AngioDynamics, Inc. (ANGO) Earnings Call Transcript & Summary

Good morning, all, and thank you for joining us today. My name is Caroline Borowski, and I'm a team member here at the JPMorgan Healthcare Group. It is my pleasure to introduce Jim Clemmer, President and CEO of AngioDynamics.

Great. Thank you, and thanks for joining us this morning. I appreciate the great conference that JPMorgan is hosting this week. So let me talk to you a little bit about our company. Before I begin, I'll remind our investors to check our forward-looking statements. Remember that everything we've shared with you today are our best projections, strategies and direction for our company and how we'll create value going forward. But as savvy investors know, we can't guarantee you anything, so please do your research and learn about our company in more detail. So let's start off with talking about AngioDynamics. So we're a diverse company that's now focused our energy and our efforts towards 4 disease states that we'll spend a few minutes sharing with you on today. We have a history and a legacy that started with our involvement with interventional cardiologists, interventional radiologists, vascular surgeons and other physicians who've used our treatment products over the years. Over the last few years though, we really focused our company on more technologies that make a difference in patient outcome. We've found a way now to measure patient outcomes post treatment with our technologies to ensure that patients are getting better, faster. We believe that measuring these outcomes is important to changing physician behavior and providing us as a potential standard of care in some of these situations. Now a few years ago, we decided to sell our largest single business. We got a NAMIC fluid management business, really a custom kit packing business. That was about $90 million of our revenue. But it was an older business, not a lot of technology, low gross margin. It didn't fit where we were going. So we decided to sell that as a sign of the transformation we were making to a science-based, technology-driven company that competes in large addressable markets where our science make a difference. So today, on the left side of the screen that you'll see here today, are the 4 disease states will share with you in a few minutes that we're really focused on, a lot of our R&D, our clinical efforts, our science efforts and our regulatory process. Each of those are really important to us and we'll share with you why. On the right side of the screen, you'll see the second segment, how we run our business. It's our medical device products. Today represents over 2/3 of our revenue. It's stable. These are good products, PICC lines, ports, angiographic catheters, some of the foundational products of our company, people trust us for. We're really good at these. They don't take a lot of our time and energy. They provide us with stable EBITDA and cash that we can reinvest. So we're doing a good job managing both segments of our business as we grow and go forward on our transformation. And finally, you can see our transformation has been portfolio-based first, and the portfolio that we're changing with enables us to compete in these larger markets that are also faster growing over time. The second part of our transformation is adding people who are really, really good and skilled to come join us on this journey as we chase these disease states with technology and affect outcomes in patient wellness. Now what I want to share with you are the 4 disease states that we are highlighting as importance in our company. Any company like us, we're not a single product company. We're a diversified company. It could be a little complex and confusing to understand us. So we thought we'd share with you how we focus our energy, which are focused around these disease states. So on the left side of the screen, you'll see the 4 areas, we'll take a few minutes on with you. And then coming from there, what our products are, the treatment status and where we sit, if we're already in market today or close to market. You'll hear from us today, too, we talk about an R&D pipeline that we have. So some of the products on the right side of the screen that are not yet launched, what we call they are pipeline projects. We have a good line of sight and a trust that will finish the development work, the regulatory work or other hurdles to clear to get to market by the dates we're providing you today. There are also other products we have and what we call bullpen. We're really excited about the platform technologies that we have here. Other applications of these technologies have other areas that we're invested in to reach other applications, and we'll share with you those over time. So let me talk about the 4 disease states briefly, then I'll dive into some product details with you. First, PAD. When we sold the NAMIC business 3 years ago, we took 1/3 of those proceeds basically and bought a company called Eximo Medical. We had researched the atherectomy business and the opportunity there for a while. We're already a player in venous, keeping veins open and clear for healthy blood flow. We knew we had a parallel interest in keeping arteries open and clear. I knew from my past life where I had worked, where we had bought a PAD company. I understood some of the opportunity and the challenges in that market. Eximo Medical, which is now the Auryon PAD system provides us with an opportunity and has already enabled us to enter this market, become a disruptive player who is not only taking share in this market at a rapid pace, but also growing the market through the way our technology works. We think we're getting physicians comfortable and confident using this powerful tool. They can expand atherectomy as a treatment option for PAD over time. We think it can even treat other parts of the body of