Yahoo Finance AngioDynamics, Inc. (NASDAQ:ANGO) Q3 2024 Earnings Call Transcript
AngioDynamics, Inc. (NASDAQ:ANGO) Q3 2024 Earnings Call Transcript April 4, 2024
AngioDynamics, Inc. misses on earnings expectations. Reported EPS is $-0.16 EPS, expectations were $-0.14. AngioDynamics, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning and welcome to the AngioDynamics fiscal year 2024 third quarter earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require Operator assistance during the conference, please press star, zero on your telephone keypad. As a reminder, this conference call is being recorded. The news release detailing AngioDynamics fiscal 2024 third 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 a 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 and 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?
Jim Clemmer: Thank you. Good morning everyone and thank you for joining us for AngioDynamics’ fiscal 2024 third quarter earnings call. Joining me on today’s call is Steve Trowbridge, AngioDynamics’ Executive Vice President and Chief Financial Officer, who will provide a detailed analysis of our third quarter financial performance. 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, BioCentury, PICC and midline businesses, and our discontinued radiofrequency and Syntrax support catheter products. We are very pleased with the solid pro forma revenue growth that we saw during our third quarter.
We executed on a number of significant strategic milestones during and after Q3, including securing an expanded indication and reaching a settlement agreement with BD Bard. Additionally, we announced another significant step in the optimization of our portfolio with the divestiture of our PICC and midline product portfolios. This divestiture combined with the ongoing shift of manufacturing out of our upstate New York manufacturing facilities, and the divestiture of our dialysis and BioCentury businesses to Merit Medical at the beginning of this fiscal year position us to drive further growth from our key med tech platforms while also expanding margins and driving towards profitability. We will cover this in more detail shortly. But now turning to our third quarter results, our third quarter of fiscal ’24 saw a return to double-digit year-over-year growth in our med tech segment and solid mid-single digit growth from our med device segment.
We ended the third quarter with revenue of $66 million, representing growth of approximately 8% year-over-year, with growth of nearly 13% from our med-tech segment and 5% from our med device segment. Growth in the med tech segment was driven by Auryon, which grew nearly 15% year-over-year, and NanoKnife, which grew approximately 47% during the third quarter, with sales of probes increasing approximately 20%. Our mechanical thrombectomy business, which includes AngioVac and AlphaVac, declined roughly 12% year-over-year. While AngioVac stabilized as we discussed last quarter, AlphaVac sales slowed due to a wind down at many of our sites as we completed enrolment in the APEX PE trial. We expect a continued softness in AlphaVac sales between the completion of the trial and the FDA approval of the PE indication.
We are pleased to announce today that we have received our clearance from the FDA for the use of AlphaVac to treat pulmonary embolism. This approval came in ahead of our expectations, and I’m proud of the strong submission that our team put together and the compelling data generated by our APEX trial. This expanded indication is a significant piece of the long term strategy that we laid out for you in July of 2021. It validates the unique design elements of our product and the significant benefit it provides to physicians and patients. This approval opened up another large, fast-growing market for us, and we are excited to put AlphaVac in more physicians’ hands. The results of our APEX trial exceeded our expectations, comfortably hitting our targeted end points and comparing favorably with other catheter-based PE treatment trials.
Given the unique design elements of our device, specifically the one-to-one torque maneuverability and the expandable funnel, physicians were able to remove significant more clot burden and complete the procedure in less time than has been reported in other PE trials. We look forward to more specifics being announced in publications over the coming months. This business will play an important role as we execute on our growth strategy. We expect to initiate a limited launch release during the end of our fiscal Q4 with a full launch scheduled during our Q1 of FY25. Additional near term catalysts include expected MDR approval of AlphaVac for treatment of PE in European and other markets, which we expect by the end of June. During the third quarter, we launched the Auryon XL radial catheter, and this product is intended to give physicians another access point to treat peripheral artery disease.
