AngioDynamics, Inc. (ANGO) Q1 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the AngioDynamics First Quarter 2012 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, October 6, 2011. I would now like to turn the conference over to Mr. Doug Sherk. Please go ahead.

Thank you, operator, and thank you, everyone for joining us today for the AngioDynamics Conference Call to review the results of the fiscal 2012 first quarter which ended on August 31, 2011. The news release announcing the results crossed the wire this afternoon after the market closed and they are available on the AngioDynamics website. The call is being broadcast live on the web at www.angiodynamics.com. In addition today, we are offering a slide presentation of the NanoKnife clinical development program which will accompany management's remarks. A replay of the call will also be archived on the AngioDynamics website. To access both the webcast and the archived call, including the presentation slides in the archive, go to that AngioDynamics' website at www.angiodynamics.com and go to the investors section under Events & Presentations. If you are listening via telephone, to view the companying slide presentation, navigate to the live webcast as noted and choose the no audio slides-only option to view the slides in conjunction with the live conference call. Before we get started, during the course of this conference call, the company will make projections or forward-looking statements regarding future events, including the 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 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 requeue to ask additional question. 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.

Thanks, Doug, and good afternoon everyone joining us today. With me is Joe Gersuk, our Chief Financial Officer. I'm going to focus my opening remarks today on my early observations after being the new leader of this organization for the past month. Joe's going to handle the review of the quarter and I'm going to finish up our opening remarks with an overview of our NanoKnife clinical programs. Then we'll take your questions. As you all know, I've just completed my first month with AngioDynamics and I've had the opportunity to meet our employees, some of our customers, some of our key opinion [ph] leaders. While it's early for me to outline a comprehensive strategy for the business, I would like to share some preliminary thoughts. This company has a proud history filled with product innovation and sustained market growth. The history also includes providing industry-leading technical expertise and customer service. Investing in new technology and a focus on delivering the best solutions to enhance patient care are also a part of our heritage. I venture to say that many of you view our business as a low-growth enterprise spinning off an impressive amount of cash. After one month, I'll tell you I see that we have every opportunity to return to being a growth company in the future. This company has many strengths; one is our sales organization. Today we have, in my view, 2 of the best U.S. sales organizations in our space. We are leaders in peripheral vascular interventions, second only to Bard in market share, and we maintain a clear leadership position in medical device oncology, with a proven track record of developing markets through new technology, clinical development and education. We are benefiting from increased investment that have been made over the last several years in our international team, which under Stephen McGill's direction, is delivering consistent above-market growth and providing leadership from much of NanoKnife's clinical development. I believe NanoKnife has the potential to be significant to surgeons and radiologists. AOLs I've met clearly are excited about the prospects and the company has been, in my view, very forward thinking in developing worthwhile clinical data to study effects and invest in patient outcomes. The challenge as I see it in the Vascular business has been with several failed product launches and licensing arrangements, coupled with a sales force restructuring that sapped the momentum of the organization. It's unfortunate. It happened. But now it's behind us. In my view from the inside, the organization is actually recovering some of this lost momentum. For instance, the Vascular team met its plan for the first fiscal quarter of the year, and the new 1470 laser launched out of R&D is a hit. We're growing the Vascular business again. With AngioDynamics winning its lawsuit with biolitec and our competitors in the venus ablation marketplace settling with Covidien paying similar licensee fees to we are, a better selling environment for our Venacure product line is emerging. In addition our Access business is growing, and we are now benefiting from line expansions which have occurred over the past few quarters. The Vascular sales force proved this quarter they can drive this business again, and I believe in them and that they can continue to drive the business, if we successfully invest in product innovation, promote them organically, but also through business development. In addition Alan Panzer, our new Senior Vice President and General Manager of our Vascular business, it gives me great comfort to know he’s running that business and I'm confident with his leadership we will see a consistent execution from the Vascular business going forward. Our challenge clearly with oncology is the void that will be left with losing the LC Bead distribution in the U.S. which you are all aware of from past announcements, which this impacts the last 5 months of fiscal 2012. I believe we can grow the Oncology/Surgery sales in the future through an increased sales and marketing focus on our existing oncology products, and of course with a few tuck-in acquisitions in line with our strategy to maintain our interventional oncology leadership. There are targets out there; we just need to reel them in. Let's face it, we build the LC Bead business through sales excellence and market development, and we'll do it again. I believe better days are ahead for AngioDynamics and I'm very excited to lead this organization. I look forward to launching a long-term strategy in the future which leverages our proud history. With those opening comments, I'd now like to turn it over to Joe, who will discuss our progress in the first quarter. Joe?

