AngioDynamics, Inc. (ANGO) Q2 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the AngioDynamics Second Quarter 2012 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, January 5, 2012. I would now like to turn the conference over to 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 second quarter, which ended on November 30, 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.A replay of the call will be also be archived on the AngioDynamics website. To access both the webcast and the archived replay, go to the AngioDynamics website at www.angiodynamics.com and go to the Investors section under Events & Presentations. 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 revenues 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 the 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 questions. 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.

Thank you, Doug, and good afternoon, everyone. Thanks for joining us today. With me is Joe Gersuk, our Chief Financial Officer. Our sales and marketing organization did a great job this second quarter, which led to a 9% year-over-year sales growth. Our strong Peripheral Vascular -- our strong Peripheral Vascular organization built on the momentum started last quarter, producing a 2% increase in sales. Our market-leading Oncology/Surgery team continues to execute with a 25% increase in sales as compared to last year, and the NanoKnife System was a major factor behind the team's performance as sales increased $3.2 million, up 100% over last year. And on the international front, our team continues to deliver consistent growth. They generated a 27% increase in sales, which represented now 15% of our total sales for the second quarter, up from 12% in the second quarter of fiscal year 2011. Three product lines are driving our international growth and that's NanoKnife, RF ablation and the VenaCure EVLT system. The growth is coming from both Europe and Asia, with RF ablation sales in Asia being especially strong. It's important to note that our international growth has been generated without LCDs. Our expiring distribution agreement for that product line was exclusively for the U.S. Therefore, we believe we can continue to grow international sales at the current healthy clip, and we expect continued success in the U.S. as our sales team reemphasizes on our legacy oncology products. Several quarters ago, the management team determined that there was a need to improve the leadership of the company's quality systems and regulatory programs. For example, I believe the company needed a more robust regulatory strategy for obtaining additional NanoKnife claims that would allow for greater utilization of the product to its full capability. Since the Donna Haire, our new SVP of Quality and Regulatory, arrived 2 months ago, we have embarked on a broad-based plan to evaluate a variety of our systems to evaluate and improve our quality, regulatory and clinical processes. This effort, being led by Donna, is establishing a compressive approach to compliance, and we are intently focused on a significant transformation and implementation of corporate-wide quality systems. As a part of the plan, we've reviewed and initiated augmentation of the quality systems at our work Queensbury facility and have temporarily shifted some of our engineering resources to help quite a number of actions in place. We are committed to delivering a consistent high level of quality as an organization and these improvements will be implemented in the near future. As part of the process at the end of the quarter, we initiated 3 voluntary Class II recalls that stemmed from nonconforming parts manufactured from suppliers. Necessary process improvements to address the situation with all 3 products have been identified and are currently being implemented. The good news is that shipments for all the 3 products have resumed in late December. We'll be working off a backlog for better part of the third quarter. And as a result, we've updated our guidance. While our third quarter isn't going to be a strong as we originally expected, we'll be back with our fourth quarter revenue and our previous guidance for the fourth quarter will be affirmed. So moving to NanoKnife. This quarter, our international sales were slightly ahead of the U.S. NanoKnife System sales. As our international sales and marketing efforts increase, I expect international to continue to eclipse the U.S. sales organization due to increased focus on expanding our regulatory approvals throughout the world, along with advanced progress of our ongoing international clinical studies. The NanoKnife System's progress during the quarter extended beyond very strong sales growth. As I mentioned before, one of Donna's early contributions was to elevate our NanoKnife System regulatory strategy. We made the decision during the second quarter to focus all of our global NanoKnife clinical and regulatory efforts in the hopes that IRE may have the opportunity to become a standard of care for pancreatic cancer patients. Two factors drove this decision: First is the large unmet clinical need; and the lack of treatment options for pancreatic cancer patients. There are approximately 165,000 new cases of pancreatic cancer each year, worldwide. Early anecdotal data being reported to us by physicians using NanoKnife is that a large portion of these patients may benefit from the NanoKnife System. Given this positive early indication, we believe focusing our efforts on gaining a specific claim for the use of the NanoKnife to treat pancreatic cancer is the appropriate approach for the technology. Some of the first sets of data obtained from international clinical studies will be presented at upcoming clinical meetings beginning March of this year. On the clinical front, the NanoPanc European Study, or what you've referenced in the past as ONC-208, has recently completed enrollment. This study evaluates the safety and efficacy of NanoKnife to treat pancreatic cancer in 10 patients. This is a single-arm safety pilot study of patients who have locally advanced unreceptable [ph] pancreatic cancer and who have failed chemotherapy. We currently estimate the first results from the trial in about 12 months after the enrollment completion. And when we have the results, we will begin meeting with investigators to develop a study protocol for a multi-country pivotal trial. I would expect that we will begin enrollment of that trial by the end of calendar year 2012. On the U.S. regulatory front, we continue to work with the FDA on obtaining an IDE for an approval for pancreatic cancer patients. Once we receive approval to initiate that study, we'll inform you. Our intent, course, will be to complete the study and move to a pivotal trial in the U.S. as well. So with those opening comments, I'd like to now turn it over to Joe Gersuk, who will discuss our financial results in the second quarter. Joe?

