AngioDynamics, Inc. (ANGO) CEO Jim Clemmer on Q4 2019 Results - Earnings Call Transcript - 41 minutes read


AngioDynamics, Inc. (ANGO) CEO Jim Clemmer on Q4 2019 Results - Earnings Call Transcript

AngioDynamics, Inc. (NASDAQ:ANGO) Q4 2019 Earnings Conference Call July 10, 2019 8:00 AM ET

Good morning, and welcome to the AngioDynamics Fourth Quarter and Fiscal Year 2019 Earnings Call.

At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference call is being recorded.

The news release detailing the fourth quarter and fiscal year 2019 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.

Before we begin, I would like to caution listeners that during the course of this conference call, the company will make projections or forward-looking statements regarding future events, including statements about expected revenue, adjusted earnings, and gross margins for fiscal year 2020. Management encourages you to review the company’s past and future filings with the SEC, including without limitation, the company’s forms 10-Q and 10-K, which identify specific factors that may cause the actual results or events to differ materially from those described in the forward-looking statements.

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 & Presentations. This presentation should be read in conjunction with the press release discussing the company’s operating results and financial performance during this morning’s conference call.

I’d now like to turn the call over to Jim Clemmer, AngioDynamics’ President and Chief Executive Officer. Mr. Clemmer?

Thank you, Rob. Good morning everyone and thank you for joining us today for AngioDynamics 2019 fiscal fourth quarter and our full year earnings call. Joining me today on the call is Michael Greiner, AngioDynamics’ Executive Vice President and Chief Financial Officer who will provide a detailed analysis of our fiscal fourth quarter and our full-year financial performance.

But first, I'd like to begin by providing an overview of our operating and execution highlights for the year, and further describe our vision for what lies ahead for AngioDynamics. Shortly after arriving at AngioDynamics, I defined a near-term focus for the company that included improving operational efficiency, increasing gross margins, and optimizing working capital as well as developing a robust R&D process.

Those shorter term objectives were critical to establishing a framework and foundation upon which we could build our longer term vision and strategy. As we exited this New Year 2018, we were energized by the significant progress we have made against those operational goals positioning us to begin formulating a more defined strategy for our portfolio. Specifically, we identified the products that we believe were both differentiated and positioned for growth and that we could complement with M&A and our improved R&D processes.

We also identified those products for which we may not be the most effective long-term owners. As you saw throughout fiscal year 2019, we have taken the first meaningful steps towards optimizing our portfolio with a specific focus on oncology and thrombus management. In the early part of the fiscal year, we completed the acquisitions of BioSentry and RadiaDyne adding three exciting technologies from this acquisition. The BioSentry tract sealant, the lattice and a mobile lock balloon stabilizing products and the OARtrac radiation dose monitoring technology, all of which will contribute meaningfully within our oncology portfolio.

The second half of the year saw continued momentum around our NanoKnife platform as we announced FDA approval of the IDE for our DIRECT study for the use of NanoKnife to treat Stage 3 pancreatic cancer. Within six weeks of approval, we enrolled our first patient which was ahead of our schedule. Our clinical groups are focused on driving the operations of our DIRECT trial working with more than a dozen leading sensors in our initial phase of site startup to complete all of the steps necessary for site initiation. Over 57,000 people are diagnosed each year in the United States with pancreatic cancer resulting in a sizable addressable market for NanoKnife in excess of $150 million.

Shortly after receiving our IDE approval for DIRECT, we were pleased to announce that the FDA approved the second NanoKnife IDE for our safety study for the use of NanoKnife to treat prostate cancer. Once the safety study is complete, we look forward to laying out the protocol for a study that we believe will demonstrate NanoKnife’s ability to improve the quality of life and improve patient and an alternative -- to the alternative treatment.