Thank you, Joe, and good afternoon, ladies and gentleman. We started fiscal 2012 with a solid first quarter. The U.S. Vascular business returned to growth, the worldwide Oncology business reported another double-digit growth quarter and the International business delivered another excellent result. Beyond the P&L, our operating cash flow continues to be strong and our cash position increased by more than $5 million to $137 million. All in all, we're off to a good start and we believe we are well positioned to meet our business plan objectives for the fiscal year. Our Vascular division delivered its best quarter in more than a year, growing 2%. While the growth is modest, this follows last fiscal year's overall 6% sales decline. Our first quarter Vascular sales growth was also accomplished despite continued pricing pressure as ASPs declined by 5% year-over-year. The price erosion was fairly broad-based across most Vascular product categories. The volume growth was led by strong sales of the laser vein ablation line and port. As Joe mentioned earlier, the strength of the laser vein ablation line reflects excellent market response to the recently introduced 1470 laser. In addition, the introduction of the 90-centimeter disposable kit positively impacted sales. While these -- with these successful introduction, we believe we now have our best product offering in this category since we entered this market 9 years ago. This product strength combined with the changing competitive landscape resulting from recent litigation outcomes, makes us quite optimistic about this business. Vein ablation is our largest product category in terms of sales, and we believe we are well positioned here to grow at above market rates going forward. Our Ports business also did well this quarter with our Smart Port and the recently introduced low profile and mini ports all contributing to growth. Turning to the Oncology/Surgery business, we achieved 15% sales growth in the quarter with NanoKnife sales more than doubling from a year ago to $2.38 million. Eight additional sites entered the commercial program in the quarter, including generator purchases in the U.K. and China. The sales decline on a sequential basis was expected due to the normal slower summer period, particularly when compared to the larger -- large number of generators sold internationally in the fourth quarter. You'll notice in the release that we are no longer reporting on the exact number of patients treated with NanoKnife. This is because our user base and our user experience has matured to the point where procedures may be done without our knowledge or involvement and therefore, we're not able to maintain exact count. Our view is that the best way to measure our progress with NanoKnife is the amount of revenues we report and the clinical milestones we achieve. ASPs were firm in the ecology business in the quarter, rising by 4%. This partially offset the impact of price erosion in the Vascular division. Overall the net decline in ASPs companywide was 2%. From a geographic perspective, 87% of first quarter sales were in the U.S., and 13% or $7.1 million came from international market. International sales grew 18% from the prior year on a reported basis, and 14% on a constant currency basis. This was another solid quarter from our international group as our new direct sales operation in the Netherlands performed well following the transfer of the business from our long-time local distributor. Continuing on the income statement, gross profit totaled $32.1 million or 59.1% of sales. This was a marked improvement from the last 2 quarters and reflects the progress we are making with the material cost reduction program and actions to improve manufacturing utilization, and was accomplished despite continuing pricing pressure in the Vascular business. Operating expenses totaled $29.4 million. We incurred $923,000 of restructuring and other items this quarter, which included $1 million relating to the departure of our former CEO and $295,000 associated with the transfer of laser manufacturing from our UK facility to our Queensbury, New York manufacturing center. These costs were partially offset by a gain of $200,000 on a transaction involving our Centros product line and a related manufacturing patent, an income of $200,000 due to an adjustment to the projected earn out on the transaction with our former distributor in the Netherlands. Regarding the location of the laser -- relocation of laser manufacturing, the project will continue through the balance of the fiscal year and is expected to cost a total of $1.6 million and result in annualized cost savings of approximately $1 million. Operating expenses for the NanoKnife program amounted to $3.6 million in the quarter, an increase of $1 million from a year ago, primarily due to the ramp-up of clinical and regulatory efforts associated with the international liver and pancreas trials. The net effect of the NanoKnife program was a loss of $0.05 per share in the quarter compared with a $0.04 loss per share a year ago. The tax rate was 35% in the quarter compared with 36% in the prior year same period. In turning to the other financial statements, cash generation continues to be excellent, as operating cash flow was $3 million in the quarter compared to a $1.7 million a year ago. As a result, we ended the first quarter with $137 million in cash and liquid investment, an increase of $5 million since the fiscal year began. We plan to report second quarter financial results on January the 5th after the market closes. With regard to the $20 million stock buyback program that we announced today, we are mindful of the fact that our cash position has increased since the beginning of fiscal 2010 from $68 million to $137 million today. This is the result of our business generating approximately $66 million in free cash flow over the past 2 fiscal years. Confident that our business can and will continue to generate substantial free cash flow and believing that the purchase of AngioDynamics stock is a good use of our surplus cash, our Board has approved a $20 million buyback program to be implemented over the balance of the fiscal year. This will consume approximately 2/3 of the free cash flow we expect to generate in this fiscal year, yet it will leave us with a substantial amount of cash with which to make acquisitions. We remain fully committed to deploying our cash resources to acquire products, technologies and companies that will complement our organic product development efforts and accelerate top and bottom line growth. And now, I will turn the call back over to Joe.

