Good morning, and welcome to the AngioDynamics' Fiscal Year 2022 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 call is being recorded. The news release detailing the fiscal 2022 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 this call will be available at the same site approximately one hour after the end of today's call. Before we begin, I'd 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 the fiscal year 2022, as well as trends that may continue. Management encourages you to review the Company's past and future filings with the SEC, including, without limitation, the Company's Forms 10-Q and 10-K, which identify specific factors that may cause actual results to differ materially from those described in the forward-looking statements. The Company will also discuss certain non-GAAP financial measures during this call. Management uses these measures to establish operational goals and review operational performance and believes that these measures may assist investors in analyzing the underlying trends in the Company's business over time. Investors should consider these non-GAAP measures in addition to, not as a substitute for or as superior to, financial reporting measures prepared in accordance with GAAP. A slide package offering insight into the Company's financial results is also available on the Investors section of the Company's website under Events and Presentations. This presentation should be read in conjunction with the press release discussing the Company's operational results and financial performances 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 '22 third quarter earnings call. Joining me on today's call is Steve Trowbridge, AngioDynamics' Executive Vice President and Chief Financial Officer and Chief Financial Officer, who will provide a detailed analysis of our third quarter financial performance and our reaffirmed FY '22 guidance. Our third quarter saw continued excellent progress in our transformation into a high-growth, innovation driven med tech company. We are reporting another quarter of solid revenue growth despite significant headwinds related to the COVID-19 global pandemic and the Omicron variant spikes which were particularly pronounced in December and January during our quarter ended February 28. We credit our team's resiliency and focus on driving our transformation to our higher growth med tech platforms, including Auryon, NanoKnife and thrombectomy. We ended the quarter with revenue of $74 million, representing growth of about 4% year-over-year. Net sales from our Med Tech platforms were $19.6 million, representing growth of about 29% over the previous year. Through Q3, our Med Tech business grew about 42% year-over-year and year-to-date comprised approximately 24% of our overall revenue base, up from 18% in the prior year period. During our Q3, our Med Tech revenue was 27% of our total revenue. And as we've highlighted as part of our corporate strategy, we expect that ratio will grow over time. Our Auryon Atherectomy business continued its impressive performance, with revenue of $7.3 million for the quarter, up sequentially from $6.3 million in our second quarter. Auryon performed well, particularly in light of the tough environment in January, when hospitals and OBLs were significantly impacted by COVID spikes, both in terms of patient admittance and healthcare worker shortages, due to nurses and providers falling ill. Auryon procedures remained fairly evenly divided…

Thanks, Jim. Good morning, everyone. Before I begin, I'd like to direct everyone to the presentation on our Investor Relations website summarizing the key items from our quarterly results. Our revenue for the third quarter of FY '22 increased 3.9% year-over-year to $74 million, driven by continued strength in our Med Tech business, including Auryon, NanoKnife and thrombectomy. Med Tech revenue was $19.6 million, a 28.6% year-over-year increase, while Med Device revenue was $54.4 million, declining approximately 2.8% compared to the third quarter of FY '21. For the first nine months of the year, Med Tech grew 41.8%. Med Device was down 0.8% compared to the prior year period and grew roughly 2% year-over-year when excluding last year's NHS order. For our third fiscal quarter, our Med Tech platform comprised 27% of our total revenue. Year-to-date, our Med Tech platform comprised 24% of our total revenue compared to 18% at this time last year. Overall, demand during the quarter was impacted by both macro level and company-specific dynamics. Macro level demand was clearly challenged in December and January, but did improve during the second half of February as Omicron cases declined and hospital access improved. Staffing remains a headwind and likely will remain so through the rest of this calendar year. Customer demand for AngioDynamics products has been resilient as evidenced by our results for the quarter and the status of the backlog that Jim mentioned. Revenue in our Endovascular Therapies business increased 14.5% year-over-year to $38.1 million, benefiting from the continued adoption of Auryon and our thrombectomy portfolio. Auryon contributed $7.3 million in revenue during the third quarter, continuing the momentum we've been building since last year's launch. As of today, our installed base is 285 lasers, with 43 lasers placed during the third quarter. As planned, we continued…

Thank you, Steve. This is an incredibly exciting time at AngioDynamics. We are continuing to prove our ability to service a growing demand through our manufacturing capacity expansion programs and increased capabilities of our sales, marketing and clinical support teams. The COVID pandemic presented unprecedented challenges, and we are proud of how we're managing through it as a resilient company committed to supporting physicians who treat our patients with our unique technologies. We remain focused on transforming AngioDynamics into an innovative medical technology company with solutions that address some of the most dynamic opportunities in health care. We want to improve patient outcomes and drive high physician satisfaction. We are committed to improving patient care and proving our ability to do so by supporting data collection and research studies. Our third quarter results are evidence of our progress towards that goal, and we plan to continue to deliver on our strategic initiatives in the coming quarters. I'd like to thank, everyone, on the AngioDynamics team for all of their hard work during the quarter and their ongoing commitment to our mission. With that, I'd like to turn the call back to our operator to open up the call for questions. Melissa?