the disease states over time. It's really, really important to us. And second, venous thromboembolism, I'll say that again, venous thromboembolism on a Thursday morning. Hopefully, I'm saying that right. It's the combination, as most of you know, of 2 disease states that are really important to us, DVT and PE. We have 3 unique technologies that we believe when we finished our development, will enable us to compete in each of the defined segments of VTE treatment, and we'll share with you why and how we'll get there with our technologies. And third, we haven't talked about this before. But clearing thrombus and unwanted vascular material from the left or right atrium of the heart is very, very important to our physician partners and to the patients that they serve on the other end of our device. We have our AngioVac product that's worked to indicate if the right heart, right atrium worked very, very well in these very complex disease states. And now we have a process I'll share with you for more details then to the left heart market, which is about 5x larger opportunity using our current technology. And finally, solid tumor. We have an amazing product called NanoKnife, a nonthermal ablation product. And today, we have an opportunity to really expand the market and to treat people in need, men with intermediate risk prostate cancer, who deserve another treatment option based upon the current standard of care and the risks associated with care. So that's a platform statement. I wanted to share with you the 4 areas that we spend a lot of our time working on. And now I'll drop a layer deeper and share with you our technologies and how we'll address these disease states. Again, back to PAD and how Auryon works is really the beauty of the science. It's a 355-nanometer wavelength laser. There's been a laser atherectomy treatment product in the market for over 20 years, uses a different wavelength and has a different operating mechanism. So our product -- the 355, what's unique about it, it enables pulses of energy to be delivered inside the vessel wall with high levels of power without damaging the vessel wall. it doesn't damage a catheter itself. So it's really, really amazing at what it does. It enables our physician partners to treat above and below the knee, hard and soft calcification in the artery and treat instant restenosis. We don't believe there's another device available that can do what we do. So we bought Eximo Medical at the end of 2019. We launched the product in September of 2020, 6 months into the pandemic. We did final development work and launched. Also another sign of how we invested in the business, we built a sales force today. We have 75 people in this division. People that work for us, a lot of them came from 1 of the other 4 companies. They're very skilled and knowledgeable in this arena. They've joined us because they believe deeply in how Auryon works, how they can serve the clients that they serve. Again, science-based product opening up opportunities for us to have PAD treatments become more safe and effective over time. The beauty again is in the pulse and the amplitude and the wavelength and how it works and delivers energy. 2 of the 4 sizes that we have in our catheters have aspiration capability as well. The aspiration capability enables the doctor to clean out what he breaks up and ensure that there's no distal embolization post treatment. So we're finding really, really, really effective tool. Last week, if we're in tune with us, we have a fiscal year that's not aligned with most people. We have a June month start to our fiscal year. So if you didn't see, you can check. Last Thursday, we presented our second quarter fiscal results to everybody. On that call, we also mentioned, during our Q2, which ended November 30, we also launched a limited market release of a hydrophilic-coated series of catheters for Auryon. These are really important. When we first launched the product they were not hydrophilic coated. And although we've had tremendous sales results and tremendous pickup in the product, we believe now that we're launching the hydrophilic coating, we're going to have more and more take-up in each physician that uses our product today and get a higher percentage of their treatments inside of each of their either OBL, office-based lab where they treat; or in the hospital setting as we grow over time. So we will continue to do things like adding hydrophilic coating like adding other features and benefits that our physicians talk to us about to expand not only the amount of people that we use this treatment device. But with any treatment center, the amount of business that we get because we're the safest and most effective treatment potential option. So this is a very important business for us. We'll share with you our growth profile for years to come. Getting back into VTE now. What's really exciting here, everybody here, I think, knows this marketplace. There's a couple of companies that have done a very good job and really developing this market, into a market where we're seeing lytic-based therapies becoming less important, less relevant. And we believe what other folks have done in getting mechanical thrombectomy as a first-line front-line treatment tool, getting doctors confident by removing clot from the vessel wall from the vein, we can open up blood flow, restore healthy flow and make the patient healthier and faster dialytic. So our AngioVac is used for severe cases where massive clot burden exists or AlphaVac that we just launched our 18th French version on June 1. We have now a 22 and 18 French will be used for DVT, upper extremity large vessel DVT and for our PE. We started our APEX PE trial in the fall. That's now up and running for our PE indication. And finally, we believe Auryon, the same product I've talked to you about for clearing arteries will also be a perfect