Doug Sherk - IR, EVC Group, Inc. Joseph DeVivo - Chief Executive Officer Mark Frost - Chief Financial Officer.

Tom Gunderson - Piper Jaffray Charles Haff - Craig-Hallum Jayson Bedford - Raymond James Larry Haimovitch - HMTC.

Good day, and welcome to the AngioDynamics’ Fourth Quarter and Full Year Fiscal 2015 Financial Results Conference. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Doug Sherk. Please go ahead, sir..

Thank you, Brian. And welcome everyone and thank you for joining us for the AngioDynamics’ conference call this afternoon to review the financial results for the fiscal 2015 fourth quarter, and full-year results, both ending on May 31, 2015.

The news release that crossed the wire this afternoon is available on the company’s website at www.angiodynamics.com. A replay of this call will be archived on the company’s website.

Before we get started, during the course of this conference call the company will make projections or forward-looking statements regarding future events, including statements about revenue and earnings for the fiscal 2016 first quarter and full year that end May 31, 2016.

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 the 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 participant to limit themselves to two questions and encourage participants to re-queue to ask additional questions. We appreciate everyone's cooperation with this procedure. With that, I'd like to turn the call over to Joe DeVivo, President and Chief Executive Officer..

HealthTrust and MedAssets. Both have been sole-source contracts for Bard for years. Given new innovation, HealthTrust chose to open the contract to include other vendors, providing choice for membership and access to thromboresistant catheters like BioFlo.

We are engaged now in many evaluations in HealthTrust accounts and appreciate the opportunity we've been given to prove the value we can provide. MedAssets, on the other hand, chose to maintain their sole-source relationship with Bard, following what we understand was a significant price reduction to keep the business.

One of the conditions we learned was MedAssets would need to increase their compliance levels from 80% to 90% for that new pricing, forcing MedAssets' customers using non-Bard products to convert.

We lost two major customers in the quarter and felt its impact immediately, while it typically takes longer to feel the revenue impact that we gain from new evaluations. It was a loss for us.

There are participating hospitals who wanted to provide contracted thromboresistant PICCs to benefit their patients in exchange for an easy short term financial gain. In my view, it’s one of the ugly realities in the healthcare system and an example of a practice that has largely been done away with by most GPOs.

On the bright side, BioFlo PICCs are contracted in three of the four – of the largest GPOs, being Novation, Premier, and HealthTrust, and we have excellent opportunities for future growth.

In our press release, we highlighted two Novation IDNs where one recently ended a Bard sole-source relationship to go dual source with Bard and AngioDynamics, and another added BioFlo DuraMax due to the success they have seen with BioFlo PICCs and Ports.

So moving to Ports, we grew 2% in the quarter and 8% for the year after we anniversary a very successful Premier LIDN agreement win that occurred last year. BioFlo is now 14% of our worldwide Port revenue.

Our dialysis catheter is another success, where sales were up in the quarter 17%, 8% in the full year, driven by a more rapid BioFlo DuraMax penetration to 19% of our overall dialysis segment. We are seeing premium pricing and market uptake in half the time that Ports have been on the market.

In summary, on vascular access, we said that all along, BioFlo is one of our key growth drivers and that is certainly proving to be the case. We have a lot of opportunities with the BioFlo technology and we're focused on capitalizing on those opportunities in the market.

While the sales force was distracted in the second half of 2015 trying to service Morpheus customers, I believe they enter 2016 with a clear path for market share growth, with the right products and more open doors to customers, given our contract awards.

Now let's move to peripheral vascular, which was down 2% for the quarter and flat for the year, being weighed down by EVLT revenue that was down 6% in the quarter and 2% for the year. We discussed the pressure on procedures last quarter for EVLT and we saw a very weak start to the calendar year.

That weakness for us continued into March and April, which are in the fourth quarter. However, during May, we started to see disposal revenues increase as our commercial team noticed more activity.

Sitting here now in the middle of July, we've seen laser fiber growth continue for the first six weeks of this new fiscal year and are waiting to see if it continues to accelerate through the balance of the first quarter of 2016 to begin to offset some of prior year's delays.

Fluid management, our largest product line was up 5% on solid worldwide execution. The launch of the second-generation AngioVac in the middle of the quarter was very well received, showing an increase in procedures from existing accounts.

AngioVac came in at $3.2 million for the quarter, up from $2.3 million last quarter and back to last year's fourth quarter level. For the full year, AngioVac revenues in fiscal 2015 grew 23%, while procedures were up 56% year-over-year. These are very encouraging results. Lastly, for PV.

The PV selling organization, with the increased demands for AngioVac, the competitive environment for EVLT, and the breadth of work required for fluid management and angiographic catheters, finally spread our PV sellers a bit too thin. We've listened to our sales managers and business leader.

We've had to deal with an increased turnover from increasing demands of this diverse vac. Going into 2016, we have addressed our selling strategy through the increased investment to provide greater focus and attention for our sellers.

We have added two national sales managers; one focusing on fluid management and EVLT and giving them dedicated resources to drive growth in those segments.

Our fluid management national sales manager now has selling specialists in each region who will drive attention on more account management and conversions for fluid management, as our EVLT national sales manager had his clinical resources to help the continuing education of the sales force and facilitate account conversions.