Thank you, Joe, and good afternoon, ladies and gentlemen. We've had 2 consecutive quarters of solid revenue growth as we reach the mid-point of our fiscal year. The drivers of the second quarter’s 9% top line growth, including the Oncology/Surgery business, which achieved its highest rate of growth in 5 quarters, and the international business, which had an excellent quarter once again. Foreign exchange had a negligible impact on the quarter's growth rate. However, we did benefit from an additional selling day this quarter that added approximately 2% to the growth rate. Our Vascular division delivered its second consecutive 2% growth quarter. This was accomplished in the face of the NeverTouch recall headwind, which we estimate reduced sales by approximately $500,000 in the quarter and continued pricing pressure. Pricing pressure in our Vascular division is not new, of course, as it is persistent for more than year. In the second quarter, ASPs declined 5% year-over-year. The price erosion in the quarter was fairly broad based across most muscular product category. While reported sales growth is modest in dollar terms, increased unit volumes contributed 8% to Vascular division growth. This was led by 12% unit sales growth in NeverTouch procedure kits, despite the recall, and 26% unit sales growth in Smart Port. We are benefiting from excellent market response to recently introduced products in these product categories, specifically the 1470 laser and the 90-centimeter NeverTouch disposable kit, are driving our success in the vein ablation market, while the low-profile and mini ports are fueling Smart Port sales. The 3 product recalls that Joe discussed had a significant financial impact on the quarterly results, with a $1.5 million [ph] in costs associated with recalling, reworking and scrapping products. It is important to note that all of the recalls are voluntary and we have received no reports of patient harm associated with the use of the recalled products. Turning to the Oncology/Surgery business, we achieved 25% sales growth in the quarter with NanoKnife sales more than doubling from a year ago to $3.2 million. Eight additional sites entered the commercial program in the quarter, including generator purchases in Russia and Poland. International sales were particularly strong this quarter and accounted for half of total NanoKnife sales reported. As we mentioned on our first quarter conference call, we are no longer reporting the exact number of patients treated with NanoKnife as the user base has matured to the point where procedures may be done without our knowledge or involvement. Our view is that the best way to measure our progress in NanoKnife is the revenue generation and the clinical milestones we achieved. Finally, we sold 9.1 million in LC Beads in the U.S. in the quarter and this will be our last full quarter of distributing that product. From a geographic perspective, 85% of second quarter sales were in the U.S. and 15% or $8.4 million came from international market. International sales grew 27% from the prior year on a reported basis and 26% on a constant currency basis. This was another very strong quarter from our international group as a result of strong NanoKnife sales and the conversion to direct sales in the Netherlands following the transfer of the business from of our longtime local distributor. Continuing down the income statement, gross profit totaled $33.2 million, or 57.2% of sales in the quarter, with the cost of the recalls reducing the margin by 2.6 percentage points. We continue to make progress with the material cost reduction program and actions to achieve a manufacturing utilization, to mitigate continuing pricing pressure in the Vascular business. And earlier, Vascular ASPs declined 5%, while ASPs for the company as a whole declined 3% in the quarter. Operating expenses totaled $29.3 million in the second quarter, as we incurred $1.4 million in restructuring and other items this quarter, of which $600,000 is associated with the transfer of laser manufacturing from our U.K. facility to our Queensbury, New York, manufacturing center. $600,000 is for costs to the CEO and executive transitions, and $200,000 is due to an adjustment to the projected earn out on the transaction with our former distributor in the Netherlands. This quarter increase -- this quarter's increase in sales and marketing cost is primarily attributable to the planned expansion of our international business, including a direct sales group in the Netherlands and higher commissions in the U.S. sales group. Operating expenses for the NanoKnife program amounted to $3.7 million in the quarter, with the increase of $800,000 from one 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 $0.03 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 period. The $0.09 in reported earnings per share increases to $0.13, if we exclude the restructuring of other items. And increases to $0.16 if we include the recall costs -- exclude the recall costs. The recall costs are real, of course, but this gives you an idea of the true operating performance of the business, absent the special item. Turning to the -- to the other financial statement. Cash flow from operations was $2.7 million in the second quarter and $5.7 million in the first half, compared with $11.6 million in the first half a year ago. This year's lower level of cash flow from operations mainly reflects in the extended credit terms and increased inventory levels during the second quarter in anticipation of our LC Bead distribution contract expiring on December 31. Consequently, this use of cash in the second quarter will become a source of cash in the third quarter, as we will return all unsold inventory to the supplier in January for full credits and collect some of the extended receivables. We spent $2.1 million under the stock repurchase program, purchasing 142,000 share of our stock. And we ended the second quarter with $136 million in cash and liquid investment, an increase of nearly $5 million since the fiscal year began. Our revised guidance reflects the impact of the recalls on our second and third quarter operating results, the continuing cost of transferring laser manufacturing from the U.K. to Queensbury, as we recently extended the date of foreclosing the U.K. facility. And the narrowing of guidance ranges as we forecast second-half performance. From an earnings-per-share perspective, the revised guidance is only $0.02 lower in the third quarter and is unchanged in the fourth quarter. You'll also notice the release of pro-forma sales growth rates for the third and fourth quarters, which includes LC Beads sales from all periods. The fairly high expectations in the fourth quarter reflect the strength of our international business, continued strong growth in NanoKnife and EVLT sales and the comparison to a weak fourth quarter last fiscal year. Finally, we plan to report third quarter financial results on April 5 after the market closes. And now, I'll turn the call back to Joe.

