AngioDynamics, Inc. (ANGO) on Q3 2021 Results - Earnings Call Transcript
Operator: Good morning, and welcome to the AngioDynamics Fiscal Year 2021 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. As a reminder, this conference call is being recorded. The news release detailing the fiscal 2021 third quarter results crossed the wire earlier this morning and is available on the Company's website. This conference call is also being broadcast live over the internet at the Investors section of the Company's website at www.angiodynamics.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.
Jim Clemmer: Thank you, Melissa. Good morning, everyone, and thank you for joining us for AngioDynamics' fiscal 2021 third quarter earnings call. Joining me on today's call is Steve Trowbridge, AngioDynamics' Executive Vice President and Chief Financial Officer. Steve will provide a detailed analysis of our third quarter financial performance. In line with commentary on our previous calls this fiscal year, both Steve and I will be providing slightly more intra quarter detail than we would during a normal operating environment. I am very pleased with our performance during our third quarter, which continued to face challenges from the COVID-19 global pandemic. Third quarter revenue was $71.2 million, representing growth of 2% over our third quarter last year. I am particularly encouraged with our performance, especially in the face of the clear impacts of COVID-19 on procedure volumes across our entire business in January and in the first half of February. In addition, our third quarter year-over-year revenue growth last year was 9%, which of course did not include any COVID-19 impact so our third quarter of '21 was already facing a challenging comp.
Steve Trowbridge: Thanks Jim and good morning everyone. Before I again, I'd like to point you to the presentation on our Investor Relations website summarizing the key items associated with our quarterly results.
Jim Clemmer: Thank you, Steve. I'd like to say thank you again, to all of the members of the AngioDynamics team for their hard work, and particularly for the strong finish, while facing the resurgence and COVID headwinds during the quarter. Our team has successfully maintained our balanced approach to managing expenses and cash while continuing to invest strategically in our three key technology platforms AngioVac, Auryon and NanoKnife. I continue to have the utmost confidence that this strategy is the right one to drive long-term profitable growth in our business and create value for our shareholders. With regard to one key product in development, we remain on track to deliver our off circuit mechanical thrombectomy device later in calendar year 2021, which we anticipate will accelerate further grows in our VIT business. As a reminder, this is the first step in our market expansion strategy as we continue to make focused investments in the thrombectomy space, with the goal of delivering additional product line extensions over the next three years. This first step is instrumental to the success of the ongoing transformation of AngioDynamics. We are not the same company that we were five years ago and we won't be the same company two years from now that we are today. We've exited businesses where we were not the best owners. And we are looking to invest in and acquire technologies that position us to take share in larger and faster growing segments of the market where innovative and differentiated technology drives measurable outcomes, and those outcomes can change physician behavior. As we look ahead, we are encouraged by the recently improved market trends as the threat posed by the pandemic recedes and broader vaccine distribution takes place. Our team remains laser focused on long-term growth through our investments in internal R&D, targeted M&A and the expansion of clinical and regulatory pathways for our key technology platforms. With that, I'd like to turn the call back to the operator to open up for questions. Melissa?
Operator: Thank you. At this time, we'll be conducting a question-and-answer session. Our first question comes from line of Jayson Bedford with Raymond James. Please proceed with your question.
Jayson Bedford: Thanks and good morning. Just a few questions, on the intra quarter trends, did the harsh weather in Texas and the southeast have much of an impact in the quarter?
Jim Clemmer: Hi, Jayson this is Jim, thanks for joining today. Jayson, it did have a temporary effect. We definitely saw that. I guess I didn't want to comment on it because we expected that hopefully those patients will get treatment that they deserve at some point, but we did see a temporary effect to be fully transparent.
Jayson Bedford: Okay, but it's tough to quantify I assume?
Jim Clemmer: It is. It's really hard. So, I didn't want to put it out there Jayson. But there was an effect on our sales people as you mentioned.
Jayson Bedford: Okay, you alluded to better conditions in the second half of February and into March, but it looks like the lower end of the implied fourth quarter guide is kind of flat to down slightly. I'm just wondering why would that be the case.
Steve Trowbridge: Yeah, it's a fair point Jayson. We still have increased uncertainty and limited visibility with COVID. As we mentioned, we did see the increased COVID impact in Q3 that we were expecting coming off of our Q2. We do see improving trends. We are hoping that those trends will continue, and we've got reason to be optimistic that those trends will continue with the increased vaccine availability and the increased opening. That being said, there's still limited visibility in this COVID environment, and I think our guidance is looking to be cognizant of that fact.
