Good day and welcome to the AngioDynamics’ Q3 Fiscal 2015 Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Mr. Bob Jones, Investor Relations. Please go ahead sir.

Thank you, Melissa. Welcome everyone and thank you for joining us for AngioDynamics’ conference call this afternoon to review the financial results for the fiscal 2015 third quarter, which ended on February 28, 2015. The news release that crossed the wire this afternoon is available on the company’s website at www.angiodynamics.com. A replay of this call will be archived on the company’s website. Before we get started, during the course of this conference call the company will make projections of forward-looking statements regarding future events, including statements about revenue and earnings for the fiscal 2015 fourth quarter and full year ending May 31, 2015. 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 identifies specific factors that may cause the 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 two questions and encourage callers to re-queue to ask additional questions. We appreciate everyone’s cooperation with this procedure and with that I’d like to turn the call over to Joseph DeVivo, Chief Executive Officer.

Thank you, Bob. And thank you all for joining our third quarter fiscal year 2015 conference call. We made a lot of progress this year-to-date growing revenue approximately 3% on a constant currency basis and adjusted EPS of 15% year-over-year. The third quarter was a mixed bag for the company as factors both outside and within our control combined to produce a challenging period. After seven straight quarters, year-over-year sales improvement and strong earnings growth, procedural and the economic headwinds and a voluntary product withdrawal, all combined to dampen our performance this quarter. That said, we believe this is temporary. NanoKnife procedure acceleration; BioFlo adoption with Celerity no chest x-ray; the launch of our second generation AngioVac, which just occurred this week; and the signing of a licensing and development agreement for a truly disrupted embolic technology today have our enthusiasm for growth higher now than ever, all-the-while improving our profitability. This quarter, our financial performance was at the lower end of our guidance as sales were flat with last year’s third quarter on a constant currency basis and excluding the supplier agreement wind down. Adjusting for currency effects, sales came in at $87.6 million and $0.14 of adjusted EPS. I was pleased we maintained our adjusted profitability and positive cash momentum in the phase of lower than expected revenue, which is indicative of the management team’s ability to build resilience into the business. Our currency headwind included the rapid decline of the euro and the Canadian dollar where their quick erosion impacted our top end about a full percentage point. We were also impacted by the extreme weather in the winter in the U.S., probably more due to the concentration of our business not only in the U.S. but in the central and eastern part of the country, where…

Thank you, Joe. As described in our news release and as Joe discussed in this comments, our financial results were impacted by some unexpected challenges in the third quarter. We were not alone as the FX headwind was a major issue for all global companies. Our impact was larger than we expected ironically for a good reason, which was due to the increase of direct international presence, where 30% of our revenue is now derived from our direct markets versus 25% last year. Our strategy as we have discussed is to increase our international contribution and we are starting reap dividend as evidenced by our international performance this year notwithstanding the FX impact. I’ll discuss it in more detail later, but the FX impact in a major reason for reducing both our revenue and earning guidance for fiscal year 2015. Now our financial highlight for quarter was a positive development relating to the financial metric we discussed last quarter, which is improving our cash flow. I’m pleased to report that we returned to generating stronger operating and free cash flow as we forecasted, driven primarily by improved inventory management. Transition to the income statement, total revenue was down 2% from the prior fiscal year’s third quarter and flat on a constant currency basis as well as excluding the wind down of our supply agreement. There are no quarterly day differences this fiscal year, so all prior year comparisons are consistent on an average daily sales basis. Since Joe has extensively covered our product performance, I’ll be limited in my product performance comments. All of my revenue comparison comments will relate to the prior year fiscal quarter. Peripheral vascular decreased to 2% to $46.2 million reflecting softness in our EVLT business which dropped 7%. AngioVac grew 4% higher and contributed $2.3…

Thank you, Mark. So the quarter clearly had mixed results. There were clearly individual items that could have been better and also a challenging environment, but the opportunities for this business have never been brighter, each of our growth drivers are strong and while the road might be bumpy, the future is very bright. We have an exciting new AngioVac product, we have continuation of BioFlo with no chest X-ray, we have significant data with our new NanoKnife data coming out which is significant for NanoKnife and great, great data for elecrtroperation. We should end 2015 with 3% net growth and a 12% adjusted EPS growing with improving cash and margins and in general it’s not bad in this environment. We believe 2016 will be even better. So thank you very much and operator please open the call for questions.

Certainly, thank you. [Operator Instructions] And our first question will come from Tom Gunderson with Piper Jaffray.

Hi guys.

Hi Tom.