Thank you, Joe. So after my initial discussions with some of the investors and analysts, it seemed to me that we benefit from more clarity on the clinical trials that we have in place which are meant to validate NanoKnife and to use this as a baseline to communicate in the future. We posted some slides on our website to help everyone understand the status of these trials, and I'd like to begin with the prostate study. We have an approved IDE for the use of NanoKnife in the prostate, allowing AngioDynamics to conduct a clinical trial with NanoKnife for the ablation of low-risk localized prostate cancer. We are currently developing plans for this multicenter single-arm pilot study. The first study will be exploratory for safety and efficacy with results from this trial as positive providing the basis for new additional clinical trials. We expect to enroll the first patient within the few months and complete enrollment during the second half of this fiscal year. Also, we're having ongoing discussions with the FDA to obtain approval for the IDE for use of NanoKnife in pancreatic cancer. As we make progress on this front, we'll update our investors. So along with our regulatory efforts, we currently have 2 company-funded studies underway in Europe. They are NanoPanc European Study or ONC-208, which is a study of the safety and efficacy of the NanoKnife System to treat pancreatic cancer patients. The second is NanoLiver, HCC International Study or ONC-205, which evaluates the use of NanoKnife in 26 patients for the treatment of hepatocellular carcinoma. The NanoPanc European Study in pancreatic cancer has been initiated with 5 of the 10 planned patients already enrolled. This is a single-arm safety pilot study of patients who have locally advanced unresectable pancreatic cancer and who have failed chemotherapy. We currently estimate completing enrollment in this trial in the second half of the fiscal year 2012, with the first results from this trial expected about 12 months after completement of enrollment. This protocol also is the exact protocol we have in front of the FDA for the U.S. IDE pancreas submission and with intent to pool this data to increase the power of that submission. Turning to the NanoLiver HCC International Study. Last week, we announced the completion of enrollment and treatment in the study that evaluates the use of NanoKnife in 26 patients for the treatment of hepatocellular carcinoma. This is the most common form of primary liver cancer. This multicenter single-arm European safety pilot study which is novel as these patients will receive NanoKnife treatment as a first-line therapy for their liver disease. They will have no other therapy prior to this, drug therapy included. We believe this study should provide some very relevant data, and I look forward to sharing it with you when it becomes available. The primary endpoint for this study is tumor response at 30 days post treatment. I hope that summary is useful in understanding the status of our clinical development programs and as data and key milestones are accomplished, we will update you. So as I look out over the next several quarters, we have our work to do. Our short-term priorities as a management team are to continue to invest in NanoKnife, invest in marketing activities to accelerate our venous ablation business, focus our R&D pipeline so that we rejuvenate the core business and put our balance sheet to work on licensing and acquisition opportunities synergistic with our existing sales channel. Everyone knows we have a strong cash position; we will now be putting it to work to enhance overall shareholder value. Our focus is on smart tuck-in acquisitions that can benefit from these channels, have near or have 510-K approvals and add immediately to revenue. We believe in the next 12 months we can put a good part of the balance sheet to work. In a measured approach, we are also initiating a Stock Buyback Program as Joe has previously reviewed with you. We believe that a balanced capital approach to our balance sheet management will help the company reach both our top and bottom line objectives over time. So to summarize. After a month on the job, I see a lot of things here at AngioDynamics that are positive. We have a good operating structure and a team to maximize our strengths and to address our challenges. The team here got off to a solid start in fiscal 2012 and we look forward to reporting our progress as developments merit. In addition this afternoon, we are reaffirming the previously provided guidance for the fiscal year. The details of that guidance are in our news release. So operator, we are ready for questions.

