Good morning, and welcome to the AngioDynamics Fiscal Year 2024 Second Quarter Earnings Conference 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 AngioDynamics' fiscal 2024 second quarter results crossed the wire earlier this morning and is available on the company's website. This conference call is also being broadcast live over the Internet at the Investors section of the company's website at www.angiodynamics.com, and the webcast replay of the call will be available at the same site approximately one hour after the end of today's call. 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 2024, as well as trends that may continue. 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. The company will also discuss certain non-GAAP and pro forma financial measures during this call. Management uses these measures to establish operational goals and review operational performance and believes that these measures may assist investors in analyzing the underlying trends in the company's business over time. Investors should consider these non-GAAP and pro forma measures in addition to, not as a substitute for or as superior to, financial reporting measures prepared in accordance with GAAP. 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, and good morning, everyone, and thanks for joining us today for our fiscal 2024 second quarter earnings call. Joining me on today's call is Steve Trowbridge, AngioDynamics' Executive Vice President and Chief Financial Officer, who will provide a more detailed analysis of our second quarter financial performance, as well as the manufacturing and restructuring that we announced this morning. Unless otherwise noted, all financial metrics and growth rates provided during the call today with respect to our results will be on a pro-forma basis, which excludes the impact of our divested Dialysis and BioSentry businesses. Before digging into our quarterly results, we are announcing significant steps in our long-term strategic transformation. During the second quarter, we continue to actively pursue portfolio optimization opportunities and we made progress on that front. In addition, this morning, we announced a planned restructuring of our manufacturing footprint by moving to a fully outsourced model. With these moves, we will remain focused on generating continued growth across both our Med Tech and Med Device businesses, while simultaneously driving margin expansion. Importantly, when the dust settles from our initiatives at the end of our two year plan, we expect to achieve full year profitability in FY 2027. Both Steve and I will go into additional details later in the call. But now let me get back to Q2. Our second quarter of fiscal '24 saw year-over-year growth but we also faced headwinds, particularly in our thrombectomy business. We ended the second quarter with revenue of $79.1 million, representing growth of approximately 3% over year, led by growth of approximately 4% from our Med Tech segment. While growth of the Med Tech segment was a bit behind our expectations, particularly in mechanical thrombectomy, our adjusted EPS was a loss of $0.05 as we remain…

Thanks, Jim. Good morning, everyone. Before I begin, I'd like to direct everyone to the presentation on our Investor Relations website, summarizing the key items from our quarterly results. As Jim mentioned, unless otherwise noted, all metrics and growth rates mentioned during today's call are on a pro forma basis and exclude the results of the dialysis and BioSentry businesses that we divested in mid-June. Similar to Jim, I'll start with the second quarter before shifting to today's strategic announcements. Our revenue for the second quarter of FY '24 increased 2.7% year-over-year to $79.1 million, driven by growth in both our Med Tech and Med Device platforms. Med Tech revenue was $25.4 million, a 3.5% year-over-year increase, while Med Device revenue was $53.7 million, growing 2.3% compared to the second quarter of FY '23. Year-to-date, our overall revenue was up 4.2% year-over-year, with our Med Tech segment up 8.3%, and our Med Device segment up 2.3%. For the second fiscal quarter, our Med Tech platforms comprised 32.1% of our total revenue compared to 31.8% of total revenue a year ago. For the six months ended November 30, 2023, our Med Tech segment comprised 32.6% of our total revenue base versus 31.4% as of one year ago. Our Auryon platform contributed $11.4 million in revenue during the second quarter, growing 12.9% compared to last year. Year-to-date, our Auryon platform is up 18.9% year-over-year. Mechanical thrombectomy revenue, which includes AngioVac and AlphaVac sales, declined 4.7% over the second quarter of FY '23. AlphaVac revenue for the second quarter was $1.9 million. AngioVac revenue was $5.4 million in the quarter, representing a decline of 10.8% over the prior year. We did not see the rebound in AngioVac revenues that we had anticipated as procedure volumes came in lighter than expected, particularly late in…

Thanks, Steve, and for those joining, thank you for your time this morning. What you see is a company in transformation, looking to do the balance today of making sure our investments and costs that we spend are aligned to the outcomes that we want to see in the markets we serve and the markets we seek to grow in. Taking out significant structural costs, we don't have a lot of product, our customer benefit are important steps in that. We'll continue to do that with an eye to the bottom line, but also maintaining investments to optimize the opportunity that we've set forth in front of us. We have unique opportunities in large and fast-growing markets. We want to make sure we can maximize the opportunity to treat cardiovascular disease, primarily in venous or in arterial needs. We also know that our unique NanoKnife can treat solid tumors in areas like prostate cancer. We look forward to following our customers to where they seek to grow with our products. Thanks for joining us today. Rob, I'll turn it back to you.