We are excited to begin this six patient safety study, as it is the first step in a comprehensive data driven approach to establish NanoKnife as a widely utilized treatment for prostate cancer with approximately one man out of every nine being diagnosed with prostate cancer during his lifetime. This represents another significant addressable market opportunity for NanoKnife. We will continue to provide updates on our efforts to expand our NanoKnife platform to address the significant unmet needs in a variety of oncology markets and applications as well as keep you abreast of our progress as we proceed with our direct study.

Lastly on NanoKnife, in the fourth quarter we received a 510(k) clearance from the FDA for our NanoKnife 3.0 generator. The NanoKnife 3.0 is a new version of the NanoKnife platform with several key improvements, including an updated hardware and software design to improve the user experience also improved graphics capabilities and flow of user interface that will enhance the user's ability to interact with our software.

The end of our fiscal year was punctuated by the sale of our NAMIC Fluid Management business which resulted in a balance sheet that as of today has no debt over $85 million in cash and approximately $175 million in dry powder. The sale is an additional step in our broader portfolio optimization strategy helping us become a higher growth, more profitable company. Fiscal 2019 also proved to be a very productive year on the operational front as we saw accelerating benefits from the two plant closings that we completed in fiscal 2018

Additionally, our R&D efforts during the past couple of years have enabled us to launch a combination of new products or product extensions during fiscal 2020. These include but are not limited to an improved version of AngioVac utilizing new [ph] cannula shapes that will improve the device's efficiency and will be a key stepping stone for further development within the Thrombus Management portfolio. In fact, on July 5th, we received FDA 510(k) clearance for this new improved version of AngioVac.

We also have NanoKnife 3.0 which as I mentioned a few minutes ago has recently been approved by the FDA and in our Vascular Access portfolio, we will be introducing a new port that combines our Vortex port body with our BioFlo catheter technology as well as a new dual and Triple Lumen Catheter that will expand our acute dialysis portfolio.

Turning to the legal front, we continue to make progress during the year announcing a successful outcome in the Delaware intellectual property litigation with Bard as the court ruled in our favor during the third quarter. We are also moving forward with our anti-trust case against Bard and anticipate a trial date in the spring of 2020. We are confident that we will prove Bard legally ties the sale of its tip-location systems to its line of PICCs violating federal anti-trust laws, preventing competition in the marketplace, and limiting patient access to our superior BioFlo technology.

Bioflo technology. In addition to these event driven outcomes we saw our vascular access business stabilize throughout the course of fiscal 2019 driven by growth in sales of our dialysis and ports products. Separately our vascular interventions and therapies or VIT business saw solid growth driven by our AngioVac product line which reported a seventh consecutive quarter of double digit procedural growth and revenue growth along with continued consistent performance in our core product line offerings.

Finally, our oncology portfolio is positioned for significant future growth led by Solero, the additions of BioSentry and RadiaDyne and our NanoKnife platform approach. Fiscal year 2019 was an exciting and transformative year for AngioDynamics, as the core foundational components we had been putting in place over the course of the prior two years have enabled us to begin executing on our longer term strategic vision of becoming a focused, high growth, innovative medical device company that consistently delivers strong results.

As we look forward to fiscal year 2020 and beyond we will ensure that our foundation of operational excellence remains robust. We will further expand our gross margins and we will continue to use operating cash flows to invest in R&D that will drive successful ROI outcomes and bring disruptive new technologies to the marketplace while also expanding our market opportunities. Our efforts will be focused on areas with clear opportunities to build upon our existing science and technology.

And secondarily, in market opportunities where we have the right to win based upon prior success in adjacent areas, competitive landscape and with reimbursement and regulatory support. We will also continue to monitor clinical and regulatory pathways and assess opportunities for investment that allow us to expand the uses for our existing technologies.

As I've mentioned before, two primary areas of focus for us will be our Oncology and our Thrombus Management portfolios where we believe there are significant unmet patient needs and opportunities to improve both the clinical experience and patient outcomes.

