Good morning, and welcome to the AngioDynamics Fiscal Year 2020 Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. The news release detailing the fiscal 2020 third quarter results crossed the wire earlier this morning and is available on the company’s website. This conference call is also being broadcast live over the Internet at the Investors section of the company’s website at www.angiodynamics.com. And the webcast replay of the call will be available at the same site approximately one hour after the end of today's call. Before we begin, I would like to caution listeners that during the course of this conference call, the company will make projections or forward-looking statements regarding future events, including statements about expected revenue, adjusted earnings, and gross margins for fiscal year 2020. Management encourages you to review the company’s past and future filings with the SEC, including without limitation to the company's most recent annual report on Form 10-K, as well as most recent Form 10-Q for the quarter ending February 29, 2020, which identify specific factors that may cause the actual results or events to differ materially from those described in the forward-looking statements. A slide package offering insight into the company's financial results is also available on the Investors section of the company's website under Events & Presentations. This presentation should be read in conjunction with the press release discussing the company's operating results and financial performance during this morning's conference call. I'd now like to turn the call over to Jim Clemmer, AngioDynamics' President and Chief Executive Officer. Mr. Clemmer?

Thank you, Melissa, and good morning everyone. And thank you for joining us for AngioDynamics' fiscal 2020 third quarter earnings call. Joining me on today's call is Steve Trowbridge, AngioDynamics' Executive Vice President and Chief Financial Officer, who will provide a detailed analysis of our third quarter financial performance. Given the impact that the COVID-19 pandemic is having on our company and our customers, during this call, Steve and I will take a tailored approach to assessing our third quarter results and discussing our perspectives on the business moving forward. With respect to the third quarter, we will discuss our results through the lens of the facts as they existed at that time. With respect to our business moving forward, we will discuss our perspectives looking through the lens of the facts as they exist today, while acknowledging that the facts, circumstances, and situations for everyone remain highly fluid and dynamic, and are likely to change significantly in the short and medium term. With that said, I’d now like to provide an overview of our operating and execution highlights for the quarter as well as some commentary on the impacts of the COVID-19 pandemic on our company. We had a strong third quarter. We reported solid top-line performance during the quarter. Our revenue increased 6.5% year-over-year and increased 9.3% when excluding Asclera, and it was driven by growth in all three of our businesses. In addition, we are pleased to report that we delivered adjusted EPS of $0.01 per share. We believe this clearly demonstrates our ability to simultaneously invest in those businesses that will fuel our transformation into a growth company while being thoughtful and disciplined about our overall spending. We believe these results provide continued evidence of our successful ongoing transformation into a more focused medical technology company…

Thanks, Jim. And good morning, everyone. Before I begin, I'd like to point you to the presentation on our Investor Relations website summarizing the key items associated with our quarterly and year-to-date results. I'd like to reiterate something that Jim mentioned earlier, which is that with respect to the third quarter, we will discuss our results looking through the lens of the facts as they existed at that time. With respect to our business moving forward, we will discuss our perspectives looking through the lens of the facts as they exist today. Additionally, unless otherwise noted, all prior year results and comparisons exclude the contribution of our NAMIC fluid management business, which we divested at the end of our fiscal year ended May 31, 2019. Our net sales for the third quarter of fiscal 2020 increased 6.5% year-over-year to $69.8 million. Excluding the fiscal 2019 revenue contribution from the Asclera sclerotherapy products, which we stopped distributing during the fourth quarter of fiscal year 2019, revenue for the third quarter was 9.3%. As Jim mentioned earlier, all three of our businesses posted solid growth during the quarter led by strong performances by AngioVac and NanoKnife, as well as our core, PICCs and ports products. Our total VIT business grew 4.3% year-over-year, and when excluding Asclera grew 10.5% driven by higher sales of AngioVac, which were up 44% year-over-year, and a second straight quarter of growth of our core products. AngioVac procedural volume remained strong,with procedures increasing 33% year-over-year representing our 10th consecutive quarter of double-digit volume and revenue growth. Vascular Access revenue increased 10.3% during the quarter, driven by double-digit growth in sales of PICCs, ports, and midlines. We continue to integrate our recently acquired C3 Wave tip location system, and are already seeing positive impact of this product on our…

At this time, we'll be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from the line of Jayson Bedford with Raymond James. Please proceed with your question.

