Doug Sherk - IR, EVC Group, Inc. Joe DeVivo - President and CEO Mike Trimarchi - Interim CFO.

Tom Gunderson - Piper Jaffray Jeff Chu - Canaccord Genuity Matt Mishan - Keybanc Jayson Bedford - Raymond James Charles Haff - Craig-Hallum.

Good day and welcome to the AngioDynamics’ Second Quarter Fiscal 2016 Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the call over to Mr. Doug Sherk. Please go ahead, sir..

Thank you, Cody, and welcome everyone. Thank you for joining us for the AngioDynamics conference call this afternoon to review the financial results for the fiscal 2016 second quarter results, which ended on November 30, 2015.

The news release detailing the second quarter results crossed the wire this afternoon and 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 of forward-looking statements regarding future events, including statements about revenue and earnings for the fiscal 2016 third quarter and full year ending on 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 our question-and-answer period today, we’d like to request each participant to limit themselves to two questions and then encourage you to requeue 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..

The first story, hard comps with Morpheus and non-BioFlo product sales. In past quarters, we have discussed how managing customers through the Morpheus withdrawal has distracted our sales team from reestablishing momentum for growth. Last year at this time, VA was seeing steady sales growth until that withdrawal of Morpheus.

And even when normalized for the performance net of Morpheus, our growth was significantly impacted. And the impact didn’t just affect PICCs but also ports and dialysis. However, the second story for VA does provide confidence for the franchise going forward.

BioFlo sales continue to grow across all product offerings and sales of our recently launched products have been positive. While overall PICC sales were down 13%, BioFlo PICCs grew 16%. Ports were down 7% while BioFlo ports were up 15%. And dialysis was down 6% while BioFlo dialysis grew 72%.

From an overall percentage of sales, BioFlo is now 73% of all PICC revenues, 15% of ports and 90% of dialysis. In total, BioFlo now represents 41% of all VA sales. Sales for non-BioFlo products were not just impacted by Morpheus recall but started to reverse what had previously been positive momentum for the business.

Moving into the second half of the year, regaining that momentum will be key to returning the franchise to growth. During the second quarter, our team placed over 20 Celerity units worldwide and achieved clearances for the device in Europe.

We filed for Celerity navigation with the FDA for 510(k) approval and are targeting an early March clearance, which should help us with the end of the year. As you can see, we were not able to overcome the Morpheus challenge during the second quarter to the degree we had planned, and that changes our outlook for the balance of the year.

As we get through the year, we see the negative growth comparisons declining and we are now looking at resuming overall topline VA growth, starting the first quarter of fiscal 2017. For this business, the year has been tougher than we originally expected.

As we look through the rest of the fiscal year, we are specifically focused on restoring overall growth to the entire VA portfolio with an emphasis on opportunities within ports and dialysis while retaining the momentum we’ve established for BioFlo.

So, moving to oncology surgery, total revenues during the second quarter were $12 million, down 9% from last year. U.S. oncology started the quarter with fantastic news that the FDA had lifted a 2011 NanoKnife warning letter. The warning letter has been the key barrier to gaining new FDA clearances for indications.

Currently NanoKnife treatment for pancreatic and liver cancer is considered experimental and investigational by NICE and some U.S. payors. With the warning letter now lifted and key data published in the Annals of Surgery, conversations with CMS and NICE are progressing.

We also gained five new international NanoKnife clearances with certificates to foreign governments released by the FDA earlier in the year. We believe the business is on the right path, given the continued strong ramp for disposable revenue during the quarter. NanoKnife disposables rose 35% in the U.S. and 21% o-U.S.

during the period; the same is true for microwave, disposable sales were up 29% in the U.S. and 15% o-U.S., during the second quarter. That said, gaining new capital placements has been a challenge for NanoKnife. And as a result of lower capital sales U.S. oncology was down 8% for the quarter and 9% worldwide.

We believe the key to capital sales becoming more predictable will be the positive guidance and coverage decisions for the product leading to worldwide reimbursement. The technology clearly is working for clinicians as consumable growth continues at a very healthy pace which is a tremendous positive.

Conversations with the decision makers are ongoing and we believe we will achieve an ICD-10 code in the U.S. and positive recommendation from NICE in the calendar year 2016, although we did not hit these goals for the beginning of 2016 calendar, as we had hoped.

As we look to the second half of the year, we have revised our NanoKnife capital outlook to reflect this view until we achieve our reimbursement goals. Now moving to international, topline sales in international were down in the second quarter 6% year-over-year or down 1% constant currency year-over-year.