I’ll focus my two questions on product-specific things. Joe, can you give us a little bit more detail on Morpheus and what you did there? The press release uses the word recall. You, in your prepared remarks, did not. It doesn't sound like it is an FDA recall. It sounds like it was a product on the way to obsolescence that you decided to cease a little early, partly because it was on its way to obsolescence and partly because you were getting increased complaints. Is that a fair assessment?

Yes it is. Now obviously anytime you take a product off the market, the technical action is to issue a recall. But this is a withdrawal because we don’t intend it to every put it back on the market. This is a product for the last couple of years. Ever since we did the integration with Navilyst has seen quarter-over-quarter declines, part in which is due to a fact that it’s an intervention radiology product designed for interventional radiologists and has been seeing a natural erosion as you have seen PICCs go to beside and we’ve done the best we could to convert over to BioFlo, but it also has been a product that has had – has been at the higher end of the complaint spectrum internally. And recently, there was a set of complaints and remediation work that was done and it was a termination that given the breadth of the portfolio and given the current complaints that was best to take this product off the market, and as we’ve always had a focus on being a BioFlo specific company, ultimately down the road we thought BioFlo or we thought Morpheus was ultimately going to go away. So given the fact that we had this interim quality and complaint challenge, and given the length of time to remediate, we chose to take the product off the market and make a disciplined effort towards BioFlo.

Got it, thanks. And then the other product specific question was on AngioVac or AngioVac II, and you said it was delayed. On previous comments, you said that you had hoped to begin commercialization in March. I think you said you started yesterday. So is that the extent of the delay that it was actually one month?

No, the product had originally been – I mean for our own internal estimates it was November and then it was December and then it was January. We’ve been giving ourselves some cushion with the Street, and the last time we had mentioned it I think it was February that we would be coming out with it. Our internal plans had it almost a year ago. So it’s something that took us a long time to get to market. It was a complete redesign of every component in the system and also an on-boarding to an internal manufacturing process, and it did represent – and we didn’t think, especially on last quarter’s call, we thought we’d get the product out, but we definitely started to feel, let’s say some barriers towards getting to higher utilization levels. The procedures took a very long time and it was cumbersome and doctors were getting very selective to really the end stage types of cases that they were doing, and while we have some users who overcome it in general to build the business, you need to make a simpler device. So we redesigned the AngioVac wholesale from stem to stern, and it’s a beautiful device and we did just do our first three cases yesterday, but if you speak to the sales force or even customers, there was an expectation that it would come out earlier and unfortunately it weighed on us more than we expected.

And just to be clear, the cases yesterday, you’re good to go commercially now. It’s a success?

Yes, now it’s released…

That’s it from me. Thanks guys.

Thanks Tom.

And next we’ll take a question from Charles Haff with Craig-Hallum.

Hi, thanks for taking my questions. First Mark, what was the D&A for the quarter?

Depreciation and amortization was about $9 million.

Okay, thanks.

And then regarding EmboMedics, you know your LC Bead business you mentioned took about seven years to reach that peak of $35 million. How long or do you have what the differentiated technology here. Do you think it’s going to be a shorter time? Do you think that your opportunity here will probably be larger than what you had with LC Beads. Maybe you could just give us some color on how we should think about the ramp there for EmboMedics. Thank you.

Thanks Charles. Well, when we look at it, it’s a different time. When we were at that point in time with seven years, we were in the U.S. the only product really in the market and had created a significant amount of penetration. We think that we can recreate that and we also think that this agreement gives us the ability to have all of our excellent global partners and also our global direct sales channels access. So, today the marketplace is much larger than it was before, but it’s also many more entrants in the marketplace. So, we have some work to do. We need to get it approved and we need to do some clinical work that validates the assumptions and the assumptions that we are making, but I would say the opportunity is probably bigger than it was before, and I think the opportunity is also global for our company. So how quickly we get there is a function of how quickly we achieve regulatory success in each of the key markets, and also successfully complete some of the clinical validation of what we’re seeing, but the market is far bigger than it was and we are also global. So Charles when I came to Angio and I mentioned in my remarks, not only were we losing LC Beads but we didn’t have tip locations and the two areas that were virtually the bane of my existence and coming in the biggest priorities that fundamentally improve this business was to get a tip location device approved with no chest X-ray. Get access to one first of all and then get it approved. And then second of all, to get to our oncology business, this incredibly disrupted the novel technology and trust me, we’ve been very selective. We’ve seen embolics. I mean a lot of people have put embolics on the marketplace for the sake of having embolics. Our view is the adventures of this technology are right on. Our view is the thought leaders who are supporting this are very visionary and our view is we are not going to get into this market to simply compete and say we have a line extension. We are coming into this market to take some share and grow. So I know you would like a model that gives you a slope and that it’s hard to give that to you Charles, but it would be very hard for me to suppress my enthusiasm for what we just did.