I anticipate through this year, we will continue to add fluid management specialists with the hope of having a completely separate and dedicated fluid management sales force to start fiscal year 2017. Having a fluid management sales force will allow the current PV sellers to continue their efforts to grow AngioVac and EVLT.

We presented this plan to the PV organization at the national sales meeting last month to a resounding level of excitement and approval. Now on to oncology, where our top-line was negative 5% for the quarter on FX headwinds and flat for the year and also some continued RF attrition.

Oncology sales, being more than 50% OUS, realized the greatest FX impact for our product area, which would have been flat otherwise in the quarter and 9% in the year, ex-FX. For the year, oncology was up, including FX 6%, showing growth in NanoKnife of 25%, microwave being up 11%, and RF down 16%.

NanoKnife is another growth driver for our company, as you all know. We just closed a record quarter, posting $5.1 million in revenue and 37% year-over-year growth. Worldwide, the benefits of NanoKnife are being seen as new installations and procedure growth are now consistently above 20%. We highlighted two clinical achievements this quarter.

First, the clinical research office of the Endourological Society has begun enrollment of their Phase 2, 200 patient pivotal prostate study. Findings from Phase 1 are beginning to come into publication, showing the safety profile for the 16 patients enrolled.

Also later this month, data from the STAR Registry, reviewing over 200 pancreatic cancer patients from 5 centers, will be published in the annals of surgery. This paper concludes that NanoKnife, when added to the current standard of care, for treatment of Stage III pancreatic cancer patients, can provide a significant survival impact.

This data was presented at the American Surgical Association by Dr. Robert Martin from the University of Louisville in April of this year. Finally, we received certificates to foreign governments for our NanoKnife product, which had been under review following a letter to file dispute for the last two years.

That review by the FDA has ended with the recent receipt of an updated 510(k) for the changes we had made. And the lack of the CFGs have precluded us from registering NanoKnife in some of the largest international ablation markets in the world, including China, Japan, Russia, and also in Latin America.

With CFGs in hand, we are actively registering NanoKnife for each of these markets and hope to have clearance over the next 1 to 2 years. We are hopeful this resolution will also be the final step in lifting the NanoKnife promotional warning letter from 2011 and the Queensbury warning letter from 2011.

On our operating side, I am very pleased with the execution of our operational excellence program. We are on time and on track with product line conversions to our Glens Falls facility. All line movements should be completed by December.

Particular improvements affecting gross margin by 100 basis points in 2015 directly due to the cost taken out of the organization. With inventory reductions and improved DSOs, operating cash came in at $10.8 million. So with that and for more detail on our financials, I'll turn it over to Mark Frost, our Chief Financial Officer.

Mark?.

Thank you, Joe, and good afternoon, ladies and gentlemen. As discussed in our last call with you in April and during Joe's remarks earlier, our business in the third quarter was impacted by two headwinds, foreign exchange FX and the strategic decision to withdraw the Morpheus PICC line.

These headwinds continued to impact our growth in the fourth quarter and we anticipate in our planning process that they will flow through the second quarter of fiscal 2016. This will cause our performance to be challenging in the first half of 2016, but will recover in the second half, the opposite of our 2015 fiscal results.

Given that Joe has discussed the revenue picture in depth, I will try to – I will limit my comments to a few revenue points and then provide more detail on our P&L, balance sheet, and guidance for 2016. Total revenue in the quarter was down 3% from the prior fiscal year.

However, excluding the impact of FX, the Morpheus withdrawal, and the planned wind down of our supply agreement, underlying net sales were flat with the prior fiscal year.

One additional point pertaining to the oncology surgery business was we delivered a strong capital quarter, which built on continued positive utilization at 15% in the quarter and over 20% for the year. Capital conversions drove the higher growth as the installed base increased by 9 units to 133 sites in the field.

From a geography perspective, US revenue decreased 2% in the quarter, while the international markets fell 6%, but on a constant currency basis were flat. For the full year, revenue grew 1%, but was 3% underlying when you net out the supply agreement, FX, and the Morpheus withdrawal.

The US overall for the year was flat, international grew 9% on a constant currency basis. So good performance from our international team. Continuing down the quarter's income statement, gross profit totaled $45.4 million or 49.9%.

Our operating excellence program contributed 120 basis point improvement and positive product mix contributed another 50 basis points. Offsetting these strong gains were E&L [ph] provisions of 80 basis points, FX of 70 basis points, and higher freight expense of 50 basis points.

The result was that despite the excellent result from our operational excellence program, we experienced a 50 basis point drop versus the 2014 fourth quarter. For the fiscal year 2015, our adjusted gross margin ended at 50.9%, a 20 basis improvement over fiscal year 2014.

The improvement reflects 100 basis points from operating excellence and 40 basis points from positive mix, reduced by E&O of 50 basis points, FX of 30 basis points, and freight expense of 20 basis points.

Now turning to expenses, operating expenses totaled $44.2 million, including $2.9 million of acquisition integration and restructuring items, of which $1.9 million was related to litigation and $0.4 million for the operational excellence program.

