Good day, ladies and gentlemen. Thank you for standing by. Welcome to the AngioDynamics Third Quarter Fiscal 2012 Financial Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Wednesday, April 4, 2012. I would now like to turn the conference over to Mr. Bob Jones of EVC Group. Please go ahead.

Thank you, Alicia, and thank you everyone for joining us today for the AngioDynamics conference call to review the results of the fiscal 2012 third quarter, which ended on February 29, 2012. The news release announcing the results crossed the wire this afternoon after the market close and are available on the AngioDynamics website. The call is being broadcast live on the web at www.angiodynamics.com. A replay of the call will be also archived on the AngioDynamics website. To access both the website and the archived replay, go to the Investors section under Events and Presentations. Before we get started, during the course of this conference call, the company will make projections and forward-looking statements regarding future events, including statements about revenue and earnings for fiscal 2012. We encourage 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 actual results or events to differ materially from those described in the forward-looking statements. Finally, during the question-and-answer period today, we'd like to request each caller to limit themselves to 2 questions and encourage callers to re-queue to ask additional questions. We appreciate everyone's cooperation with this procedure. And now I'd like to turn the call over to Joseph DeVivo, President and Chief Executive Officer of AngioDynamics.

Thank you, Bob. Good afternoon, everyone, and welcome to our call. With me on this call is Joe Gersuk, our Chief Financial Officer. During the third quarter, we embarked on a course to transform AngioDynamics into a global, world-class medical device leader by creating a platform for stronger future growth. AngioDynamics is a company who has innovated through the years, with customer intensity at the core of its business. It's grown and has seen success. In order to set the company up for future success, we quite frankly, put the past several years behind us, we chose a catalyst to get us there, the acquisition of Navilyst Medical. Not a bolt-on or a tuck-in, but a combination, a reset, a realignment of the best of 2 successful companies to create an enterprise, which will sustain above-market top line growth and expanding margins through ongoing efficiencies. That's a company that investors want to invest in, and I intend to get us there. In looking at our third quarter results, as you see, sales came in as we expected in the range of $51.6 million, with gross margin a little less than we expected at 57% and earnings of $0.09 per share, excluding special items. I'll let Joe review our results in detail in a moment. Let me touch on our strategy behind the investments that we made during the quarter. It wasn't an easy quarter for Angio. And to get to the world-class organization we intend to be, we must continue to invest. As I mentioned to you on prior calls, delivering quality at every level of the organization is our top priority. As you're aware of, we received a warning letter last year in May. In my first month, I reviewed the letter and was unimpressed with the extent of…

Thank you, Joe, and good afternoon, ladies and gentlemen. Following 2 consecutive quarters of solid revenue growth to start the fiscal year, our third quarter sales of $51.6 million were affected by the end of the LC Beads distribution agreement on December 31, the decision in late January to stop shipping NanoKnife products to customers in the U.S. and by some disruption in the supply chain in our Vascular business. Nonetheless, the quarter sales were within the range of our recent guidance. The $3 million lower sales results this quarter was primarily attributable to having one month of Bead sales in the quarter as we had $4.2 million in Bead sales this quarter and $6.7 million a year ago. We have long anticipated the end of the line with LC Beads and have sought to find alternatives to take advantage of our excellent oncology surgery sales force. Our recent announcement about a strategic partnership with Microsulis Medical is the first step in that direction. Elsewhere in the Oncology/Surgery business, NanoKnife sales were essentially flat on a year-over-year basis as strong international growth in new systems offset the impact of the shipment halt in the U.S. We are pleased that 12 hospitals became commercial sites in the third quarter, with 6 purchasing NanoKnife generators and the others added on a loaner program. Most of the new sites are international customers, as you would expect. Meanwhile, net sales in our Vascular division declined by $400,000 or 1% in the quarter with supply outages in several products in the aftermath of our recent voluntary recalls, limiting our sales this quarter. We estimate that approximately $700,000 in third quarter sales were lost due to the disruption of the supply chain. There are 2 positive factors worth noting this quarter. The first is the strength…

[Operator Instructions] Our first question is from the line of Matt Hewitt with Craig-Hallum.