[Operator Instructions] Our first question comes from the line of Jayson Bedford with Raymond James. Please proceed with your question.

I hope you're doing well. So a few questions. First, on the $11 million backlog, what's the timing and I guess, more importantly, the key steps into bringing this down?

Jayson, it's Jim. Key steps are expanding our capacity, Jayson, to do so. Some of those we outlined on the January call, some of which we reinforced today. To us, Jayson, the largest part of the backlog is really two facet. One, still really strong demand, not just in our Med Tech products, but our Med Device products. Our VA team has done a great job articulating the value of our products, as you know there, and we have strong demand in our VA business, our EVLT lasers, strong demand in our core angiographic catheters, what this company was founded upon. So really strong demand, Jayson, is one half of that. Second side, obviously, is our ability to produce, which has been challenged by COVID, not just with absenteeism and employees having issues dealing with COVID and recovering safely to return to work, but also us attracting the level of employees that we'd like to have. So, we made the decision to move some processes to our Costa Rican partner, and we'll continue that process until we get to a stabilized workforce on our facilities that can support our growing demand. So it's been a challenge, Jayson. That's part of it. We believe now, as I mentioned on the call, we're now producing 20% more than we were in the past quarter and we're starting to eat into that backlog. It will take a while, Jayson. We don't believe we'll be clear by the end of Q4. It will bleed into the first quarter or so of next year. But we have a detailed recovery plan internally, and we know when we'll recover in each of those three categories.

Okay. So the assumption here is that the backlog didn't grow exiting the fiscal fourth quarter. You would eat into a portion of that here in the fiscal fourth quarter.

Correct. So our assumption here, Jayson, it will be lower at the end of the fourth quarter than it is today.

Okay. Okay.

Jayson, just to add one little -- just to add one piece of clarity to that. We do expect that it will be lower as we exit Q4 than it is today. But one thing I want to emphasize is we are not expecting that we have to clear a significant portion of that to be in line with the guidance that we gave you for Q4.

Right. Okay. That's fair. Just from a macro standpoint, you called out staff shortages as a continued issue. Can we make the assumption that it's better today than it was in January? And is this kind of the single biggest macro weight on demand right now?

Jayson, it is better. Our employees are healthier. So, they're back to work in a more consistent basis. So that's a good sign. And we've attracted new employees and maybe not at the rate we'd love to, as we know there's still a challenge of getting labor for some roles that we offer. We're not the only company having that challenge of attracting employees in this environment to come work for us. So we've also done things. As we mentioned earlier, we've increased wage rates, other things, as Steve mentioned, which impacted gross margin. But we are better today than we were three months ago.

And Jayson, certainly on the macro side of the equation, staff shortages at hospitals and OBLs were particularly pronounced in December, but more -- even more so in January. That dynamic has changed as we've come out of February and into March and April. So, we have seen that as a lifting pressure on the macro side that isn't there quite as acutely today as it was back in our third quarter.

Okay. And then maybe last one, and I'll jump back in queue. On the mechanical thrombectomy guide, the delta between kind of the old and the new guidance, is it more of a reflection of softness in AlphaVac, AngioVac? Or is it almost all -- is it almost all COVID related?

It is primarily COVID-related. The difference in the guide is really stemming from the procedural pressures that we saw in Q3. And if you think about that, a lot of that is AngioVac because we're in the very early stages of the AlphaVac launch. But we definitely saw the DVT procedure volume be impacted in that December, January timeframe because of the macro COVID headwinds. And then that will have kind of just a lingering effect as you push those procedures out does not change our perspective at all in terms of this market or the products that we have to go into this market and the benefits that will drive for us over our strategic planning horizon. But it does impact -- it is a follow-on impact from what we saw in Q3.

[Operator Instructions] Our next question comes from the line of Bill Plovanic with Canaccord Genuity. Please proceed with your question.

One clarifying question on the backlog. You ended at $9.6 million. You were at $11 million. The commentary was that it would be lower at the end of the fourth quarter than it is today or versus the end of the third quarter? Like how much do we expect to bleed off over the next quarter is my first question?

It's Jim. Bill, I think the comment I made is lower than it is today is what we expect. And as you know, the two inputs, Bill, we can't control one of them. We can't control our order and our demand rate. But fortunately, it's very strong in our tech and our device platforms. But number two, we can control our output, our capacity expansion programs, and those are growing as we speak.

Okay. And then you made some commentary, specifically, I think this hits mostly the Vascular Access. Does this have any impact on any of the other areas? Or -- and if you could quantify, is it like 70%, 80% into the Vascular Access? And are there any one or two products it's impacting?

