Q1 2023 AngioDynamics Inc Earnings Call

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Okay.

Good morning, and welcome to the Angio dynamics fiscal year 2023 first 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 our fiscal 2023 first 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 Andrew dynamics Dot com and the webcast replay of the call will be available at the same site approximately one hour after the end of today's call.

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

Statements about expected revenue adjusted earnings and gross margins for the fiscal year 2023, as well as trends that May continue management encourages you to review the company's past and future filings with the SEC, including without limitation. The company's forms 10-Q, and 10-K, which identify specific factors that may cause the ax.

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 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 operating results and financial performance. During this morning's conference call I would now like to turn.

On the call over to Jim Clemmer, <unk>, President and Chief Executive Officer, Mr. Clemmer.

Thank you Melissa and good morning, everyone.

Thank you for joining us for Idiodynamics fiscal 2023 first 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 first quarter financial performance.

Before we talk about results our thoughts are with all of the people who have been impacted by hurricane him.

Particularly those in Florida, as we know how many people are still struggling as a result of the devastation.

We are focused on supporting our employees and customers in the region.

And we are closely monitoring the situation.

Turning to our results we ended the quarter with revenue of 81 $5 million representing growth of roughly 6% year over year.

Led by growth of approximately 30% from our Med Tech segment over the first quarter of last year.

I am pleased with our solid first quarter performance and our ongoing progress towards our long term goals.

At our Investor Technology Day in July 2021, we outlined our three year strategic plan and our operating goals. We detailed how we were going to utilize the proprietary tech proprietary technology in our med tech platforms to enter large fast growing.

Tractive markets and prioritize driving measurable beneficial patient outcomes.

Macro challenges persisted during June July and August . Despite these headwinds we've consistently executed on our strategic goals, we remain committed to making the necessary investments designed to drive sustained growth.

Our med tech platforms, while maintaining a balanced focus on the bottom line.

Inflationary pressures persisted throughout our first quarter.

As freight and raw material costs continue to rise.

While this pressure does have an impact on our results I am pleased with how our supply chain team has managed through this dynamic environment.

Steve will provide some more details a bit later on our call.

Hospitals and care locations experienced significant staffing challenges during the summer.

Resulting in percent pressure on procedural volumes.

While we anticipate that some level of staffing challenges will persist.

Hospitals are becoming more adept at managing through these issues.

In addition to the direct impact on procedural volumes.

Staffing challenges create some ancillary effects as hospitals and care sites struggle with their reduced revenue streams, causing hospitals to lengthening the timing of their payables, which Steve will again discuss later on our call.

We continue to partner closely with our customers and had been more flexible with payment terms in light of the current environment.

Despite this challenging environment, our med Tech segment continues to exhibit strong growth.

Driven by year over year growth in Oregon the.

The impact of the full market release of our Alpha back F 18 product.

And the continued growth in utilization of nano life by urologists.

This performance illustrates both the resilience of our product platforms and our team's ability to execute.

Oregon continued its impressive performance during the quarter growing 50% over the prior year.

<unk> was down slightly sequentially, which we expected given the typical seasonality and a strong finish in Q4.

During the quarter, there were a number of presentations detailing clinical experience with ARIA.

Specifically.

That S. A R and link physicians presented 12 month follow up data from our Pathfinder study.

The original ITE for Oregon illustrated impressive safety and efficacy results the patient population in our Pathfinder study included patients in a real world setting with significantly more complex peripheral disease than those included in the I D.

The results from Pathfinder were similar to or exceeded the efficacy and safety results from the original I E. In this more challenging patient population.

In addition at the Amp meeting.

<unk> patient analyzing outcomes between chronic limb ischemia patients.

And the less complex patients.

Reported that the long term outcomes for the CLI patients were similar to those of the less complex patients.

This is just a great demonstration of how effective argon is in treating below the knee disease as CLI patients typically fair much worse than less complex patients.

We expect to see <unk> continue to grow rapidly as more physicians are introduced to and use this innovative technology.

Our mechanical thrombectomy business, comprising and you're back and Alpha Vac grew 36% during the quarter when.

When including unit views, our thrombus platform grew almost 32% over the prior year.

Alpha Vas revenue for the quarter was $1.8 million and we were pleased with this performance given the particularly challenging procedural headwinds we faced during the summer.

Additionally, we entered into a full market release of our Alpha Vac F 18 product during the quarter. We are on track to meet our alphabet revenue expectations for the full year.

Our nano knife disposable sales grew approximately 12% during the quarter as we've seen increasing traction within neurology practices as prostate procedure volumes continued to grow during the quarter.