Jayson Bedford: Okay, on AngioVac, you mentioned the 27% growth. Can we assume that volume growth roughly matched dollar growth?
Steve Trowbridge: You can, we are seeing the revenue growth, the dollar growth that we're seeing coincide with increasing procedure volume, we are tracking that. And so, it was a very good quarter for us in terms of procedure volumes on the AngioVac, and those two things are moving relatively in lockstep.
Jayson Bedford: Okay. And just on the new thrombectomy device, have you filed the 510(k)?
Jim Clemmer: So Jayson, we haven't filed yet. We’re in final validations of the work that you do prior to filing. We'll probably let folks know when we file. As I said earlier, we anticipate filing in the first half of the calendar year, and then expect 510(k) approval second half, but we've not yet filed.
Jayson Bedford: Okay. And just a couple quick ones on NanoKnife and then I'll jump back in queue. You mentioned that you're looking to expand indications. I'm just wondering was that more of a near-term comment, a longer-term comment and just a little bit more on kind of where you are with prostate. And then I'll ask the second one upfront here, when do you lap your anniversary the tough NanoKnife Capital comps?
Jim Clemmer: So a couple quick points Jayson. So your question about the expanded indications, it's actually short-term and long-term. I hate to give you that, but the truth is this is a platform technology, and our company now has a really good grasp on what to do with it. For years, I don't know if the company did the right things. But the DIRECT study was important to us, getting the pancreatic IDE started because the pancreas is so difficult to treat as we know. Now that we've gotten the study going in momentum, we've highlighted that prostate is our next interest. And for different reasons in the pancreas due to the acute nature of the disease differing, but also the FDA has new guidance documents about how to treat the focal therapy, regulatory process, we're following that carefully. We also think improved guidance and improved visibility that physicians have with the prostate will help treatments like NanoKnife. So, we're excited. We'll give you more details soon on our prostate indication, aspirations. And then beyond that Jayson, again, we think this is a foundational technology that the science works, the mechanism of action works well to treat other organs. So, it should be a long-term opportunity to grow this, and Steve would you like to comment.
Steve Trowbridge: Sure. And Jayson on the question around the comps, really it is at the end of our FY '21 we will anniversary the comps. We headed into our fourth quarter last year, and as we mentioned on the call, we did see the largest impact of COVID hit us in our fourth quarter. That being said, there was still some capital sales that occurred in the fourth quarter, a little bit less of a - a little slower pace than we saw earlier in our FY '20, but for the most part, we're going to anniversary that big capital year once we get through '21.
Jayson Bedford: Okay, thank you.
Operator: Thank you. Our next question comes from line of Matt Mishan with KeyBanc Capital Markets. Please proceed with your question.
Matt Mishan: Hey, good morning, guys. First question on Auryon, do you have a good sense of where the procedures are coming from and what it's being used for?
Jim Clemmer: Hi, Matt, good morning. We do - as you know, we have a dedicated team that we hired to just work on Auryon. We now have over 40 people dedicated to this business unit. And Matt, they track almost every case. So what's encouraging, we've seen an increasing ratio of the cases that we're treating have been below the knee. Early on, I think physicians treated above the knee. It's a brand new technology, people are getting used to it. But as you know, we're very encouraged on how it works, because it has the ability to treat above and below and treat hard and soft calcification. We're watching it and watching the ratios change. We look forward to communicating that with you as we grow that business.
Matt Mishan: Okay, excellent. And you mentioned the recent improvements in your end markets. Can you go into a little bit more detail into what you've seen in March so far?
Jim Clemmer: We mentioned in March and Steve and I can both comment. But we're seeing a little bit more just slow, steady case procedures, OR's are being booked again, I spoke to a physician last week. Now, here's a here's a kind of a good and bad analogy for all of us to watch what's happening in our industry. But a physician I spoke to last week told me, he did a surgery on a patient that he had to remove a tumor. He said, normally, it was a complex procedure, it may have taken two hours in a normal environment, but it took nearly six, because the patient had progressed and the tumor had gotten worse. So I think we're going to see Matt is situations like that. All of us in the healthcare space, we're now we're getting back in treating people that need to be treated, but the acuity maybe a little higher than before. So we're being cautious Matt. We're letting our customers guide us. And they're telling us that they're trying to rebook OR suites, get people treated at a little faster pace.