Question, you provided kind of a framework for what AngioDynamics can look like post the Navilyst acquisition. And I'm wondering if you could maybe provide a little bit more color, specifically, what could the combined entity look like, say, 2 quarters, post the closing? And then what could it look like maybe 2 years down the road? Not so much -- I'm not looking for specifics, but from a gross margin perspective, an operating margin perspective, maybe a top line growth. Could you provide some color on those metrics?

Well, it sounds, Matt, like you're looking for 2013 guidance. And we're really not prepared to give that guidance.

Not necessarily, Joe. What I'm looking for is, okay, you've got a company that's -- let's call it a 6% operating margin company. Where do you think that you can take this company a couple of years down the road? I mean, can this become a 10% operating company? Obviously, we can do math and kind of figure out what that means. But is that kind of the direction you're taking the company, or hope to?

Well, I guess, putting me in a corner, Matt, the answer is yes. I think we can double our operating income. I think we can get ourselves to a company that's growing at or above the market, in the markets that we serve, and I think we can continue to see operating leverage at the gross margin line as we see the longer-term benefits of the operations coming together. We're -- the end of our fiscal year 2013 is a long way away. And so for us to really give guidance and get the shape of the -- or not just the shape, but get the trajectory of the business, it's just too soon. But we're going to have 3 sales forces that are focused. We haven't had that before. We're going to have growth drivers in each one of our sales forces. We're going to have, in our Peripheral Vascular sales force, our growth driver will be our EVLT system, which everyone knows is a market in venous ablation that's very under penetrated. There's a lot of patients that suffer from that disease who can be treated, and that's why our growth rates are driving so far -- so strong. So now having a focused sales force there is going to accelerate that growth. I believe we're going to get FDA approval for BioFlo this summer. And BioFlo will be the only product that has properties proven to reduce thrombus formation. And if that prediction comes true, our Vascular sales force will be focused on that segment and will drive market share. And we're going to be cued for growth. In the Oncology business, our NanoKnife product will come back on the market this quarter and we'll manage that pent-up demand and we'll continue to see our clinical efficacy thrive. But each one of those businesses I intend to grow, I don't intend this to be putting a couple of companies together. I do intend to see this thing grow. In the first year, it's going -- it'll take some time for us to get the sales teams in order and for them to see that growth. And we're going to focus on ensuring that we drive the costs out at the bottom line and that we create a better P&L going forward. So in the first several quarters, you'll probably see the results more on the P&L. And then in the several quarters following, you'll start seeing those sales numbers kicking in with the type of focus that I mentioned to you. So I'd like, ultimately, in a couple of years, to see a company that is seeing above market top line growth and is seeing continued operating leverage on the bottom line.

That's great. And I do appreciate the color. I think it helps paint the picture going forward of what this company can look like. Second follow up, you mentioned it sounds like NanoKnife, you expect back this quarter. What other -- obviously, you just had some fantastic data presented at a couple different conferences. But I'm wondering, what are the next signposts there that we should be watching for?

Well, first of all, obviously, what our revenue is going to occur in the fourth quarter. We were very concerned when we had our recall of EVLT in the third quarter and didn't expect it to recover as quickly. We need to see how quickly NanoKnife recovers. But at the end of the day, it's still a long-term story, in my view. And even though we've had this hiccup in the third quarter, my view doesn't change. I think we'll continue at our revenue trajectory. But until we get into a protocol and until that -- if we can have the results that we just saw manifest in the controls protocol, then I think we'll get the type of responses that other companies get when they put those results out. So the catalyst is going to be, hopefully, sometime this summer we start our IDE for pancreas and let it go. Does that answer your question?

Yes, absolutely.

The next question is from the line of Jason Mills with Canaccord.

This is Jamar Ismail calling in for Jason. My question is on the quality programs that you guys are embarking on. Did you find things wider in scope than the FDA had noted? And are there any deadlines that the FDA has to remediate any issues?