And our preserve clinical trial drove increased awareness in the space.

During Q1 physicians completed 100 prostate cases with Manulife.

From 71, prostate cases treated in the fourth quarter.

And an increase of more than 85 cases over Q1 of last year.

Additionally, international markets, particularly the European markets had a really strong quarter.

While disposable demand remains strong some supply chain bottlenecks encountered during the quarter impacted our top line growth and resulted in a small backlog at the end of life orders.

For example, one of our sub components suppliers couldn't meet our demand, which in turn led to a production shortfall.

While we expect to clear the shortfall in Q2.

Continuing supply chain challenges drove our decision to add raw material and work in process inventory.

Which increased our inventory levels.

On the operations front, we continue to work down our backlog in a deliberate and strategic manner.

With total backlog of $7 $1 million at the end of the first quarter.

One $3 million from the end of May.

We continue to invest in our business during the quarter and our focus remains on supporting our existing platforms. While also continuing to drive the development of new products to expand into larger faster growing addressable markets.

As a reminder.

These investment initiatives include geographic expansion internationally.

Clinical research.

Product development.

Selling and marketing and regulatory pathway expansion.

Our strategic investments continue to advance our growth platforms in particular with the recent regulatory pathway expansion for Ari on product in arterial thrombectomy, when removing thrombus accumulation adjacent to Arthrectomy.

As well as FDA clearance of our hydrophilic coating on our argon catheters.

And the initiation of our apex clinical study for the treatment of pulmonary embolism with our alphabet F 18 product.

Our teams continued to execute on our clinical trials, including our three <unk> studies.

Our preserve study for the treatment of prostate cancer with nano knife, our apex study.

The treatment of pulmonary embolism with our Alpha <unk> F 18, as well as our direct study for the treatment of pancreatic cancer with nano knife.

As a reminder, we.

We believe that preserve will demonstrate that nano life can be an effective focal treatment option for men with intermediate risk disease.

And provide favorable quality of life outcomes, when compared to other folks with treatment options or surgery.

We estimate that the total potential market for focal treatment of prostate cancer that can be addressed by an antibody.

It may exceed $700 million in the U S alone.

We believe that our apex study will prove that our unique alpha backed products can be an effective treatment for P E.

Providing ease of use and another treatment option, while also unlocking an opportunity in a large addressable market that we estimate to be in excess of $1 $5 billion in the United States.

I'd also like to provide you with an update on our antitrust suit against Becton Dickinsons C. R. Bard business as it relates to our vascular access business.

The trial concluded this week and is now being deliberated by the jury and we are awaiting a verdict.

Before turning the call over to Steve I'd like to thank our team here at Angio dynamics for their continued hard work and dedication to achieving our goals.

Their unwavering effort is essential to the transformation of angio dynamics.

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 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 first quarter of FY 'twenty three increased five 9% year over year to $81 5 million driven by continued strength in our med tech platforms, including Oregon, narrow knife and thrombus management.

Med Tech revenue was $22 8 million or $29 six year over year increase while med device revenue was $58 7 million declining one 1% compared to the first quarter of FY 'twenty two.

For the quarter, our Med Tech segment composed 28% of our total revenue.

3rd% to 23% of total revenue a year ago.

Or are you on platform contributed $8 8 million in revenue during the first quarter, a 50% increase compared to last year.

As Jim mentioned, Oregon was down slightly sequentially from Q4 in line with our expectations and this represented solid performance when considering typical seasonality and the strong finish to Q4.

We're very pleased with the continued growth of the <unk> platform.

Yes, it was a strong one for oriented and we saw an improving growth trends throughout our key one.

As of today, our installed base is approximately 350 lasers with about 40 lasers placed during the first quarter.

Lasers placed since launch have utilized approximately $22 million of cash, adding quarterly depreciation expense to our gross margins.

During the quarter, we launched Oregon catheter line extensions, providing enhanced usability and in September . We also received regulatory clearance for our hydrophilic coated catheter.

Our forecast for Oregon for the year remains unchanged as we expect to see continued year over year growth throughout the course of FY 'twenty, three and generate full year revenue in the range of $40 million to $45 million.

Mechanical thrombectomy revenue, which includes <unk> and Alphatec sales grew 36, 1% over the first quarter of FY 'twenty two.

When including you infuse Thrombus management revenue grew 31, 8% year over year.

Oliver <unk> revenue for the first quarter was $1 8 million.

We're very pleased with this performance after generating revenue of $2 2 million during FY 'twenty two and are excited to have begun the full market release of our F 18 product during the quarter.

Physician feedback on the F 18 remains very positive and we're excited that four sites have completed all initiation requirements and are currently recruiting patients for our apex study.