Okay. Thanks Joe, I’ll re-queue for more questions. Thanks.

Thanks Charles.

And next we’ll go to Jason Bedford with Raymond James.

Good afternoon and thanks for taking the questions.

Hey Jason.

Hey guys. Just wanted to ask about EVLT and the weakness there. Are you confident that it’s not a competitive dynamic?

Well, what we did was we went out to our customers where we saw the greatest drop off, where we surveyed all of our customers first of all and we looked at where the year-over-year drop offs were and the greatest areas were in large customers who perceived it were down. It was a competitive issue we’d say. I mean, I don’t enjoy having this type of call and I haven’t enjoyed telling you this, but I think Jason you’ve seen – we’ve always been transparent and the queries that we’ve made to the marketplace came back, that they’ve seen less procedures. Now we’ve been competing against Covidien for, I don’t know, 10 years. Did they all of a sudden get more savvy? Maybe. There’s a bunch of biologics out there, but they are not reimbursed and no one has told us that those procedures have grown to the extent that have met where our customers saw less demand. Our customers told us that they saw less patients and that’s what we’re responding to and the data that we have is what we’re reporting to you. If it is a competitive issue, I’d love to learn about it from our competitors, but it’s not something that we’ve seen in conversations from our sales force or our surveys from our customers.

Okay. On the PICC side of things, I don’t think you mentioned Celerity and then tip location. I’m just wondering if you can just comment on the launch or roll out of that product and if its having any kind of pull through impact in the business?

So from a pure timing perspective we received our clearance in the first week February. It might have been the third or fourth if I can recall correctly and then once we received the approval, we get the labeling that’s been approved by them and then it usually takes a couple of weeks after that approval to release the product to market. We released the product literally within days to the end of the quarter and we shipped our first six systems right away and we anticipate this quarter to ship at least 20 systems to get through our pipeline and to accelerate from there. There is a nice pent-up demand for BioFlo and Celerity. We have a lot of contract wins that have been waiting for this. We have distracted our sales force over the last few weeks by pulling Morpheus off the market and that’s kind of hindered them a bit and will probably hinder them a little bit this quarter. But in the near term the pipeline is rich and we’re going to see a lot of growth. I expect 2016 to be a very strong growth year for our entire Vascular Access business.

Just on Morpheus, it did and I may have missed this and I apologize if I did. Did it impact the third quarter on a revenue basis?

Yes, it impacted us about $1 million. It’s actually about 1% of growth, $1 million in a quarter Jason.

We in the middle of February we did a stop shipment when we had seen earlier that there was increase in complaints that were sustainable. Our quality management system went into action and did a complete and thorough review of the complaints of manufacturing and supply chain. That review completed basically by mid February and after we sat and looked at it and looked at the potential remediation’s we realized that this was going to take a lot longer and we needed to make sure that we did the right thing for patients and so we put a stop shipment on the product as we continue to complete that review, which ultimately turned in us doing a formal recall in the marketplace, I think in the first week of March. So yes, it made a pretty significant impact right at the end of the quarter.

The tip would have been flat without this impact in the quarter Jason.

Okay. And the guidance for the fourth quarter, I think you said $1 million to $1.5 million. I’m assuming that that factors in some kind of leakage in the account base. I’m guessing not all of your Morpheus users will migrate over to BioFlo, is that fair?

Let me give you a little more perspective on Morpheus. In 2013 we did $16 million, in 2014 we did $12 million and we were probably on an $8 million or $9 million run rate with Morpheus throughout 2015 and it was falling pretty quickly. And then in reviewing that it’s been – when you look at a lot of the BioFlo growth we’ve had and we’ve always been wondering well, you know what’s going on, well Morpheus has been waiting on that line. So we think there’s a lot of customers who are staying with us, but of course whenever you go through this change you have to plan for the worst and hope for the best and we didn’t want to get ahead of ourselves in communicating that oh! We’re just going to be able to absorb it. I think our field feels very confident because of the strength of BioFlo that we’re going to move most of those customers over, but those are always opportunities for competitors to step in and change and the last thing we want to do is create an expectation that’s unrealistic. So there’s a part of us – let me quite honest Jason, that has a sigh of relief to say finally, okay, Morpheus is flushed out of the system and now we’re really going to focus on BioFlo and Celerity and that thing that’s been causing us, that’s been weighing on our growth rate and has been causing a lot of sales time is now behind us. So it’s not – you never want to withdraw a product a market. We had thought that the product would have atrophied and then we would naturally move it, but it is what it is.

