Q1 2020 Earnings Call

Good morning, welcome to the out your dynamics, it's clear 2021st quarter earnings call.

This time, all participants are in listen only mode.

Question answer session will follow the presentation.

Anyone today should <unk> operator assistance during the conference. Please press Star Zero Premier telephone keypad <unk>.

As a reminder, this conference is being recorded.

The news release detailing the fiscal 2021st quarter results crossed the wire earlier this morning.

The company's website.

The conference call is also being broadcast live over the Internet and at the Investor section of the company's website at Www Dot Angiodynamics Dot com and the webcast replay of the call will be available at the same site approximately one hour after the after today's call.

Before we begin I'd like to caution listeners. It during the course of this conference call. The company will make projections or forward looking statements regarding future events, including statements about expected revenue adjusted earnings and gross margins for fiscal year 2020.

Encourage you to review the company's past their future filings with the FCC, including without limitation. The company's forms 10-Q, and 10-K, which identify specific factors that may cause actual results or events to differ materially from those described in the forward looking statements.

Hi package offering insight to the Companys financial result is also available.

Through section of the company's website under events and presentations.

This presentation should be read in conjunction with a press release discussing the company's operating results financial performance. During this morning's conference call.

I'd now like turn the call over at the gym climber, Angiodynamics, President and Chief Executive Officer Mr. clever.

Thank you Rob and good morning, everyone. Thank you for joining us for Angiodynamics fiscal 2021st quarter earnings call.

Joining me on today's call is Michael brighter Angiodynamics Executive Vice President and Chief Financial Officer.

<unk> detailed analysis of our first quarter financial performance.

But first I'd like to begin by providing an overview of our operating execution highlights for the quarter.

I'm very pleased with our solid financial performance as well as the additional strategic and operational progress we've made towards achieving our longer term division during the quarter.

Angiodynamics looks vastly different today than it did a year ago.

In one year from now the company will look significantly different than it does today.

We are continuing to focus our efforts.

One thing in acquiring innovative technologies that complement our oncology and thrombus management platforms.

Additionally, research and development remains a top priority for US we remain on track really say number of new products and product extensions during fiscal 2020.

In addition, we continue to evaluate our portfolio and May consider divesting of existing business is no longer aligned with our longer term vision and strategy.

For example.

The divestiture of our name <unk> business in late fiscal 2019 allows us to continue to aggressively invest internally as.

As well as to be opportunistic on the M&A front.

Evidenced by the acquisition, we announced this morning.

The acquisition of Eczema Medical limited, it's consistent with our stated strategy.

Barring highly innovative and disruptive technologies within the clotting space and it's a great a compliment.

Sure vein focused angiovac platform.

Actually most laser atherectomy technology is a differentiated therapy that is well positioned to take share.

Urging growing market with established reimbursement dynamics.

This technology is an exciting addition to our portfolio.

And while the product is currently in a limited launch stage.

We will be building a significant commercial sales organization over the coming quarters to fully support the growth trajectory. We believe this product will achieve.

Penetrate this significant market.

To support future growth opportunities data presented by owning this product.

In addition to making these cynic significant investments.

We are prepared to invest in this overall platform potentially after additional markets.

Actually my will not have any material revenue impact.

As for your 2020.

And as we noted in our earnings release, we're modifying or expectations for current year adjusted EPS.

To a range of 10 cents to 15 cents.

We anticipate a meaningful increase in revenue over the coming years as clinicians began to gain a better understanding.

Improved outcomes and ease of use.

Afforded by this technology.

Paired to the current state of care.

This novel laser technology enables clinicians to perform atherectomy in a way it is more versatile and easier to use than other methods, including older laser atherectomy devices.

Confident that conditions will see the value in this product.

We paid $46 million Wrexham out in upfront consideration with additional earnouts totaling $20 million associated with technical and revenue milestones.

Turning now to their life.

Our continued momentum our momentum continues.

Seven study sites have secured I or be approval related to our direct study and we anticipate up to 10 additional sites, achieving I or be approval by the end of our fiscal year.

This is in line with a previously reported expectations.

Separately, we are working with the sites that will enable us to complete our prostate safety study by the end of this fiscal year.

We look forward to providing you additional updates on both of these exciting never like related studies over the coming quarters.

As I mentioned earlier.

Our R&D efforts will enable us to launch a combination of new products and product extensions in fiscal 2020.

We remain on track with these product introductions, which include.

And improved version of Angio back, which was launched last week utilizing new canyon with shapes that will improve the devices efficiency there will be a key stepping stones.

Further development within the thrombus management portfolio.