Andrea back revenue was $6 9 million in the quarter representing growth of eight 5% over the prior year's quarter.

Procedure volume for Angi back during the quarter remained solid, particularly given the challenging macro environment.

We believe it staffing challenges that hospitals have continued to impact Angie of that procedure volume due to the complexity of these procedures, which required perfusion and typically an ICU bed.

We continue to expect that mechanical thrombectomy platform to grow 30% to 35% and be a significant contributor to our overall growth and we plan to continue to invest in this platform is a key driver of our transformation.

Nevertheless, disposable revenue increased 12, 3% driven by 21, 8% growth in international markets.

Dan and I procedure growth continues to be driven by increased awareness from our clinical studies ongoing expanded adoption within practices by urologists and a growing installed base.

Capital sales were down 500000 versus the prior year, but our installed base increased by 16 units as we implemented alternative placement models in the urology market.

Turning to our med device segment in the quarter, our core dialysis and microwave products each achieved modest growth offset by modest declines in the balance of the portfolio, resulting in the overall segment decline of one 1%.

As a reminder, almost all of the $7 1 million dollar backwater relates to our med device segment.

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 first quarter of FY 'twenty. Three was 51, 9% a decrease of 20 basis points compared to a year ago.

Gross margin for our Med Tech segment was 63, 2% a decrease of 220 basis points compared to the year ago period. This decrease was primarily driven by increased depreciation costs associated with the increasing are you on installed base and some pricing of ARIA catheters.

Gross margin for our Med device segment with 47, 5%, a 70 basis point decline compared to the first quarter of 'twenty two due largely to continued inflationary pressures.

In accordance with our strategy, we expect our consolidated gross margin to expand throughout FY 'twenty three as sales in our higher margin Med Tech segment grow and represent a larger portion of our total sales mix as.

As Jim said, while we're pleased with our progress on manufacturing, we expect to continue to see some variability in FY 'twenty three as a result of supply chain and other macroeconomic headwinds, including continued inflationary pressure.

As we did with our fourth quarter. We've included a gross margin bridge in the materials published today, Arkansas.

Our consolidated corporate gross margin in the quarter was positively impacted by product sales mix as well as increased efficiency in our manufacturing operations.

These headwinds were offset by headwinds from raw material inflation costs associated with the continued tight labor market and increasing freight costs.

In the first quarter on a year over year basis, the impact on gross margins from product mix was a benefit of approximately 80 basis points the.

The increase in production capacity from our initiatives and increased efficiencies provided a benefit of approximately 240 basis points.

These benefits were offset by approximately 100 basis points versus the prior year period due to increased labor and manufacturing costs inflate.

Inflationary pressures on raw material prices resulted in another approximately 100 basis point negative impact and higher freight costs had an approximately 60 basis point negative impact.

Some of the heightened impact from freight is the result of higher levels of raw material purchases that we accelerated to address continuing component supplier disruptions.

I'll cover this in a bit more detail shortly when discussing our cash position.

Hardware depreciation cost from our increasing already on installed base negatively impacted gross margins by about 80 basis points.

Our research and development expense during the first quarter of FY 'twenty, three was $8 3 million or 10, 2% of sales compared to $7 4 million or nine 6% of sales a year ago.

We continue our disciplined investment in R&D focused on driving our key technology platforms, including the clinical and product development spend for our med Tech portfolio.

For FY 'twenty, three we still anticipate R&D spend to target, 10% to 12% of sales.

SG&A expense for the first quarter of FY 'twenty, three was $36 6 million, representing 44, 9% of sales compared to $33 4 million or 43, 4% of sales a year ago.

The year over year increase in SG&A spending was primarily driven by the and utilization of investments in our sales teams, particularly our young.

For FY 'twenty three we continue to anticipate SG&A spend target, 40% to 45% of revenue.

Our adjusted net loss for the first quarter of FY 'twenty, three was $2 5 million or adjusted loss per share of <unk> compared to an adjusted net loss of 900000 or adjusted loss per share of <unk> in the first quarter of last year.

Adjusted EBITDA in the first quarter of FY 'twenty, three was 3 million compared to $3 6 million in the first quarter of FY 'twenty two.

The first quarter 'twenty, three we used $24 7 million in operating cash and capital expenditures of 800000 and additions to our ion placement and evaluation units of $2 2 million.

As of August 31, 2022, we had $24 6 million in cash and cash equivalents compared to $28 8 million in cash and cash equivalents on May 31 2022.

The cash balance at quarter end includes the refinancing of our credit facility that we closed at the end of Q1.

