but we do expect that to flip a little bit as we head into Q4, and then certainly into next year.
And then just on the gross margin.
You're kind of at 52 to 54 this year.
Yeah.
As we think about next year, what do you think it's transitory and it's 52 to 54 I mean, it seems like youre going to get a product mix benefit.
Regardless going into next year because of the growth than it is med tech.
But what what can what can can can switch on.
From 'twenty two to 'twenty three to the positive.
Yes, it's a good question I think the first thing to point to is that product mix benefit that's right in line with what our long term strategy has been as those med tech products comprise a much larger portion of our revenue base, you're going to see gross margin accretion and that's really our story over our strategic planning horizon.
As you saw in this quarter the Covid impacts did take a chunk out of that and it kind of reset a little bit of the baseline. So we talked about inflation coming from raw materials look I think that's going to be around for a little while that probably continues as you move into Q4 and into the first half of next year at least we will see where the macro environment goes labor inflation that's all.
So something that's going to be with us for a while you know the tight labor market. Just has that follow on effect of additional wage rate increase being necessary in some of those retention referral bonuses that we talked about keeping people in our in our plant I think those things are going to be around for a while.
Do expect that over our horizon, they will normalize and that you'll get back to seeing the full story of that gross margin accretion coming from product mix.
Excellent and then last question just can you give us a sense of the timeline.
Completion for the I D E P.
Okay.
Yes, so what we really are excited about that product is that the the precedent has been set right. So Jim talked about the RV LD ratio as being the primary efficacy endpoint.
The other products that are out there that have a pea indication that's the endpoint that they use so it's a nice predictable target to go after that we've talked about a 30 day follow up.
And so with 120 patients or so we think that can be relatively relatively quick enrolling trial, it's going to be very different than what you saw with some of those oncology endpoint trials that we've talked about with nano knife in the past.
Excellent. Thank you.
Thank you Matt.
Thank you ladies and gentlemen. This concludes our question and answer session I will turn the floor back to Mr. Clemmer for final comments.
Thank you Melissa and again, we're really proud of the work that our team has done here working through the pandemic, we have employees across the globe. We're committed to serve our customers who serve patients in need of our technologies for wellness and care. So I want to thank the age of dynamics employees and remind investors on the call. We are committed to our future investing in our growth.
Vesting in our platforms. Thank you again for joining us today on the call.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.