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

Just a couple of questions. First of all, you mentioned the uptick in the Peripheral Vascular here in the first quarter, a nice improvement given last year's performance. I'm curious, how sustainable is that? What should we be expecting over the balance of the year from that segment? And it sounds like the pricing continues to be a headwind there, but are your expectations that, that will abate or subside as these lawsuits kind of come to an end?

Well Matt, thank you for the question. From my early view, it seems that the Vascular business through the quarter paced well. There's not a significant lumpiness to the number. I think the -- there's turbulence in the last year and it seems to be smoothening out. I would expect, given our reaffirming of guidance, that we expect the Vascular business to be steadier than it's been in the past. And with the recent news, are even a bit encouraged that we might have some upside with the venous ablation business.

Maybe one more question, then I'll jump back in the queue. But as far as M&A pipeline, there was a pipeline that hit under Jan's control and the Board had been looking at. As you come on board, was there anything there that you saw as near-term opportunities or did you feel like you kind of needed to go back and start from scratch? What can you tell us about the pipeline?

Well, I really don't want to comment about the past. I think in coming into the business, the team has activity and I've had the opportunity to sit with the team to review the opportunity, to help focus and prioritize our objectives and put a plan behind them. So opportunities are out there, Matt.

How quickly do you see -- I mean is there something we could see here in the next quarter, in the second quarter? Or is it -- obviously you need both parties to agree, but what kind of time line should we be looking at?

Well yes, I think your comment is absolutely true; it takes 2 to consummate. But it's a priority of mine. Matt, we have really good sales forces, we have an excellent channel and I feel we owe it to them to continue to give them knew products that are exciting and make their job easier. So it's a big priority for us. I really can't predict times. But it is a priority, Matt.

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

So my first question, guys, is just on your guidance and specifically honing in on the range of guidance. I'm just wondering, it's our view that the stock is undervalued. So presumably, with expectations -- consensus expectations down around the lower end of your range if you can hit your guidance, it should be obviously nice for the stock, all things being equal. I'm wondering if you could give us a sense for what sort of data points or triggers that sort of -- form the lower and upper ends of those ranges? And what, if anything, would drive performance above or below those ranges throughout not only the second quarter, but for the fiscal year?

So yes, this is Joe Gersuk. We had a really solid first quarter; the Vascular business did particularly well. I think the outcome was right in about the middle of our guidance expectations for the quarter and the year with respect to the Vascular business. We're very happy with what we saw in the NanoKnife sales for the quarter. And we think we have particular momentum there, as well as in the laser vein ablation business. The litigation outcomes have all been favorable that we've seen in the last 60 days or so with regard to the laser vein ablation business. We know that one of our competitors who has just recently have settled with Covidien is in the process of significantly raising their prices and we can now see a level playing field in the fairly near future in the laser vein ablation business. So we have good wind at our back there. And so I think we have sort of a balanced view of the risk. There are some upside potentials and there remains some risk in the business. The overall market environment remains very challenging and difficult, as you've heard from other companies that have reported in the last couple of months or so in terms of what they have said about the outlook in the current environment in healthcare, and we certainly see many of those same challenges. So with things going well on some of the sales side of the business and we're also encouraged by the gross margin improvement that we saw this quarter, the best in several. And cash flow was also quite solid. So really, I think it comes down to execution. And with really good execution, we might come in towards the upper end of the range. And I'd also point out of course that the guidance doesn't reflect any possibilities in terms of the M&A activities. This is all the organic business that is inherent in the guidance that we've just offered.