Details of our cash position are included in the presentation on our Investor Relations website published in connection with this call.

We've also included a cash bridge in today's materials.

As we discussed on our fourth quarter call, we expected to have higher levels of cash utilization in the first quarter than in subsequent quarters for our FY 'twenty three.

Higher cash utilization was driven by annual incentive compensation in connection with our FY 'twenty two results typical beginning of year payments for insurance and other prepaid high levels of inventory purchases to proactively address supply chain disruptions, Oregon laser placements and some other one time payments.

Inventory levels increased $6 2 million in the first quarter of FY 'twenty three from our inventory balance as of May 31.

This increase is in large part driven by raw material purchases, we accelerated to address continuing supply chain disruptions.

Supplier disruptions accelerated through the first quarter of FY 'twenty three quoted lead times from various suppliers have expanded significantly and suppliers that used to quote lead times of three or six months or now quoting lead times of nine months to more than a year.

Order to mitigate significant disruption from these component suppliers, we have increased our raw material purchases, resulting in increased use of cash.

We believe that its prudent use of this cash as partial insurance against increased disruption in the future, especially as our capacity initiatives in Costa Rica take hold.

In addition to the increased uses of cash I just mentioned our account receivable balances remain high and our Dsos have increased.

As Jim mentioned in his remarks, we've seen hospitals and caregivers begin to push out payment timing. This has negatively impacted our cash conversion cycles, we've been very deliberate about providing appropriate flexibility to our customers while remaining pragmatic with our approach to order fulfillment and it placed certain customers on credit hold or withheld delivery when appropriate we're.

We're taking a balanced approach to extending credit working closely with our customers and believe that we are adequately addressed any increase in credit risk.

From a balance sheet ratio perspective, we're comfortable with our working capital liquidity and current ratio. Our current ratio in Q1 was $2 two eight which is consistent with how we manage the business historically.

With respect to our capital structure, we refinanced our credit facility to accomplish a few specific goals first the previous facility was set to mature in June 2024, and given the dynamic financing environment. We wanted to extend maturity to 2027 and replace LIBOR with sulfur as the reference rate.

Second the previous facility was a $125 million revolving facility. Our current strategy does not support or require a borrowing base of $125 million.

So there was a significant amount of unused credit which carried a commitment fee.

Lastly, we wanted to modify our capital structure to more closely align the cash used in Oregon laser placements with the expensing and revenue generation profile of those lasers, the new credit.

<unk> accomplishes each of these goals.

The new facility has a term through August of 2027, and the revolver was resized to 75 million from $125 million, reducing our commitment fee.

We believe that the $75 million revolving credit is appropriately sized for our cash and liquidity needs to support our current long term strategy.

Finally, we added a $30 million delayed draw term loan to better align the cash used for Oregon lasers with their expense and revenue profile.

As we discussed last quarter since the launch of <unk>, we have utilized roughly $22 million of cash in the manufacturing of the Oregon laser installed base.

These lasers are placed at customer facilities and generate revenue over their useful life.

In addition cost of the laser is reflected on our balance sheet and amortized over a five year period.

As a result cash for each leisure spend immediately with each laser then generating monthly revenue with the purchase of catheters will also having an associated monthly expense.

The cash utilization is front loaded compared to the revenue and expense profile.

The delayed draw term loan effectively refinances, the lasers already in the field, while providing some financing for future lasers, we expect to place through FY 'twenty four.

We'll pay down the delayed draw term loan in a manner consistent with the expense and revenue profile I just mentioned and we believe that this is a more efficient capital structure for our business.

At the closing of the revised facility, we drew $25 million on the delayed draw term loan in connection with the Oriental lasers currently in the field as well as lasers, we expect to place during the first half of FY 'twenty three.

Finally, we also made a payment of $4 5 million to the Israeli innovation authority to prepay, a 4% royalty obligation that was negotiated prior to our acquisition of <unk>.

Paying the IAA, who will provide a gross margin benefit for us going forward as this royalty, which extended through at least FY 'twenty four had increased the cost of goods of ARIA.

The end result of this financing is that we reduced our total available debt facility from 125 million to $105 million, reducing fees paid on unused portions that were unlikely to utilize it.

Adding a delayed draw term loan to match the cash use of Orient lasers with their revenue and expense profile, the spread and pricing grid for the refinance facility remained exactly the same as the previous facility, but now links to sofa.

Pleased with these terms specifically in light of the current environment.

We continue to expect our net cash position that is cash net of debt by the end of our FY 'twenty three to be flat to slightly up from where we exited FY 'twenty two.