Many physicians like the radial approach as they can perform more procedures per day, and the patient follow-up is faster and generally has fewer potential complications. This is another reason why potential customers will consider Auryon for use in their cath labs for their OBLs. We currently expect to receive CE mark for Auryon by the end of June, allowing us to expand promotion beyond the U.S. and into the EU markets. Turning to our NanoKnife business, we continued to see increased interest in the usage of NanoKnife for patients and caregivers seeking options to treat intermediate risk prostate cancer. We look forward to completing the 12-month patient follow-up in July for our PRESERVE study and then we will submit our data to the FDA, and we are currently expecting clearance by the end of calendar 2024.
Growth of approximately 5% in our med device segment was primarily driven by our EVLT and our angiographic catheter products, which grew 22% and 11% respectively. In the third quarter of FY24, our international business grew approximately 21% year-over-year, including approximately 53% growth from med tech and 7% growth from med device. We also hosted our fifth international Clinical Life Symposium. These symposiums continue to drive increased interest in our med tech products, and we have generated a meaningful pipeline of global physicians who are excited to utilize our products in caring for their patients. Now turning to our portfolio optimization that I mentioned earlier, on February 15 we sold our PICC and midline portfolios to Spectrum Vascular for a total consideration of up to $45 million, with roughly $30 million received in our Q3.
Additionally, we discontinued sales of our Uniblate and Starburst RF products, as well as our Syntrax support catheter as these were older products that are not core to our growth strategy and would have cost us to transition them to our new outsourced model. In total, these divested and discontinued products contributed approximately $50 million of sales in FY23. We are much happier with where our portfolio sits today with a higher growth med tech business that is the foundation of our future growth and profitability, along with a less complex med device segment that can help support our investments in organic growth. The transition of our manufacturing to a fully outsourced model, which we announced on our last call, is now well underway and on track to generate approximately $15 million in annualized savings, starting in FY26 and being fully realized in FY27.
Looking at the combined divestitures to Spectrum and Merit this year, we received approximately two times sales for the combined assets, and we were able to pay down all of our outstanding debt and strengthen our balance sheet significantly. Finally, as Steve will discuss in more detail, we reached a settlement of a more than a decade of IP litigation with BD Bard, providing us with clarity and certainty and allowing us to focus on our strategic transformation. With that, I’ll turn the call over to Steve Trowbridge, our Executive Vice President and Chief Financial Officer to review the quarter in more detail.
Steve Trowbridge: Thanks Jim. Good morning everybody. 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 BioCentury businesses that we divested last June, the PICC and midline products that we divested last month, and the radiofrequency and Syntrax support catheter products that we recently discontinued. Our revenue for the third quarter of FY24 increased 8% year-over-year to $66 million, driven by growth in both our med tech and med device platforms. Med tech revenue was $25.7 million, a 12.6% year-over-year increase, while med device revenue was $40.3 million, growing 5.2% compared to the third quarter of FY23.
Year to date, our overall revenue is up 6.5% year-over-year with our med tech segment up 9.6% and our med device segment up 4.6%. We were pleased with the return to growth that we saw across both our med tech and med device businesses in the third quarter, which we had expected and is reflective of the strength of our portfolio. For the third fiscal quarter on a pro forma basis, our med tech platforms comprised 38.9% of our total revenue compared to 37.3% of total revenue a year ago. For the nine months ended February 29, 2024, our med tech segment comprised 38.4% of our total revenue base versus 37.3% as of one year ago. Our Auryon platform contributed $11.8 million in revenue during the third quarter, growing 14.7% compared to last year. Year to date, our Auryon platform is up 17.4% year-over-year.
Mechanical thrombectomy revenue, which includes AngioVac and AlphaVac sales, declined 11.6% over the third quarter of FY23. AngioVac revenue was $5.5 million in the quarter, similar to prior year sales. We were pleased to see this stabilization in AngioVac revenue during the quarter. AlphaVac revenue for the third quarter was $1.1 million. As Jim mentioned, we are very pleased to announce the clearance of an expanded indication for AlphaVac to treat pulmonary embolism. We remain confident that mechanical thrombectomy will be a significant contributor to our long term growth strategy and we are excited about the planned new product introductions, as well as our clinical initiatives. NanoKnife disposable revenue during the quarter increased 19.8% year-over-year.