[Operator Instructions] We have our first question coming from the line of Yi Chen with H.C. Wainwright. Please proceed with your question.

Thank you for taking my question. Just want to clarify. The gross margin, will it continue to decrease until you complete the shift to serve third-party manufacturing?

You'll see some back and forth, Yi. Thanks for the question. There are going to be costs that are going to be taken out through this process. You're going to see the most impactful benefit come when we are able to finally close the doors and do that full shift to the manufacturing. As we head into giving you guidance for future years, as we move into '25 and '26, we'll give you a little bit more clarity around the cadence from that. So I would expect you're going to see a little bit of movements, but with that most significant movement coming at the end of the two year period, and then certainly being there for the full year of FY '27.

And Yi, during that two year period as well, the product mix shift as the Med Tech products that have a higher gross margin than our corporate gross margin average will become a faster-growing piece. So as long as Steve said, as we take those costs out of the back end, we also expect to see a mix shift that's positive throughout that two year cycle and far beyond. Thanks.

Thank you. And regarding the sales from thrombectomy, are there any factors that you expect to drive the sales to increase the sales in the coming years?

There are, Yi. First of all, with AngioVac, again, announcing the breakthrough designation that we received from the FDA a few months back, and then getting that IDE aligned to our expectations to graft to the right heart vegetation opportunity that we think is significant for AngioVac, but larger than that AlphaVac. Yi, we mentioned on the call earlier that we look forward to have our CE Mark in the first half of calendar year 2024, opens up a significant market for us. And it's timed almost in the same series that will get, we believe, our FDA indication for our PE for the F18 here in the U.S. So over the next six months, we'll work hard to educate and train our sales and clinical teams and get ready to go to the markets that we can serve. These are really large markets. What we've learned during the APEX study from AlphaVac, that physicians really like the novel design features in the product. The study would not have been completed as fast as it was if people didn't see the novel design elements that led to what we think are really positive patient outcomes. So, Yi, really, we've got to sit tight for a bit and make sure we're prepared for a full global launch later in calendar 2024.

That's very helpful. Thank you very much.

Thank you. And our next question comes from the line of John Young with Canaccord Genuity. Please proceed with your questions.

Hi, Jim and Steve, can you hear me okay?

Thanks John. Good morning.

Good morning. Thanks for taking our question. Just maybe on AngioVac to start, can you just go a little bit more in detail about the headwinds that you're talking about. I know in the past, you put new sales leadership and training there and you recently got the breakthrough device designation, right heart vegetation. What isn't working there? And what are you going to do to remedy this?

John, for AngioVac, it's been a challenge. We mentioned before that we service smaller market opportunity with AngioVac than we do with AlphaVac. So opening up that right heart vegetation opportunity that we're working with the FDA on is important for us. But again, AngioVac is only going to serve a limited market. What we've done since we talked to you last summer, a brand new sales leader who's terrific built a new sales team, around some people that were here already that knew the products wanted to work in this environment when we open up these new markets, and AlphaVac-PE being the largest. We've also fully realized now a new training module and we fully staffed our sales force for the first time. So we're really ready. We're in a phase now. We're training and developing their capabilities, getting them educated, and the markets will serve both for AngioVac, as you mentioned, which is complex, as you know, and limited and their larger, less limited market that is open to us in the future when the AlphaVac-PE becomes granted. So we're doing our work in the back end, training and educating our teams, our clinical and sales teams to open up these markets.

Great. Thanks, Jim. And then just on shifting to AlphaVac 2, you mentioned that the 2.0 is going to launch this calendar year. Can you talk about the improvement? And do you now see any ASP increases with that? And can you maybe just talk about today, the pricing versus the market and your pricing on par or above or below the market? Thank you.

Good question, John. So AlphaVac is really a unique and novel device. And again, I'll let the study speak for itself. Hopefully, you'll see some data being published this calendar year with study results when they become available. But there's some design elements that are unique. For instance, physicians are so used to placing wires when you're treating this part of the anatomy and guiding catheters through the anatomy, which is torturous, which usually guide wires and so forth. We designed the AlphaVac with one of the unique design elements is that you don't need to drop a wire or place a wire. Most physicians look at it like, why wait a minute, you can't do that, and they still can do that if they choose. But over time, we found they get confident and comfortable with the design elements of the device. They don't need to do that. It allows them the steerability ops we built in to go back and forth between the different parts of the atrium and to really treat the body in a different way. It's faster and safer, we believe. So some really unique design elements that are already built in the product that we've heard great feedback on. And we've collected other feedback from some design enhancements they'd like to see. And that's what we'll offer later this calendar year, when we come out with our second-gen product, which is timed really well with what we think will be our PE indication expansion. Today, John, we talked about the pricing in the market is in the $1,000 mark. In that range, we think is uniquely priced right to be competitive with the other products out there. And the value that our customers receive, we think, has been really high. They've really shown a willingness to adapt that price point. It's a good price point for us in this market. I can't speak to the other companies. We know where they price their product. Some do it differently. But we think we're in a good spot there. The product will have a high gross margin at that range and we look to grow in that range of pricing for years to come.