Sales and marketing costs decreased $1.3 million, with $0.7 million because of an FX benefit and the remaining reduction from lower US sales costs. G&A costs increased by $0.6 million versus prior year, caused by higher incentive and stock-based compensation.

R&D rose $0.6 million, primarily because of costs associated with the second generation microwave program and higher regulatory fees. Our GAAP earning results was a loss of $0.02 per share versus a loss of $0.03 in the fiscal 2014 fourth quarter.

Adjusted earnings per share, EPS, excluding amortization was $0.14 per share versus $0.17 per share from the prior year fiscal 2014 quarter. We lost $0.01 because of FX and the remaining drop was caused by lower revenue volume. On a full year basis, adjusted EPS, excluding amortization was $0.58 versus $0.56 in fiscal 2014.

On a constant currency basis, adjusted EPS improved by 10% versus the prior year when you exclude a $0.03 FX impact. Turning to EBITDA, EBITDA was $9.1 million or $0.25 a share versus $10.6 million or $0.30 a share in the prior year's fourth quarter. Adjusted EBITDA was $13.4 million or $0.37 a share versus $15.5 million or $0.43 a share.

Full year adjusted EBITDA was $57.2 million versus $55 million in fiscal year 2014. Adjusting for currency, EBITDA increased 6% from the prior year. Now as forecasted, our operating cash flow continued to improve, generating $10.8 million in the quarter and free cash flow of $9.9 million.

Our cash balance ended at $20.1 million and we paid down $11.3 million of debt, bringing the debt balance to $137.7 million outstanding. Now, an important item we discussed a year ago were our issues on the internal control front pertaining to the finance and accounting organization and reconciliation process.

During the quarter, we continued to execute on the remediation plan to address the material weaknesses related to our internal controls. Our plan as outlined in our quarterly SEC filings called for significant improvements to our organization, processes, and systems, all of which have been made over the course of this fiscal year.

The assessments of the effectiveness of our internal controls, both internally and by our external auditors, includes processes that take place up to including our 10-K filing in early August. Final conclusions on our own mediation [ph] effort will be included in that report. I'll now turn to a discussion of our guidance for fiscal 2016.

Overall, our financial objective is to deliver leverage from the top-line at three to four times rate, as we demonstrated in the first half of 2015, but with much stronger cash flow than we generated during the first six months of last year.

As I mentioned at the start of my discussion, our performance will be different for the two halves of the fiscal year due to the headwinds from FX and the Morpheus withdrawal, which will impact us primarily in the first half. We are guiding to a range – a revenue range of $364 million to $370 million, $0.02 to $0.04 growth for the year.

Adjusting for the headwinds, this would have been 4% to 6% as each headwind reduces annual growth by about 1%. However, our first half will range from flat to 2% down as we are absorbing a 3% revenue reduction each quarter from headwinds. In the second half, we expect to deliver 6% to 8% growth.

New product introductions will also buy us growth to the second half, as we are expecting the second-generation microwave and Celerity Navigation products to launch in the second half of fiscal 2016. We are expecting delays in capital for the microwave line during the first half, which is normal when you launch a second-generation product.

We also expect to benefit from clearing CFGs for NanoKnife to be a second-half contributor. The GPL wins are also expected to generate meaningful contributions later in the year. An upside to our guidance will be positive outcomes relating to NanoKnife reimbursement, both within and outside the United States.

We should have increased visibility on this towards the end of the calendar year. Now the revenue timing will flow through to our adjusted earnings expectations. We are guiding to adjusted EPS, excluding amortization of $0.62 to $0.66, up 7% to 14% from prior year. We are absorbing a $0.04 cost from FX and Morpheus.

Otherwise, our EPS would be growing 14% to 21%. Again, the halves will be distinct, with the first half contracting 12% to 18%, but 40% to 60% growth in the second half, reflecting primarily the impact of the headwinds on the first half.

Now, the critical factor enabling our leverage to the bottom line continues to be our operational excellence program. We exceeded our goal of 80 basis points in 2015 and expect to deliver 110 basis points of gross margin improvement in fiscal 2016.

However, we are losing about 40 basis points of improvement because of the FX impact, but offsetting this 40 basis points with positive mix. So our net improvement for gross margin is expected to be about 100 basis points, with a range of 10% lower or higher for 2016.

Key components of the improvement in 2016 are, one, the consolidation efficiencies, both overhead and direct labor, primarily during the second half; supply chain savings, direct and indirect, and then best practice implementation, including Kaizen and engineering activities.

Current status on our manufacturing consolidation is 20 lines are being moved by December 2015, with 4 lines already moved. For our long-term strategic plan, operational excellence activities are expected to generate about 400 basis points of improvement by 2018.

We expect operational excellence to make up one-half of the 800 basis points GM improvement we are striving to achieve by 2020.

The other contributors to this improvement will include stronger GM from our growth driver products, such as AngioVac and NanoKnife, which provides 25% further benefit, international direct progress, which is about 15%, and then the remaining 10% of our gross margin improvement will come from overhead leverage by maintaining at least a low single digit revenue growth.