For example, as we mentioned last quarter, we believe there is a significant opportunity available to us and the moderately complex segment of the Thrombus Management market based upon the success of our Uni-Fuse and AngioVac platforms, which serve the simple and the complex ends of the space, respectively.

The intermediate space is a significantly larger addressable market than we currently serve and it has meaningful opportunities for growth and share gains. Our results and operational progress could not have been achieved without the wonderful efforts of our team. It's often overstated. But the quality of our team is truly what gives me the confidence going forward that we can successfully drive a new path. And I'm very excited about what the future holds for our company.

With that, I'd like to turn the call over to Michael Greiner, our Executive Vice President and Chief Financial Officer.

Thanks, Jim, and good morning. Before I begin, please remember that we post 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. This year end, we have also provided slides to support the NAMIC divestiture including showing pro forma financials for fiscal year 2019 which exclude the contribution from the NAMIC assets that we divested on May 31, 2019. Unless otherwise noted, all results discussed on this call are on actuals basis and include the contribution of our NAMIC fluid management business for full-year fiscal 2019.

Our net sales for the fourth quarter of fiscal 2019 were $96.3 million representing year-over-year growth of 9% when including our RadiaDyne and BioSentry acquisitions and 5.2% on an organic basis. The 12 months ended May 31, 2019, net sales were $359.5 million representing total year-over-year growth of 4.4% and organic growth of 1.6%.

At the product level, our Solero dialysis catheter ports fluid management and edge of that products exhibited solid growth during the quarter. The soft set lowered [indiscernible] capital sales and continued slower sales of our radio frequency ablation products has market adoption shifts through our microwave ablation technology. Our VIT business grew 6.9% year-over-year, a strong growth in the AngioVac and fluid management product lines along with continued strength in our core business were partially offset by anticipated decline in the venous insufficiency business.

We continue to see signs that our venous insufficiency business is stabilizing and currently anticipate that we will return to modest growth this year. Also related to our venous insufficiency business, we noted the discontinuance of our Solero product line we announced the divestiture of the NAMIC assets in April. The revenue associated with that product in fiscal year 2019 was $5.9 million and will not have any revenue contribution from Asclera in fiscal year 2020 or forward.

Based on the anticipated accumulation of Asclera inventory we would have had over the coming years, we subsequently settled a contract dispute for the distribution of this product for $2.5 million. This was an appropriate action and a positive outcome for our cash position and working capital in future periods. Our NAMIC business finished strong as a transition to its new owners on June 1. We are pleased that we are able to stay focused on meeting the needs of our customers throughout the divestiture process and we hope for the continued success of that business in the hands of the new owners.

Turning to AngioVac within our VIT portfolio procedural volume remained strong with procedures increasing 35% year-over-year representing our seventh consecutive quarter of double-digit volume and revenue growth and further validating our strategy to build or acquire complementary products to support our Thrombus platform as Jim noted earlier. Vascular Access revenue increased 4.9% during the fourth quarter as continued strong performance and sales of our dialysis products was partially offset by slight declines in sales of PICCs.

However as expected, sales of our ports products returned to low-single-digit growth in the fourth quarter, while our midlines business also bounced back to grow double digits. Additionally, while PICCs sales were down during the quarter and the year we are seeing steadily improving performance throughout the year and are optimistic that continued sales execution combined with lower comps will ensure that our PICC related revenue will have limited negative impact on consolidated results in fiscal 2020.

Revenue from our Oncology business increased 26.5% driven by strong sales of our Solero product as well as revenue contributed from a BioSentry and RadiaDyne acquisitions. This help offset a slight decline in NanoKnife prop sales while NanoKnife capital sales were down $100,000 versus the prior year. We remain pleased with the early success of our Oncology acquisitions, which are both progressing in line with our expectations and are supportive of our anticipated growth rate for this year, which is approximately 50% on an annualized basis and in excess of 80% on an actual basis.