As a reminder, during the back half of our FY 'twenty three we expect to achieve the aggregate revenue milestone target for Oregon, which would trigger a contingent consideration payment of $10 million. This contingent.

Consideration payment is currently excluded from our operating cash expectations.

Turning now to guidance our guidance remains unchanged from Q4, we continued to anticipate FY 'twenty three revenue in the range of 342 million to $348 million and we expect full year adjusted earnings per share to be in the range of 1% to <unk> as we continue to invest in driving sustainable growth in our key med Tech.

Forms.

I'll also managing continued headwinds.

While the macroeconomic environment has improved in certain areas. It remains uncertain due to inflation and supply chain disruptions, the tight labor market and pressures facing our customers.

We continue to expect FY 'twenty three consolidated gross margins to be in the range of 52, and a half to 54 and a half.

We expect this range to be comprised of med Tech gross margins in the range of 65 to 68 and med device gross margins in the range of 45% to 48%.

I'm proud of the tremendous efforts of our Andrea dynamics team and it's their drive and commitment that allows us to continue making progress towards delivering on our long term goals.

With that I'll turn it back to Jim.

Thanks, Steve and Andrew dynamics, we are committed to improving our technologies. So that we can partner with global caregivers to treat challenging patient needs, we will partner with and listen to those caregivers as they guide our investment decisions we.

We are transforming into a company that is important to these caregivers, we will continue to balance our investments with the need to manage through these challenging times, where uncertainty is a part of everyday life.

We are a strong company, we will continue to grow our value while we serve our customers. We are powered by talented and committed employees, who view our company as one that gives them a platform to contribute to our success, while they grow their careers and take care of their families.

We understand that investors are seeking opportunities to maximize value creation, while minimizing risk. We believe we can accomplish these goals.

With that Melissa I'd like to turn the call over for questions.

Thank you at this time, we will be conducting a question and answer session. 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.

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 Steven Lichtman with Oppenheimer <unk> Company. Please proceed with your question.

Thank you good morning, guys.

Jim I just wanted to ask.

The ongoing hospital challenges you'd mentioned I guess two questions. It sounds like angio back again with was most pronounced.

Are there any other segments that you saw or product lines that you saw that impacted and then two you also mentioned household managing through it through it a bit better can you talk about what youre seeing on that front from your customers.

Hi, good morning, Thanks for the questions.

Different challenges that we said first of all remember we have a staggered quarter.

Where most companies don't so we had a June July August quarter that we just reported and we really saw for the first time I was getting reports from our field from vacations now doctors, taking vacations, which you always hear and I started my shoulders, a bit so I call. It some of our customers to check and turned out to be true that goes hadn't taken a vacation for awhile that on top of ongoing.

And challenges some of these hospital CEO said, having a hard time staffing and recruiting more nurses. So they had a hard time in there or suites. One hospital in particular in Boston told me they have 23 or suites could only staff 15, although they had enough patient demand, it's really have all staffed and they actually need it all as well for.

Their own P&L to keep cash flowing through so a lot of that Steve challenges through to just <unk>.

Serving their patients was a challenge as ICU beds or fall and nursing staff to fill issues were a challenge I'll give you another side aside commentary even as we talk about the supply chain challenges everybody is using that term today, but we gave a couple of real life. Examples here I'll give you another one.

<unk> is an amazing product, but it can be complex to use requires a perfusion team. There also requires a specialty sheath to access the body before we could put energy back in to treat the patients. Some of these shifts rump backward into summer and still remain on back order in parts of the globe and Thats a component part that's necessary, it's normally stock by the hospital.

And they had a hard time getting them. So some cases, we believe we weren't able to help provide an easier back treatment, they probably manage that patient using drugs and.

Those cases, so those are some of the challenges Steve there were more and second we're seeing some of that come back the whole vacation thing as we think behind US now as you know September is com, we've seen antidotes back the hospitals now are catching up on some of their patient.

Loads that they want to take care of but it hasn't swung dynamically Steve. So we're seeing some positive trends in September but I'll still say, we are not normal yet I think the caregivers are under still pressure.

Got it Okay. That's helpful. Jim.

I think you had talked about last quarter call back in May.

Have you seen a little bit of a pivot this year with.

Maybe fewer placements, but looking to go deeper in current accounts actually did see a step up in placement.

Are you still anticipating that that dynamic.

As you go through this year in terms of really focusing on your current install base.

Yeah, it's really a blend of both D. But youre right you know as we said, we don't anticipate putting as many leaves us out as we did last year as the demand is very strong but the team is also shifting a bit not just the new laser placements and there's a lot of demand and just saw highlighted some of the clinical work that was presented during the quarter is very strong. So is generating a lot of interest, but we're also managing that.