Well, it kind of comes the other way around. We've identified -- the items have been identified by ourselves and the FDA. We set our own deadlines and commitments to the FDA on how and when we'll have them remediated. When we look at the grand spectrum of where we're at, we are not dealing with significant patient injuries and all kinds of issues that these products are -- the sky is falling. It has more to do, and we've been fortunate, knock on wood, that any of the issues that we've identified in the quality system has not translated into any issues with patients. These are systemic checks and balances that need to be in place to ensure our quality going forward. These are things that take time in building processes and then systems to automate those processes and then redundancies to ensure that they execute and then the manpower and the training and then the backup. So each of these things might seem, on a surface level, mundane or not as elegant. But when you break it down, it takes a lot of effort and energy to put it in place. And when the company's running fast, sometimes people don't do it. So we are looking at something across the company. We have a broad program. And we don't intend to visit this again from a construction standpoint after we're done, we intend to automate, maintain and continue to get better.

Okay. And then just one more. Have you built up sufficient inventory levels in Access so you won't have any supply problems in Q4?

Sufficient inventory levels? No, we haven't. We're working to do that now, but we haven't done so yet. But it's one of our business objectives is to build inventory in a particular, with regard to our NeverTouch product line, given the very strong demand that we've seen and some lost sales this past quarter. So we have an aggressive program to build inventory and to actually end Q4 with more inventory than we need and to not suffer any more outages there.

The next question is from the line of Jayson Bedford with Raymond James. Jayson T. Bedford - Raymond James & Associates, Inc., Research Division: I guess just following up on that Access business. I realized it was a tougher comp, but it's down year-over-year. It seemed like pricing was not as bad. I don't think it was impacted by any recall. So can you just give a little bit of commentary on why the business was down year-over-year? Does that reflect volumes? Is that share loss? Any additional granularity would be great.

Yes. Actually, the Access lines were affected by recalls. Both the Morpheus PICC and the DuraMax products experienced recalls, so they did feel the impact there. So that was part of it. And ASPs also were down on the Access products by about 3%, a bit more there, actually, than the Peripheral Vascular products, which were only down one percentage point. So a bit of pricing as well. We're also in the midst of a product transition with our -- the DuraMax and our new Dura-Flow product that we build ourselves. So several different factors there were at play, Jay. Jayson T. Bedford - Raymond James & Associates, Inc., Research Division: So the $700,000, how did that -- you lost out because of recalls, how does that break out between Access and then VenaCure?

About a bit more than half of it would have been in the VenaCure line, in the Peripheral Vascular line, and the rest of it would have been in Access products, roughly. Jayson T. Bedford - Raymond James & Associates, Inc., Research Division: Okay. And then on gross margin, it looked like third quarter gross margin guidance was 58% to 59% on a non-GAAP basis. It came in at 57%. I guess, why the weakness? And then it looks like you raised your fourth quarter guidance quite a bit. So wondering kind of what's going on there.

So the third quarter would have been impacted by the QCTA program, as well as additional recall cost. And we don't think that we're going to have the heavy recall cost in Q4 repeating, that we just saw in the third quarter. And in the fourth quarter, there will be no LC Beads at all, that they will be completely out of the revenue mix. So that alone also improves gross margin.

The next question is from the line of Charles Croson with Sidoti & Company. Charles Croson - Sidoti & Company, LLC: I'm on the road here, so just a quick of couple of questions and hopefully, I don't get in a bad zone here and drop out of the call or something. So a quick one, on international growth, can you just kind of run through what's driving that continued high upper-20s growth there?

Sure. So the 2 driving factors were NanoKnife, very strong sales there. They nearly tripled from a year ago. And then the other factor was the direct sales operations in the Netherlands that we now have. This will be the last [indiscernible] with that being the case of -- it not being in the prior year period. So we had the full benefit of that this quarter. Charles Croson - Sidoti & Company, LLC: Okay. Then a couple of more quick ones here then. And I might have missed this, I'm sorry, but you said this as I just jumped on. What were the overall ASP declines for the overall business?

Overall for the business, it was 2%. Charles Croson - Sidoti & Company, LLC: 2%, okay.

2% in Vascular as well. Charles Croson - Sidoti & Company, LLC: Okay. Okay. I got you. All right, last quick one here then. For the Microsulis, what -- does that have any -- I imagine you guys aren't giving guidance out for 2013. But does this apply some upside potentially for that $360 million number you guys gave out?