opportunity to be used in our small vessel DVT. And we'll continue that development cycle, and we believe we'll launch that product in this application in less than 2 years. So why some of these products are special are outlined on this slide. If you look to the left side of the slide, the top left, you'll see the AngioVac. AngioVac provides a simultaneous reinfusion of the patient's blood using on-site perfusion system, while the treatment is happening. This is very important because minimizing blood loss in this risky procedure is one of the doctor's primary concerns, while they removing mass clot burden. So AngioVac gives them that confidence to remove that mass clot burden, we have a large board catheter with that unique funnel tip you see in the middle of the screen there that allows us to pull massive clot burden into our catheter remove it and put that patient's blood back in their body. They can recover quickly and very healthy after procedure, used in very severe complex cases. Well, physicians have told us, "Hey, guys, this is amazing. Can you take it off circuit for us and give us a version where we can use our skill in less complex cases and treat more people with different types of VTE?" And that's what we've done with the AlphaVac on the right side of the screen. We've added that purpose-built handle you see in the bottom right, giving physicians what they asked us for: control, power and technology, that they can steer the catheter to where they want it to be in the vessel wall. They have the control of aspiration using their skill and their knowledge with our tool. They can also minimize and limit blood loss with some of the other features we build into the product. We've now launched AlphaVac in 22 and 18 French versions. And again, as I said, the 18 French is what we have indicated for our APEX PE trial. We think it's now ideal size to enter that pulmonary embolism market and give physicians a choice in how they treat PE. And finally, at the bottom for small vessel DVT, we think Auryon is an ideal solution. We've learned from our physicians who've used it for atherectomy about the power of how Auryon delivers power inside the vessel walls. We've gained confidence and done a lot of testing. We believe it's as effective in the veinal structure as it is in the arterial structure. Although we're not clearing calcium out of veins, we're clearing other types of burden, unwanted material, it's equally as effective and the power of how it delivers energy and technology to the clot, breaks it up and enables us then to suck it out with the aspiration capability. So we're really excited to finish our development and to launch this. So over time, we'll be a company with 3 different devices, all purpose built to fit the different needs of the VTE market. We'll compete well in this market, and we think we'll have a physician preference option in many of these cases. So stay tuned with us, let us continue our development and watch us, grow this really important market to us. Now stepping one step over. I want to talk to you about how AngioVac is used also stepping us a little into a different market. Today, the AngioVac is indicated for right atrium. And there's a lot of clot burn we remove. Infective endocarditis is a real problem that physicians face to treat people. It's become really effective in the right heart. What we've heard from physicians, "Hey, folks, Jim, we got to talk about getting a label to use this in the left heart. We think it's a really effective tool. There's not a lot of options that exist today for patients that are nonsurgical candidates with left heart infective endocarditis. So we believe our solution works really well. It's safe, which is a primary reason it's used and it's really effective. So we have an FDA pathway we work with from the FDA, and we expect to be on label by the end of this calendar year, giving physicians an option to treat to remove clot from the left atrium by the end of the year. We think this market is about 5x that you see in the bottom left of the screen, larger than the right heart that we compete in today. So we'll do our work, we'll launch the product. We'll then support some studies and data collection to support how it works and how we can give a treatment option to patients that really don't have a percutaneous treatment option today and maybe become another physician effective tool. There's also other cases that are really important to clear the left heart, maybe somebody else can get a valve repair device installed and get a patient healthier faster. So stay tuned. This is important and our unique science and technology will make a difference in this disease state. Now let me shift gears for a moment. We talked a lot about restoring flow in arteries and veins, and we're good at it. We have a unique piece of science you may have heard about called NanoKnife. It's a nonthermal ablation tool. It uses IRE, irreversible electroporation, as the base science in NanoKnife. So it's a nonthermal approach to treating a tumor. We have the direct study underway as we speak now, which are trying to prove that NanoKnife can be safe and effective for patients with Stage III pancreatic cancer who don't have a lot of choices in that disease state life. We also know that we think we have an effective option for men with intermediate risk prostate cancer. So the PRESERVE study started last summer. We just announced we enrolled more than halfway. We expect to finish enrollment in the first half of this calendar year. There's only a 12-month follow-up period after enrollment is complete. We believe we'll have -- we'll be able to turn in our data to the FDA next summer of '24 and have -- be on label by the end of 2024. Why it's important because how NanoKnife works, enabling a doctor to use it as a focal treatment option instead of treating the whole gland. We believe that