Thank you, Joe. So before we open the call for questions, let me provide a brief update on our corporate development efforts. Our intent remains to put our strong cash balance to work in pursuit of licensing and acquisition opportunities that can benefit from our strong Oncology and Vascular sales organizations. We've been doing a lot of work in this area and believe we can put a good part of the balance sheet to work within the next 6 months. In addition to the tuck and target that we're pursuing, we've also been considering larger transactions, which have the ability of being immediately accretive to our top and bottom line. So we've been looking at a lot of stuff. Meanwhile, we did use the balance sheet to implement, as Joe said, our share repurchase program during the quarter. In closing, we feel pretty good with the solid top line performance in the quarter and are on our way to becoming a growth company again. Our Oncology/Surgery and international businesses remain very strong. We're again growing our core Vascular business. Our vein ablation business is strong and despite the short term delivery challenges. On an apples-to-apples basis, our fourth quarter revenue growth should be quite solid, as we have affirmed the original fourth quarter guidance. Our investments in quality systems will strengthen our infrastructure, so we don't have these type of issues again, and will also serve us an important competitive advantage as we continue to improve the efficiency of our operations. We’re looking forward to what we believe could be also very good new data in 2012, for NanoKnife as we've mentioned, in a variety of treatment applications. Lastly, we have a good operating structure and a team that I believe can take this company to the next level. With that, I'll ask the operator to open it up for questions.

[Operator Instructions] Our first question is from the line of Jayson Bedford with Raymond James. Jayson T. Bedford - Raymond James & Associates, Inc., Research Division: Just a few quick questions here. In terms of the impact of the recall on your third quarter revenue guidance, what is that impact?

Joe?

Yes, overall, the reductions from the last quarter’s $2 million to $2.5 million is the range, and the majority, the vast majority of that would be the impact of the recall of the VLT product line. Jayson T. Bedford - Raymond James & Associates, Inc., Research Division: Okay. And then, in terms of VenaCure systems. I may have missed this, but double-digit growth in VenaCure System, is that box sales? Or does that include kits as well?

That was just the kits. The boxes themselves grew at a substantially higher rate than the kits did. Although the revenue is up from the sale of the generators is much less than the sale of the disposables. Jayson T. Bedford - Raymond James & Associates, Inc., Research Division: Right. Just from a growth standpoint, Joe, kits double digit, boxes single -- or sorry, boxes double-digit, kits single-digit. Is that fair?

No, it was double-digits in kit sales and then dramatic double-digits in lasers. Jayson T. Bedford - Raymond James & Associates, Inc., Research Division: Okay. And then, I guess last one for me, I'll jump back in queue. In terms of the compressive kind of quality review, is it complete? Do we [ph] anticipate any more kind of issues here?

Well, yes. I would have told you last quarter, no, aside from the fact that we have a lot of improvements going on. So I don't want to make any predictions. I think if you look over the last couple of years, the company has had some surprises on product delivery and we wanted to upgrade this area. We have an excellent executive in place today, and a lot of efforts going on. And it's -- Jayson, it's my intent to turn something that -- I won't call it necessarily a weakness because the company does a great job delivering quality product, but we shouldn't have these surprises to our investors. And so I am making sure that we're making the investments to turn this into a great strength. We had a great quarter, and it takes wind out of our sales at the end of the quarter when we're dealing with this and I have to tell you that we're starting off a little bit slow because of this issue. And it's not something I'm excited about and I'm going to fix because my team deserves better. Our sales force is globally are doing great. Our customers like our products, and our team is progressing on multiple fronts. So I'm doing everything in my power, with a new executive and a new team in place, to make sure that this doesn't happen to us again.

The next question is from the line of Thomas Kouchoukos of Stifel, Nicolaus. Thomas Kouchoukos - Stifel, Nicolaus & Co., Inc., Research Division: Quick question on the R&D line. You talked about more focus on the pancreatic cancer. As I look at the expenses this quarter, they came in pretty well below what we are looking for on a percent of sales basis. Should we think that if there's more focus just on one program going forward that we can take with those expenses back in our models going forward?