We made progress since a very weak first quarter international where we posted negative 17% growth and negative 11% constant currency growth. While pricing pressures will continue, a wrap of new international clearances bodes well for a more positive second half of the year internationally.

We believe international will turn positive in the third quarter and show continued positive momentum in the fourth quarter. We have a significant number of clearances in Asia Pacific market that we anticipate occurring later in the fiscal year.

These include clearance for NanoKnife disposables in China during the fourth quarter which we expect to lead to a $2 million or $3 million incremental sales for the approval and the approval of an RF device in Japan, which will provide a very positive boost to the end of the year.

In addition, we expect to launch a new microwave product at the end of 2016’s calendar year. With that I will turn it over to our Interim CFO, Mike Trimarchi. Mike has been with us since 2013, hired to lead our FP&A activities and then as our Global Controller for the past 18 months.

During his tenure, he has led a reconstitution of our finance organization and managed the remediation we went through last year following the Oracle implementation. Prior to AngioDynamics, Mike held roles as the VP of Corporate FP&A and Global Controller for Vistaprint in Boston.

We’ve commenced a search for a CFO and have asked Mike to be a candidate as he has smoothly stepped in to the role the past few months. So now, I’d like to turn over to Mike.

Mike?.

Thanks Joe and good afternoon ladies and gentlemen. I’m excited to take on the additional interim responsibilities for AngioDynamics as we focused on maximizing the opportunity ahead of us. I will spend first -- I’ll first review our financial performance highlights for the quarter and then provide our updated guidance.

From a top-line perspective, total revenue was down 3% from the prior fiscal year. However, excluding the impact of FX and the Morpheus discontinuance, underlying net sales were down 1%. We will fully anniversary both of these headwinds about half way through our third fiscal quarter.

The primary commercial driver of our year-over-year underlying decline was the broader impact the Morpheus recall has had on our momentum in the VA business, as Joe described. Gross margin for the second quarter was 51.4% as compared to 51.7% in the prior year period. FX negatively impacted our gross margin by 50 basis points.

So, underlying margins improved by 20 basis points over the prior year. On a positive note, our operational excellence program continues to deliver unit cost savings, contributing nearly 90 basis points of year-over-year gross margin improvement in the quarter.

These savings were partially offset by 70 basis points of product price headwind split evenly between our U.S. and o-U.S. business. In the U.S., we are seeing negative price impacts on our VA products, driven primarily by the increased percentage of contracted revenues.

The shift towards GPOs results in lower prices from both the buying power and the admin fees they charge. On the o-U.S. side, we continue to work with our distributor partners through the impact of last year’s currency fluctuation. As a reminder, because our distribution sales are denominated in U.S.

dollars, our distributors saw 25% to 30% price increase when the dollar strengthened a year ago. As a result, on a market-by-market basis, our team continues to evaluate, and where appropriate, make price accommodations to ensure our products remain competitive. These pricing adjustments negatively impact our margins.

To go into more detail on our operational excellence progress, over the last two years, our manufacturing organization has executed on our plans to be more efficient. Key major milestones have been delivered on track with our ERP implementation completed in 2014 and our plant integration scheduled for completion in our fiscal third quarter.

We are already seeing benefits of both of these initiatives. The ERP integration has not only enabled the facility consolidation but the detailed visibility into our plant performance has enhanced day-to-day re-management activities which are driving about half of our 90 basis-point improvement in the quarter.

From a facility consolidation perspective, we are benefiting from a leaner operations management and overhead structure in advance of project completion in the upcoming quarter. Moving to operating expenses, selling, general and administrative costs totaled $34.8 million, consistent with prior year’s spending of $35 million.

At the outset of the fiscal year, we made investments in our U.S. sales force including the creation of a FM specific sales force, adding EVLT national sales leader, and compensation plan changes to improve retention. These investments increased expense by approximately $750,000 per quarter.

In the current quarter, this investment was offset by a $500,000 benefit in our o-U.S. expenses from currency fluctuation and in additional disciplined spend management efforts. Medical device tax of $1 million in the quarter was down $100,000 from the prior year.

Since its inception in 2013, we have paid $11.6 million of medical device tax including nearly $2 million year-to-date. The suspension of this tax is effective one month into our Q3 and as Joe discussed, gives us the opportunity to further invest in our growth drivers and long-term business.