We want to make sure we're getting the usage at each laser already placed at our expectation levels and by doing some of the things. We just did I mentioned, the new hydrophilic coating product being launched we have some other product improvements that we'd be the rolled out or rolling out over the next quarter in response to customer feedback and demand. So Steve you'll see again really strong placements during the course of.

The year I just wanted to let people know last quarter don't expect as many as last year, but also we're going to work on getting the volume per placement up on a monthly basis and each site that has a laser.

Got it got it.

Maybe lastly, Steve.

As you look at gross margin throughout the year, obviously, youre anticipating improvement sequentially beyond mix anixter.

That makes the margin benefit you noted from <unk> milestone payment and what are the key things that you anticipate.

Can improve here sequentially.

Our fiscal year.

So there's a couple of things couple of ways to look at it Steve both on a standalone basis and also on a comparison of year over year. If you think about the comparison as we get through Q2 and three more importantly, the comparisons are going to change because we're going to anniversary some of the real big uptick that you saw in the inflationary pressures that really accelerated during our Q3.

So we're going to anniversary that and I don't expect inflation to continue to increase at that same pace as it did last year.

Mix is going to be the biggest driver of our gross margin accretion as you pointed out I also expect we're going to see some benefit from some of the pricing initiatives that we talked about last year looking to take price maybe in areas of our med device business also some handling fees minimum order fees. Some other structural things that we put in place and then there's also the dynamic that we have.

Deal with every year, where with a standard reroll, we're running through that during the first half of our year. So the first six months on inventory turns and then you see a structural step up in gross margin for us in Q3, and Q4 that dynamic is going to hold as well.

Got it thank you guys.

Thanks, Steve.

Thank you. Our next question comes from the line of Matthew Michelle with Keybanc Capital markets. Please proceed with your question.

Hey, good morning, guys and thanks for taking the questions.

Just first one on already on them.

To place a lot of these a.

A lot of these boxes.

Could you give us a sense of kind of utilization per system, I think youre going to get it at a point now where you've had these systems in place long enough, where you could have some kind of same split like same store metrics for how people are utilizing these euro year over a year is it up are you seeing.

Or are you seeing a trend higher and like where you could back out the new placements and kind of what the what they've been doing for members.

Hi, Matt It's Jim Thats, a great question, So we do exactly what you're saying.

And you're right we have enough in the field now so Orient team does a really good job of analyzing customer placements. They break it down a bit we were finding that the first three to four months. After a customer gets the laser installed they really develop a level of familiarity that and understand how much they can treat where they can treat and how to help patients. So we really think we break.

Down in the segments of four months and less than once they get up and running post four months. We do have a same store sales comparison that we track. So that follows back to my statements to Steve a few minutes ago. That's why the team is also working with our customers who have lasers and are gaining that confidence in the product. We wanted to get that increased same store sales up in each account.

<unk> basis, and we're seeing that we don't publish the numbers of our averages, but we're tracking that very carefully so you're going to see growth in the next couple of years come from both sources, new customers coming online due to their increased awareness of the product and our same store sales going up by really two major factors driving that Matt one is the new pro.

Innovations, we're doing like the hydrophilic coating, whether you're arterial thrombectomy indication things like that where people can use it for more and number two I was just working with those caregivers as they gain that confidence level and see that whereas the other lasers. It's been out for years was really good above the knee, but now we can treat above and below really effectively as the data and pathfinder.

So we think it will take more and more cases throughout the spectrum over time, Matt in both of those things will help drive organic growth for really a long time to come.

And Matt just to build on what Jim said two there's two other dynamics that are at play here. So Jim is exactly right. We are managing this and were definitely seeing.

And in accounts increased utilization. We're also using the same methodology to determine which accounts we may want to switch around and so we've had some lasers that are in place from one OBL and move them to another OBL based upon volumes and so we're going to continue to see that play out as we are aggressively find the right customers. There's also.

The dynamic of increasing placements in the hospital setting we launched this product right in the midst of Covid when access to hospitals was really limited and that's why you saw the percentage of our Obl's really outpacing hospitals at a at a clip that was greater than what you see in the overall market that switching a little bit now too and we're prioritizing getting.

Into those hospitals hospital settings had a little bit of a lower utilization rate then the obl's, but they've got higher economic dynamics too is offsetting that so youre going to see a couple of those trends working together, but it it flows and exactly what Jim said, we're managing that we're seeing it and we're going to be driving growth in this business through both utilization of existing customers as well as <unk>.

Continuing to drive new lasers, because there is still significant demand for us to increase our installed base.

Yeah.

