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AngioDynamics, Inc. (ANGO) Q2 2024 Earnings Call Transcript

AngioDynamics, Inc. (ANGO)

Q2 2024 Earnings Conference Call

Company Participants

Jim Clemmer - President and CEO

Steve Trowbridge - EVP and CFO

Conference Call Participants

Yi Chen - H.C. Wainwright

John Young - Canaccord Genuity

Jayson Bedford - Raymond James

Steven Lichtman - Oppenheimer

Presentation

Operator

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?

Jim 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 focused on our spending and managing operating expenses while still investing in long-term growth.

Our mechanical thrombectomy business, which includes AngioVac and AlphaVac, declined 4.7% year-over-year. We are disappointed by these results as clearly the growth trajectory of this business is taking longer to inflect than we had expected. We attribute some of the softness to slightly weaker-than-anticipated procedural volumes late in our quarter, but we also believe the steps we are taking to drive this business are gaining positive traction.

For example, following on the heels of receiving the breakthrough designation for the use of AngioVac to remove right heart vegetation, we continue working diligently with the FDA toward receiving final approval to begin our IDE study.

While AlphaVac revenues were softer than we would have liked this quarter, what we've learned over the past 18 months is that physicians value this durability, simplicity and safety of the device, and we look forward to the introduction of two new second-generation design enhancements that will make the product even more appealing later in calendar 2024.

As announced in early December, we enrolled our final patient in our APEX-AV study, which is designed to assess the performance of the AlphaVac F18 system in reducing thrombus burden and improving right ventricular function. We look forward to collecting data from this study at the 30-day follow-up stage, then submitting our data to the FDA in the early part of calendar year 2024 to support an expanded indication for AlphaVac F18 to treat pulmonary embolism.

We believe the softer-than-anticipated AlphaVac sales during the quarter partially stem from a wind down at many of our sites as we approach the completion enrollment in the APEX-PE trial, and we expect some continued softness between the completion of the trial and the FDA approval of the PE indication as the device does not have a specific PE clearance and is competing against two existing products that do.

We fully expect that once we receive our anticipated approval letter later this calendar year, we will have a highly competitive and differentiated product in what remains a large, underpenetrated, high-growth market.

Because of the tremendous interest from the physician community, we were able to complete our study as quickly as we did in a time that outpaced the previous competitive studies, and we are excited about the path ahead.

Turning to our NanoKnife business, we saw sales grow approximately 2.8% during the second quarter, with sales of probes declining 3.6%. Probe sales grew in the U.S. but declined internationally due to timing of both bringing on new distributors during the previous year's quarter and distributor orders during this year's quarter. Stronger international capital sales during the quarter offset the decline in probes and will drive additional pro-growth in future periods as those units come online.

Year-to-date, NanoKnife probes were up 12.9%, and total [NanoKnife] sales are up 16.7%. We continue to expect strong growth from this business on an annual basis while anticipating quarter-to-quarter fluctuations in both probes and capital sales as historically has been the case. During the second quarter, we saw solid growth of our Auryon platform, up 12.9% year-over-year, and we're excited to tell you that in November, we reached an important milestone, having achieved $100 million in cumulative revenue since we launched this product in September of 2020.

We did experience some delays in sales related to the recent increased attention around preauthorizations, but we believe that over the long term, the unique way that we deliver laser energy and safely treat disease vessels will continue to drive increased share and provide the foundation for continued strong growth. Growth of approximately 2% in our Med Device segment was primarily driven by angiographic catheter products and our ports, which grew 8% and 5.5%, respectively.

In the second quarter of FY 2024, our international business grew 12.6% year-over-year, with double-digit growth from both our Med Tech and our Med Device segments. We also hosted our third international clinical life symposium, which has led to 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 strategic initiatives that I mentioned earlier. We told you over the past several quarters that we were further evaluating the products in our Med Device portfolio and we remain engaged in active discussions to do just that. We advanced this initiative during the second quarter and we look forward to providing you with additional details soon when we are able to.

In addition to our continued portfolio optimization efforts, we are also increasing our focus on reducing structural costs within our manufacturing footprint and transitioning our upstate New York manufacturing operations to a fully outsourced the model over the next two years.

As a reminder, roughly 80% of our Med Tech revenue is already leveraging this third-party manufacturing model. As many of you already know, we began moving some of our Med Device manufacturing capacity to Costa Rica over the past couple of years as we began to see labor shortages in our upstate New York facilities.

Fully moving both Med Tech and Med Device to this model will drive an annualized savings of roughly $15 million by our FY '27, driving significant gross margin improvement, and equally as important, giving us a pathway to full year profitability by FY '27. Steve will cover this in more detail, but we believe this is a significant advancement of our long-term strategy that simplifies our operations while allowing us to invest in the long-term growth of our Med Tech portfolio and the overall business while still driving profitability.

Shifting back to the near term. We're excited for what lies ahead in calendar 2024. This month, we will commence the limited market release of our Auryon radio catheter, which will provide physicians an access point at the risk, enabling faster, less invasive procedures. This release will be the first of six planned product releases for Auryon during calendar year 2024.

In the second half of year - calendar year 2024, we will launch two new design enhancements for AlphaVac, designed around physician feedback we've received and we'll provide more details on those as we get closer to launch. We've also got an exciting schedule of regulatory clearances on the horizon. We are projecting EU approval of Auryon and AlphaVac-PE in the first half of calendar year 2024.

Next, we also expect U.S. approval of AlphaVac-PE mid-calendar year. And then finally, in July, the PRESERVE 12-month follow-up will be complete, putting us on track for potential FDA approval in late calendar 2024 or early calendar 2025....

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