Capital sales were robust in the quarter, growing 230.9%, and are a strong driver of future disposable sales. Year to date, NanoKnife disposable sales are up 15.1%, and total NanoKnife sales are up 25.7%. In addition, as a reminder, earlier this year we announced that enrolment in PRESERVE is now 100% complete, and as this data starts to be made public over the course of this calendar year, we look forward to sharing it with you. In the third quarter, our med device segment grew 5.2% year-over-year, led by strength in our EVLT and angiographic catheter products. Moving down the income statement, our gross margin for the third quarter of FY24 was 51.1%, a decrease of 290 basis points compared to the year ago period. For the third fiscal quarter, med tech gross margin was 61.5%, a decrease of 300 basis points, and med device gross margin was 44.4%, a decrease of 330 basis points, each when compared to the third quarter of last year.
The year-over-year decline in gross margin for the med tech business was primarily driven by product mix as sales of our higher margin thrombectomy products declined, and geographic mix as we saw growth in our international markets. Gross margin for the med device business was impacted by a supplier recall and costs associated with the transition to outsourced manufacturing. Year to date gross margins for FY24 was 53.6%, a decrease of 150 basis points versus prior year, with med tech gross margin of 63% and med device gross margin of 47.7%. As a reminder, the gross margin numbers that I’m referring to for this year, as well as last year, are pro forma numbers following the divestitures of our PICC and midline businesses. We did see significant margin expansion when comparing this to our pre-divestiture margins.
As we discussed last quarter, our gross margin profile has been negatively impacted by the scale and structural limitations of our operating footprint. To address this, we announced that we are restructuring our manufacturing operations to move to a fully outsourced model. Again, we expect this restructuring to result in annualized savings of roughly $15 million, with the full annualized impact being realized in FY27. Until we can complete this transition, we will see some ebbs and flows in our reported gross margins. For example, our transition incorporates moving manufacturing to third party partners. The faster we do this, the quicker we end up double paying for manufacturing overhead and therefore increasing the impact of under-absorption in our Queensbury manufacturing plant - the right thing to do in connection with our plan, but we cannot fully recognize the impact of our overhead savings until the full transition is complete.
In addition, we anticipate building inventory to facilitate the outsourcing moves. While there will be continued noise in our gross margins, we’re committed to our strategy to ultimately drive efficiencies in our operating footprint and maximize the gross margin expansion that results from growing the percentage of our med tech revenue base. Turning to R&D, our research and development expense during the third quarter of FY24 was $8.1 million or 12.2% of sales, compared to $6.7 million of 11% of sales a year ago. SG&A expense for the third quarter of FY24 was $34.2 million, representing 51.9% of sales compared to $32.5 million or 53.3% of sales a year ago. Our adjusted net loss for the third quarter of FY24 was $6.5 million, or adjusted loss per share of $0.16 compared to an adjusted net loss of $5.4 million or adjusted loss per share of $0.14 in the third quarter of last year.
The year-over-year decline is largely attributable to the lower gross margin and noise associated with the ongoing manufacturing transfer. On a GAAP basis, we recorded a GAAP net loss of $190.4 million, or a loss per share of $4.73 in the third quarter of fiscal ’24. The GAAP net loss includes a goodwill impairment charge of $159.5 million, settlement charges which I will discuss in further detail in a moment of $22 million, and asset impairment charges totaling $6.8 million related to the transition to outsourced manufacturing and discontinuation of Syntrax. The goodwill impairment amount is preliminary - it’s undergoing further evaluation, and it will be adjusted if necessary prior to filing our quarterly report on Form 10-Q. Adjusted EBITDA in the third quarter of FY24 was negative $3.6 million compared to adjusted EBITDA of negative $1.5 million in the third quarter of ’23.