Thanks Joe, that's clear color. Let me follow-up on a few of those things, specifically execution and NanoKnife. With respect to execution, I guess a big part of that comes down to the sales force productivity. Maybe give us an update on how that sales force looks right now? You had some attrition in previous quarters. Give us an update on that. Since Joe's arrival, have you been able to stem the tide there and perhaps look at areas where you could add? And then on the NanoKnife side, you were down a little bit sequentially. You gave the reasons for that, understandable. But in the past, you said that the possibility exist that you could sort of double that business on a year-over-year basis, I believe. Perhaps just to give us an update on where you think NanoKnife will come in for the balance of the year.

Well, I'll take the first one and maybe Joe and I will tag team on the second. I got to tell you, Jason, when I came in I was expecting to see a house on fire. The way things looked from the outside in, it looked pretty bleak. But the work that Joe Gersuk and Scott Solano have done over the last quarter, the work our Board and being involved with our sales forces at national sales meetings, I think they're completely aware that we have the wherewithal and the means and the focus to put the right things in place for future growth. I had the pleasure of meeting with all of the managers of our Vascular sales organization and I was surprised to see I'd say pretty much, I don't know, maybe 13 out of the 16 of them having more than 5 or 6 years worth of experience. And I was in the eyes of a lot of people who have been around when this company was growing 20% top line year-in and year-out. So we have a very proud, strong core group that yes, I think history is history, they had some tough times. But, I'm much more encouraged today than when I walked in day one with the prospects on Vascular, and I'm burdened by the fact that I need to help them get more opportunities. We're excited about what Access -- what the venous ablation will do for us. I'm pleased with their focus on the Port business and what they're doing in overall Access. We have some lines that are revenue contributors but are not growing, and so it kind of weighs a little bit on that top line growth. But I don't see and I don't predict, for the balance of the year, there being in the Vascular business, a lot of swings, ebbs and flows, lumpiness and surprises. I do feel there's in general, knock on wood, the worst is over. We have Alan Panzer, who is now our General Manager, Senior Vice President of Vascular, spending a lot of time in the field with customers, with our people and putting on plans to focus on our strengths and to drive growth. So when you see us showing our top line results, we have Oncology, double-digits; our International, double-digits; and our Vascular growing again. And I don't foresee, unless something really incredible happens, that going backwards. Regarding NanoKnife, we're still early in NanoKnife, even though we've been talking about it for a while. Capital sales are a very big part of the revenue. And the capital sales are going to be lumpy. We're going to see a little bit of ups and downs. And until -- we still -- the reason why I put some of that clinical data up there for you to see is we're investing heavily in this clinical data because we know that this clinical data is going to move this market. We have bucketfuls of anecdotal information which inspire and excite thought leaders. But no one's ever made a market on thought leaders. You make the market by getting into the core users, and you don't get to the core users until you get a large amount of data. So I know we're excited about the NanoKnife, I know we're going to see a bunch of ups and downs with sales from a lumpiness standpoint since capital is such a big part of it. But in my view, regardless, it's still going to take some time to develop this market. I mean we're not going to have the first real clinical study that's really materially showing the benefits until -- they'll probably communicate with you until springtime. And I think as the clinical data amasses, the business goes from the earlier adopters into the bigger pool. So I wouldn't get all -- I wouldn't live and die on a quarterly basis by NanoKnife revenue. It's still, in my view, very early.

The next question is from the line of Thomas Kouchoukos with Stifel, Nicolaus.

This is Katherine Davis [ph] calling in for Tom. I've a few questions, first one being about the R&D strategy. Last call you outlined your R&D strategy but given Scott's departure and your recent arrival to the company, Joe, can you talk about how you'll approach R&D at Angio?