Moving down the income statement. Our gross margin for the fourth quarter of fiscal 2019 was 53.6% relatively flat compared to a year ago, as improvements and net productivity and higher volume were offset by negative impacts of price and product mix. For the 12 months ended May 31, 2019, our gross margin was 53.4% compared to 51.4% in fiscal 2018, while we did not achieve our full year gross margin target of 54%, we were very pleased with a 200 basis point increase over a fiscal year 2018.

Challenges were presented throughout the year that we were unable to offset with productivity gains. We discussed some of these challenges throughout the year, which included a drag related to freight expense, higher than anticipated negative pricing and currency impacts and a significant fourth quarter headwind related to product mix. The product mix impact was primarily driven by the year-over-year revenue increase in our Fluid Management business. These discrete items were specific to fiscal year 2019 and do not impact our ability to achieve our gross margin guidance going forward.

Our research and development expenses during the fourth quarter of fiscal 2019 were $7.2 million or 7.5% of sales compared to $6.5 million or 7.3% of sales a year ago. For the 12 months ended May 31, 2019, our research and development expenses were $29.4 million or 8.2% of sales compared to $25.5 million or 7.4% of sales a year ago. As we have messaged throughout the year, we are continuing to invest in R&D and clinical to support the growth of our core strategic technologies. We expect R&D spend to be between $29 million and $32 billion in fiscal year 2020.

SG&A expense for the fourth quarter of fiscal 2019 increased to $30.4 million, representing 31.6% of sales compared to $28.8 million representing 32.7% of sales year ago. For the 12 months ended May 31, 2019 our SG&A expense increased to $116.2 million representing 32.3% of total sales compared to $108.5 million, representing 31.5% of total sales a year ago.

We expect SG&A spend to be between $119 million and $123 million for fiscal year 2020. The increase is primarily a result of the upcoming product launches that Jim discussed earlier as well as a full annualization of SG&A expense for the two acquisitions.

Our adjusted net income for the fourth quarter of fiscal 2019 was $9.6 million or $0.25 per share compared to adjusted net income of $7.7 million or $0.20 per share in the fourth quarter of last year. For the 12 months ended May 31, 2019 our adjusted net income was $31.6 million or $0.83 per share compared to adjusted net income of $27.6 million or $0.74 per share in fiscal 2018.

Adjusted EBITDAS in the fourth quarter of fiscal 2019 was $17.6 million compared to $15.6 million in the fourth quarter of fiscal 2018. For the 12 months ended May 31, 2019, our adjusted EBITDAS was $61.5 million compared to $57 million for the same period a year ago. In the fourth quarter of fiscal 2019 we generated $25 million of cash from operating activities and our free cash flow is $24.2 million bringing our full year free cash flow total to $34.3 million.

Now turning to the balance sheet and slide 4 of the presentation, as of May 31, 2019 and post-closing of the NAMIC divestiture, we had $227.6 million in cash and cash equivalents and $132.5 million in debt. On June 3, we used $132.5 million of our cash balance to fully pay down all of our existing outstanding debt. We simultaneously entered into a new revolver only credit agreement providing access to $125 million of capital.

As of today, we have no outstanding debt and approximately $85 million in cash and cash equivalents. Next, in order to provide context for our 2020 expectations I will discuss our 2019 pro-forma income statement excluding our fluid management business. As shown in the supplemental presentation, pro forma net revenue for the year ended May 31, 2019 was $270.6 million representing 3.4% growth over fiscal year 2018. Pro forma gross margin in fiscal year 2019 was 57.6% compared to 55% for fiscal year 2018.

Pro forma adjusted net income for the 12 months ended May 31, 2019 was 8.2 million and pro forma earnings per share was $0.22. Basically flat when compared to pro forma earnings per share in fiscal 2018. Pro forma adjusted EBITDAS for the 12 months ended May 31, 2019 was $30.6 million.

Finally, turning to our financial guidance for fiscal 2020 we expect net sales in the range of $280 million to $286 million, adjusted EPS between $0.25 and $0.30 as well as gross margin in the range of 58% to 59%.