Leverage from higher growth is an upside and is not factored into our long-term plan. Our aspirational goal is to move GM to 59% by 2020, which has been reduced by 100 basis points because of the FX impact. We have not assumed further FX volatility, but this is both a risk and an opportunity to our longer-term plan.

On the expense side, we are anticipating overall SG&A and R&D expenses to be flat on a percent of revenue basis and grow modestly by 3% to 5%. Sales and marketing is expected to increase by 50 basis points as a percentage of revenue as we invest in the US sales force, particularly the PV organization.

Our plan is to leverage R&D and reduce our investment by 50 basis points, down to a 7% of investment level of revenue. G&A will go up slightly to between 8% and 9% of revenue, reflecting higher incentive and stock-based compensation, as well as the annualization impact of investing in the finance and accounting organization in 2015.

Acquisition integration and restructuring costs are anticipated to decline significantly by close to 75% to 85%, with the major items expected to remain related to operational excellence and litigation. From a balance sheet and cash flow perspective, we are expecting significant improvement in our cash flow during fiscal 2016.

Our operating cash flow is anticipated to improve by 30% to 40% versus prior year and free cash flow by 60% to 70%. Drivers for improved performance are, one, working capital improvements, primarily from reducing the safety inventory built for the manufacturing consolidation in 2015. Secondly, reduction in our restructuring costs.

And thirdly, a drop in our fixed asset needs down to a maintenance level of between $5 million to $7 million. Adjusted EBITDA is expected to improve based on our earnings improvement range. Now turning to fiscal year 2016 first quarter guidance, we are guiding to a revenue range of $83 million to $87 million, flat at the top end.

Backing out FX and the Morpheus withdrawal, prior year sales growth would be 3% at the high end of the range. The first quarter has been a soft quarter for us in the past and we are worried about capital impact, as last year was strong, and it tends to run in every other year cycles because of customer timing.

Adjusted EPS, excluding amortization is expected to range from $0.10 to $0.12, reflecting the revenue range, as well as the timing of our US sales investment, which is front-end loaded to maximize the benefit of revenue in the year. With that, I'll turn the call back to Joe for his final comments.

Joe?.

Thank you very much, Mark. With being in half an hour, I think we should allow the operator to open the call for questions..

Thank you. [Operator Instructions] And we'll now take our first question from Tom Gunderson [Piper Jaffray].

Hi, good afternoon, guys. First, let me apologize. The cell dropped me about halfway through and I got back in. Mark, I want to congratulate you on some very distinct and clear numbers that you gave us for 2016. We all appreciate that. Joe, the questions. One on AngioVac and one on NanoKnife. And I apologize ahead of time if you covered this.

On AngioVac, I was curious, is there an AngioVac 1 and an AngioVac 2 out there still for sale or does everything switch to 2? And what happens to the existing AngioVac 1 customers? Do they get upgraded, is there an exchange? And maybe for Mark, where does that - how does that exchange inventory, if there is such a thing, get booked?.

So we have – right now, the only product available for sale is 2. We have allowed for customers who wish to upgrade to do so. And you want to….

Yes..

I think it’s just – we've identified in our marketing budget I guess, a sample budget and allocation in anticipation of customers wanting to make those modifications, and that’s a part of our normal operating plan….

Yes. We built it into the product launch plan, Tom, that it would run through the sample line, as part of the product launch to trade it out. To the degree if it’s above it, there isn't that much inventory. So we don't expect too big an impact in the future. But we have built in our 2016 plan as well some trade out dollars for it..

Yes. Most an individual customer would have on the shelf is three units. Most likely it’s two, with one used, if that at all..

Got it. Thanks. And then did you say anything about NanoKnife internationally and reimbursement, particularly Germany.

And I think you've talked about Japan and China in the past?.

Yes. So we still get the updated NanoKnife specific reimbursement for a few of the procedures. A couple of them are in and the levels are very appropriate. And there is other subsets of the procedures that we are still working on. But we have not provided any specifics on this call..

Got it. Okay. That’s it for now. Thanks, guys..

Thank you, Tom..

Thanks, Tom..

And we'll take our next question from Charles Haff with Craig-Hallum Capital Group..

Hi, guys. Thanks for taking my questions. First question for you on free cash flow, Mark. Revenue was down on a reported basis versus last quarter, but AR was up. And we saw a decrease this quarter in operating cash flow versus last quarter.

Just wondering if you could help us understand a little bit what's going on, if there is any one-off things in terms of operating cash flow and AR?.

Yes. So continued double-digit, stronger on the free cash flow standpoint versus third quarter. But you are right, it was down, I think, about $1 million. I think we are at $12 million and it’s $11 million this quarter.

So AR, unfortunately, yes, there is an item in that a lot of our revenue, more - a little more than usual came in the last month and a lot of it in the last 2 to 3 weeks. That, unfortunately, causes AR to build because of the timing.

Had it come more evenly during the quarter, you wouldn't have had as big an AR and that's probably the biggest contributing factor to why operating cash flow was a little lower. Also, on the inventory side, we did meet our goals of reducing - start reducing some of the safety inventory.

But we had to build for some of these product launches some inventory, which increased – which reduced the reduction of inventory in the quarter. So that was probably the two factors.