Okay. And then I guess just lastly from me and then I’ll drop. On EmboMedics, what needs to be done between now and the filing in January ’16?

Well, the company needs to complete the work it needs to do in order to create the appropriate file; it’s just as simple as that. From competitive reasons its all the necessary requirements that the company believes it needs for FDA to kind of finish the testing and validation and all different things that FDAs asked us and that’s what our initial target is.

Okay, thanks. I’ll get back in queue.

And our next question will come from Jason Mills from Canaccord Genuity.

Hi guys, this is actually Jeff Chu filing in for Jason. I just have a couple of quick ones for me and first for Mark and I apologize if I missed this one, but did you provide the implants to ASP rate for the BioFlo?

What? Say your question again Jeff.

I’m sorry. I guess the mix of your in-plant growth or volume growth, I’m sorry, to ASP growth for the BioFlo line.

No, I didn’t provide penetration. I said for overall VA that about 30% of our business is now BioFlo. We’re close to 60% now of all our PICCs, that’s something we have provided, so I don’t know if that answers your question. So about 60% of our PICCs now are BioFlo based.

Okay great. And I was wondering if you’d comment on the competition you’re seeing on the coded products. Is there anyone that you see in the near future coming out with the similar coated product?

There is currently one out there. Teleflex has Chloragard. It’s been a product that’s been on the market for a while and they are actively competing in the market place. But nothing else is in the market. Apparently there’s been rumblings another competitor may get in and so you can ask them or listen to their conference calls.

Sure. And as a quick one on AngioVac, with your second generation device here, what drives acceleration I guess over the near to medium term here. Is it presenting at these physician conferences. Is it clinical trials? Are you thinking about launching any clinical trials in the near term?

Well, actually yes. We’ve initiated – I think we mentioned it last quarter. We initiated a registry at UCLA. We’re funding a registry, an independent registry. So the collection of all the data and your experiences will be able to be aggregated at UCLA and so we’re very excited about that and what we need is we have incredible proof of concept. We have case after case after case of life saving procedures of patients who had no other option and we’ve been running proof of concept for a while and we were moving very well, but the ability to get to the lower end of the market to the more less end stage, you have to have these to use. You have to be able to turn the room over faster. You have to be able to do the cases and get in and get out and that’s why when we launched AngioVac we had a clinical specialist there for every single case, because we knew there was going to be laborious in a technology that we acquired. But the next step of the evolution is for the user who is interested in the technology, but doesn’t want to invest the type of time that the first generation takes. We’ve made a huge leap now and it’s something that over the last six months has weighed on us and we realized that hey, we really do need to get this technology out, because it has impeded some of our utilization. We’ll do a great heroic case, but to turn it into an everyday business and something that’s a solution on an everyday has been frankly a challenge. The keys to future success are (a) launch in the technology; (b) continues physician education; (c) practice building within the hospital and to create connections between referring physicians and the practicing physicians and practice enhancement modules are recently launched and we are working with the sales force on that. The new technology is launched and we are no doing increased amount of education going forward. So had this product been out a little earlier we might not have seen this kind of a slowdown, but I’m very encouraged by March procedures. We’ve had a very consistent and strong set of March procedures; very encouraged by the first set of clinical cases. I think this will be just a hick-up in a great evolution of a great technology.

Thanks for the color. I’ll get back in queue.

No problem Jeff.

[Operator Instructions] And we’ll now go back to Charles Haff with Craig-Hallum.

Hi, thanks for taking my follow-up. So on gross margin Mark you gave quite a bit of detail here, but I just wanted to make sure I got all this. Can you go over that one more time, your prepared remarks. I got the 60 basis points of 4X and the 60 basis points factory shut down, but there are some other factors I may have missed.

Sure. So we added up – when you back out the Morpheus reserve we would have been at 49.5%, which is 140 basis points below prior year. We did generate 80 basis points of operational excellence benefit, but that was offset by E&O of 80, FX of 60 and one of the things we did in managing inventory management as we shut down our plant during the holidays and when you do that you have to take a period cost. You can’t put it into your variances, so we took a 40 basis point charge for that. And then we had some warranty service charges of about 30 basis points. So our hope is the E&O and the warranty should hopefully be much smaller. The FX will be a real issue going forward into fourth quarter.

Okay. And I think you’ve said previously that your hoping for 50 to 100 basis points this year as an aspirational goal. I mean, where should that be now that you had to say it in the fourth quarter?