oncology urologists have always looked for a good focal treatment option. There are a couple that have come to market that have not succeeded very well because of different challenges to how they work, how complex they are or how well they can treat. We know there's some physicians, prominent physicians globally who published a lot of data that you can find. You see some really great outcomes and not just how we treat but the post-treatment effects, reduction of some of those risks, when to give men a choice to have a treatment option in a focal area that reduces the chance of incontinence or impotence, there's a really high risk with any surgical-based treatment option. So we think this will be a really good treatment option. Over 100,000 men of the 250,000 diagnosed annually in the U.S., we believe fall into the intermediate risk category that our product is ideally suited for. We believe it may be a little more over time, maybe some salvage patients can benefit. And how NanoKnife works, it also doesn't damage any tissue, 4 probes are placed in the body, and energy fields created around the tumor. Energy is delivered to that tumor, the vessel wall of the tumor is impacted. The vessel -- sorry, the wall around the tumor is impacted. And it will die naturally in the body get flushed out. We don't damage the surrounding tissue. So the patient heals quickly, the body heals. We don't damage or scar other tissue in the body. They can be treated again at some other time, they can live a healthy life afterwards. So this is where a lot of our science and technology has been focused on, these 4 areas, to expand what we do and how we do it. Today, we're investing most of our R&D dollars towards more of a science-based approach, they proving how our products work in the field. Over time, an area that's been very important to us since I joined our company 6 years ago, it's expanding this technology outside of the U.S. We've been a U.S.-focused company for most of our life. We've now changed how we do our business externally outside of the U.S. and who we do it with. We brought in a new international leader who's done a really great job engaging us with some really good clinical-driven partners who've helped us establish more presence than we could establish with feet on the street and good science partners to help get our products to the point of care delivery. We've also sponsored 2 and sponsoring a third in March clinical science symposium that have been well received by doctors who've joined us to present data they've collected on how effective and how safe our products are to use. So we're sponsoring our third one in the Rome at the end of March. These have really established us with a high level of credibility as a science-driven company globally that we didn't have that credibility a year or 2 ago. So over time, we'll continue to invest in our international expansion. It's an opportunity for us to increase our revenue outside of the U.S. in a manner we couldn't do before. As the slide shows you in the middle, we're also targeting launch dates just over a year from now for our Auryon PAD system and our AlphaVac VTE treatment system. With a caveat there with the launch dates, as we all know, in this industry, the MDR process has been a challenge for everybody that's holding up a little bit of European expansion plans, but we hope to be working through that with my colleagues and other companies. So the target dates we gave here is first half of calendar '24. We hope to beat that. But again, we're a little bit of a mercy of notified bodies working with us. Again, our company is establishing a stronger footing using our international plans strategies to grow. And then finally, our medical device products I mentioned earlier. Some of these are foundational to our company. These are important products to our customers. Our company was established over 30 years ago with interventional radiologists trusting us to make the finest angiographic catheters on the market today, and we do. They trust our brand, they trust our products to be used every day. We have a great vascular access network of products. But we're never going to be #1 there. BD Bard maintain #1 share, but we have a great business. And we found a way to minimize any risk loss. Years ago, we'd lose 5% to 10% a year in PICC business. We don't do that anymore. We're also growing our ports, dialysis, catheters. So over time, with very little investment, this business will grow 1% to 3% over the next few years provide us with that cash and capital investment capability across our platform. And finally, in a minute you got to meet Steve Trowbridge, our CFO, who can give you a deeper dive than I can in our numbers. But I wanted to share with you something that we thought was important. 1.5 years ago in July of '21, we posted an Investor and Technology Day. We put a 3-year plan out there publicly. And I'd encourage you if you didn't see it, you can go to our website today and take a look at it. The 3-year plan we put out 18 months ago, we thought it was fair now halfway through that to give you a scorecard of how we're doing. So if you look at the top left, that 3-year plan, our fiscal year '22, which started in June 1 of '21, just to reset you we have a strange fiscal quarter, strange fiscal year. We identified $305 million to $310 million in revenue. That's coming off a $291 million base in FY '21. But we beat it. We did $316 million last year in revenue. We beat our first year in our 3-year strat plan. Our second year is this current year. And you can see we've guided today and we reaffirmed guidance last Thursday to $342 million to $348 million revenue range for this fiscal year at the end of May 31, far above the range we gave in our 3-year plan. And finally, we'll give you guidance this summer to our FY '24 plans. If you look at the bottom left, we identified that our