Our near like 3.0 generator, which is also already been launched with two units sold during the first quarter.

And three new products, and our vascular access portfolio, including a new port that combines our vortex sport body with our Bioflo catheter technology.

As well as new dual and triple lumen catheters that will expand dark huge dialysis portfolio.

We also recently announced a dual source for purchasing agreement with Premier.

Just apply implantable infusion imports, including Bioflo vortex, an excel.

As well as to committed sole source agreements.

With the ascend and surpass membership groups.

We're excited by this announcement.

As it provides us access to premieres extensive membership network.

Of approximately 4000, U.S. hospitals and 165000 other providers.

While further validating our high quality portfolio for products.

Hi, I'm very pleased with our ongoing operational improvements.

Our team continues to make outstanding progress on our strategic initiatives.

We're very excited about what the future holds for Angiodynamics.

Finally.

As I've already stated we will continue to focus our M&A and R&D efforts on oncology Thrombus management solutions.

That allow us to play in attractive markets.

An example of executing our strategy is highlighted by the recent divestiture of our fluid management business, we exited a mature 200 million dollar market exhibiting slow to moderate growth.

And now we've entered a growing 500 million dollar plus market with the Exmar acquisition that we announced this morning.

With that I'd like to turn the call over to Mike a brighter our executive Vice President and Chief Financial Officer.

Thanks, Jim and good morning, everyone before I begin please remember that we posted a presentation on our Investor Relations website summarizing the key items associated with our quarterly and year end results as well as our financial guidance unless otherwise noted all prior year results and comparisons exclude the country contribution.

One of our naming fluid management business from the prior year.

Our net sales for the first quarter of fiscal 2020, 466 million representing year over year growth of 3.3% when including our radio dine and bio century acquisitions, and a 1% decline on an organic basis, excluding the fiscal 2019 revenue contribution from a asclera product, which we see.

Distributing during the fourth quarter fiscal year 2019 revenue growth for the first quarter was 5.6% representing organic growth of 1.3%.

On an organic basis, our angiovac dialysis catheter and thrombolytic products exhibited solid growth during the quarter.

Separately, our Venus insufficiency products returned to growth when excluding asclera.

These pockets of growth were offset by declines in our picks imports products as well, we continue to see traction around our prior your acquisitions, specifically the biocentury track sealing systems and the allowed us an ISO like aluminum products, we have not seen meaningful revenue yet related to our or track system.

And I still determining the appropriate go to market strategy for ensuring proper and long term acceptance of this technology in the marketplace.

Our total VIP business grew 1.1% year over year, and excluding Asclera grew 6.4%.

Strong growth in angio back in our thrombolytic products as well slight growth in our Venus products access Clara are partially offset by a slight decline in our core business.

Turning to Angiovac within our VIP portfolio procedural volume remained strong.

Procedures, increasing 38% year over year, representing our eighth consecutive quarter of double digit volume and revenue growth and continues to validate our strategy to build or acquire complementary products that will fill in the amount of moderately complex gap within our current thrombus platform.

Also I'm excited to share that we completed over 100 cases during the month of September our first month ever with more than 100 cases completed with our Angiovac products.

That's cool or access revenue declined roughly 2.7% during the first quarter. That's continued strong performance in sales by dialysis products and growth in mid line was offset by declines in sales and picks imports.

Revenue from our oncology business increased 20.9% primarily related to the prior acquisitions as well as growth from Nanoknife and Valero.

This growth was partially offset by continued anticipated decline in sales of our radio frequency ablation products.

Now moving down the income statement, our gross margin for the first quarter fiscal 2020 was 57.9% up 170 basis points compared to a year ago, driven by productivity and supply chain improvements as well as positive product mix.

Research and development expenses during the first quarter fiscal 2020 were 6.3 million or 9.5% upsells compared to 7.4 million or 11.5% himself a year ago.

As we've previously message, we are continuing to invest in R&D and clinical to support the growth of our core strategic technologies.

We now expect R&D spend to be between 32, and 34 million in fiscal year 2020, as a result of investments related to our acquisition of X. amount.

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A commercial team that's when we met each other so we have the value of understanding this market knowing the I.C.'s well, we haven't do commercial experience. So for us. It's a really really good acquisition and for them. It's a good partnership as well, but they weren't really looking map to go commercialize it.

Yeah, there's really however, when purchasing heading up the U.S. efforts at this point and now obviously, he's joining our team and we're gonna I support those efforts really over the coming months not too you see as Michael identified investment will make we haven't given a clear structure to your exactly where when we want to build that in test our assumptions that we built during the villages.

And then as a follow up to that what what does that or clinical data say.