With that, I would like to turn the call back to the operator to open the call for questions.

Thank you. We’ll now be conducting the question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Jason Mills with Canaccord Genuity. Please proceed with your question.

Hi Jim and Brent can you hear me okay?

Good morning. So a couple of look back questions Jim and I can and maybe a couple of look forward questions then I'll get back in queue. Just looking back at the quarter and thanks for the pro-forma information like that it's helpful to compare against your guidance. I guess the question ultimately is in which areas you expect or are you factor in an acceleration, because when we back out fluid management and the acquisitions in the fourth quarter, the growth was fairly flattish not maybe a little bit negative and you're calling for a mid-single digit growth some of which is not organic with the acquisitions, but maybe you could hash that out a little bit where you're expecting to see acceleration in growth in your confidence in that.

And then looking forward I've just asked my questions all at once here and then shut off the -- from a cash flow perspective, may you talk about you didn’t give cash flow guidance as you usually do, understanding that you've sold the Fluid Management business so a lot of cash flow came in from that, but do you have anything to say there?

And then, lastly is on the AngioVac business, huge opportunity agree completely with the opportunity there. I'm just personally of the mind that I think new randomized data will be necessary ultimately to change the paradigm within treating thrombus and the venous system. And I'm just wondering sort of what your plans are commitments are with respect to investing in the clinical side of the AngioVac franchise? Thanks a lot for taking the questions.

Yeah. So Jason, this is Jim, I'll start then Michael can go to the cash flow pieces. So for 2020 and we have -- we gave investors a three year look at our three year CAGR back when we announced the NAMIC divestiture. But I'll speak primarily about 2020. So we expect all three of our GB used to grow this year. Look at oncology, which will have the largest growth for us.

Our two new acquisitions RadiaDyne and BioSentry will also grow and are growing above the base that we bought them with. So we have good growth on top of there. And remember we announced in January we expanded our sales force, did a full sales force training for this group, but now they have the full bag to carry. We'll also see Solero and NanoKnife grow this year about equally.

We expect they have got really good momentum and Solero our Microwave doing a really good job. And we know it's very effective again competing against Medtronic and J&J. If our Microwave wasn't as good we wouldn't have a chance. It's got to be better and it is. So now we're doing a better job with selling and marketing programs getting in front of the right key clinicians and we're getting in front of big hospitals, Jason, before AngioDynamics used to play on the sidelines, now we're not.

The selling and marketing teams are sitting there with the Medtronic and J&J reps talking to physicians about the quality are sitting there with the Medtronic and J&J reps talking to physicians about the quality of our Solero and why it's different why it should be used.

So again oncology will grow in those four areas about equally. NanoKnife, Solero, BioSentry and RadiaDyne all four will drive growth. Secondarily in VIT, Michael talked to you about the Asclera product coming out of our base going forward. We won’t have Asclera to sell. But the thrombus category will grow as we, as we talked about, we have as well.

With the growth momentum we have today on AngioVac. And now the new AngioVac 3.0 that we're going to launch this fall which will allow users a little bit more steer ability and then get into new areas and to get back to the question you asked at the end, Jason, next year we're launching another version of AngioVac another R&D product. We're calling it AngioVac 4.0 for lack of a sexier name.

But with that product so we think we also have opportunities clinically to look at indication expansion. So we'll communicate to you and our investors about that and we may agree with you, we may agree that there may be need for different types of studies to support the indications, we'd like to have for that product. So we will talk to you about that.

We think AngioVac current 3.0 and 4.0 will allow us to move further from that center high acute space we played today, more to that middle of acuity of the thrombus space we want to play in. But as we've said to you before, we’ll also, we believe add other R&D and potentially M&A to make sure we have the right products to serve that space well.

So also in the VIT space for 2020 growth, Jason, part of the win here is that we're not going to have the decline that we had in 2018 and 2019 in our venous insufficiency business. We've stabilized that business over the course of the year. We think going forward we're going to have small growth going forward in that space which is important.