Med Tech products, I talked to you about, our Medical Technologies segment become a larger part of our business. Back when we started this, it was about 15% or 16% of our revenue. It's much higher gross margin. It's about a 65% to 68% gross margin average instead of a 45% to 48% is very important to us. It's growing faster. So today, we guided you by the end of '24. This should be over 35% of our business, and we're on track for that as we sit here today. And finally, on the bottom right shows, again, the growth CAGR, the device segment I talked to you about should grow 1% to 3%. We're on track there. The Med Tech CAGR should grow at 30% or above, and we're on track for that. So it's interesting to me as a CEO of a company who's probably as frustrated as anybody in today's marketplace, when we presented this plan in July of '21 actually on the day we presented it, our stock hit an all-time high, over $30 of shares. So investors are pleased with this plan. I think they said, "Okay, guys go do it, go deliver what we pleased." And today, our stock is not at that level. And we'll own some of those rates, we'll execute really well and do a good job. But just so you see we have a company with a focus on markets that we can compete in, where we can make a difference, grow our company, deliver and bring value to investors. It's our job to continue to do that, and we'll do that through our science-driven products, our technology and through our performance. So hopefully, you see from us, we have a plan to make AngioDynamics more valuable, starting with our customers first, the people they serve or the patients; and second, more valuable to our employees; and to you as investors. So thank you for joining us this morning. Let me welcome Steve Trowbridge, our CFO, to make a few comments, and we'll have some question-and-answer period. Steve?

Thanks, Jim. So I've been with Angio for over 14 years. The first 11 years of that, I was the General Counsel for the company, and then about 3 years ago, I moved over to CFO. And as Jim always reminds me as I'm sure all of you know, when you work with your legal representation, and it always feels like lawyers have to have a comment. I'm working on that. I'm trying to make sure that's not the same. That being said, let me have a couple of comments. I think Jim did a really good job talking about our company and our focus and really driving our Med Tech platform technologies to go into very exciting disease states, really attractive markets. And that's the story for AngioDynamics. And we've identified on this slide how we are progressing against the goals that we set out. We're executing on that. But if you look at our company, we talked about the Med Device business, too. Now I want to acknowledge we understand over the last 12 months, the world, the markets have changed. Some of the expectations, some of the focus that's out there on companies is different today than maybe it was 12 months ago. We believe we're set up very well for this new change. We're really excited about our Med Tech platforms, driving growth in those businesses is what is going to be the future of Angio and how we're going to drive growth for our overall corporate profile. And as you can see from this slide, we're executing on that. Our Med Tech segment is growing 30%. We described that with our Q2 results. We went from less than 17% of our total revenue base to having that segment now comprise upwards of 30% of that revenue base. But we're able to fund the investments in that growth through leveraging the Med Device businesses that Jim talked about. And we think that's really important that we can continue to invest in these businesses. We can continue to add the salespeople that are necessary, to make the R&D investments that are necessary to leverage these really exciting platforms. We can make those investments and we can use those funds coming from our Med Device business. And so you'll see as we continue to go through this year and we report our results. We have an eye on profitability, and we have an eye on positive cash generation, while we're able to fund these really exciting investments to allow our company to grow into that double-digit grower at the top line level. So I just wanted to emphasize that.

And now kind of turning it over to the Q&A session a little bit. Maybe we can start off with. You mentioned in your presentation, you released earnings last week. Do you mind maybe going through a little bit more detail on that and the reaction you've seen in such?

Sure. Steve?

Yes. So as Jim mentioned, we have a unique fiscal year. So our fiscal year ends May 31. So November was the end of our second quarter. We announced revenue in the quarter of north of $85 million, with overall growth in that quarter of over 9%. First year-to-date for the first half, our revenue growth is about 8.5%, moving up towards 9%, towards that 10% target that we have that we laid out in our strat plan. And again, as we said, 30% growth in our Med Tech segment. So the growth that we're seeing is being driven by those really exciting products going into high-margin, large markets where we can really have unique advantage. We also disclosed that in the quarter, we had positive cash generation from operations of about $7.5 million, increasing our net cash position from the end of Q1 to $5 million, an illustration of what I talked about before, that we can fund these investments through internally generated cash. And we think that's an important point. We are very pleased to have earnings of a penny in the quarter. So continued progress towards the transformation really being driven by those Med Tech segments.

And you touched upon the platforms in your presentation. Do you mind maybe just going a little bit more in detail on them or kind of talking a little bit more about those?

Sure. As I talk, Steve, you want to comment?