I think in the first year, since we're going to through international distribution first and since there's a lot of capital to be sold, we didn't -- we're not expecting a real significant pop in the first year in international. When we acquire the business and bring it over to the U.S., I'm sure we'll be happy to give guidance. But it'll take some time to get that ramped up overseas.

The next question is from the line of Robert Goldman with CL King. Robert M. Goldman - CL King & Associates, Inc.: A couple of questions on the quality control initiatives. First on Fremont, California, and I apologize for my own ignorance here, but do you have a 483 or a warning letter pending against that plant?

The -- in Fremont, it's not a plant, it's a design house. And we just were issued a couple 483s, yes. Robert M. Goldman - CL King & Associates, Inc.: Okay. And what can you say relative to the 483s, as far as what they cited or the number of citations?

Well, the -- I don't have them broken out between Queensbury and Fremont. The Fremont ones would be some observations on improving our design, history files and some complaint handling, some items as such in the R&D process. Robert M. Goldman - CL King & Associates, Inc.: And what is being designed in Fremont?

All of the oncology products. Robert M. Goldman - CL King & Associates, Inc.: And then on Queensbury, and I again apologize, I know you gave some metrics upfront in the call. I didn't catch them all. But you spoke about a reinspection of that plant. When did you say that occurred?

Well, we had an inspection last January. And then the -- another inspection began in November of 2011. So January 2011 and November 2011. Robert M. Goldman - CL King & Associates, Inc.: And it ended in November 2011?

No, it ended sometime in January 2012. Robert M. Goldman - CL King & Associates, Inc.: And you mentioned that there were some citations that were the same as the prior citations?

Yes. And that's where we've created a sense of urgency and ensured that we come up with some remediation because we don't want to have -- we don't want to be told the same thing twice. And we currently are well on our way to remediating those. Robert M. Goldman - CL King & Associates, Inc.: And you do have the warning letter relative to Queensbury, but you do not have a warning letter relative to Fremont?

No, not at this point in time. I wouldn't doubt that we would get another one, given the most recent citations and observations that we've received. That's why we're preparing to get ahead of the game, and that's why we've taken the action that we have. And by the time, even we believe a complete review of our responses, you will have so many of these already taken care of. They should have been taken of before, Bob, at a much more detailed pace and much more in-depth. One of the first things I did when I came here is realize that we have to do a better job. We mobilized, and we'll get there. Robert M. Goldman - CL King & Associates, Inc.: Great. And since there are issues now in a couple of plants, and I don't wish ill on anybody, but what's your quality control or legal folks suggesting is the risk relative to consent decree?

Well, if the FDA does not believe a company is making the sufficient progress, they have all kinds of options at their fingertips. We don't intend that to happen. And we've taken action, significant action, to get ourselves to where we need to be.

The next question is from the line of Larry Haimovitch with HMTC.

Two questions, one on the buyback. You mentioned you've stopped buying stock back. Just curious if you could comment on that at all. The stock continues to languish down here. I would think it would be a good buy in here, but I'm just curious what your thinking is?

Yes, we certainly think it's a good buy. And it's merely the fact that we anticipate using a substantial amount of cash and borrowing a lot to close the acquisition and therefore have decided to put the buyback on hold. And the authorization was only through May 31. So when it was put in place, so essentially, that will be it. And we'll work on the integration. And as things settle out in the future, our board may consider authorizations down the road at some point.

Okay. And then for Joe DeVivo, Joe, with the Microsulis acquisition, which I agree with you looks like a nice tuck-in and gives you 3 energy sources for oncology. I just wonder, how much bandwidth does the company have now to continue to do that? You've got a lot on your plate. You've got FDA issues. You've got a massive integration issue. You got some enormous opportunities ahead. Is there bandwidth in the organization to do more of these tuck-in acquisitions? Or do you think you're going to be pretty quiet for a while to try to get all these other issues resolved?

Well, Larry, it depends on what kind of deal it is. If it's something that we can rely on in external, the partner to provide products for us to sell within one of our channels, then I think it's easily doable. I think given the Microsulis transaction, we have the option to close that whenever we choose, doing it, an integration of their facility on the back of the current deal, we do not think is wise and chose not to do an acquisition at this point. Our international distribution team is not as focused on the type of issues as we are, given here in the States. So we thought it was a safe bet to get them started with those products. We'll continue to look at opportunities as they come up and be very mindful as to which bandwidth is consumed and which is not.