Matt Mishan: Okay, that's kind of unfortunate. And then, just on the expense reimbursement from the CARES Act, is that a onetime reimbursement? Or is that something you expect over the course of the next 12 months?
Steve Trowbridge: It's a onetime hit. So this was based upon the law that was passed previously that we were able to take - we were able to fit into and make our application. As it sits today, it's a one time. We're keeping our eye on the current law that was passed to see if there's any other benefits. As of right now, we don't think there are. We'll continue to monitor that and we'll continue to assess the situation. But you should think of it right now as a onetime.
Matt Mishan: Okay. And that actually helped the gross margins and the underlying gross margin was a little bit worse. Just can you go back to the dynamic that you were talking about with office space labs, versus hospitals in that mix and the impact of gross margin there?
Steve Trowbridge: Sure. So I think to tell the gross margin story what we're focusing on to drive top line growth in the immediate timeframe, as well as in the long-term is going to be those three growth platforms, Jim has talked about Auryon, AngioVac and NanoKnife. All three of those will be accretive to corporate margins, and that will drive our margin profile over time, certainly AngioVac and NanoKnife today, we talked about some Auryon startup costs, but that - we expect that to - as we get through the initial phase is going to be accretive to corporate margins. One of the things that we've talked about in looking forward is Auryon and that mix between hospital sales and OBL's. As we've said in the past, pricing in the hospital environment is usually higher and it's noticeably higher than what you see in the OBL based upon their sales and use model. In the COVID environment, what we've seen is a little bit of a shift in the mix, from where we initially expected when we bought the product from the hospital-based placements to the OBL's, it's not surprising, right. The OBL's have been open, they've had less restrictions, they don't have to follow some of the same protocols that a general hospital does and so you've seen a lot of those procedures continue to be done in the OBL's, where maybe hospitals have been cutting back as they've been getting - preparing for COVID opportunities. Honestly, we expect that mix shift to probably be sticky and continue as you move forward. So what you'll see is our expectations are you're going to have a shift to more OBL's doing procedures. So when we thought it was maybe 50-50 or 60-40, it may end up being 70-30 or higher in terms of 70% of atherectomy procedures being done in the OBL's as opposed to the hospitals. So as you look out into '20, the end of our FY '21 and '22 and beyond that mix shift is going to have an impact because of that pricing differential that we talked about, not necessarily pricing pressures, it's just more of a customer mix shift. And so we think that that will impact the - that accretive margin benefit that you're going to see from the increasing Auryon contributing over time.
Matt Mishan: Okay, that's - I get that. And last question, I'm assuming that as we get out to next quarter, you guys are thinking about FY '22 guidance, just what are some of the moving pieces you'd like us to consider at this point?
Steve Trowbridge: So we will come out with guidance when appropriate, where hopefully that'll be at the time that you normally see it. We're going to keep our eye on COVID and the continuing impact that we see there. I think a lot of the things that we've been talking to you throughout FY '21 are going to be the moving pieces. I think first and foremost, we've got a line of sight to top line growth through our growth platforms in Auryon, AngioVac and what you're seeing clearly in the US in terms of Nano growth. That focus of course will continue as we head into FY '22. We talked about our plans on continuing to invest in R&D as well as continuing to invest in the sales force to drive that top line growth. And we're going to look to be as transparent as we can about those investments. But I think the expectation is we will be investing to support that top line growth that we think is going to be important to our long-term strategy. And then beyond that is the gross margin, which is what we've talked a little bit about this quarter in terms of our expectations. Again, the big point being we expect our margin profile to be positively impacted by our growth platforms over time. As we sit here today, a large part of our revenue base is coming from those more mature businesses. We've got one plant, it's in upstate New York, it's in an area where there is a tough job market in the sense that there aren't too many openings and a lot of people are hiring. And so it's some of the things - some of the headwinds that we're facing currently. But I think those are the major drivers that you should expect, very similar to what we saw in '21, as you head into '22.
Matt Mishan: All right, excellent. And really a nice quarter. Thanks guys.
Steve Trowbridge: Thanks Matt.
Operator: Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Clemmer for any final comments.
Jim Clemmer: Thank you, Melissa. And again, I'd like to thank the AngioDynamics team for working through this COVID environment, the period of uncertainty. We focused on the health and safety of our employees first and continuing to ensure a robust supply chain for our customers indeed our products. Our team has done a really great job. I thank you for paying attention to our results today. And we look forward to growing their strategic initiatives, investing in our key platforms and investing in our people. Thank you again. Have a great day.
Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