Yes, it’s a good question. So we think we’re on track to generate 100 basis points of operational excellence benefit for the year. Unfortunately that’s going to be eroded by probably about 50, 60 basis points of FX and then we’ll probably have some residual E&O, so we’ll probably be more in the range of 20, 40 basis points, a full year benefit on the gross margin line is our expectation right now Charles.

Okay. Well, it’s not bad all the things considered given the score.

Yes, as I said in my comments, the FX impact for ironic reason is a little bigger, but you know everybody is getting hit by that and unfortunately it’s almost like 100% price impact, because when you lose the revenue, its 100% margin hit on your bottom line. And we’re not alone in that, but it is a big hit.

Okay. And then just jumping around here, on the BioFlo PICC, are the price increases sticking or has there been any change in kind of the net pricing of that product over the last few quarters?

No, the pricing is sticking. In order to get some larger contracts we’ve gotten more aggressive, but the delta between the inter product and BioFlo is there and it’s still an accretive to gross margin product and yes, we have been able to maintain price.

And that’s true also to dialysis and ports.

Actually it’s even more true on ports and dialysis and that’s also an interesting metric that Mark puts out this quarter, because historically we’ve been tracking BioFlo penetration and I think especially with Morpheus now you’re going to see BioFlo penetration shoot up above the 60% rate for PICCs. But even more interestingly if you look at our entire business, I mean we have ports and dialysis catheters now 30%, 31% and I think that’s going to get in a couple of years through to be 100%. The product works, it works everywhere. People see it when they use it and it’s the best product on the market.

Okay. And lastly you said some IDN and GPO wins in the last six months. Were you starting to see the impacts of that this quarter? Can you maybe give us a little bit of color if you have some?

From a PICC perspective we’ve had a lot of activity, we have a great pipeline, but the bigger accounts we’re waiting for Celerity. Celerity released in the last week of the third quarter, we’re going to see activity in this quarter and so it’s very, very positive. From a Port standpoint, you’ve been seeing port growth rate. So I guess this quarter we’re six, but prior quarter was 15 and 14 and those growth rates are entirely due to the GPO wins that we’ve had and we’re now starting to see some life in Dialysis which has been a category that was declining in revenue and in margin and now has turned into… Dialysis is not a growth business in general. If you talk and listen to all the dialysis companies, especially for catheters, but we’re growing we’re taking share and we’re taking price and that’s going to be a trend that’s going to continue all throughout this quarter and 2016. So we’re starting to deliver a set back with Morpheus. We made the right decision and we made the right decision for the patients. We made the right decision for our quality system, but obviously everyone wants to see everything perfect and we didn’t deliver perfect this quarter.

So on the GPO front, HealthTrust seems to have the greatest [inaudible] and maybe the greatest source of near term opportunity, so HealthTrust purchasing on BioFlo PICCs it sounds like was held back this quarter because they are waiting for Celerity. Is that accurate?

I think from valuations we’re most certainly held back, absolutely and now we are in process. Also there is a pretty nice pipeline of novation hospitals that we won that we got on contract for over the past summer and there’s a lot of activity there. I think if we didn’t have this issue and we didn’t have the distractions of this issue we probably would have been more productive with PICCs and we will be more productive in the future.

Yes, just to build though on Joe’s point just to remind everybody, the thing with PICCs though is you always do an evaluation, so it’s usually 60 to 90 days. So as we said on the last call, we are doing a ton of evaluations, but you won’t see the real run rate to maybe the last month of the quarter, but more in fiscal year ’16 and that’s still our expectation Charles on what’s going to happen of all this GPO activity on the PICCs.

Okay, thanks for taking my questions.

Thanks Charles.

And that concludes our question-and-answer session today and I’d like to turn the conference back over to Mr. DeVivo for any closing remarks. End of Q&A:

So everyone, it’s not fun to go first in this earnings season announcing off of January and February numbers, especially when it was this slow and as a couple of years ago we had a rough third quarter, it seemed very similar, but we’re in a much better shape today. While it’s been some concern on EVLT, we don’t have concerns across the rest of the business. We are very excited about vascular access and the growth that’s there, the oncology business has never been in better shape with the prospects of NanoKnife potentially breaking out and AngioVac, while we’ve had a bit of just the third quarter pause, we’ll get that mojo back, especially with the new technology. When we look at the future and we invest in the future and we look at our growth, this company has more opportunities and now adding such a high quality company as EmboMedics with incredible technology and putting it through our channel, it really strengthens our oncology portfolio that much more. So we’re continuing to work hard. The operations team continues to deliver one of the – if we didn’t have such improvement on the spending and OpEx with the revenue fall it would have been even a rougher quarter, but the teams resiliency and execution continued. So with that I appreciate your time and look forward to communicating to you next quarter.