It does better than the standard of care for affect me today.

It's a really good way that we're proud of what they've done let me handed to Steve Trowbridge will handle that for your Matt Hi, Matt. Thanks for the question.

So the data that they have was excellent data that they did an I.D.E. trial that supportive there 510 k. approval. It was very well run. It was it was very well controlled but if you look at the data that comes out of that what's very unique about this technology what sets. It apart from the other laser <unk> technologies that are out there it is very vague.

Very effective in terms of the highly calcified lesions and there's an element of tissue selectivity. So it goes after calcification without damaging vessel walls. We think that's a unique opportunity for us to really articulate why this technology is better than the current laser that's out there and if you take that further we think it also shows that there is promised to take this laser techno.

Allergy and get into a little those mechanical market. They we haven't atherectomy.

Oh excellent then they'll squeeze one last one in on on College, you first Jim Michael you guys have have a very big 20 per cent organic growth number underlying your quality segment guidance for this year I guess, given the first quarter you know how personal how confident are you in in in the momentum in that business.

Given where you're at and one Q. and then.

What do you need to see from or track to hit that number.

Yeah, I'm asking questions. So you know we have a a large growth expecting this year.

I told you we split it kind of four areas with the two acquisitions being two parts of that and then again or microwave in their life grow. So first q. was probably softer than we expected maybe in three of those four categories.

As we were you seen from us to we're not running the company quarter to quarter, we stopped giving quarterly guidance and we don't manage a quarter to quarter. We have expectations will still hit the guidance. We gave you guys in the ontology groups a big part of it. So we know we're headwinds why we know or a tail ones are so we think will hit ones will have out in front of you. This year <unk>, we have challenges in each of those.

Four categories, but we have plans to hit those are really what I hope you see the bigger aspect of what we've done the last couple of years, you're <unk>, especially in oncology you look at us getting granted the I.D.E. approval earlier this year by the F.D.A. The last 60 years met we sold $6 million to $7 million in the U.S. every year from their nice because we have no indication.

And there's really no market attorney created without an indication into life is really a story with with nothing else behind him as we shared with everybody earlier. This year 57000 Americans are diagnosed annually with this terrible disease and pancreatic cancer. The numbers, we've shared with you externally if we can treat roughly 40% of them.

After we receive hopefully if successful indication and approval to go market. The device in a couple of years. We think we can get the market about $160 million day, one with the approval the indication clear that may be conservative, we'll see so we've talked about how we're going to expand a market get to treat patients in need and become a standard of care. So we'll take what's always been a struggling mark.

Behind an amazing technology really expand a marketplace give angel dynamics room to operate and give also clinicians room to care for and treat people and that hasn't happened before so larger macroscale <unk>, that's where we're going with our technology short term we have pressure on the numbers and gave you understand it we have had it was until wins and we believe will deliver.

Okay understood. Thank you guys.

Oh next question when the line of <unk>, let's just anyway.

[noise], thanks, more entertaining I can you hear me okay.

But.

Super So wanted to to start with <unk> and I guess, just just probably give us an update on your on your commercial infrastructure heading into the steel and what the commercial infrastructure, specifically sales force in the support around the sales force.

Probably and specific to eczema will be once you're finished building it out through fiscal 2020, <unk> can you give us an idea because over the years are covered this thing for a long for the stock for a long time as you know before you joined Jim There were several changes in philosophy with respect to the sales force.

Bifurcated sales force for a while a a combined sales force and then back and forth a couple of times and then you've done a lot of work on the commercial infrastructure. So give us an idea of where that stands today, what it will look like after <unk> in what you expect to see it look like sort of.

Couple of years after launching <unk>, you know in a four way.

Good question, Jason So as you know our company's going through a history of how we do sales thing since we've been here you know that I I don't like a matrix organizations, we like director alignment accountability, you've seen that from how we operate so that being stated you've also seem a little over a year ago, we took our vascular interventions in technology sales for us where we.

Had to we had one focused on her Venus laser group and now one focus on delivering our Andrew back and core products before that was two groups 15 months ago, We split it I'm sorry before was one group we split into two we've seen now better dedicated way to communicate the value of and you back to those conditions that use it and then also in the Venus laser so.

As you've seen by the numbers today something that has declined rapidly for two straight years, we finally flattened out and bottom does we predicted part of that because we have two different sales forces focus and dedicated those markets. So going forward, Jason as I mentioned earlier, we tested two levels of theory during the diligent process of adding this new X.M.L. product to one of our <unk>.