Yes. So, well -- Joe was just about to speak, I interrupted him so I'll say may piece and we’ll ask him. I don't think -- I think focusing ourselves is a good thing. I do think that -- I don't see us remaining at the levels of investment in the future. I don't think it's as necessarily. We are currently, for some of the trials that we are doing, continuing to follow patients and have that ongoing cost. But in order to really deliver a high impact, we're looking to invest where we think the greatest singular impact is and focus our energy. So I don't see -- I don't want to forecast our R&D spend. But I don't see a desire to drive it up to the historic levels. Joe, do you have any other comments?

Yes, I would just echo that and say that we did indicate the expected level of $21 million of R&D spending here. And that, as a percentage of revenue, was actually down slightly from the 10.6% that we had previously talked about, you recall, Tom? Part of our quality call to action program is that we will be redirecting some of the money and the resources that had been working on some R&D activities towards the quality program, and that will move some cost off of the R&D line but into the quality line, which impacts the gross margin. And so all of that is as reflected in this guidance. So I'll just add that as additional color to what Joe said. Thomas Kouchoukos - Stifel, Nicolaus & Co., Inc., Research Division: Okay. If I can get just one follow up. Just on your sales force. Joe, I know in recent analysts presentations or investor presentations, you've talked about stabilizing the sales force and having things kind of where you wanted them to be now and not as much as turnover. Can you just update us on where you are size-wise for each of your sales forces?

Do we have that at our fingertips? Do you want to go for that, Joe?

So we have about 75 -- in the U.S., we're talking about first, so we have about 75 reps in the Vascular sales force, direct sales reps and then plus all of the clinicals and the support functions that go with that. And then approximately 25 or so in the oncology sales force in the U.S., with the additional people that support them. And then the direct sales people in the U.K., Netherlands, Germany and France on the international side as well. Thomas Kouchoukos - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And I know your SG&A went up because you're investing in that OUS. Do you expect to continue growing that? Or do you think you're at a place where you need to be now?

No, we're going to continue to invest. And as they continue to deliver 25% growth rates, they will need more sales people and more infrastructure. But at the end of the day, we'll still have higher operating margins out of that international business so it's great to fuel it with the cost they need to continue the growth, and they tend to be able to grow at a faster rate than we need to add cost. So it's a real successful operation there that Stephen McGill is running.

They have a lot of gas in their tank.

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

Joe, on the -- with respect to the Oncology business, clearly, outside the U.S., things are going exceedingly well. Could you talk about your U.S. Oncology business, excluding the LC Beads, which we all know has gone away now? How did that perform? And what are your expectations for the Oncology business in the U.S., both with the NanoKnife contribution here, over the near-term, and also with outside of that in the core oncology business?

That's a great question and I appreciate the question, Jason. I'll let Joe give some specifics. But before I do, the winding down of this LC Bead agreement has been a great distraction. And it kind of has consumed a lot of the energy of the sales force near the end of this deal. And as you see in international, who does not have LC Beads, the team has done a very good job of growing the business with our legacy portfolio. We've been able to preserve the core of the business. There are a few reps that did go with the distribution deal. But we have the excellent management team and we have all of our major senior reps. And the core of the sales force is a very well intact. Rick Stark, who is our SVP who runs that business, now has his challenge of redirecting his team towards driving the legacy products, which I know he'll do. I spoke with him today and he feels -- as we have guidance out there, he feels very good about where he is and I think he'll replicate some of the success that Steve is having in the international here in the U.S. We are also, from a business development standpoint, still focused on identifying opportunities or closing opportunities, let's say now, that help reinforce that channel. And I know that our -- that channel knows that we're busy. So I think it's a transition time for them in the U.S., and if I didn't have a leader like Rick and our regional managers who have been with us for so long in place with their experience and their knowledge, I'd be a little more worried. But I think they'll make the transition fine. So I think our -- the actual numbers are irrelevant at this point. I think it’s -- the team’s in place, they delivered and they're just going to continue to deliver for us.

Fantastic. Joe Gersuk, did you have any details to add to that?

No, Joe said it better than I could.

Okay. I thought maybe you were going to give details. That's fine. That's very helpful. So, Joe, it's gratifying to hear you identify some of these one-time charges that have popped up within the company from time to time, and I didn't find that you'd like to not have that going forward. I think that's going to be very important to investors. So as a follow on to that -- and what you're doing with quality control, the investments you're making now, Joe Gersuk, I'm wondering if you could give us a sense for what you think that could mean to your gross margin line over the medium to longer term, understanding what's happening near term very well. I'm curious to see in light of ongoing price pressure, how much this can offset it, and in fact, augment your gross margins as you move into next year, and just thinking about it from a longer-term perspective.

Yes. So the commitment to the quality program is steadfast and we will spend whatever it takes to get to where we need to be. As an order of magnitude, we're talking about an amount of money that would impact the gross margin by about a percentage point, a quarter. And that will persist for several quarters, certainly through the balance of this fiscal year. But as we said earlier, we think we'll spend that much, the dollar amount less in R&D and not be any worse for the ware for that. So I think the bigger dynamic on our gross margins is going to be the absence of LC Beads, which as you know, is significantly lower gross margin product in our company average, and even lower spills [ph] in the average of our Oncology business. So that will -- that is what is driving up the gross margin expectations we have for the second half of the fiscal year and actually continue into next year.