If those hadn’t happened, probably cash flow would have been better by about $3 million, which would have been more towards where we were thinking about, which was mid-teen operating cash flow in the quarter..

So then for next quarter, then, should we expect a reversal in that AR lumpiness that you had at the end of the quarter? So we could….

Yes. You should see some benefit in AR inventory. We have the Midline launch that’s happening, so we are building inventory for that. So you will have some inventory from that and there are some other products we haven't talked about where I know we're building some inventory.

So I think the bigger benefit is the safety inventory comes out will be in the second and third quarter as we finish….

Okay….

Moving all those lines..

Okay. Thanks. And my second question is on AngioVac. So good sequential growth of about 40%, congratulations. With the gen 2, I imagine you probably have some existing users that there was pent-up demand and so forth.

How should we think about AngioVac, Joe, for fiscal 2016? I know it’s a ways out there, but obviously with the strong quarter are probably feeling good with how things are going.

What type of number, is it like maybe a $12 million to $14 million number for AngioVac or what do you think there?.

Well, we normally don't give those kind of numbers, but is probably right, $12 million to $14 million. Hopefully closer to the higher end, but it could be in that range.

We're looking to see - I think we've gotten over the initial product launch growth rates and now we're really more focusing as much as possible on utilization, procedure development, and site development instead of new account generation. And so a healthy consumption in growth is around that 20% level.

And I think we get there and continue and continue to develop our clinical development. We'll see good progress. And if our clinical development hits and accelerates, then we could start seeing the hockey stick we hope to happen in the later part of the 5 year plan we have. So I think we're on a – we needed that new product.

It’s worked well and I think we're feeling a lot better going forward..

And would there be any challenges to getting to the high end that you can see that you could kind of share with us? Is it reimbursement or is it utilization or adoption? Anything that you could see kind of getting in your way to not hitting that $12 million to $14 million range?.

Well, we just have to keep blocking and tackling. When I look at – we set ourselves our $50 million goal. That’s 5,000 procedures with a little bit of ASP attrition. It’s not 1 million procedures. It’s not 100,000 procedures, it’s 5,000. We're running maybe 600, 700 right now. We need to get to 5,000 procedures.

And I don't see that as an incredible mountain when you look at 14,000 filter removals or 80,000 right atrial mass extractions, or you see the amount of IDC work being done. So even if the product is niched which I don't think it will be, 5,000 procedures is not a lot to ask.

So what we've done is we've gone out strong getting the accounts up and running. And where our focus is right now is making our accounts successful, billing the networks within the hospitals, building the clinical data pathway for people to have experience on what are the effective procedures and how to build their programs and practices.

And so it’s taking increased time and effort from the sales force, which is classic and appropriate market development activities that we are going to down the path of right now.

So we've gotten over the initial hurdle or the initial, not hurdle, but the initial euphoria of, hey, we got all these people signed up and now we're in the hard work of getting the procedures going, delivering great education, and building a marketplace. So – and then, of course, from a reimbursement standpoint, there is no specific code for it yet.

But it does offset some other procedures and I believe the cost of the – the hospitals believe it’s more than cost neutral, if not beneficial. But there will be a point in time in the 5 year period that CMS may put a code on it and that’s always a risk if that results in ASP erosion.

But we think AngioVac is saving the healthcare system a significant amount of money dealing with some of these complicated patients and procedures. And although that’s always a risk, we're going to do everything we can to continue the value that, that AngioVac brings.

So it’s standard classic disruptive medical device market development activity and I am very pleased that our team has gotten on top of it..

Yes. Just one thing to build on Joe's point, and Joe talked about it a lot during his discussion, is one of the items a little bit in the way was the size of our PV bag. And all the changes Joe talked about allow us to get the reps a little better focused on both AngioVac and EVLT.

And we think that will help drive the practice development that Joe is talking about as we go through 2016..

Yes. Exactly….

Okay. Thanks, guys. I'll re-queue..

I mean, to that point, I know there - just as a follow-up to Mark's comment. AngioVac has – we've seen now this great up tick again.

And we've wanted to put a commensurate amount of sales focus on that and EVLT and have started the process of building additional specialty into the PV sales bag, because it was just becoming too many priorities and we got to that tipping point. So we have a plan in this year to create that greater focus and energy.

And we think it should very positively contribute throughout the years..

Great. Thank you..

And we'll now take our next question from Jason Mills with Canaccord Genuity..

Hi, good afternoon. This is actually Jeff filling in for Jason. I wanted to go back to Mark's comments about more revenue than usual coming in at the later part of your fiscal year.

I am wondering if the sales reps could have been running for end-of-year sales awards? And do you believe that could turn out to have a negative impact on your term sales trends?.

I'll make the first comment. They do that every year, so it’s in there. It was in there last year and the year before. And our periods haven't changed the annual plan and the ability to run hasn't changed. So no, I don't think – I think, yes, people work around a plan to accomplish for a deadline, but they do that every year..

The one thing that, Jeff, did impact it is we did have higher capital in Nano and it did a lot of it come in, in the last month and that affects the AR..

Okay. Got it. And as my second question, Joe, if I recall correctly, I believe you had an aspirational goal of growing the business to be a top line 10% grower exiting 2020, which is certainly a dramatic step up as we sit here today.