Sales bags, we're going to dedicated route and as we sit here today, we choosing the dedicated sales route to initially get this product off the ground now two or three years from now there's a lot of synergy maybe we'll look at a sales synergy today for a couple reasons number one is the product itself is so special that technology is so unique we want.

To make sure we have a dedicated sales for us communicating those benefits to the positions that we'll use the product number two we also feel that we have at least for really strong good competitors in the market today and a lot of those are really focused on delivering their message we want to make sure. We have people dedicated that can deliver this message. So we we went back and forth Jason evaluated different ways to do.

Do this end of the day, what broke to tie for US was the value of this technology why it's so special and as Steve just articulated a few minutes ago were supported by a really really great indications that that was granted during their 5 10-K .. We think it's really worthy for us to communicate that properly as to why physicians that today.

Use either mechanical or the current laser should take a look at this later because it has benefits in both of those applications.

Okay. Thanks.

It didn't really get to my question, which was you know size, if if you're if you're not willing to sort of talk about numbers in sales works today number dedicated <unk>, maybe you could give us sort of <unk>. Some <unk>. Some some color qualitatively <unk> it would be help.

<unk> to understand and then yeah, it's a follow up to X. So.

How how do you play and just what what's the strategy with respect to go to market you mention you've got a couple of laser competitors, but you also have several entrenched atherectomy players in large companies and small companies like you you mentioned that this this this technology.

He has we'll have labeling and application above 20 below the knee and instead <unk>. So on the positive side in my mind. It has some abroad indication set that having been said that it's a lot of geography to cover as you probably know and ask direct to me.

It's it's very different above and below the knee and in some in some respects one focus one place or the other can be helpful. Trying to be all things all people can sometimes spread you too thin. So could you talk about go to market strategy, where you expect to focus.

Initially and also lastly, and then I'll get back out of the way here. There's there's a lot of of earnings you're taking out of the model, but yet you have it really discussed what sort of revenue that might be associated with us in fiscal 2021, I think investigate.

I don't want to know if you're spending as much money to go out of sales force. What are your sort of you know broad expectations quantitatively in terms of X.M.L. contribution in 2021.

<unk>, let me try to get all those Jason and I didn't Dodger question. The first one I just forgot to answer it. So we're not going to give him today a commercial structure announcement as to how many people we have our internal models that we built new will be dedicated today <unk> has one head of sales in the U.S., whose handed all the k. a well read.

Relationships and getting some initial products place to be utilized by the K.L. wells. So there's a supply chain situation. We went to make sure we can supply our customers with number one the lasers at the right cases that we need them numbered sued the catheters with the quality levels are we expecting entered dynamics and the volume levels that we've built.

In our forecasts so we've got to get those two things built up first so we're taking a deliberate approach towards how we commercialized and marketing a product. The reason why we're not giving any revenue guidance. This year, because we don't think there'll be much maybe some really trailing in at the end of our fiscal year. If so we'll update you during the current year, we're going to take a period of months to make sure we commercialize properly.

So as we do that will then sherry more details around how many people were adding and where the numbers. We gave you today that are associated with the adjustment in the P.S. support what we expect to spend this year on a blend probably two thirds commercial maybe one third r. and D. as Michael identified earlier on a blend more that towards commercial so.

We think that's important now getting back to how we're going to go after the competitive sex again, we think this technology is really really unique and you saw again by the indications.

That are granted we think that's a really really strong seven indications and we agree with you above the knee and below the knee are two different areas were excited that this technology can address both of those areas and we want to communicate that so that's going to be one way to challenge one way an opportunity for us as to how we do that Jason that's what we're being deliberately event.

Make sure we do it right communicate it we know already from established Kay while relationships, where a lot of interest lies and physicians who want to utilize this product. So as we go far they've got to make sure. We do communicate that properly and final back finally back to your point of investors, having some level of future growth we agree and.

Hopefully you'll see we've been very transparent we believe the last couple of years with how we're going to do what we're going to do and this really follows that pathway, where we told the marketplace. We want to upgrade our portfolio do less things that are based in commodity and supplies do more things that are specialized unique technologies, and that's where we do well it's overtime, Jason we will update.

Revenues that are investors can expect to see again, let me remind you. These are very very high gross margins based upon especially looking where we left behind the NAMIC. There's this is a great business Medline bought a great business, but that was a 40 per cent gross margin business with no growth today, rendering something it nearly double that gross margin level wrong at a faster pace.

So we'll update or investor Jason during the course of <unk> as we test our assumptions filled out our plan. If you want to use a rough model and saying Hey, three years out injured I name. It can probably have 8% to 10% of the market that's probably in line with our expectations and we'll give you more detail as we go.