So just a few questions. I was surprised with the strength in the Vascular Access business. Can you just give us a little more detail on kind of the drivers of the strength, and if you could maybe quantify the impact from the Premier agreement on the port business? And also you mentioned some sort of value PICC distribution agreement in the quarter and I was a little unclear as to what that was, so a little detail on that would be helpful?

Hi Jason, good morning. Hope you and your family are well. A couple of things, so in our VA business, as we mentioned in the fall, the port win on the Premier business was important for us. But it wasn't the only piece of strength we saw during the quarter. Because really this quarter was more getting those customers that are part of the two Premier compliant agreements to get signed on with us and start the conversion processes. So, there was some growth there, but not a whole lot. Good news was the growth was balanced. So our base PICC business, both our BioFlo and non-BioFlo also experienced a strong quarter, and a lot of that, Jayson, so we haven't talked a lot about it, but we have a couple of really good partners in the mobile PICC business. And these partners are committed to our BioFlo PICCs, and some of these partners have been gaining market share over the past year or so building up their markets as they provide that valuable service to many hospitals looking to outsource that technique and that procedure to these mobile PICC teams. So again, they choose BioFlo in most of those cases. And finally, we did add some new products. We’ve talked a little bit about it just around our PICC portfolio. As you know, with BioFlo, we have a high end PICC with unique capabilities, but we had some gaps in our PICC line. So we just filled in a couple of the gaps with some other products. Jayson, we expect the VA business to grow in the areas that we guided last year. As you know, 2019 was the first year of growth in many, and I think we anticipated growth about that same level this year. And going forward, it'll be a business that's very well run, and the portfolio is a bit more balanced. And now, we’ve made the acquisition of the C3 Wave tip location system. Again, it takes out one more barrier that we had there.

And Jayson, we did see strength throughout the VA portfolio throughout the third quarter. It was pretty balanced, as Jim mentioned with our PICCs, ports, midlines and dialysis businesses all growing. So we hit a little bit on the value PICC that Jim talked about, filling in the gap in those lines. We've mentioned C3 in the prepared remarks. As we talked about before, we don't really expect to see a big inflection potential from C3 until we get to the point where we're adding navigation to that technology. So we've seen strength in the base PICCs business moving in throughout this third quarter, and we see that strength continuing as we head into the fourth quarter. So one of the things that Jim talked about in his remarks was that line that we're drawing between products that fall on the elective like or those that can be delayed, and those that are clearly acute and critical care. We’ve been seeing the VA business in those PICCs, midlines clearly falling on that line of critical care, and we expect to see that strength continue throughout our fourth quarter.

Okay. So I guess just to summarize that point, Steve, the growth that you saw this quarter seems pretty durable, at least for the next few quarters?

We believe so, yes.

Okay. And then I'll just ask one more, and then I'll get back in queue. Can you just update us on the status of the AURYON launch here? I'm just a little unclear as to the rep build out. Is that complete? Given the dynamic with COVID, when do you expect a full commercial launch?

So Jayson, good point. It’s six months now that we've owned the Eximo business and the AURYON product. So, as we told you before, the first three parts of the move were: A, supply chain build out. So now we're manufacturing the laser hardware to our specs and our supply chain. We're also manufacturing now the disposable catheters to our specs and our supply chain. So, our supply chain team has done a great job with our quality partners in the last six months building this out. Number two, we needed to build a sales training program and a physician training program. We've done those as well, so already prepared to communicate those to the fields. And finally, number three was the dedicated commercial team as we communicated we’ve built. So today, we have 15 people dedicated to this AURYON business, and over 10 of those people are dedicated field sales reps. Each of those have been hired. They have experience in their past life working for probably one of the other companies in this space. So, these folks are already experienced atherectomy salespeople. They have relationships in their field, in the areas that we've hired them in, and we expect good performance from them. As we get closer to full launch, though Jayson, then we'll give you a little more timeline as to when we'll add more people. So we're not at a full launch yet. We're right on track where we'd be with this process. So, we're excited on what we've learned. As soon as we get through a little bit of this COVID-19 situation, we can take a deep breath, and we'll share with you little more details around the next phase of the launch. But it includes podium presence, speakers talking about the product, how it works and how it's being received in the market.

Is COVID the gating factor here? Meaning Once COVID is -- I don't want to say over but once this everything relaxes, will you be able to launch the product?