Great. Thank you so much.

Our next question is from the line of Jayson Bedford with Raymond James. Pleased to see with your questions.

Just a few questions. On the AlphaVac improvements, just from a regulatory standpoint, do they require an additional 510(k)? Or can the - can you launch some without any new regulatory approvals?

Hi Jayson, so the regulatory team is working with the R&D team. So I think that one of the enhancements actually requires a new F 510(k) one does not - so these are design changes that were planned in with the R&D and the regulatory teams. So that's why we're looking at that second half of this calendar year, the cycle that our regulatory teams, quality teams and R&D teams have targeted, we feel confident we'll hit those cycles.

Okay. And then just on thrombectomy, you mentioned some procedural softness late in the quarter. I'm just wondering, what do you attribute the softness to?

Yes, Jayson, we obviously measure this very closely with our customers. And we saw that softness occur, that November time frame. And we talk to our customers. We had two things happening. There was actually a wind down. We're getting very close to the end of the APEX study, and our study sites knew that. So some were finishing up, some are winding down. So we're kind of careful how we measure this. But we also had a lot of conversations with our customers, with "same-store sales" people who use a certain amount of the product. Their usage went down. We spoke to them in a couple. They all shrugged their shoulders a bit said, hey, we haven't seen the patients come through lately at the rate they normally do. A little less control they had or we had over that marketplace. It was not huge, but enough for us that it's still a small business for us, AlphaVac getting growing. So it's impactful for us. We watch it closely. So there's a couple of factors there. We don't want to put our arms around any one in particular. Again, the opportunity that we have with training and education of our team, getting them ready for the PE launch later this calendar year we think is most impactful. Whether there's a bit of softness back and forth won't really matter then because the upside opportunity, we believe, is significant for us.

And have you seen a bit of a rebound in December?

Yes, a little bit, step back a little bit, not a whole lot. Again, as I said, we're measuring it differently. And also, Jayson, we have the other factor where it was the first couple of days in December, where the final patients were enrolled. So we completed the study in the first couple of days of December, which really enabled us to shut down the study and then pull back, obviously, on the education of the study. We can't sell and market the product outside of the study terms until we get the PE market. So there's a couple of moving parts having at the same time. I just want to make you aware of that. So we're watching all those elements together.

And just - what's the logistical process of moving to a fully outsourced model? Like how is this going to work?

Yes. So we have sites here in Upstate New York that were started almost when our company was founded 35 years ago in upstate New York. We've got two manufacturing sites, distribution sites as well. So what we'll do is a two year wind down, Jayson. The announcement we made yesterday starts that two year process. So we talked to our people at the site yesterday. This has been planned for - for you can imagine, nine to 12 months, the planning phase. And you've also seen, a couple of years ago, we started moving some of the operations to Costa Rica because we needed capacity during the pandemic period. We had less availability of new employees and operators. So we started some of those moves for our Med Device products during that period. So we now have established protocols with some good supplier partners. We have quality validation metrics already set up. They're part of our supply chain, it works well. So it gave us the confidence we can move more things and do more, if we couldn't get the capacity and cost levels to where we need to be, and over time, we couldn't. So we had this plan B in our pocket. And as I said earlier, as you see, the bulk of our revenue today in our Med Tech segment comes from suppliers that are partners in our supply chain today. So back to logistics, we've got a wind down around each of those product segments that are still manufactured in our sites here and a plan around each of those, to move those to a supplier partner and make sure that the quality operations are ready, the validations and all the regulatory processes are in place. That's why we have really a two year window, Jayson, to complete that cycle.

Okay. Just maybe last one for me for now. Cash flow, I think you have had a goal out there, $65 million, $70 million cash exiting the year. Is that still on the table?

Jayson, it will be a little bit of moving parts when you think about the manufacturing transfer that we just talked about. For example, there's probably going to be some cash that's going to move from one spot on the asset of the balance sheet to another spot, right? We're going to build up a little inventory as we prepare for some of these movements. That being said, as Jim said, this is a plan that we've been working on for a very long time. There may be some shifts in the balance sheet, but it's not going to fundamentally change our expectations of where we're going to end up.

So - sorry, still $65 million to $70 million or towards the low end?

I wouldn't expect it would be a little bit below that. But like I said, I expect that there's going to be some shifting. I have cash that might move into inventory buildup as we prepare, right? So that will be a little bit less cash, but maybe not terribly different when you think about current assets.