I am just curious on your strategic thinking in both of potential acquisitions, And as the second part of that question, your thoughts on possible divestitures?.

Well, we've tried to steady the ship over the last year, year and a half, and focus on. We have so many moving parts within the company. We've gone through distribution consolidation. We're in the midst of a plant consolidation. We've been doing integrations. We've have been doing Oracle integrations over an 18-month period.

We've been doing some finance remediations and building a very strong financial team. And so when you are doing that and you are building your foundation, to make a lot of changes is really disruptive to the business. So we've been focusing on pure execution and, even in light of that, the Morpheus kind of hit us between the eyes.

But regardless, that’s thing of the past and that’s reflective of the past, and the things we are doing today are at what we would believe a much higher standard of rigor.

Regarding acquisitions, we – there is a lot of things we are looking at, but they would be much lower in magnitude as far as things that we can tuck into the bag and things that we can enhance our current portfolio. I've mentioned multiple on times, it’s not in our near term focus to do large transactions.

And regarding divestitures, that’s always an option if we feel it’s necessary. Our current goal is to execute on our plan and we're very mindful of the ebbs and flows that we provided investors. And we are really intent on creating consistency and delivering the numbers, hopefully above the ones that Mark are mentioning.

But regardless, I obviously cannot comment on any future transactions. But our view is that we want to really focus on building consistency because our current products are in enormous marketplaces. We are seeing – this year, NanoKnife grew 27%. AngioVac grew 22%, BioFlo grew I think for the year 30%.

And if we just steady the ship and focus – and continue to focus on the growth drivers, interestingly, the growth drivers are getting bigger. And as they get bigger, they contribute a greater percentage of the revenue, the mix goes up. They are all margin accretive, et cetera, et cetera, et cetera.

So we're not looking for easy fix to get to our 5 year plan. We're looking to execute on the investments we've made and to deliver..

Great. Thank you for the color. I'll get back in queue..

Thanks for the question..

And we'll take our next question from Jayson Bedford with Raymond James..

Thanks for squeezing me in, guys. Just a few.

I guess to start, in the fourth quarter, can you quantify the impact of the Morpheus recall?.

Sure.

You mean from a cost standpoint, Jason, or do you mean from a revenue standpoint?.

From a revenue standpoint. I guess I'll lead with the answer. I think you said last, call it would be $1 million to $1.5 million. I am just wondering if it was….

Yes. It ended up being about $1.5 million. We had $3 million of Morpheus last year. We converted half of that to non-Morpheus products. So you lose about $0.01 to $0.015 from all that.

And the other – it's probably more towards the $0.015, when I think about it, because we did give price breaks to our customers as they converted to keep them - give them BioFlo at a non-BioFlo price. So it was probably about a $0.015 hit in the quarter from Morpheus..

Okay. And so 50% converted, you don't expect any more kind of spillage off of this.

Is that fair?.

Well, you never know. I mean, we've put them through a lot and the sales force put a lot of energy in. We don't expect it, but you never know, Jayson..

Okay..

What we've done is we have given them - we've replaced a lower end non-thromboresistant catheter and we've given them a high-end thromboresistant catheter at the same price. Now at some point, we need to move them off that lower price, but which would probably, if anything, be where the rub point is.

But we've done everything possible to ease the transition. But I would – I think a lot of the ebbs and flows are over..

Yes. And Jayson, we've assumed in the first half a continued 50% conversion..

Can you….

We haven't assumed that it will continue to atrophy..

Right..

So – and this may be a tough question for you, but why wouldn't someone convert to BioFlo at the same price?.

Morpheus is a product that’s designed for interventional radiology. And it’s designed to have a certain type of placement feel and a certain stiffness. And the whole name of Morpheus is it is kind of stiff and then it morphs into this softer tip. And so radiologists are really concerned about how it feels and they like to have a stiff catheter.

BioFlo, in its nature, is a little softer, and it wouldn't be the preference, forget about the whole antithrombic pharmagenic. It wouldn't be the preference of an interventional radiologist because it’s not as steerable and it’s a little softer than our Morpheus PICC.

And so when you take frustration, when you take some back order, you take change, and then you take the fact that they've tried it. They said hey, we want something that is stiffer. That’s probably the biggest reason why the IR customers who already didn't convert to BioFlo, before when we offered it to them, didn't do it this time.

But there is also a lot of the business converting from – there are some IRs who are willing to do it and obviously a lot of business already converting from IRs to bedside nursing. That was much easier to convert over. But the biggest objection is for an IR has been the placement and feel..

Okay. On the oncology side, I realize the comp was a little tough, but the non-NanoKnife oncology business looked like it was down.

Can you just give us a little detail as to what is happening on oncology outside of NanoKnife?.

Yes, well, we've seen, you know, first of all, the market is pretty aware that we're working on a next-generation microwave. And so some of the capital budget has been pushed out and that’s one of the areas that Mark has identified. And also, we had a pretty poor RF quarter.

We've been seeing – we're not the only microwave player out there and there is some other players with new systems too. And when accounts are converting over from RF and the microwave, it’s not necessarily always 100% to us. And that’s why we've been racing to this next-generation system.