Jayson I don't think -- COVID hasn't changed our plans. I think we told you guys when we bought it, we needed about a six month window before we start the launch. In the last couple of weeks, we've slowed down spending here in a responsible fashion, and slowed down some of the investments we're making just to make sure we're disciplined with our cash management and our balance sheet. But COVID is not going to be part of the AURYON story. Really we're building the story around those three areas. I can't wait to even share more with you. It's really going at a pace we expected and we are excited to keep building the team there.

Okay. Thank you.

Jayson, we continue to invest in AURYON. And so, as we talked about our cash management priorities, we want to make sure that we're ready to hit the ground running when market dynamics allow us to do that. So we’ve continued to, as Jim mentioned, build up our supply chain, bring in the salespeople, be ready to go. We do see the atherectomy procedures as some that are on that line, tending to be delayed during the current environment while healthcare systems are looking to build up capacity. So once that does ease a bit, given the investments we're making, we'll be ready to hit the ground running, as Jim said, according to our original plan.

Thank you. Our next question comes from the line of Jason Mills with Canaccord Genuity. Please proceed with your question.

Thank you for taking the questions. First, maybe a 20,000 foot view question. The thing that struck us is quite surprising, as we like everybody else are trying to read as much as we can about what's going on in the current environment whether it’s healthcare or procedural volumes, specifically, is to the extent to which procedures you wouldn't assume would abate vis-à-vis the crisis like COVID, physicians aren’t seeing. So STEMIs, you’re even seeing fewer strokes, acute ischemic strokes come into the hospitals. And you mentioned pulmonary embolism. You said you’ve heard some physicians suggest that they are seeing fewer cases. Those tend to be acute cases -- those tend to be cases that can't delay, they’re life saving cases. Have you seen this as well, and what factors do you attribute to this? I think physicians are scratching their heads and just love your commentary on that. As well as perhaps could you speak regionally, and let us know, are there any parts of the country or the world where you aren't seeing this phenomenon play out, where you are seeing sort of a normalized trend, if you will, of these cases that you guys participate in their acute like pulmonary embolism, come into the hospital? And then I have a follow-up.

Jason, it's Jim. I hope you and everyone is healthy in your office and your family. So Jason, good question. I had a conversation three days ago, I think it was with a Chief of Surgery at one of the large Boston hospitals who had mentioned, for the past three or so weeks they spent so much time gearing up to be ready to care for the COVID-19 patients, that they've asked some of the other doctors to stand down, not just because they need to free up ICU space, but they want to free up PPE equipment to that level for the caregivers that are caring for people in the critical care environments. So we've talked to many of our physician partners and we mentioned too, you saw in Q3 really dynamic growth with the AngioVac product and really well received. But even here now we've seen some cases slow down a bit. I think physicians are being told to stay home, stand down in many cases. Now we say that to you, knowing the severe acuity that many of the patients that our products treat have. The physician I spoke to last week even said, “Jim, we're treating now people or diagnosing people with Stage 1 cancers and ask them to go home and we'll call you back with a treatment plan soon.” In the past, they would have had an initial treatment plan, we may have been part of the treatment plan. So Jason, I think we, like you're looking for, are looking for that, that clarity from our customers. We're speaking to a lot of our customers, because we're trying to gain that clarity and be ready to support them, because we're also expecting their expectations of our support may be different coming out of this.…

Jason, this is Steve. You had mentioned pulmonary embolism. Our current AngioVac product is not really a pulmonary embolism product. For the most part our current AngioVac is used with tumbling right atrial masses and tricuspid valve vegetation. The product -- the market that we play in I think are a good example of what we're seeing in this dynamic environment. Early on in this process, early in March, our AngioVac sales volume and the procedure volume that we were supporting with our clinical specialists remained quite strong. And so, we were initially looking at those right heart and tricuspid valve vegetation cases as being on that necessary acute side of the line that we talked about. A trend that we clearly have seen over the last couple weeks is, that line has moved or the physicians have defined where that line is, and that continues to change. And we have seen a drop off in those procedures. Oncology procedures are another example of ones that we're seeing change throughout this time, based mostly on what Jim talked about, which is physicians looking to build up their capacity. But when you think about the oncology cases, and when you think about those cases that the current AngioVac product plays in, we do see those as delays and not lost procedures that are coming back. Now, as we mentioned in the past, and Jim talked about the two AngioVac product extensions that we expect to see in the next 12 to 18 months, those are the products that we expect to be able to allow us entrance into the pulmonary embolism space. And to get into that middle section of the thrombus management space where we think there's a lot of cases to be done.