Then finally our VA business, the team there did a really good job in a business that had declined as you know for many years here due to our PICC decline, the PICC decline now is very small and we've seen growth now in ports and dialysis that are very, very strong, good momentum going forward, and we have a new port. We talked about a double and triple lumen catheter coming up for Dallas has also does well.

So the growth in VA will be supported by the new products that they're launching as well as just good execution. So really, Jason, we have a high target for growth this year. We have momentum coming into the year. We saw, we thought it was important why Michael provided you guys on the pro forma results, so you can compare that. No, if we face going forward. But we feel very confident about our chance to hit these numbers this year. Michael, cash flow?

Yeah. So you want to use EBITDAs as a proxy, we had $30 million in a pro forma basis as we talked about back in April that was about 50% of our EBITDA. So you can assume that the target further we had internally is somewhere in that $30 million range, just a little south of that $30 million. And then on free cash flow, we will be free cash flow positive, but as we move out of our Glens Falls facility in Queensbury that we know, we're going to have some inventory build to make sure that that move is goes well, and we have some other things that we just weren't comfortable forecasting.

So we didn't put out free cash flow forecast. But we will be free cash flow positive. We will be able to fund all of our internal objectives and our CapEx as it has been in the past few years will be in that $3 million to $4 million range.

Okay. Thank you for all the detail. I’ll get back in queue.

Our next question is from the line of Jayson Bedford with Raymond James. Please proceed with your question.

Hi. Good morning. And I apologize if some of these questions are a little redundant on this part of the call, but I guess just to start, if you backed out products that you've sold Fluids Management and then, or distinction you’ve done at Solero, what was pro forma growth ex-deals in the fourth quarter?

One second Jason. The fourth quarter, the fourth quarter was out VIT Asclera in was 7.5% and without Asclera watch your back again in a moment.

Okay. I'm just looking for kind of pro forma growth as we look at the implied guidance for 2020, how does that compare to what you did in the fourth quarter. So can I get a number I'll ask my next question and maybe get back to this. In terms of NanoKnife probes I think you mentioned they were down year-over-year and realized the direct trial has just started and maybe the comp issue, but why we are not seeing growth in procedures?

So the quarter was down for the year, they were up station on probes. So procedure growth right now has been kind of flat because in the U.S. we just redid our sales force as I mentioned, we're selling the products differently as you know for year the AngioDynamics placed a high kind of bar of selling in our NanoKnife machines, the generators. We've sold over 300 worldwide and over 100 in the U.S. and we have very low compliance though to the usage of those generators.

The reason is because we have no indications to support the training and used by physicians to treat people in these spaces. So as we talk to you about that we revamped how we're treating this product, the NanoKnife pancreatic cancer ID was the most important first step, where we put our money where our mouth is supporting the clinical programs necessary to get the IBE approval for this direct study. So Jason, we're just marketing and the product differently.

We're not worried about selling machines. We want to get adoption of the machines that are used and do in a way that we can support the physicians to treat patients who have specific cancer indications. So as we talk to you Panc is number one, the pancreatic cancer patients needa standard of care that doesn't exist today, we think we have it. We want to prove that with our study.

Number two, we talked about prostate. Again we think there are some significant side effects that we can take away with the use of Nanoknife to treat those men that face prostate cancer. Then we'll talk to you about other indications. So right now Jason, we've not put a high push on selling either NanoKnife units, the generators or even pushing problems. We're trying to get ourselves aligned, treat these cancers in the right way because the market opportunities are very dynamic when we do that properly.

And when you look at the extreme growth in 2020 from NanoKnife, is the growth…

…more from capital or probes?

It’ll be a piece of both, but it's about two thirds probes, one-third capital the growth we expect.

Right. And then maybe just finishing off on oncology, Solero up 9, Micro down 1. Do you think this is a good proxy for market growth or do you feel like you're gaining or losing share in this market?