So just directionally, you would expect gross margins to continue to move up over the next couple of years. It sounds like at this point, you're not ready to give kind of -- sort of quantification to that, but just directionally. Is that fair?

Yes, yes. And I would just say that the impact of the quality program is about a one point reduction in what gross margins would have otherwise been.

The next question is from the line of Matt Hewitt with Craig Hallum Capital Group.

I'd like to follow up on your comments regarding the M&A pipeline. I think historically, the pipeline has been described, or your wishes or expectations were to be 3 or 4 $40 million-ish acquisitions. It sounds like now you're looking maybe for a few smaller tuck ins, as well as potentially a larger acquisition. Did I hear that correctly? Has there been a slight change given maybe some of the opportunities that you're seeing?

Well, yes and no. First of all, I wanted to define it a little bit better because there's been this perception that, that we would do -- I think what I was initially trying to say is the acquisitions that we are looking at, given the strength of our sales forces, my top priority is to look into small tuck-in acquisitions that would be completely synergistic with the existing organization. I had mentioned in the past also that I wouldn't do a big type of deal that would take on a lot of risk. And in that context, if you look at some of the deals that have been consummated by competitors or in the marketplace, their deals where for $10 million, $20 million, $30 million of revenue, we're seeing 6, 8, 10x multiples. And what I wouldn't want to do is one big bet the farm type of deal on one technology. But we have looked at the concepts of business combinations, or larger type deals that could be accretive and whatnot. And I just wanted to make sure that as we are -- in our cash balance, there was a lot of opportunities that have been coming our way and more each day. And I just want to make the mention that we're not just looking at smaller M&A deals. I don't think I can put -- if you've seen some of the competitors and some of the premiums for, again, a one -- for a smaller revenue side, it's not the type of thing that I would do. But if there was an accretive deal and it was of a larger size, I would consider it. I hope that's a little clearer.

No, that is -- that's very helpful. I just want to make sure I understood what you're intimating earlier.

I was just meaning that I have a cash balance and I wouldn't put the cash balance on one single product and bet the farm, hoping that sales would go up. But if there was an entity that had size and then it was immediately accretive, I would do it. So I think, given some of the interpretations of my comments before, I just wanted it to be clear.

Okay. Maybe a little bit different direction. I think last quarter, we saw the improvement on the Vascular business, the 2% growth in Q1. I think there was maybe some, I don't want say expectation, but it sounded like maybe some stability in the ASPs this quarter. It sounds like they were down 5%. Maybe you could update us on where the trials sit? Whether or not you're seeing some stability, even if it is just 5% down? Or should we -- will we continue to see this drag as the year plays out, and maybe even next year?

Well, again, Matt, it's not 5% quarter-to-quarter. It's just a continuation of the same pressure we felt last quarter. So there's nothing different between last quarter and this quarter. It's just that, that is still annualizing. And I don't know, Joe, if you wanted to define it a little bit better.

Yes, so year-over-year is what we were talking about is the 5%. However, we have seen it stabilized at a level -- at about the same level for the last 3 quarters, say. So therefore, next quarter, we might think that we won't have that kind of a significant number. If it's the fourth quarter stability, then the year-over-year number would have to be, would have to be stable as well. So maybe there's a light at the end here, on the price erosion.

Does that make sense, Matt?

No, it does.

It's been consistent over the last 3 quarters. I think there was a point in time where a lot of stuff hit. We took the hit and now as that annualizes, or now as that continues on an annualized basis, year-over-year you see that impact. But once it annualizes, I don't think we are predicting or believe that we're going to be seeing an additional 5% continue, if that make sense.

It does. Has there been any movement on the settlements in those 2 cases? Or I mean, I apologize if I've missed it.

Yes, I think there have been -- Total Vein solutions has also settled with Covidien. That might be a news that's within the last month or 2. And biolitec had settled with them, probably 3 or 4, 5 months ago. So perhaps the newer event would have been Total Vein solutions settlement with Covidien. And we do see some signs of better pricing, a better pricing environment in the EVLT market, which is probably traceable to those settlements.

The next question is from the line of Charles Croson with Sidoti & Company. Charles Croson - Sidoti & Company, LLC: Can you hear me okay?

Yes. Charles Croson - Sidoti & Company, LLC: First question here, I just wanted to prod a little bit more on that international push. Can you kind of give a little bit of sense on, are you going to try and get into more countries in Europe? Or you kind of happy with where you're at geography -- geographically? And then just trying to build up that sales force there?