Well, it's a very good question. And by bringing up Scott, it just gives me the opportunity to publicly thank him for just a great contribution that he has made to this company. Scott's a rockstar. He was very valuable and he stepped up for us in a time when the company needed us. So a big public thank you for his contribution, and a heartfelt wish he was not leaving. He -- Scott brought a lot to the development cycle. And I guess without going through a lot of specifics and details, we don't see a major shift in the progress that Scott has helped develop for us. We have focused on what we are developing. I think probably early on, and if Scott was on the call, he'd tell you that we probably maybe overinvested in NanoKnife early to the detriment of our major existing business. And I think as we're going forward, as we maintain our clinical investment in NanoKnife, we have taken the opportunity to increase our reinvestment in our Vascular business. So I don't see a major shift in philosophy with the departure. I think he has thought the group some things and added value and we're going to continue on.

Kind of the second question is, could you provide some color what you have in your pipeline for fiscal '12? And if you can't provide like too many details, can you speak to areas of focus and kind of what you expect for products throughout the year?

Well, we're continuing to invest in our core business. I don't have a specific program to talk to you about today. But in each of our areas of growth, we have line extensions and improvements and things that our sales force believes is valuable to continue the momentum. And as we mentioned earlier, we're going to put some of our cash to use to identify some products outside of our potential core competencies but completely synergistic with our sales force to reinvigorate growth. But I'm not prepared at the moment to review our pipeline. But I appreciate the question.

The next question is from the line of Jayson Bedford with Raymond James. Jayson T. Bedford - Raymond James & Associates, Inc., Research Division: Just a few quickies. Do you have the revenue contribution from LC Beads in the quarter?

We do. It was $8 million. Jayson T. Bedford - Raymond James & Associates, Inc., Research Division: And Peripheral Vascular sales look like they're up 1%. It sounds like you had double-digit growth in laser box sales. Can you maybe help us reconcile what may have been weak in the quarter?

Yes it was -- 2% growth overall in Vascular. Jayson T. Bedford - Raymond James & Associates, Inc., Research Division: So just the Peripheral Vascular?

Okay, yes, yes, yes, indeed. And so some of the other Angiographic products and some drainage products were down slightly...

I think even before you get to that, allow me to interrupt you, Joe. But just, Jason, so 2% growth on top of about a 5% price decline. So net-net, it's a bigger growth from a volume standpoint that the team had put in place. But yes, we saw double-digits in the venous ablation but it's -- and while it's the largest segment, it doesn't wait and pull it up as much as we have a pretty diversified product line. So other areas of our core business not mentioned are at a moderate growth rate. But if you look at the overall business, and that's a 5% from a volume standpoint, the business is moving in a little bit better direction. Do you have any other comment, Joe?

No, that covers it. Jayson T. Bedford - Raymond James & Associates, Inc., Research Division: And then the $400,000 in gains realized in the quarter related to the earn outs, do you have any of those going forward or is that probably the end of them?

No. The $200,000 relates to the onetime transaction with our partner, Centros. And so that's it for Centros and we won't be selling it in the second half of our fiscal year. And with regard to the earn outs, we wouldn't expect any further adjustments to the earn out, but it is a function of the exact sales levels that take place in the business over the next several quarters. So there's a possibility there, but don't have any expectations of any further adjustments on that.

The next question is from the line of Charles Croson with Sidoti & Company.

So first question here is on the guidance. I don't want to prod here too much, but given just the bleak picture painted by a lot of the competitors after your former -- after your most recent conference call, and then from hospitals like HCA and then even Covidien's recent analyst day, I guess what really gives you the confidence that the guidance should stick?

Well the solid first quarter with 6% growth, which is -- that we think is excellent. And then the positive momentum we have, in particular with regard to the laser vein ablation business, which is our largest single product category. And then NanoKnife, and NanoKnife just grew more than 100% year-over-year. So things going extremely well there. The Ports business, as we said, did well also. So we think -- we think the sales organizations are in the right place under good leadership now with Alan Panzer onboard and some good product work going on. So all these things together, in combination with a very solid first quarter, gives us some level of confidence about the balance of the fiscal year. But I wouldn't suggest that everything is in the bag and there is a range in the guidance, intentionally. But we feel optimistic that we're going to be able to hit the guidance that we've just confirmed today.