At February 29, 2024, we had $78.5 million in cash and cash equivalents compared to $44.6 million in cash and cash equivalents at May 31, 2023. As a reminder, we currently have zero debt compared to $50 million a year ago. In the third quarter of fiscal ’24, we used $12.5 million in operating cash, had capital expenditures of $0.6 million and additions to Auryon placement and evaluation units of $1.2 million. Similar to our discussion around gross margins, we expect that there will be ebbs and flows in our quarterly cash utilization as a result of our manufacturing transfer. Our third fiscal fourth quarter was particularly noisy with the divestiture of PICC and midlines, the supplier recall I mentioned earlier, and the impacts of initiating our strategic manufacturing transfer.
While we expect continued ebbs and flows in cash, for example as is always the case, we expect our Q1 to exhibit higher use of cash than other quarters, we are confident that our capital allocation strategy has put us in a strong position. We have a very strong balance sheet with zero debt and a significant cash position, allowing us the flexibility to fund investments necessary to drive growth in our med tech segment and execute on our strategic manufacturing transfer. We went from having $50 million of debt to zero debt in the midst of this high interest rate environment, and in connection with that, we’ve undergone a significant portfolio optimization to recapitalize our balance sheet, and now have a significant cash position. There will be ebbs and flows to our uses of cash as we work to complete our manufacturing transfer over the next 18 to 24 months, but we will continue to remain focused on maintaining a strong balance sheet.
Earlier this week, we announced that we entered into a settlement agreement with Becton, Dickinson and agreed to settle all outstanding intellectual property litigation with Bard. This has been an overhang at our company for more than 10 years, and although we felt very confident in our position, there is always uncertainty in litigation. We’re very pleased to come to this settlement and avoid the significant costs of further litigation. This settlement also provides clarity and certainty, allowing us to remain focused on growing and transforming our business. We will essentially be paying out the equivalent of what was a two-year run rate worth of legal fees in this matter but now over the next six years, while also removing the unlikely but still possible threat of a much larger judgment that might have been made against us in the future.
Turning now to guidance, we now anticipate that FY24 revenue will be in a range of $270 million to $275 million. The only change in our guidance relative to last quarter is that it contemplates the recent divestiture of the PICC and midline businesses, and discontinuance of the radiofrequency ablation and Syntrax businesses. These businesses accounted for approximately $50 million of our prior revenue guidance of $320 million to $325 million. We now expect full year adjusted loss per share to be in the range of $0.54 to $0.58. We expect FY 24 gross margin to be in a range of 52% to 54%, above our prior estimate of 49% to 51% at the divested and discontinued businesses have a lower gross margin relative to our overall corporate margins. For FY24, we continue to expect med tech revenue growth in the range of 10% to 15%, and we now expect med device revenue growth in the range of 2% to 4%.
We expect med tech gross margins in the range of 61% to 63%, which is unchanged, and med device gross margins in the range of 46% to 48%, up from our prior guidance of 43% to 45%. Finally, I would like to thank our team here at AngioDynamics for their hard work and commitment in making our transformation possible. With that, I’ll turn it back to Jim.
Jim Clemmer: Thanks Steve, and thanks for joining us on our call today. We acknowledge that there are a lot of moving pieces this quarter between the divestiture and the discontinued products, the Bard settlement, and the manufacturing transition. With that said, all of this in service of executing against a strategy that we laid out back in July of 2021, and moves us closer to being a high growth med tech company. The approval of our AlphaVac PE that we announced today is another great example of our strategic focus on adding indications in large, high growth markets. Moving ahead, as we are able to leverage these significant changes, the benefits of our transformation will become more and more apparent. Operator, we can open up the line for calls.
See also 15 Fastest Growing Metro Areas in the US and 25 Richest Billionaires in Energy Industry.
To continue reading the Q&A session, please click here.