So, Bill, it's clearly wholly resonant within our Med Device segment. And it's fairly evenly split among the three product lines in that device segment of our angiographic catheters, EVLT and then Vascular Access. So, you can think about it as being relatively 1/3, 1/3, 1/3.

Great. And then in terms of the mechanical thrombectomy, just for clarity, it seems -- the December, January commentary, was that relative to the AngioVac product? And how is AlphaVac ramping against your initial plans at this point?

So Bill, most of the comments we made is regarding AngioVac. And as you know, we have products that are okay to using the right heart. And now with AlphaVac, we're looking at DVT as the first line of VTE we are treating. As you know, we have the PE study kicking off the pivot for AlphaVac F18 for PE. So ultimately, what we saw was some DVT procedures were being postponed or suspended or people were treated differently with the hospital shortage and ICU full beds. I think on the PE side, it was more acute. Other companies were treating PE, maybe in a more acute space than what we saw for DVT. So, that was the experience we had built in the last three months were really related back to the shortage that we had a little bit of procedures on AngioVac. Second, I think your question was on AlphaVac. We have terrific feedback from AlphaVac. You can probably go online and read what doctors are saying. We're really pleased not just with the F22 that was launched in the first week of December, we also remind everybody, we knew that was a limited opportunity market as it only can treat certain parts of the anatomy that allow a product of a 22-French catheter design to enter the body. Now with the new F18, we'll be able to go lower into the body, treat more parts for people with DVT and ultimately start our PE study. So, Bill, we're off to a great start. Feedback is terrific, and we're excited now to get the F18 product in the limited market release and full release in the summer.

Great. And then last question for me, if I may. It's just -- Auryon continues to just blow away our expectations. And I'm just curious, is this a -- as you look back, is this a same-store sales? I mean, I know that unit placements, new placements have been very strong. How would you categorize the driver of this?

Great question, Bill. We are pleased, too. It's a combination of an amazing product. It is truly amazing, and we have more to come on what it can do beyond this current atherectomy indication. We think it can do other things. We'll talk more detail at another time. So number one, the product, it does a really effective job. And some of the proof of that is the ratio of the below-the-knee procedures that patients now are being treated for, because there weren't a lot of other options before in that space. There may have been one or maybe two devices that could do that. Now, we're offering customers the safety and security of a laser with the power Auryon brings. So Bill, it's really a combination of both. We're expanding. The use is based on demand. So, we highlighted another 43 lasers placed. Strong demand is there for the product. And number two, back to your same-store sales comment, we agree. And we're getting more and more people once they get the unit in-house. They get confidence in using it and try in more situations. We're seeing increases then in the procedures on a monthly basis in our current settings. And that's really our goal over time, Bill. Over time, we're not going to keep putting 43 or 45 lasers in every quarter. We want to work on that utilization and getting customers confident to use Auryon as their first-line treatment in their care settings, and we think we'll grow same-store sales over time at a more robust rate and it will be more important part of our growth for years to come.

Our next question comes from the line of Steven Lichtman with Oppenheimer & Company. Please proceed with your question.

I guess just building on Auryon, what success are you seeing in in-stent restenosis? And is that playing out as you expected? Is it better than expected in terms of how much you're gathering of that portion of the market?

Steve, we're really pleased. One of the things that drew us to the device initially was the fact that it could do ISR, was approved by the FDA during the study to do ISR. So, we're really pleased. So what you do -- it's funny, Steve. And I quote, about half of above the knee and half below the knee, that's taking out about 10% of the overall procedures that are done for in-stent restenosis. So, when you look at it on a macro scale, Steve, 10% of the overall procedures that we track are really for ISR and then the ones -- the other 90% are split about half and half above and below the knee. So that's about what our expectations were. We're pleased with that ratio.

It's a great question, Steve. And it's important to realize that laser technologies are the only technologies that are out there that can do ISR. And so getting that segment of the market with this particular product really does help us, but then you add into the fact that we can go above and below the knee, it really does highlight the versatility of the Auryon technology.

You also mentioned commercial investment in Auryon. How many sales reps did you reach in the quarter in that business and where do you anticipate ending the fiscal year?

Yes. So it's a good question. So, we have 77 dedicated employees in that business as of today. That includes roughly 40 field-based sales reps, quota carrying reps. We also have 14 employees that are clinical field specialists and then we have a number of per diems that are helping support that business. We're going to continue to invest in that business, probably not exactly at the same pace that we have over the last two years as we continue up our ramp on this business. But we're really pleased with the trajectory we've seen in this business, and we want to make sure that we continue that trajectory going forward. So, we're going to continue those investments. I would expect we'll end the year a little higher than the numbers I just quoted you, as we continue to be very thoughtful about how we invest in the business.