So we had a pretty weak RF quarter, as that’s being cannibalized by microwave..

Okay.

And do you think that the data presented earlier this quarter is having a positive impact on the NanoKnife business or is that yet to come?.

I think in the hepatobiliary community, there is a growing awareness and understanding that NanoKnife in addition to standard-of-care therapy is a value-add. And I don't think they ebb and flow on any one piece of data. But it’s a pretty small tight knit global community, and I think there is an increasing awareness that this adds value.

We've been – and it’s what's been, I guess, driving the overall awareness throughout the entire year. We started off from a utilization standpoint a year ago seeing an up tick, and its maintained through the year. So I think there is a slow, gradual, general understanding that data is being more well understood.

I don't see us having the aha moment, where everyone goes, oh, now I get it. But the data being there is just another step of validation. You've seen in the past us put data out from Dr. Raj at the University of Miami, which was some of the earliest survival data on pancreatic cancer, and that was very exciting and an early set of awareness.

So oncology moves in decades and I think we're seeing a slow building realization and awareness. And I think the data helps and will continue that momentum. But I don't think it is a short term pop. I think it’s a general growing, very positive awareness of the benefits of the technology..

Okay. And maybe last one for me. Within the context of your revenue guidance, if you want to frame the segments, that would be great.

If not, can you just give us an idea of which segment of the business do you think will grow faster and just kind of rank them, one, two, three, if you can in 2016?.

Well, I think vascular access is going to have a good year. We have – if I had more people, I would be doing more evaluations. I think the business is going to have a good year. I also think PV is going to have a good – actually, it’s kind of tough, because I am choosing between this. But I think PV is going to have a pretty strong year as well.

I think last year, we learned some lessons regarding the sales force. I think this year, we are doing a better job, and I am pretty excited about how that organization is going to be. I think our international team had a terrific year this past year in 2015. I do feel there is a little bit more pressure for them in 2016.

So – and while they have some NanoKnife opportunities now in registration and that is exciting, I think that’s probably an area where it will be hard-pressed within the – just to repeat at the levels they did in 2015, given the FX and other challenges.

But I think real winners this year in the year will be led by VA and overall growth rate, and then PV. And then I think second half of the year when the new microwave system comes out, it will give a shot in the arm to the oncology team.

And we have high hopes for our international group, but again, they did a great job, helped us get across the finish line this year. And given some conditions that are there, it might be hard-pressed to repeat that..

Yes. I'll just build a little bit on, Jayson. Oncology is probably going to have the widest variation because we did have a very strong capital year in NanoKnife. And as I said in my comments, if we meet that, do a little better than that, because of the CFGs, because of reimbursement, it could be a good year in oncology.

But we've seen a trend of every other year in capital. So we're very wary of that in building our oncology revenue guidance..

Is that helpful?.

It is. Thank you..

[Operator Instructions] And we'll take our next question from Charles Haff with Craig-Hallum Capital Group..

Thanks for taking my follow-ups. Question on EVLT. So last quarter was challenged there.

This quarter, I think you said you did a positive 6% growth, is that correct?.

No. No..

No..

The fourth quarter was down 6%..

And for the year….

Down 6%. Okay, sorry, down 6%. And so you had down 6% in EVLT. And it looks like you had a pretty tough plus 9% year-over-year comp. Last quarter, you were kind of scratching your heads and trying to figure out where the weakness came from. I wondered if you have kind of identified where that weakness came from.

I heard you say that you have some specialized sales force that you are putting out there. Is that the fixed or it was there some competitive pressure or something else going on that you identified? Thank you..

Thank you, Charles. We did a really – we did a pretty extensive deep dive over the last 90 days. What we had said regarding delays in procedures and deductibles we believe is true. Now we believe that there have been a push off of procedures.

But we've also experienced, especially from the last 90 days and given the environment for EVLT where there is just a lot of activity in varicose vein ablation, and also given the opportunity for AngioVac and the amount of growth that we are looking for and the market development activity, we actually started to see a little bit of diminishing returns from our sales force.

We know that the PV is a very diverse bag, and it was doable to launch an AngioVac-type product when it was much lower revenue. But if we want to reach our goals, if we want to continue to grow in EVLT and AngioVac, we need to invest in the sales force, and we did.

We launched a program that within 12 months, we are going to be able to, if we reach our goals, split off a separate fluid management sales force, which is a different type of call point and different kind of salesperson. And which, if you are looking at our salespeople, it’s some people, its 40% to 50% of the revenue in their territories.

And if by in the next 12 months, we can take that revenue out of their territories and have it in the new organization, we're going to be freeing up massive amounts of bandwidth to be able to continue to grow AngioVac and EVLT. So I think the learning for this quarter is that, yes, we've seen some challenges in elective procedure delays.

But we've also realized that the organization has a lot on its plate and we've took steps that have already been now in place since June 1 to fix it..

Okay. Great.

And then on the 17 Celerity systems that went to existing customers, how many accounts was that for? Was that 17 accounts or was that less some purchased more than one?.

There is a couple – there are situations and that will happen going forward where initially, they'll do one, and then they'll either – sometimes accounts will have one. They may have up to four or five. In this quarter, there might have been one or two that had more than one.