As outlined in the supplementary tables through our release, total acquisition restructuring and other expenses was $3.9 million which include $1.5 million of M&A related legal and consulting costs, $1.4 million of litigation related expenses, $700,000 of operational excellence and $300,000 of other items.

Amortization expense was $4.5 million in the quarter. Adjusted earnings per share was $0.14 versus $0.17 in the prior year quarter. We lost a $0.01 to FX and the remaining decrease was caused by the lower revenues. EBITDA was $8.4 million versus $11.9 million in the prior year’s second quarter.

Adjusted EBITDA was $13.4 million versus $15.9 million in the prior year with the decrease driven largely by the same factors as our adjusted earnings performance. We are pleased with our free cash flow generation of $9.2 million in the quarter. This performance compared to prior year free cash used of $4.6 million.

Beginning to consume our elevated inventory stock was a key driver. In addition, our receivable collection efforts which have also benefited significantly from our ERP integration have yielded DSO improvement of approximately five days year-to-date.

At the end of the quarter, total cash and investments was $20.6 million and total debt outstanding was a $133.9 million. Turning to guidance, we are revising our net sales range for the 2016 fiscal year to $353 million to $359 million.

This range equates to 1% to 3% growth excluding the headwinds from currency and the Morpheus product discontinuance which taken together are a 2% impact on the year. At the midpoint, second half revenue growth would be approximately 5% excluding the currency and Morpheus impacts which are approximately a 1% impact on our second half.

As Joe discussed, we expected to begin regaining momentum in our VA business during the second quarter and it’s going to take longer than we anticipated. Additionally, despite the continued positive clinical outcomes of NanoKnife, until we have reimbursement, we feel it’s prudent to reduce the level of capital sales included in our guidance.

These two factors represent $7 million to $8 million and approximately $2 million respectively of the reduction in our guidance at the midpoint. We expect sales for the fiscal third quarter to be in the range of $84 million to $87 million, up 3% at the top end adjusted for the 1% partial quarter impact of currency and Morpheus.

The implied Q4 sales include approximately $3.5 million of registration dependent oncology sales in the A-Pac market. A significant portion of these sales are related to the NanoKnife disposable approval in China where we have already received approval of our generator, earlier this fiscal year.

From an earnings perspective, we expect adjusted EPS of $0.59 to $0.63 for the full fiscal year, which represents at the midpoint a 5% increase from the prior year. At the midpoint, second half adjusted EPS growth would be approximately 38% over prior year which illustrates the strong operational progress we are making.

For the fiscal third quarter, adjusted EPS is expected to range from $0.10 to $0.14, this includes a partial quarter of annualizing the headwinds from prior year currency fluctuations and Morpheus sales. Our earnings growth at rates much faster than our sales growth rates can be attributed to the scalability of our cost structure.

As our volume increases, we’re able to better leverage our manufacturing overhead, increase the benefit from our operational excellence efforts and manage growth and operating expenses to be slower than topline growth. Additionally, when the revenue growth is generated by our higher margin innovative products, we realize a mixed benefit.

We expect these factors combined with moving past our foreign exchange headwind to create 100 to 200 basis points of year-over-year gross margin improvement in our fourth quarter. Finally, we anticipate free cash of approximately $30 million for the year.

Year-to-date, we’ve generated $13.1 million in free cash and our outlook for the full year is the result of our expected profitability, working capital effort and the minimal maintenance CapEx requirements of this business.

This would more than double free cash generation in the prior year or for that matter any of the last three fiscal years, demonstrating the potential of the business following our recent period of integration investment. With that I’ll turn the call back to Joe for his final comments..

Thank you, Michael. We came in to fiscal year 2016 meeting to annualize currency and Morpheus headwinds. In the first half, we saw a broader challenge in our VA business which we now expect will continue into the second half of the year.

That said our second half guidance continues to represent top and bottom line growth, and significant free cash generation. We’re making great strides operationally, and we expect the device tax relief to identify additional areas to invest.

We remain bullish our advanced technology will deliver growth and we continue to push growth initiatives around market development, enhance reimbursement and regulatory clearances. With that operator, I’d like to open the call to questions..

[Operator Instructions] We’ll take our first question from Tom Gunderson with Piper Jaffray..

Hi, good afternoon everybody.

So, just a quick clarification; the new guidance on earnings side includes the benefit of not having to pay medical device tax January through May, correct?.

Yes Tom, but it’s not -- we’re not having a 100% of that drop to the bottom line; there are things that we’re funding on the interim. This just happened a couple of weeks ago. We don’t have that many shovel ready projects to just start but we did have something that we did start and that will be funded out of those dollars.