Got it. And lastly, we focused a lot on the macro dynamics in the US, obviously makes sense given the proportion of sales in the U.S. for you guys. But how are things trending internationally? Are you seeing improvements there as well in terms of the end markets?

We're starting to, but it's very choppy. I'm sure others would probably comment in a similar fashion. But there still are regional challenges. As you know, China is a massive challenge with the issues they've had and the way they're trying to take care of their population there presents challenges for us on a commercial scale. You look at areas like our Latin America business, our Canadian teams have done an excellent job. A lot of parts of Europe, our European teams and our Middle East teams have done a really, really good job. So, we have a lot of, not just solid business, but people are really interested now. NanoKnife adoption has been very high, and we're really pleased how that goes. And over time, we're building out a commercial team with a new international leader, and we're putting a lot of resource deployment into that team behind her strategy. So, we have more to come and we'll share more with you over time.

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

One of the questions we're getting this morning is around free cash flow. Just wondering what's the free cash flow expectation for the remainder of the year? And it seems like spending is increasing here to fund growth. Kind of how are you thinking about funding the growth into next year?

Yes, it's a great question. So as we had talked about coming out of our Q2, we did expect that we were going to see higher cash utilization in our Q3. The investments that we needed to make to bring the additional manufacturing capacity online was a big part of that. The disruption that we've talked about is also going to have an impact in that quarter. And so we're seeing an improving environment as we move out of Q3 into Q4. One of the other things to point to is we saw that increase in our receivables, particularly in our days sales outstanding. That was expected. That's something that we see with that Auryon customer base becoming a larger portion of our overall customer base. Those are customary market terms to give them a little bit longer payment cycles. So, you see some element that was coming from the additional cost to bring the capacity online and then some being a little bit more structural in terms of timing, but that we were expecting that. We do expect they're going to see a reversal of that trend as we head into Q4 and so some of those spending will abate. And then as we move into Q4, I expect to see a different profile in terms of cash utilization. Your question on investment into the growth drivers, I think one of the things I'll point to is the balancing that we had mentioned coming from some of the CARES Act. We do expect that, that cash will be coming in, as we get towards the end of our fiscal year or into next fiscal year. But it shows some of the balancing that we do as we handled the EPS question. We're always looking at prioritizing, first and foremost, those investments that are necessary to drive short- and medium-term growth in our growth drivers. And then we're looking from there ways to balance that with other areas of OpEx in the business. So, we're still confident that we're on track to fund the investments that are necessary to drive our long-term growth initiatives as set out in our Investor Day plan. We're always looking at it. And we definitely saw higher cash utilization in Q3, but we do expect that to flip a little bit as we head into Q4 and then certainly into next year.

Okay. And then just on the gross margin. You're kind of at 52% to 54% this year. What are you -- as we think about next year, what do you think is transitory in this 52% to 54%? I mean, seems like you're going to get a product mix benefit regardless going into next year because of the growth in Med Tech. But what can switch on from '22 to '23 to the positives?

Yes, it's a good question. And I think the first thing to point to is that product mix benefit. That's right in line with what our long-term strategy has been. As those Med Tech products comprise a much larger portion of our revenue base, they're going to see gross margin accretion. And that's really our story over our strategic planning horizon. As you saw in this quarter, the COVID impacts did take a chunk out of that and it kind of reset a little bit of the baseline. So, we talked about inflation coming from raw materials. Look, I think that's going to be around for a little while. That probably continues as you move into Q4 and into the first half of next year at least. We'll see where the macro environment goes. Labor inflation, that's also something that's going to be with us for a while. The tight labor market just has that follow-on effect of additional wage rate increase being necessary and some of those retention and referral bonuses that we talked about, keeping people in our plant. I think those things are going to be around for a while. I do expect that over our horizon, they will normalize and that you'll get back to seeing the full story of that gross margin accretion coming from product mix.

All right. Excellent. Then the last question. Just can you give us a sense of the timeline to completion for the IDE on PE?

Yes. So what we really are excited about that product is that the precedent has been set, right? So Jim talked about the RV/LV ratio as being the primary efficacy endpoint. The other products that are out there that have a PE indication, that's the endpoint that they use. So it's a nice, predictable target to go after. We talked about a 30-day follow-up. And so, with 120 patients or so, we think that can be a relatively quick enrolling trial, it's going to be very different than what you saw with some of those oncology endpoint trials that we've talked about with NanoKnife in the past.

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

Thank you, Melissa. And again, we're really proud of the work that our team has done here working through the pandemic. We have employees across the globe, who are committed to serve our customers, who serve patients in need of our technologies for wellness and care. So, I want to thank the AngioDynamics' employees and remind investors on the call, we are committed to our future, investing in our growth, investing in our platforms. Thank you again for joining us today on the call.

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