No. Don't forget too Solero is little messy with the comparables over the course of the full year because of the Solero. We’re growing [indiscernible] with Solero right now. We’re growing our business. We feel we’re taking share in the market. We’re very confident of that. Michael…

Yeah. I got the numbers that you're looking for. So, Solero was actually down in the fourth quarter from last year. So excluding fluid management and Solero, we grew at 9.3% in the fourth quarter and 3.9% from full year. So that gives you a run [indiscernible] speculation probably in the next year.

Okay. But Michael, if I back out the acquired businesses that 9% goes to where? I'm just looking for I guess a pro forma organic growth in the fourth quarter. I apologize if it’s too much there.

We’ll have to give you that number, Jason.

Yeah. That’s fine. Okay. Okay. I'll get back in the queue. Thank you.

The next question is from the line of Matthew Hewitt with Craig-Hallum. Please proceed with your question.

Good morning. I guess just a couple, first off, on the gross margin side. How much of that improvement is going to be from a mix perspective with the Fluid Management divested versus how much of it is based upon some of the improvements and enhancements as you’ve spent the past year or so on? And then the second question I have, as you look at the dramatically improved balance sheet, how should we be thinking about how much of that cash you're going to deploy by investing in existing platforms internal projects and whatnot versus maybe some small tuck-in type acquisitions? That's it for me. Thank you.

Great. Two great questions. The M&A standpoint or the balance sheet positioning, we are in a position from an operating cash flow standpoint that all internal funding needs whether that be selling and marketing or R&D are generated by our own cash flow, so there will be no balance sheet requirements, so to speak to fund our internal investments. So all of that dry power is available for tuck-in M&A.

On the gross margin side, if you look at the Slides 6 and 7 in the supplemental deck you'll see that the pro forma gross margin for full year 2018 was 55% and fully year 2019 was 57.6%. So there is significant growth in gross margin due to efficiencies from the plant efforts. When you look at the fourth quarter pro forma results you'll see we had 58.1% for 2019.

So when you look at a full year 58% to 59% for gross margin for FY 2020, which we just discussed for our guidance. You'll see that we have currently a run rate of 58%, and we believe there's additional productivity gains to be had in FY 2020 that'll get that hopefully somewhere in the middle of that 58% to 59% guidance target that we have.

That's great. Thank you.

[Operator Instructions] The next question comes from the line of Matthew Mishan with KeyBanc. Please proceed with your questions.

Okay. Great. Thank you for taking the questions.

Morning. What are you guys – what are you with execution on the M&A you've completed, specifically are you at or above or below expectations you thought for BioSentry and RadiaDyne at this point versus when you bought them?

Yeah. We're right in consistent from the performance standpoint on our overall results for BioSentry and RadiaDyne. The mix of which products are contributing to that is a little bit different than we thought in our modeling. But we do have a nice run rate going into fiscal year 2020, and as we discussed in the prepared remarks that would indicate that we’ll have approximately a 50% increase in our revenue associated with both of those acquisitions which again was – is very consistent with the model that we put up when we first did the acquisition, internal model.

Is it fair to say that [indiscernible] is the product that that's slightly below expectations at this point, and what can change that, because that's the product that had the most upside from the deals?

Yeah, Matt, you did right. So [indiscernible] wasn't as ready as we thought it might have been. So we've taken a step backwards a little bit just to make sure that we have the supply chain security, the robustness of the design, ready to do what it can do in the marketplace, number one. The number two, retraining the sales force to sell the product. It's a unique disruptive product.

We truly believe it's going to change how physicians can diagnose and treat when they're getting radiation therapy treatments to people. They need and they seek real time dose monitoring information. It's not available in any other source. We think the work that was done by RadiaDyne is very, very impressive. They did development and design product was impressive. So we had to do a couple of things to get ready for prime time that's what we've done here from the operational side.