And while we have guidance out there, I mean we're not guiding to 20% growth. We're guiding to maintain a consistent level of performance. And after the turbulence the business has gone through, we're pretty pleased that we're back where we're at that stage. We've also been feeling the brunt of the marketplace like everyone else. Our price declines are real. But we also again are feeling a certain level of stability and if we can get a few wins with some of the products that we have mentioned and it feels like it's moving, it's a more positive view of the future than it's been of the past.

All right, then the next question is, Mr. DeVivo, this is actually for you since it's kind of your background here. Looking out -- you're just backing out numbers here, the RITA line still seems to be having a little bit of trouble. What do you think is needed to really bring that back up to the previous growth rates in the past?

Well I think first of all, we did probably a little too good of a job with the LC Beads. The LC Beads, a lot of the very large ablations that RITA has been known for, doing the 5-, 6-, 7-centimeter ablations that no other company could do, I'd say from what my view over the last several years, many of those procedures have migrated over to catheter-based interventions. And the RF line is a very mature line and it's a very known commodity. So the catheter part of the business, as you see in our own numbers, has really taken off. So first of all when something is taking off, your sales force pretty much gets behind it and keeps going. So now with that out of the line, our team is going to have to refocus on our core products a bit more than they have. But I don't think that's a long-term solution. We do intend at some point to get back in the catheter-based interventions. We will be in that space. We do have opportunities to reinnovate on the thermal ablation part of the business, and that's where we're focusing now. We built the interventional oncology market, being the first device aggregate in the space, the best sales force in the space and we're going to invest in them and continue that going forward.

I guess just one last quickie here, and you might have already explained it. It might have been in those items that you mentioned, was that the reason that the S & M line went up a little bit more in the quarter?

No, that's unrelated to the items. The sales and marketing costs went up primarily as part of our international growth, and we're building out the sales and marketing infrastructure in the International business. In particular, we've added people in the Netherlands when we acquired the distributor business there. We've added some additional resources in Asia-Pacific. So, much of the increase is the build out on the international side. That's proven to be a very good investment. We only -- what, 13% of our revenues are coming from overseas where most of our sister, brother/sister companies are at 40% -- 35% to 40% of revenues. So we have a good team there now. I'm very pleased that management historically, the prior management invested in this team. We're going to continue to invest resources to help their growth, and it's aside from getting back-to-basics, we think the International business is going to help us.

Your next question is from the line of Paul Nouri with Noble Equity Funds.

When I look at the guidance, the gross margin picks up a lot in the fourth quarter. Is that primarily the roll-off of the LC Beads business?

Yes, primarily that and to a lesser degree, the improvements we expect on the cost reduction programs as well. But it's principally the impact of the Beads going away.

And how long do you have patent protection on the NanoKnife?

A number of years. There's a whole body of patents, 40-some patents that either we have been granted or have applied for. So it goes on for a number of years.

And the IP settlement that you consummated recently, is that going to be substantial or...

Well it wasn't a settlement, it was just a judge's ruling. Court ruling for summary judgment, which of course is a very powerful thing and he felt that there was not legal basis for -- to continue the trial on many of the matters with which we have been suing biolitec for a number of years. And the aggregate value of all the things that we thought were at issue amounted to about $20 million. And the items on which he ruled the summary judgment was about $17 million of that $20 million. But there are still a number of steps that need to be taken before we actually receive anything from biolitec. So an important step along the way but has not been -- the legal matter has not been settled yet. So there's no money in the bank yet.

And the final question, the acquisitions that you're looking at, I assume that you're going to target acquisitions that will be accretive, that you can just kind of give to your existing sales force and not technologies that you have to develop further.

Well, we're not going to put ourselves in a box at the moment. If there's a device out there that we can bring in that needs a little bit of work and we feel we can make some hay out of it, we'll leave it open, whether we take it from our operating plan or what not. So I don't want to put myself in a box, but we're -- the best thing we can do right now is drive our top line. We're not -- we don't intend to do anything stupid to significantly damage the bottom line, but we're not afraid to invest.

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

I have a question for you and a question for the other Joe, Joe Gersuk. Joe Gersuk, on the Bead business, the Bead business goes away at the end of the year. Are there any accounting issues, any inventory issues or anything like that, that could affect the company in any way?