Our international team has a 5-year plan. And we've identified, as Joe had said, a continuing investment, and that investment includes all the above. We're building the back office infrastructure to handle the business. We're building the front office infrastructure to handle the clinical programs, the marketing programs, the direct selling efforts. Our team has their sights on new markets to go direct in, or – and has their sights on other opportunities. So it's -- I'm very pleased with Stephen and his team because they've developed a plan, they're delivering to a plan, and it's not a blip. So as Joe said, it's typically something that's been delivering the revenue before the next set of investment and relatively self-funding. So when we look at Asia, when we look at Europe, when we look at Latin America, and we look at Canada, all throughout the world, this very well-run team has a plan. So...

And they've executed well recently, with the acquisition of our EVLT distributor in the Netherlands. So that was at the beginning of this calendar year. It's met all of our expectations. So we're now direct in 4 countries. And at some point, you’d think that we would go direct in some other markets, whether it's in Europe or in Asia, that would take place some point in the future as well, given the strength of the basic model. And the last comment I'd make is I'm happy to report that we've just hired a Finance Director for our international business, just starting this week, and he'll be based in our international headquarters in the Netherlands. So it's all part of our commitment to the international growth strategy that the team is delivering on. Charles Croson - Sidoti & Company, LLC: Okay, that's very helpful. Just a couple of quick ones, more quick ones here. On the physician data that you guys are expecting to kind of roll out here in the new year, do you kind of have a sense of what that's going to be like? Or is that pretty much kept hush until it comes out?

Well, these are individual clinicians submitting papers to their society to have peer review, podium presentations under data. Our teams are pretty close to them and so anecdotally, I think we have indication. But it's their data, it's their work, and we look forward to them presenting it. Charles Croson - Sidoti & Company, LLC: Okay, that's fair. And then just kind on the RF side, I remember you guys mentioning that it's a fairly strong in Asia. Can you kind of highlight what the underlying trend there as to why that's doing so well there?

It's great execution by the team, simple as that. Relatively mature business, but also the RF business is continuing to grow in adoption internationally and the team’s just executing well. Charles Croson - Sidoti & Company, LLC: Okay. Maybe I need to rephrase this. As far as outside NanoKnife sales, is the products, the other RF products, is it somewhat similar growth rate again in the U.S.? Or is that doing fairly well, too?

Yes, we don't talk real specifically. I mean the growth rates of RF in the international business are greater than they are in the U.S. Our market share is lower in the U.S. So therefore, there are bigger growth opportunities internationally. And then the international markets in general are growing very rapidly. And as in China, where there’s an enormous commitment to increased health care spending and other Asian markets. So we think we should be able to increase market share and continue to have healthy international RF revenue growth in the future.

The next question is from the line of Robert Moses with RGM Capital.

Just a question relative to the NanoKnife, more on the kind of qualitative milestones. I think you mentioned, Joe, IDE for the pancreas, could you just refresh my memory on the timing if you discussed that already?

Robert, the timing is when -- ultimately, when we satisfy the FDA with our requests. We have an ongoing dialogue back and forth, getting ourselves prepared for that. And I wish I had a time that would say when we satisfied the FDA. But it's a very good dialogue, and we are providing them information as they're requesting and working on additional information. So I would have liked to have it done by now, but I think it's going to take a few more months of dialogue. But if I give you a date and don't hit it, I don't want to let you down. But I can tell you that the team is actively working with the FDA to respond to questions that they have regarding the IDE. They're very good questions and we look forward to answering them.

Could you talk then about the opportunity in prostate and liver? I know that it sounds like from a clinical perspective, your focus will be in pancreas. But I believe we had some studies, we also have an IDE relative, I believe, the prostate in the U.S. Just trying to understand kind of how you focus your energy on the clinical side on pancreas, yet still keep the opportunity set for prostate and liver down the road.

Right. That's a great question. On the liver side, as we mentioned, last quarter, we completed an enrollment of a study called ONC-205, where we had 26 patients, where IRE was a primary therapy. Now, we're currently continuing to spend on that trial as those 26 patients need to be followed up. It is a survival --there is survival component to it, and we are incurring those costs. But I think when it comes to liver, given how well known the organ is from an ablation standpoint, and how that this initial study was all we're going to need in order for people to understand how NanoKnife works in the liver. So from a future generation of data, the company won't be investing in a new liver trial. On a prostate side, NanoKnife kind of originated in the prostate preclinical work, and we do have an IDE. But we've decided that we are not going to continue going forward with that prostate IDE, not because we don't think it's a opportunity, but we think we need to focus our efforts on greater opportunity of unmet clinical need in the pancreas. And there's many clinicians around the world who continue their prostate work. I know there's some activities in Europe, where we'll probably have some more organized prostate post-marketing studies. But if we're going to accomplish something special, we need to focus our efforts and we've identified as pancreas being the first effort to be focused on. Now this doesn’t include the fact that we would have a serial effect that if we have get the pancreas work to where we like to see it and have the momentum, and are getting ourselves towards a pivotal that we wouldn't revisit initiating the prostate serially, but doing it all in parallel, Robert, is just impractical.