So soon coming into next couple of months, we'll have really the line ready for the commercial launch that we expect and we need. So to answer your first question you're right we've had revenue we thought OARtrac would have contributed already and it hasn't. We still think it is the largest opportunity of the three products that we bought in these two deals. But today it's been a little slower, but on the BioSentry side and the RadiaDyne balloons bit a little above expectations. So right out of the gate we're in good shape and we have high growth as Michael said, expectations for fiscal 2020 and we believe will achieve that.

And sticking with oncology, it's been a couple of years since you guys talked about that the NICE recommendation. Where are you in the UK? Where are you at in that process? I mean, are they at the point of reevaluating anything around that recommendation?

So, Steve -- Matt we have Steve Trowbridge here to join us, and Steve can give an answer for you.

So we continue to work with NICE. They are in the process of assessing all of the data that we do have and we expect over the course of the next couple of years to really get a full throated endorsement from NICE. If you remember they have been moving the ball forward and we've been continuing to gain additional data and uptick in our procedures in the UK, but they're still looking for the results of a trial and really our DIRECT study will provide that randomized controlled data that that NICE has been looking forward for the final full throated endorsement.

Okay. It’s fair. And then Michael on the gross margin side, when you gave the FY 2020 gross margin guidance, your base 2019 was 54% to 55%. You ended up coming somewhere around like 53.7% to 53.8% for the year. Why should FY 2020 not be moving down by 70 basis points as well?

Yeah. No, great question. So when you look at our pro forma's math in the slide deck, you'll see that our fourth quarter pro forma gross margin was 58.1%. So excluding them, we’re already at 58%. Now obviously different quarters have different mix, and so you can't just use that as a proxy run rate per se. But we do think with some of the productivity programs that we have as well as what we believe will be our mix when you think about NanoKnife and AngioVac and some of those product families and the growth that we believe we'll have in 2020. We comfortably feel that 58% to 59% as well and for the full year next year.

Okay. Can you talk about the mix driving the lower gross margin, just talk about pricing and I'm sorry if I missed it. But what particulars are you seeing price deterioration or decline, sorry?

So, we’re seeing a little bit around the portfolio, we saw some in core some of our VA products, none of them was significant, it was against our expectation. So, as we thought about our 54% to 55% and what we thought we would end in the fourth quarter, a little bit – 0.5% a half percent here, 0.75% three quarters percent there add up across the quarter and across the portfolio but there’s no significant headwind as we enter in the FY 2020 on price but we did have an impact in quarter.

And then obviously we – management which is our lowest family from a gross margin standpoint in the low 40syou know had a very nice quarter on the heels of our FM sale announcement and that had obviously an impact in the quarter and obviously had some impact for the full year as well.

Okay. So congratulations on all the things you guys accomplished this year.

Thank you. At this time, I'll turn the floor back to Mr. Jim Clemmer for closing remarks.

Thanks, Rob, and I want to thank our employees again. AngioDynamics is going through a transformation and we've transformed our portfolio this year. We spent time prior to this working on our operational improvements, building the R&D process, adding talented members to our team and now we know where we need to go from a portfolio perspective. This past year was unique as we're able to divest one large asset, buy two others really upgrade who we are.

We know that we can't play in the commodity or supply types of business nearly as well as we can play with differentiated special technologies. When you look at what we can do with [ph] Solero with NanoKnife, with AngioVac, we can make a measurable difference in the outcomes of patients who need care. We can also drive value in our company and that's what we're focused on doing. So here the AngioDynamics, we think we had a really good year in 2019.

We're able to hit the metrics we put forth to our investors about how to grow our company and change our company, all the while working on those FDA expansions that we're looking for, getting the IDE approvals now two of them under our belt. So we've really worked hard to transform our company. We look forward now to working hard to prove to you that we can become a growth company going forward and support our indications and support our direction with performance and numbers. We look forward to doing that. Thank you for joining us on the call today.

Thank you. This concludes today’s call. You may disconnect your lines at this time. Thank you for your participation.

Source: Seekingalpha.com

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