So, it’s an impact but it’s not a full impact..

And then you clarified one of the questions I had going into the call but I was hoping to get a little bit more clarification on the lower guidance on the revenue side, Joe, from what you said on VA and longer than anticipated to get back on track, get back to where you wanted to be some -- I think you used the word maybe tougher environment.

Can you give -- is it competition, is it the market, what’s -- is it the lower pricing on the contracts, what changed in the last three months that it’s tougher for VA to get back now?.

I would say that the biggest challenge has been the magnitude of the sales effort in trying to save the Morpheus business and how much of the momentum in the other products came out, because what we’re taking when we look at our dialysis view and our port view for the second half of the year, it comes down considerably because we’ve lost our momentum there.

And we didn’t expect that to happen. If I go back to the fourth quarter of last year I wish I just drew a line through the Morpheus line and took it out of everyone’s numbers and don’t try to save the business, let’s go sell what we got. I think we probably would have done better.

But you know when you have customers you’ve been with a very long time and you feel like you’re letting them down, you want to serve them and you want to be in there with them and sometimes it’s not all -- whatever is the best commercially. We tried our best to serve their needs.

And in doing so that of course we have a great opportunity for our competitors now to go in because while they were using one of our products they chose that product, they didn’t choose the other product that we were using.

And so once you take that away from them they see it’s a jump off for everybody to take that business and our competitors are bigger and have more, larger sales forces. It’s kind of like a compounding effect. You spend so much time trying to save that, you really kind of leave your flank open.

And we had expected that we would be over it by the first quarter, if you recall. And it occurred in the first quarter and it’s continued in the second.

And it’s continued in the second to a magnitude that it’s just imprudent for us to keep the bullish outlook that we had given -- we were stunned in the first quarter but we just couldn’t give up on year at that point given all of the items that were in the pipeline but what we saw in the first quarter continued into the second.

And we have chosen to be very prudent now to not keep any optimism there. We want to be able to reset our expectations on the VA business, given what we have learned in the first six months and then we want to beat it and then we want to get back in and rebuild that momentum. This time last year, Tom, this business grew 7% year-over-year.

And before Morpheus recall, we had a bounce in our step, we had a pipeline of new business, we had new contracts, and a lot of things going. So the reality is what the reality is. I am very proud of the team, because you know what, our VA team stuck with the business and is sticking with the business.

They believe in the technologies and we’re fighting for new accounts. But I can’t give the type of rosy picture that we started the year off of. Maybe I regret we didn’t take guidance down in the first quarter but we also didn’t have an update and we saw what happened in the first quarter but the second quarter continued.

And when you see your port and dialysis business get kind of pulled into that because of the distraction for the sales force, we have taken the view on VA down pretty hard and as Mike had said, and that $7 million, $8 million of the whole thing.

And that’s in the face of the fact that our PV business is actually now regaining momentum, and there is a lot of positives that are occurring there. And I think we will all be pleasantly surprised in the second half of the year with that business..

Got it. Thanks Joe. And then, just one quick. Is there any update on EmboMedics? I think they were going to try and file this month..

Yes, I know. That’s probably a good three quarters of a year behind. We have -- they have gone through. And now that we are with them, we are helping them develop their processes and working very closely with them. We remain very encouraged by the technology.

But to get to filing for the FDA, the way we would like to see it, it’s probably going to be in the fall of next calendar year..

We will now move on to our next question from Jason Mills with Canaccord Genuity..

Hi, good afternoon. This is actually Jeff filling in for Jason.

Can you hear me okay?.

We hear you great. Thank you..

Great, thanks. Joe, I just wanted to follow, piggyback on Tom’s question about guidance.

Joe, just wanted to ask if you could give us a little more comfort that the forecast that your revised guidance is indeed conservative, given all the challenges that you listed in the VA business?.

Well, I think we have taken a pretty hard look at the business.

And with a one quarter view, I think we have -- the past quarter while we came in -- where we had set we -- I guess at the beginning of the year, we set some pretty big objectives for ourselves and I guess we weren’t willing out to the first quarter to accept that and wanted to see a little bit more.

But now that we have had the view for the first and second half, actually -- or first and second quarter, second quarter is doing better than the first and we are seeing the beat rate of the business improve. But when you will annualize it and you compare it to year-over-year, you see the numbers.