And I wanted to get into a little bit more detail if you're willing on the new AngioVac products or at least targeting, and you sort of answered that to some extent, but with pulmonary embolism maybe talk about the targets for those two products. Are they products that target two separate anatomies i.e. pulmonary embolism for one, deep vein thrombosis, generally speaking on the venous side, on the other, or one detail can you give? And I guess, lastly, and I'll get back in queue, just back to them sort of macro discussion here because I'm interested in the macro before we tackle the micro. I mean society has to tackle with macro. And the other thing that is really disconcerting to some extent is what we're seeing is when healthcare workers we need as many of them as we can get on the frontline for COVID, you're seeing hospitals furlough healthcare workers, techs, et cetera that would otherwise be participating in these elective procedures. And as you mentioned, they're not happening as ubiquitously as they were before. Is that when we're on the other side of this, will those hospitals be able to re-hire quickly enough so that there's no lag in the way getting back to some sort of a normalized environment? That phenomenon is interesting to me and I'd be interested in your take on that as well as any detail you might be willing to give on the two new AngioVac products?

So, two things. So, again, I don't want to speak for the caregivers and the hospital. I won’t speak for how they’re doing it, but I can share with you the conversations we're having and the tone that we're getting. Because it's been pretty consistent Jason, some of which is right exactly what you're asking for. So we've seen some furloughs as well, some hospitals and I think if you see the root cause of that it's because some of the censuses are very low, some of the hospitals telling us that the patient census is down, because they tried to move people out of the hospitals, get them back home, and they try to free up or create more ICU or critical care spaces, preparing for an influx of COVID-19 patients. So, I think that the care they're delivering on a routine basis is as much lower than it was a month ago. They need less people. We hope, again, by talking to our hospital customers and partners that when this thing settles, they can re-hire people back to get back to normal care standards that they would operate in. We also believe too even some of the conversations, I think they're doing some of that contingency planning now to speak to some of those hospitals. They told us they're doing some of that contingency planning, how they can get back in a rapid fashion. Some people told us, they may go to a seven-day operating schedule in their operating rooms, to go back and treat people who’ve had to stand down for a little bit. So to macro scale Jason, I think we're all learning together of how we're going to treat the situation. But we're hearing things enough, we're close enough to the market that gives us…

Thank you. Our next question comes from line of Matthew Mishan with KeyBanc Capital Markets. Please proceed with your question.

Hey, Jim. I just wanted to switchover to oncology first. I think you had an expectation coming into the year where you thought you could do about 20% growth in that area. Definitely looks like it's fallen short over the first three quarters. And really outside of just some very big numbers in NanoKnife, it looks like the other areas are coming in negative. Can you go through the puts and takes of the balloon, BioSentry and microwave as well?

Yes. Matt, good question. So hope you're feeling well. A couple of things. What we've learned during the course of this year now, we did set high expectations based upon our technologies in these areas. What we've learned -- let me get back to balloons and BioSentry right now, I think our sales reps, we probably put too much in their bag and I own that one. I thought while we are there in some of the call points we're in, we could have similar discussions based upon how these two new technologies are unique and work well. But in all cases, now the synergies aren't there as much as we want to focus on speaking about what NanoKnife does with our new registry-based approach and the IDE. So what we're doing Matt differently. Now as we've learned these lessons, we're going to -- we're investing in and creating a new inside sales group that we're going to handle the majority of our balloons and BioSentry business to take them out of the field sales bag. We know right now how effective these products are when used for patient care and treatment. But we've got to do a better job of commercializing that conversation. So we've missed the boat a little bit there. So missed it, you're right. What are we doing about it? We're changing how we go to market, that's number one for balloons and BioSentry. Number two, for microwave. We know and we believe deeply our microwave is better than the offerings from Medtronic and J&J. What I think we've learned Matt it's not that much better to offset some of the market size, clout and resourcing that those two giant companies have. So our microwave is better. I think if you match them up, physicians will…

On NanoKnife, could you give us a sense of how it's -- how -- the numbers are very strong as far as the placements going and the number of probes and the recurring revenue. Could you just give us a sense of how you're doing with that in the U.S. versus you are like internationally?