Okay. One other quick question, I'll jump back in queue. On the IRE, obviously, some of the data was encouraging and hopefully, it will continue to be very, very good. Of the data that we saw in March, what paper or what approach to pancreatic or liver cancer was most encouraging to you from these recent papers?

Well, as I mentioned in my comments, I think the discussion that Dr. Martin put together was significant. I mean, looking at 43 or I think it was 54 or 44 -- I'm sorry, I think I got that wrong. 44 different cases, and then coming up with a prospective or a control group. We're talking about patients who have, who are failing existing therapies, who have a very short survival curve and to be able in the earlier experience, with all the learning curve that exists and all the start up, to show any kind of benefit is encouraging. But we still have a lot of work to do, Larry. We -- getting these type of results under a protocol, I think is what we need for this business to inflect. But this is an indication that we're doing the right things. This is an indication that we believe the technology can add value. The clinicians, clearly believe it can add value, and it gives us the fortitude to continue on.

Okay. The application for IRE in the U.S., my understanding is only for pancreatic cancer. And I'm wondering why you're not also going after liver cancer?

For what now?

The IDE application that you're working on in the U.S., my understanding is it's solely for pancreatic cancer. My question is, wouldn't there be reason to also pursue liver cancer in the U.S. at this time?

Well, yes. I think there are a lot of applications within liver where IRE is applicable. That said, we need to focus. We need to go deep. And I think the company, historically, has been a little bit thin in that area. We need to drive one application to standard of care. And we can't do 2 concurrently. So we've chosen the one disease state where we think we can make the greatest impact clinically and help patients and get the biggest return for our efforts, especially given how quickly, unfortunately, these patients expire. Liver, like prostate, is a very well-served organ with many different technologies, from catheter-based therapies, drug delivery to energy, cold and hot and IRE and this and that, and beads. So we decided that the greatest impact we can make clinically and economically and also to patients would be to focus on pancreas first. We did do a study in Europe. 26 patients was presented on, at SIR as a primary therapy for liver cancer patients. It showed, in several patients, complete disappearance of the lesion, which we were stunned. Because normally with RF, there's a scar that's left behind. Some of the artifacts, on follow up, they couldn't even identify if there was a tumor in place. So there are some very encouraging early clinical signs. But we think the greatest return and the greatest way to drive adoption is to drive -- is to drive pancreas.

Thank you. There are no further questions at this time. I will turn it back over to Mr. Jones.

Okay. Let me just have Joe DeVivo, who's going to make some concluding remarks.

First of all, one point of -- excuse me. One point of clarification is when I mentioned we have observations in Queensbury and Fremont. Repeat observations were solely in Queensbury. There were no repeat observations in Fremont, and there's no risk of another warning letter in Fremont. But regardless, our efforts are significant and we're going to show the FDA that we've listened, that we have great processes in place and that this will be a great platform for us. We've -- we're investing not just in Queensbury, we're investing -- our Quality Call to Action is a corporate program, company-wide, which is not only process, but culture, infrastructure, talent realignment and execution. So we're very, very committed. Very, very committed. And that said, everyone on the call and for those who follow AngioDynamics, we're in the process of transition. And in it, when you make these moves and we're intent to get to a different level as a company, there may be some bumps in the road. But we have a great team. We have great people. We are excited about our future. Every day that goes by that we see what this company is going to become with the combination of great people at Angio and great people at Navilyst, boy, we get excited. We walk around the halls of the businesses and you can just palpate the excitement of what our future holds. Last week, we were at the Society of Interventional Radiology meeting. We met customers who are customers of Navilyst and customers of Angio. On both sides of the business, those customers are excited. They see the vision. They understand why these companies should come together. They see how we can serve them better. They see how we can become more competitive. And we will successfully integrate these businesses. We will create a platform for growth. We will drive better earnings performance on our P&L, as a percentage of revenue. We will generate cash. We will continue to acquire and bring on technology. And we will be a great company. I thank you for your time and attention, and I look forward talking to you next quarter.

Ladies and gentlemen, this does conclude the conference call. You may now disconnect, and thank you for your participation.