But from an absolute ADS basis, second quarter was better than the first quarter. And we feel pretty confident that the third quarter is probably conservative. And if there is any risk in the forecast, it’s around we are expecting some clearances over in Asia on some technology that we feel is very highly probable.

But if there is something that goes wrong near then that’s where there would be risk in a forecast. But especially with Mike taking in the interim role and us really taking a hard look, we have challenged ourselves to make sure that we have a set of revised numbers that we feel comfortable with.

And I think in the third quarter, it’s probably a bit on the conservative side. And if we get those clearances that we expect I think that fourth quarter would be there..

And just to continue there, you’ve often spoke about the GPO contract as being a license to hunt and not necessarily guarantee any success there. So how do you turn the tide on BioFlo? It looks like 41% of your overall business seemed flat with last quarter.

So, how do you grow it from here?.

We just keep doing what we are doing and everything is affected by the change in momentum. And again, when you’re playing so much defense, it’s hard to reestablish. And it took us, if you recall, three or four quarters to establish the momentum we had this time last year and we will do it again.

I think one of the other key drivers is going to be the navigation clearance in March. Our Celerity is a good product. The competitive products are also very good. And while the Celerity is helping us in a lot of accounts, we do need the navigation technology to really start taking some increased share.

But I think that BioFlo is still very strong and the data is there and I think customers get it. It is harder environment to ask for a premium product when you are asking someone to take the price up and that is a struggle, especially in an environment where your competitors are willing to do virtually anything on price.

And so that is probably the biggest headwind.

It’s just making sure that you get ahead of it and you are talking to people in the hospital who are in charge of all the costs in the hospital not just the procurement cost because some are with us who have just our procurement responsibility especially on the GPO side, they’re agnostic, they just want the best price.

The truth is we are taking significant amount of cost out of the healthcare system by improving patient outcomes. And those who are compensated and care about that see it. So we’re going to get our momentum back but it’s not going to happen as quick as we had hoped, the realities on the ground are what they are.

Customers want to see lower prices and GPOs want to see lower prices. So, you’re right, it is the license for hunt; it’s also a license to be hunted. But we’re in the game. And while we’re getting over the tough spot, our portfolio has never been stronger.

We launched our BioFlo Midline in August and it’s a very small part of the number at the moment but it’s doing better than we thought it would and there is a possibility that it can be really additive in the future. So I think the key for us is just to stay the course; our team is staying the course.

We believe in the technology, get our navigation system out and then hopefully within a little more than a year, we’ll file for FIREFLY and get that out and I think we will leapfrog our competition on the tip location side..

Thank you. We’ll now move to Matt Mishan with Keybanc..

My first question is related to the confidence around the cadence of your guidance. I think as I am looking at it, if I take the midpoints and hopefully I am doing the math right, it looks as if the midpoints revenue is going to be down 1% next quarter and then up 7.5% in the fourth quarter.

So, the question is what gives you confidence in that fourth quarter 7.5% number?.

Matt, the thing that really pushes that number is we’ve been working for the last three years on two major Asian oncology clearances which represent probably upwards of $3 million; it could be more than that if it goes well.

So that’s what the anomaly would be and why -- and then second of all, we typically have stronger fourth quarters anyways that being the end of -- obviously the end of our fiscal year. And we’ve preserved our sales team through the year; we have a lot of -- we still think we have a lot of things going for us.

But obviously we’ve trimmed that perspective quite candidly. If those oncology clinics don’t come through, you take the $3 million off and it kind of moderate the view a bit as well. But we have it in there because we believe it’s going to happen.

And we’re obviously taking guidance down hard but that’s something that we’re confident in and very hopeful of. But if you wanted to take it one another level of conservative, then that’s the anomaly you have to look at..

And then on NanoKnife, I think you had said last quarter that you expected at least NICE to change its status from investigational in January. It seems as if with NICE and with CMS there seems to be a little bit of a delay as far as reimbursement goes.

Can you give us a little bit of color on why the delays and some of the conversations you’re having with these organizations?.

I appreciate the question and yes, that’s something at the beginning of the year we were banking on getting both of those positive decisions, and both of those positive decisions helping us to accelerate our second half of the year especially on capital.

Again just to reiterate, we’re seeing very nice growth in procedures and it’s evidence of the market acceptance of the technology. We have over 180 peer reviewed publications in and that’s 180; it’s insane how much the medical community has studied and has seen this technology.

And that’s why these warning letters were just such a barrier and it really affected and created a perspective of technology that was incredibly unhelpful. The conversations have been fruitful. They’ve been very positive.