No, no, based on the arrangement we have with Biocompatibles, we do not expect any inventory or P&L issues associated with the exit of the business.

And then for Joe DeVivo. Joe, I know you like the Bead business very much. Of course, the Bead business was a deal you did when you were at RITA. It worked out to be spectacularly successful. As you said, maybe even too successful; they've taken it away. What opportunities are there? I know there are some other Bead businesses out there or companies in interventional oncology. It's an area you know and like. Do you see companies that are potential acquisitions that could replace the Bead business fairly quickly once that ends at the end of this year?

Well, we have a desire to maintain our interest in capital-based interventions. I wish there was something that was just sitting there on a silver platter that will allow me to flip a switch and replace all that revenue. I don't think it will be that easy. But that said, there are opportunities. But also I'm going to focus on opportunities that don't just plug revenue, but also are novel. And there are some interesting -- very interesting things that we could do that would be, let's say, technology additive to the marketplace. And so -- and the company fortunately has been looking at that, and so I'm reviewing all the opportunities now. But in my view, we'll be in that space when we can get a deal done and it's of course my intention to preserve the channel. So as that revenue goes away without doing something with it, then I'll have a channel issue and I have no intention of having a channel issue.

And obviously, you've got a sales force that knows the market and would like to have a product to sell, so that gives you the neck for motivation doesn't it?

That's exactly right and they are the sales force that built the market.

The next question is from the line of Jim Quinton with Barrett and Company. James Quinton - Barrett & Company: This question is for Joe Gersuk. I came on the call a little late, I was wondering if you could give me the revenue numbers for the quarter, the earnings per share and the gross margin?

Okay. The revenue was $54.4 million, and the earnings per share was $0.05, and the gross margin was 59.1%. James Quinton - Barrett & Company: 59.1%?

Yes.

[Operator Instructions] The next question is a follow-up from the line of Thomas Kouchoukos with Stifel, Nicolaus.

This is Katherine again for Tom. Another question, a quick question on your portfolio. I know, Joe, you haven't been at Angio very long, but are there any products or product line that you think could benefit the company from either discontinuing or divesting?

It's a good question and one no one wants to answer. We have -- if you go and you look at our portfolio, what's happened, Angio has historically been focused on the IR space. And even right before our eyes, many of the things that we have developed in the IR space have evolved in the Vascular surgery, have involved into the cath lab. And at times, even with the effort management made in the past to split up the sales forces, there are multiple call points. And it is something that is a focus of our organization, as to how do we regain focus? Especially when so many of those products are pretty important revenue contributors to the company. So I don't have an answer for you but it's on our mind. And I think, if there was a day that we had significant top line revenue trajectory from one segment or the other and had the ability to focus without -- and replace that contribution, it's always worth a conversation. So I'm not going to lie to you. But today, we're doing -- we're getting by with our portfolio and we'll continue to do so unless things change. So it's probably not as direct an answer, but probably more direct than you expected.

I guess I just have one other small question. I don't know if you guys are disclosing this quarter, but are you disclosing how much of the revenue was actually from LC Bead?

We are. It was $8 million.

There are no further questions at this time. I will turn it back over to management for any closing remarks.

So again I reiterate, it's an absolute pleasure to be back with some old friends and some now new colleagues. When I had the opportunity 5 years ago running RITA to look at AngioDynamics, I saw a company that was growing 20% top line and bottom line, a high-flying, a high-performing company. I was excited when we did the deal, putting RITA into AngioDynamics. And when venous ablation litigation hit, it really hurt and at times put the company on its back, but I think we've had some very good management here in the past going through some difficult times and I'm very appreciative as to where the company is today. It's much better than I thought when I got in. I like what I see. I think there's a lot to work with. I'm pleased that we have a balance sheet to put to work. But I'm also in no rush. We're not going to do any stupid deals, we're not going to blow our cash on one big thing because we feel we're under pressure. We're going to make smart decisions, smart tuck-ins, manage our balance sheet, invest in our sales force, fill the strategies and execute and build shareholder value. So with that, I appreciate your support and then look forward to updating you in the next quarter.

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