I'll just follow up to that I mean.

You guys continue to.

Finance these so.

The.

Rollout of the installed base as part of your own Capex.

But you have a lot of clinical evidence and you have and you have a lot of use cases now.

Benefits of Oregon.

What is the what's the tradeoff here between you guys owning these boxes and and your sales force now going out and selling them in your customers kind of owning these devices.

Why is this why is one model better than the other.

It's a good question, Matt historically I think the precedent has been set there's a level of customer expectation because the other company that had a laser.

With their catheters has really established that criteria. So a lot of the customers are expecting that we have sold them or we'll sell some more lasers overtime will offer a different economic model for those customers. They buy the laser there'll be a different structure on how they contract with us going forward. So Matt I think youre right, we see a long runway here with what.

This product can do clinically and scientifically so over time as we build more value with our customers and it does more as we have a lot of interest in gaining more treatment options with the science I think maybe you will see that shift but today, it's really primarily Matt are serving what current customer expectations have been.

Okay.

Then just lastly, it seems like you I don't know if you've re segmented.

But you've changed how you how you reported how should we think about where are you where do you kind of moved out of it.

Ported in Med Tech and med device versus previously Endovascular therapies vascular access like oncology is that is that a new segmentation are just reporting and then if you can call out of the growth. What do you think the med tech growth looks like for FY 'twenty three compared to the med device.

Yes, good questions, Matt Jim on I'll hand, this to you for the detailed questions, but just so you know we still run our company manage our customers with three business divisions. So we still have oncology business, our vascular access and our EVP. It's how we manage it really helps us treat our marketplace and our customers serve them well, but according to the accounting I'll point out Steve Madden.

Your details on the accounting rules here, yes, Matt it's a good I, we absolutely did change the way that we're reporting our business going forward. So we do have two reportable segments. Now we think that that is more reflective of the product lines that we have and how we're managing our business. So we're going to be reporting going forward in two segments Med Tech med device will be reporting revenue pursuing.

Each of those segments as well as gross margin.

So we have moved away from giving revenue detail. According to what were our form is where our formal business units.

We think that the way that to drive our business the way that we're managing it it's more transparent and reflective to look at it on that tech and device.

Segments.

But what we've said is historically you said expect our med tech business to grow 30% to 35% in the long term in our med device business to be a 1% to 3% grower that was part of our long term strategic plan you saw last year, where we came up with a little a little higher than that in tech and right around that level and device expect that going forward that's really what.

We're targeting.

We gave some gross margin guidance as well, we expect that tech segment to end the year with gross margins of 65% to 68% and for the device segment to have gross margins between 45 and 48%.

Alright, Thank you guys.

Thanks for that.

Thank you. Our next question comes from the line of Bill close on it with Canaccord Genuity. Please proceed with your question.

Great. Thanks. Good morning, Thanks for taking my calls my questions. So the first is just on guidance I was hoping you could help us understand kind of the puts and takes between the high end and low end the guidance, especially given first quarter results and then how should we think about the cadence sequentially and then in line with that question is just how.

Do we think about cash usage as you get into second third and fourth quarters. You mentioned you expect flat by the end of the year, but how should we expect that to kind of play out during the year.

Yes, so thanks Bill.

With respect to the guidance our full year revenue was $3 42 to $3 48, and we gave some specific guideposts to kind of show you, how we expect to get there and build it for Rei, We said 40 to 45.

And you saw the 50% growth that we saw this quarter.

We are right on track to hit those numbers on mechanical Thrombectomy. We had said we expect alphabet NGL back together to give you growth of 30% to 35% you saw we had 36% growth in that business. This year and again, we're looking at nano probes to be in that double digit 20% range. So as you put all of those two.

Together.

We are methodically working through the back order that we have ending the first quarter at $7 1 million, having taken about 1.3 out we expect to continue to drive that down in the med device business.

We were a decline in that device business this quarter of 1% as we continue to work through our supply chain.

You're going to start to see that get back into that that positive growth and youll see you've got the backstop some of the backward or there. So all in all that put together, we think the revenue guidance.

We're pleased with this quarter.

Orderly cadence we've talked about this before we see a little bit of a typical pattern and seasonality in our business Q1 always down sequentially from the Q4 of last year Q2, usually up sequentially from Q1 Q3 is a weird quarter. We've got December January and February in there that usually takes a small step back with Q4 being the highest.

Quarter again, I would expect that seasonality to repeat itself.

Media Little smoothing from what you have seen in previous years, because you're dropping in growth products like <unk> and alphabet, but that pattern is going to continue.

And then a question on cash.

Q1 is always the highest the highest utilization of cash for us.