And we also anticipate that for the coming four quarters has a standalone products, we will be dilute of.

But sometime in the back half of next year, we anticipate will start to become a creative with this product is a standalone probably.

Okay. That's helpful incremental color. Thank you.

Thank you that's her mind repressed style one to ask a question.

We ask me please let me or something one question then one follow up question.

The next question isn't a line of Matt you Atlanta crank Helen Yeah.

Good morning thinking of taking the questions first what how many of the extra more devices are currently in the field how how many <unk> are currently using those and.

Is that a a base that you think it can at least start to show some traction with Stan and you can show some a little bit of revenue from or how do you know how how can we think about the the initial base.

<unk> there there are less than half a dozen in the field today and again one of the reasons why we're being delivered with our supply chain and commercial roll out because we want a task as you know entered dynamics. The blessing. We have here a 30 year history and legacy of product quality accompanies always had that we've been trust and relied upon by our customers.

For years, and we're not going to break that the way to this product design at at X. amount is really really amazing. So it's really important for us to make sure. We can we can communicate how well it works why it's so special but also ensure that meets our quality levels. So we're going to be delivered with our supply chain of quality folks make sure we get the product.

Made to our specifications and we trust them. When they are then we'll go to market in a really robust fashion until then the products that are in the field today will probably generate a little bit of revenue catheters, but we're not pushing we're not having any substantial revenue if during the common quarters or something to talk about one guide you there, but today, we're not expecting and we're not even trying to.

Any revenue we want to make sure that we have the supply chain ready. We also have the position training and sales rep training programs ready so that when we commercialize it goes back to Jason's question. There are some good competitors in the space. We think we have the best technology. We believe our customers are going to adapt to it but we also got to make sure that we're prepared to enter this market with all the.

Right things lined up on our way.

That's great there's actually a perfectly then I follow question was regarding the the the training of new physicians, how complex or a complicated is that process is it something where you would be bringing them into.

Your facilities to train or would you be sending out dedicated sales people to them and you know how how quickly can a doctor get trained on the X.M.L. devices. It you know a couple of procedures are ready to go or is it a little bit longer than that thank you.

Another good question. So again, we've done extensive feel diligence with the X.M.L. team and their K.O.L.S over the past couple of months as we were doing are doing and start here. We believe we use a combination of three different aspects you know in house training, an angel dynamics.

Old training that will set up and even K.U.L. training at K. well centres around around the country. So we're going to take a three pronged approach filled first we need to build out what we believe will be the appropriate level of training again for sales reps individually <unk>. The good news for us to the people at <unk> did a really great job, establishing calwell relationships with really.

So you just can't wells, who have seen the value of this technology and some of those k. roles have already kind of raised her hand said, we'd like to be a part of this process with you. So we really have a network that exist today from the extra most side and then don't forget to enter dynamics, we sell parallel products right along side. We know many these k. miles we know these positions today.

Some of those folks also probably raise their hand and like to get involved but again, that's why we're being delivered and measured with our commercial approach to make sure. We do these things right. We know our product is really really special we also want to make sure go into market Soffel deliberate one thing to add to a gym said, we were going to put a lot of time into developing our physician training materials.

Physician training program, but one of the things that we do think is a real feature of this product is ease of use it's very customer friendly they'll as Jim said. The good thing is there's already an established market for for using laser and atherectomy like that but we also think that this product has a level of ease of use that goes even beyond the current systems that are out there so it's going to be.

Very thoughtful robust program, but it also comes for a platform that we think isn't terribly complex.

Got it alright, thank you very much.

Thank you.

Now it's tend to call back too much calmer pretty close you know our car.

Thanks, Rob. So this morning, hopefully you saw that we ended our Q1 in a really good fashion.

We have <unk> company does this market. We know are are risks July we know or opportunities presented themselves worked hard during the remainder of this year to maximize what we can do a danger dynamics, but more importantly, as we transform our company into a company with a more robust to portfolio better aligned to physicians, who direct care.

Immediately with their talented skills and hands and are are amazing products, adding extra mode. Today is really important step in our transformation.

This is our fourth dealing 14 months require three really need technologies. We've divested one thing we think has a better owner than us. So we've talked to our investors who talk to our employees in our customers when a transparent fashion.

Better need and our willingness to change our portfolio and here today, we're proud to announce the X.M.L. deal as another step toward that transformation. We're in this for the long run we're adding technologies that will provide better patient care better up annotation outcomes. We believe we're stronger company today than we were we believe will be a better company.

The future. Thank you for joining us this morning.

Thank you so completely conference disconnects reliance this time, thank you for your participation.

Yeah.