A good question. I will look to Steve, maybe Steve has a bit more of a split on the geographics Matt. I think right now we've seen a balanced sale with our capital this year, both U.S. and, O-U.S. It's been encouraging though, Matt, some of those systems that have been bought in the U.S. recently are full systems, these are expensive products. I think people now are getting interested in our DIRECT study and the ability for them to be part of the study and to set up a treatment protocol in their facilities. So again, as we told you earlier this year, we knew that the Q3 we just reported this morning had very strong disposable sales that you saw on NanoKnife probes, which was our expectation as we talked to you after Q2. By selling record hardware in the first half of the year, we kew disposables will carry on. I'm not -- I don't want to predict how we’ll be now in this quarter in front of us. But it's what we expected.

Yes. And I think Matt we are seeing strength both in the United States and outside the United States. You can think of our current breakdown at about 60% in the U.S., about 40% outside the U.S. We've seen some particular strength in the Asia-Pac area outside the U.S. I think we've modified a little bit and mitigated a little bit by EMEA but we think that that's a temporary trend and we expect to see EMEA catch up and also be a big contributor going forward. So we have seen strength throughout the globe driven by the U.S., but definitely some strength O-U.S. as well.

Okay. And then on NanoKnife and AngioVac both, do you need a clinically trained salesperson in the procedure room to make those effective or are the doctors that are performing capable of doing that without Angio representative in there?

That’s interesting Matt, before the world changed recently, I think the answer from both our physicians as well as us in terms of what we were seeing at the time to that question would have been yes. You need clinical specialists in those cases. As the world has changed, we've noticed that both our customers as well as our own clinical specialists have been very creative in providing that case support in this dynamic environment. So, I think the answer is, at a very high level, yes, I do think that these NanoKnife procedures as well as AngioVac are complicated procedures, that there's a tremendous value provided by our clinical specialists and the knowledge that they have. I think what we're seeing through this new environment is the manner in which we support those cases can be somewhat dynamic. And I think if there's an opportunity to be creative in how we do that support going forward. But ultimately, in the type of procedures that they have with the differing disease states and the complexity of our products, there is a role that is necessary for some level of support.

Okay. And then just last question on the cash flow. You were able to do breakeven on the net income but free cash flow was negative $20 million. So, a little bit more color on really what drove that. And from here, I mean, if you have the levels of inventory in place that you think, how capable are you guys of managing several quarter downturn in the business where you don't really -- you really don't know how much it's going to have -- how much it swings, while also preserving your current balance sheet position?

Yes, it's a great question, Matt, and it's absolutely something that we've been focused on over the last four weeks. So I think you kind of hit the point that we were looking at pretty critically over the last several weeks and looking at the cash flow versus the net income. There are a couple points that, that feed into that change in cash that I think are temporary. And I think you would talk about the temporary. So, we talked about the inventory build, that's actually a big part of it, right. $4 million to $5 million of that cash usage was in inventory build. Now as we talked about going into the current environment, we were planning to increase our inventories in anticipation of moving all of our lines out of the Glens Falls facility that we sold to Medline into Queensbury. So we had a big build as we were coming in. We had continued to build in the first several weeks of this process. The next aspect of that, that is going to be, okay now as you've got inventory as a backstop to what could be some potential disruptions depending upon what happens, at least in terms of our production process, you want to then burn off that inventory, so we're focusing on that. There was some short term additional funding that was acquired during the third quarter related to AURYON into the Israeli R&D aspects there. I think that'll pull back a little bit. There was also a lot of timing, $7 million to $8 million of that cash usage I would say was in timing related to the TSAs and some of the disaggregation activities coming out of the Medline divestiture. So that won't repeat. So we talked earlier about focusing on our…

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Mr. Clemmer for any closing remarks.

So thank you for joining us today for our quarter three 2020 call. I'd like to again call out the dedication and commitment of our employees. We have manufacturing quality and distribution people working today in Queensbury and Glens Falls, New York. They've worked over the past three or four weeks during this pandemic process with their commitment to manufacturing high quality products that are used around the globe and the care and treatment of those in need of care. We've done a good job here at AngioDynamics, helping to make their workplace as safe as we can make it and reduce risks of transmission internally. We've changed how we do what we do. We made sure that our people are thought of first. So we've got a great group of people. We're proud to report our good Q3 results today. We look forward to sharing with you our Q4 results and beyond. And I think we did a good job highlighting today just some of the uncertainty we see from our customers. As soon as we can get better clarity and transparency from our customers, we’d happy to share with you our new thinking when that occurs. But today, our company is driven by a belief that our products make a difference in the wellness and care of others. And the company is committed to that. I want to thank our employees for working through this difficult process. Thank you. We'll speak with you soon.

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