A look back at our previous quarters, it's pretty similar to what you saw this quarter. So as we move into Q2 and three.

And four as well youre going to start to see significant building of cash throughout the year and so we're holding this this quarter in believing that our net cash position at the end of FY 'twenty three it's going to be right around where we ended FY 'twenty two understanding we've got the financing there was a little bit more debt taken this quarter and we expect to be building those cash.

Cash balances you know one of the things I did talk about in the prepared remarks was the increase in our accounts receivable balances as well as the increase in our inventory levels. All four reasons to deal with the continuing disruption that we're seeing.

I do expect to continue to work down our balances and move into that cash conversion cycle, but theres no doubt that our customers are extending out their payment terms I think it's a dynamic a lot of people are seeing it in this environment. So we're keeping an eye on that and as well as the the inventory that's not going to be a permanent thing we're going to be very thoughtful about how we go out and increase purchases.

A raw materials, we feel like we're in a good position now to try to deal with some of those acute supplier sub component disruptions will pull back on those a little bit which will also kind of give you some visibility into that increasing cash throughout the year.

Thanks, Steve So on Q2, I mean, historically, you've increased about one one and a half to three 5% sequentially and I guess, we can all take guesses at kind of how the business will improve sequentially, but we can't we don't have to look into the manufacturing supply issues that you do in terms of kind of work.

<unk> down that backlog as you think of the backlog work down is that something that will get cleared out in fiscal Q2 or does that take the whole year to clear out how should we think of the cadence of that.

Yeah, Hi, Bill, it's Jim and we don't think of a clear in Q2.

We've been fortunate now we've got a more stable base of employees at our current facilities that we run here in the U S.

Stabilize our client base, which is terrific and it comes at a little cost as you know and we've also got a Costa Rican operations that we announced a few quarters back up and running we're adding more capacity there as we speak so the combination of both build a better stability of internal and our Costa Rican capacity expansion will probably have the backward or cleared by the really the end of the fiscal year.

But I wouldn't expect it by the end of Q2.

Okay, and then on the cash so just clarify Steve. So are you, saying that cash flow should be positive in second quarter, and then get that more positive as we go through the year I'm just trying to understand.

Yes.

Directionally, yes, again, where we.

We're still dealing with a rising inflationary environment and pricing environment, but yes, all in all that is what we're expecting.

Okay. So a positive Q2 cash flow and then the last question I. Just have is on the accounts receivable in terms of is there a specific part of the business. That's most exposed they obl's or it may be slower to pay them the hospitals or.

Is this an across the board thing.

It's across the board clearly you do have a dynamic where typically office based labs some of the Doc offices, they tend to be slower than certain hospitals. There are certain hospitals that are slow as anybody else and you know you you've had that experience as well.

It has been across the board I wouldn't say, there's any particular area of.

A focus that has really been driving they are but we always knew as we increase for example, the <unk> business that the payment terms would be extended in that setting because it is a little bit different than a typical hospital setting.

And Bill it's Jim I'll give one other final comment too on cash we mentioned, how we're being flexible with our customers. During these tough times, but we've also drawn a line in there too.

We weren't chasing a revenue number this quarter. If we were we would have shipped some other stuff, but we have some customers that we've drawn alignment. So there's some credit holds the situations. So we're being careful and thoughtful as stewards of our cash our inventory being flexible with customers, but we're also there's a line that we've got to be careful with with some customers. We haven't just pushed products out.

The door.

And bill getting just just to clarify what you said too I mean, clearly we expect to see some of the payments that were in Q1, as we talked about being structural to Q1 not repeat in Q2.

Cash conversion dynamic, it's still with us in Q2, I expect it to get better, but that's not going to turn overnight. So there's that's going to be another way to think about as you move into Q2 and Q3.

And then and I'm, sorry to throw one more in on the Bard.

There.

Oh, it's out with the jury now when do you expect that final result to be available.

Well I don't know how long the jewelry with deliberate it's actually there it's in the jewelry at Haynes as we speak so we could be something that we hear about in the next couple of days.

It's it depends on how long they choose the delivery. There was two holidays yesterday was a holiday. It was a holiday last week, which has slowed down the process a bit, but we'll say it could be something we hear about anytime.

Great. Thank you.

Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. Clemmer for final comments.

For the investors, who listened in and keep touch with Angel dynamics again I'm pleased that during these challenging times, our company has persevered, serving our customers and treating patients with our technologies that are innovative and that are efficient. So we will continue to drive value for our shareholders by growing the value of our company. Thank you again and thanks to our employees.

<unk> for the tremendous work.

Yeah.

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