Got it. Okay, thank you.

Our next question is from the line of Steven Lichtman with Oppenheimer. Please proceed with your question.

Thank you. Good morning, guys. I guess just first, a couple of cleanup questions on the manufacturing shift. What percent of Med Device is outsourced currently? And what anticipated cash costs of the transition should we assume?

So Steve, with respect to your first question, roughly 20% of the current device portfolio is already made by third-party manufacturing partners. Jim mentioned that we started this process a number of quarters ago as we were building up capacity with our Costa Rica partnership. So we're going to continue doing that. I think it's important to understand that this process that we're talking about is really a continuation of something that was started over the last 24 months or so. Jim talked about it taking the full 24 months. That's to the point where we can get there and it's fully outsourced. And the benefit that, that gives us is, as opposed to today, where we have to have a management structure that supports both this hybrid company-owned manufacturing structure as well as managing the outsourced structure. We're going to move to 1, which is really going to be one of the fundamental drivers of that $15 million annual savings that we talked about once we can finish this two year process. And then you're going to see that fully roll into FY '27. In terms of the investment, there's going to be investment. That's something, as Jim said, we've been planning for the last nine months. It's something that is well within our plans. And the payback for these types of procedures are always very good, just what you'd expect to see.

Okay. Got it. So shifting to Auryon. Can you provide some more color on the pre-off headwinds you mentioned? And what you're seeing on that front, sort of as we went to - as we've gone into this fiscal quarter?

Yes. Steve, we did touch upon it in our last - our Q1 call, we touched upon it. We've seen it out there. I think one or two other companies in the meantime, I've talked about it in more detail than we have. We got a balancing thing here. We've got still really strong demand being created by Auryon and how it works and the data is generating and the excitement in the marketplace. We've got this cool tailwind of interest in Auryon. I was at our Global Symposium 1.5 months ago overseas, watching new doctors be trained and talk about the capability of Auryon. So we've got that cool tailwind of interest. But yes, there is a headwind that's been created. We've seen it in the field. So the pre-authorizations, which have always kind of been a part of the cycle, have tightened up and more players are in on it. So it has slowed down procedures. We are working with industry groups and our customers to go through that process. We haven't come out and said it stopped our procedures or slowed them down significantly, but it has made an impact. There's no doubt. You still saw growth in a strong quarter. We think the quarter would have been stronger and more procedures would have been done without this headwind. We're doing all we can to work with our customers to minimize it, but it is there.

Thanks Jim. And then I guess just lastly, I don't think you mentioned anything today about indication expansion for Auryon, including this small vessel the key and potentially coronary. Any update on those?

Yes. A couple of things. So with Auryon, again, we have it in our cycle now, our regulatory cycle with MDR for European CE approval in the first half of calendar year. We're always a bit cautious as you know, our industry, the MDR process has been a challenge for all of us for the past couple of years, but a regulatory team is a good aspect of control. We think we'll have Auryon approved overseas in the first half of the calendar year. Second, here, we want to expand Auryon two ways in the U.S. Some of which is part of those six product launches I told you about earlier in the call, one of which happens almost immediately here. Our new radial catheter gets launched as we speak. That's really exciting. There's some other things happening with Auryon beyond just those two things as clinicians see what it can do. There's been a study called FARO that was completed in Europe last summer and it's being published, showing how it can be used safely and effectively for coronary applications. We look forward to understanding that study, working with the thought leaders that produced it. And looking with the FDA, working with them on a study protocol and design. We'll talk more about soon about how we can also embark on the study here in the U.S. to open up a coronary expansion. So we think that's the next natural move for Auryon, as we know it will be safe and effective in that market.

And nothing new on small vessel on the thrombectomy side DVT?

No new news there, follows the schedule we put forward. We're doing the work on our process now. Our R&D teams and regulatory teams are working on that pathway we laid out before. So there's really no new news, Steve, on that front.

Okay. Got it. Thanks Jim. Thanks Steve.

Thank you, Steven.

Thank you. At this time, I'll turn the call over to Mr. Clemmer for any closing remarks. Mr. Clemmer?

Thank you for joining us today. We appreciate the hard work and commitment of the AngioDynamics employees. It's very difficult to work in an environment as fast paced as the Med Tech environment, especially when your company is transforming itself through our portfolio first, and second, into how we do what we do. So today's announcement of our manufacturing instruction is significant for our company. We think we can better utilize some of those stranded costs that are there, that don't drive product, customer or company benefit. We're going to reallocate those costs over the next few years. Some will go to the bottom line and some will be allocated to investments, opening up expansion opportunities that exist in these new technologies we're launching. We're a company in transformation, but we're a strong company with the direction that's clear to make our company more valuable for our customers, for our employees and our investors. Thank you for joining us today.

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