I agree. This last question relates to the clinician presentations, I guess Dr. Martyn and others. Are they largely going to be kind of evidence based on a specific, either pancreas or others? Or do you have a sense as to kind of the, not the results themselves but are they pancreas largely? Or they're also liver and prostate?

The presentations are pretty interesting. Some our revolving around where IRE is used in multiple organs that -- where ablation wouldn't be used, so showing the differentiable clinical impact for those patients. But yes, some are -- they are multiple organ presentations. I think some of the most exciting ones from a pure listener's perspective is the first set of progress from a survival standpoint on pancreas in these single experiences. And it kind of gives an indication that if we get our trials going in the right way, what we could prove out. But it is -- the technology in general has been in the marketplace. I think historically, we've mentioned the number of procedures that were performed by organ. And I think these investigators are now -- with the time it's taken to get some of their experiences, create the publication, submit it to their societies, it seems that a lot of stuff throughout 2012 is going to be coming out. So we're pretty interested for that to occur.

The next question is from the line of Robert Goldman with CL King. Robert M. Goldman - CL King & Associates, Inc.: A couple of details on NanoKnife and then one on the Beads, if I can. But on NanoKnife, could you tell us, Joe, of the number of generators placed, what percent were placed outside the U.S.?

Joe, you have the figures?

Yes. Four of them were. Robert M. Goldman - CL King & Associates, Inc.: Okay. And also of your R&D spend in 2012 that you mentioned in the press release of the $21 million, how much of that is NanoKnife?

On the order of 40% or so, give or take a bit, would be a NanoKnife related. Robert M. Goldman - CL King & Associates, Inc.: Okay. And then finally, on Nano, Joe, I was a little bit confused on what you were talking about relative to not giving the procedural data in the quarter. You did mentioned last quarter that you wouldn't. But in this press release, you do mention that 158 patients were treated in the quarter. Are you making the distinction between patients and procedures or I'm a bit confused on this.

No, we have some firmer number on the quarter than we might have on the accumulative numbers. And even the 158 could be, could be off somewhat. But we felt like we had a good enough handle on that number to put that one in the release. Robert M. Goldman - CL King & Associates, Inc.: Okay. And then one detail on LC Bead, and I think it was asked previously but I wasn't sure I caught the answer. But in previous quarters, you did give out the LC Bead dollar sales in the quarter versus the prior year. Could you do that for this quarter?

Yes. Yes, so the LC Beads in this quarter were $9.1 million, and the prior year's comparable number was $6.5 million.

The next question is from the line of Jim Quinton with Barret & Company.

This question is for Joe. Joe, I'm not in the office and I tuned in a little late. Could you give me the total revenue numbers for the quarter?

Sure. Total revenue was at $58.1 million.

And the earnings per share?

The earnings per share was $0.09.

$0.09. And that's versus $0.13, right?

$0.13 a year ago, yes.

Okay. Now the $0.09, that's x [ph] $0.16 for the NanoKnife, correct?

No. So if you were to add back the effects of the restructuring items that we had talked, that would take it up to $0.13. And then if you were to exclude the cost impact of the recalls, that would take it up to $0.16.

Okay. Now the recall was in 3 different items, right?

Yes. So on NeverTouch and the Morpheus PICC and the DuraMax.

Could you repeat that again for me again slower?

Sure. NeverTouch, Morpheus PICC and DuraMax.

Okay. And those items are starting to ship where the -- to show up into Q4? Is that correct?

Yes, they're back shipping again now.

So the recall is what's causing the little lateness in Q3. Is that it?

Yes, somewhat.

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

I'm looking at the press release and seeing for Q4 pro forma revenue and guidance of 10% to 15%. Obviously, that's without the Beads. What's inherent in that? Is that a significant jump in NanoKnife sales? Because I know last year's fourth quarter was on the soft side. But I'm just trying to -- that's a big jump in your sales and I'm just trying to understand, what ingredients will be contributing to that?

Sure. So 4 ingredients and we've talked all about them here. So the first is the international business, which continues to roll ahead doing the strong double-digit sales growth. NanoKnife as well, we've done 2 straight quarters, 100% growth year-over-year. Not necessarily forecasting 100% in the third quarter, but still very strong growth there. Thirdly is the EVLT business continues to do very well, 12% unit volume last quarter despite the recall. And the fourth item is the one you mentioned, is the comps to last year. As you recall, last year was extremely soft and revenue was down actually 6% year-over-year. So it was much easier comparison to the softness of last year's fourth quarter.

Okay. And then I probably could do the math but you probably can do it faster than me, Joe Gersuk. The average cost per share on the buyback?

It was $14.80.

Okay. Do you have a particular price in mind where you'd probably step out of the market? Or a price mind where you want to be more aggressive? Or was that as aggressive as you could have been, considering the rules are pretty restrictive on buybacks?

Yes. So the plan was approved during the course of the quarter, so there wasn't that much time to buy shares. And our view on implementing the program is to do it more a function of our, of our free cash flow than it is to any specific price per share in the purchasing.

Have you bought any shares in December?