But I think, as time goes on, again, I am not – I don't want to get in the habit of reporting this information. Our competitors do not report it for us, so I don't need to educate them.

But I do feel, for investors, I wanted to start giving you a shape as to what the activity was, which for me, if I have 50 salespersons and I am putting 20 out a quarter in the first couple quarters, I'm very pleased with the activity, given each of them require clinical training and a lot of work.

So, I think in those first 40, I think most of them are going to be individual accounts, but I think going forward, we will see 1, 2, 3, 4, even 5 to a single account as we convert them..

Okay. Great. And my last question is on EmboMedics. The partnership was announced in early April. You said at that time I think, January you were hoping for 510(k) submission from EmboMedics.

Is that on track, any updates there?.

We don't really have any new updates. There is nothing new to update. We're very excited about the relationship and we're working very closely together to meet our goals..

And nothing that should change the January submission that you had earlier?.

I have nothing that I am aware of that would change that objective..

Okay. Thanks..

And we'll now take our next question from Larry Haimovitch with HMTC..

Hey, Joe. Hey, Mark..

Hey, Larry..

A question, there was something in the 10-K referring to some issues which the government had with you, with regard to the LCB business. Now obviously, you are not in the business now.

Can you update us on the status of that situation, please?.

Yes. They've – what's in the SEC, what's in the filing is pretty self descriptive. We have no other comment than what's in the filings..

Okay.

Is there any – there is no update to that filing, then?.

No. If there is, it will be there. But no..

Do you think there is any exposure you have in any respect to any fines or any increased legal expense? As you probably are aware of, Vascular Solutions is in the midst of a pretty expensive legal battle. And I am just wondering if that could escalate for you as well..

Well, our objective is to answer all questions and meet whatever questions that would be had. But there is – I really can't speculate on something like that..

Yes. I guess I'll just build on it, Larry. I mean, it’s too early in the process to know where this is going to go. We have in our litigation cost had a little more discovery costs, which was in that litigation line, and acquisition and restructuring and integration. But it’s just way too early to know where this is going. So we can't really comment..

Right. I mean, if there is anything that’s worth commenting on or that we should be commenting on, we will of course..

Right..

Of course. Okay. Thanks. And then Joe, on NanoKnife, the Robert Martin paper obviously is very positive.

Do you anticipate at some point getting a specific label for pancreatic cancer? And if you do, do you have any sense at all about when that could come?.

I would think at some point in time in the future that’s the right thing to happen. I think the product deserves that. I can't – I haven't been able to and I can't predict now. But it should have one, and I hope if we have progress on it, we can update everyone..

Joe, is the key to getting that the accumulation of impressive clinical data like the Martin paper? Is that what we need to see more of?.

Yes. I think so. I think so. And we're also, you know, this quarter, as I mentioned in my comments, we resolved an inquiry on a letter of file that took a long time and a lot of heat loss, which pretty much put those type of activities on hold.

So with that behind us and I think there is a good opportunity for us to have some dialogue on the very impressive and very broad amount of activity in the marketplace with the FDA..

Any update at all you can provide us on litigation in the EVLT market? I know you had some suits going. I know you had won some suits.

Can you bring us up-to-date on that situation, Joe?.

From a Bio Life Tech perspective, it’s still ongoing. We've won pretty much as much. We're waiting for a one last decision and when that decision is rendered, we would have - we would feel that we are done with the US.

We need to recoup some damages we hope to get and then we'll start the next step of the process and go and find them everywhere else in the world we can..

So you are hoping to get a nice settlement from them, and do they have the cash to do that if you do win a big settlement?.

That is a goal. But it’s not something I would look forward to any time in probably your or my lifetime. But regardless, yes, I think they are – they have benefited greatly from us and they have impaired our business.

And we are going to finish what we were doing in the US and then we are going to launch an effort in their biggest markets to pursue our – what's rightfully ours..

I have another question, but I don't want to hog the time here.

Are there any other questions in queue, operator or can I ask one more?.

I think one more and then we have to go, Larry..

Okay. Sure. Just a little more color on EVLT.

Is the whole market down or do you think its market share issues or pricing issues? What's your best color on the market right now, Joe?.

Well, from what we could see from what is reported by competitors, there is not – especially in the beginning part of the year, there wasn't a substantial amount of growth in the segment. And I think it does – I think the beginning part of the calendar year was very slow in the marketplace for elective procedures.

And we are now seeing an up tick, as I made in my comments, in the end of last quarter and now. So we hope that continues. We hope to recoup some of the slowness in the second half of this calendar year that we saw in the first half of the calendar year..

Okay. Thanks, Joe. I appreciate it very much..

All right. Thanks, Larry..

And that concludes today's question-and-answer session. At this time, I would like to turn the conference back to Mr. Joe DeVivo for any additional or closing remarks..

Well, thank you very much for everyone for being on the call. We've gone – we continue to improve the business. We have a great team in place. We've focused on fixing some of the core fundamentals and I think we're real close. As I mentioned earlier, I think patience will be rewarded. And again, I appreciate your attention and time. Thank you..

And ladies and gentlemen, that concludes today's conference call. We thank you for your participation..