No, we're blackout.

Of course. So your window really is, what, about a month or 6 weeks every quarter?

Yes. It's not long, so it doesn't open up until after we reported results here and then it closes before we end our quarter. So...

When does the blackout start, Joe? Is it 30 days ahead of the quarter ending or 15 days?

No, it's about 15 days.

Okay. And so the buyback in that you reported, how many weeks of buybacks was that?

Oh, it was probably a month or so.

A month or so. Okay.

Something like that.

The next question is a follow up from the line of Jayson Bedford of Raymond James. Jayson T. Bedford - Raymond James & Associates, Inc., Research Division: Just one quick question. Can you maybe approximate the quarterly revenue impact from the transfer [ph] the Netherlands business? How much did that add in the quarter?

Yes, it's something less than $500,000 a quarter in terms of, what -- picking up the margin on the distributors, what would have been distributors’ sales, to end users. Something on that, less than $500,000 a quarter.

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

Great. Well, first of all, thank you for all the great questions and also thank -- I thank all of the employees in AngioDynamics for a lot of great work this quarter. We're pleased with the revenue momentum. We're pleased with the overall sales and marketing efforts. We have a desire to build a large, a strong, a dynamic, a medical device company. We have a lot of exciting opportunities we're working on while we improve the day-to-day blocking and tackling. And again, I'm very proud of my team for not only delivering a good sales number, but also being able to stare at issues that if they need to be resolved, we go ahead and resolve them. So our quality teams and our people on the floor are doing an excellent job and I look forward to continuing to deliver in the future and making sure that, that we have our strong systems to lean on. I'm being flagged here that there's one other person in the queue that would want to ask a question. And since we're not too far over time, operator, if you wish to allow that question, we'd be happy to take it.

We do have a question from the line of Chris Sessing of AMI Asset Management.

So on the IR machines sold. I didn't catch it if you gave it in the quarter. Did you give that exact number?

So, on what machine did you say, the NanoKnife?

The NanoKnife.

Right. So there were 4. The question was about international sales and 4 of them were sold internationally.

I heard that. How about in the U.S.?

Pardon me?

And then how about in the U.S.?

There were 4 in the U.S. as well. So a total of 8 additional sites entered the program.

Okay. With a 158 patients, I'm not quite getting to the numbers. I'm just curious if there's something else in there.

Yes, well a new site wouldn't necessarily be doing patients in the quarter, or they may only be starting. So there's a period of delivering the machine, training physicians on it. So the actual number that would be dunned [ph] of the new sites doing procedures would be relatively small in number.

Right. So it's mostly based on accumulative number that going into the last quarter.

Correct. It would be the installed base, if you will. And we had, at the end of the quarter I think, a more relevant number would be 47 commercial sites is the total number of commercial sites that were active at the end of the second quarter.

So 47. Okay. I guess we can take it offline. I'm still no -- I'm still coming up -- based on those numbers, I'm still coming up low. You guys did $3.2 million. I'm still coming up with something on a lower figure. Maybe the ASPs have changed and I don't have that updated. So we can take that offline.

We can do that offline, Chris.

Are you guys still doing the lease program for those?

No, we're not. We are doing some loaner programs, but we shortened those and now they are no longer than 6 months. So there has to be the commitment on the part of the -- of the hospital to train people on the machine, and then they'll sign a short-term loan arrangement, and at the end of the 6 months either they give us a purchase order or they return the machine, is the way we're doing business now.

So it's more of an evaluation?

Yes.

And then last question. On the pancreas trial, that is currently in Europe, correct?

Yes.

And you think you need to run a similar trial in the U.S.? Did I hear that correctly?

Yes.

So the European data won't translate over to the FDA here?

Well, our hope would be that with the quality that we have run that trial, we will most certainly make that data available to the FDA. Whether or not they choose to use it as powering a submission, it's really up to the FDA. Our intent is that the protocols would be very similar. Hence, we can pull and power the data. But until we get the U.S. trial approved and running, we don't know how different the protocols will be. If that make sense.

Okay. Got you. So it's something that could possibly be resolved in discussion with the FDA, but you're not planning on it.

We're hoping. But it's a function of what protocol gets approved and how similar that protocol is to the one that we're currently conducting. And the way we are conducting the trial -- the way we've conducted this trial is just a very, very high quality trial that we had originally hoped would be very similar to the IDE submissions. So but until the IDE submission is approved, we won't know exactly how similar the endpoints will be and how well they can be pulled together.

Chris, let me clarify one thing. I just pulled out the data on the NanoKnife Systems. So we had 8 customers entered the program, of whom 5 purchased generators in the quarter. The other 3 would have been the loaner type that we talked about. And then within those 5 purchases, 3 of them were in the U.S. and 2 of them were in the international markets, in Poland and Russia as we indicated in the release. So 5 purchases, 3 loaners, a total of 8 entered the program in Q2.

So operator, with that, just thank everyone for being on the call. I look forward to giving an update next quarter. Thanks, everybody.

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