Actually they were so positive that it led us to believe we might hit -- because as you’re very well aware on an annually basis, CMS will make decisions in the November -- October-November timeframe for the next calendar year and we convinced ourselves that we would catch this cycle.

And also the same with NICE and in our conversations, they were very positive and quite frankly they’re still positive. But in our last conversation, there were additional requirements for data that surprises to be quite honest with you and it’s going to take a little more time.

And that disappointed us because that’s the decision that private payors really look to that very credible third party organization for their guidance. And when you have an experiment on monochrome, no matter how loud the thought leader at a local level screams and the hospital CFO wants to move forward, the barrier on capital is pretty high.

We’ve actually -- one of the things that’s driving our consumable growth is we are actually starting to come up with ways with Nano to do temporary replacements of capital.

And so we are getting into new accounts and new accounts are getting there but the ability to get them the flip to switch to make a $300,000 commitment, especially with that part of it is hard. And we think on the adoption curve, we’ve gotten all the early adopters.

We’re at the next phase right now and we have to get a different level of overall healthcare system validation. So yes, we believed that we would have it at this cycle, we didn’t get it.

We’ve moderated our guidance for it on capital, we think the disposable of those who do have it will continue and we will also be a little bit more flexible on it’s time for those thought leaders who wish [ph] to our programs to find ways to get in there.

But we have been really kind of tied to this drug called NanoKnife capital because you have one $300,000 NanoKnife [ph] and it just makes the business look like it’s oh my gosh, up and down or it looks like hey, you got another nano in the quarter and you are growing 50%. It’s just -- it’s a big, big number that sits on top of consumables.

And when you -- if you own a business, you look at a business, you want to see consumables growing, are people doing procedures, are the outcomes good, are you increasing your overall perspective and quality in the medical community, and it’s yes to all the above.

But for us to continue at a level of capital equipment sales, we need to not have a thought leader have to put their jump up and down relations on the line. We need to see a thought and look and say hey, this is great, covered privately; we have a specific code for it with CMS check the box.

and if we had that it would be easy, we don’t and it will probably be in the next cycle in the U.S. unless they make interim decision which is a typical. And the conversations are -- if you are in the room and you are hearing the conversations, your enthusiasm will be high and we allow that to form our view.

But given where we are right now, even if for some reason, they make interim decision, we don’t want any of that in our numbers going for the balance of the year. We kind of feel bad that we had that in there. And I think the view as it is right now is accurate..

Okay, great. And last question for me on the free cash flow. Congratulations on nice free cash flow number. First, what is normalized CapEx for Angio looks like going forward? And then second, I think I heard you right and what it said there was about 1.5 million in M&A consulting activity.

Are you starting to look more at acquisitions now that the free cash flow is starting to work? [Ph].

I think as a company, we always take the opportunity to look at M&A from all different fronts and in the quarter used some advisory work to help us evaluate some strategic opportunities. And that’s what that expense item is. And from Mike’s perspective, I will let him go into CapEx..

So from a maintenance CapEx perspective, I think you can look at our business as requiring between $6 million to $8 million, some be a little less, some be a little more, but $6 million to $8 million is a fair representation.

This year coming off the last couple of years with pretty high CapEx I think will come in a little under that which is helping along our free cash flow outlook for the year..

Thank you. We will now move on to our next question from Jayson Bedford with Raymond James..

Joe, just to follow on the last comment on NanoKnife, I think I understand the reimbursement dynamic as it relates the new capital placements.

But do you think this reimbursement issue is impacting procedure growth, meaning you are growing disposables pretty well?.

A lot of the NanoKnife procedure is used in conjunction with other procedures. Surgical oncologists will use it as an additional tool in conjunction with other things they do. And so hospitals, given the benefit that those thought leaders believe they get, they kind of qualify under a general surgery type reimbursement.

And quite frankly everyone has their own method of reimbursement. We find when a NanoKnife gets in the hospital, it is. But when they are looking at the CapEx budget and they’re going separate with $300,000 and they go through all the formal checks, the formals checks are not favorable.

We don’t have an ICD-10 code; we don’t have specific reimbursement VRG; [ph] we don’t have a private pay.

So for radiologists who would want to do a procedure as a sole therapy meaning the patients coming in to have a NanoKnife, that right now is very few and far between, we have a few call the personalities who are really multispecialty and do it to tremendous success by the way and specifically University of Miami.

But we are not going to see a significant radiology penetration until we have a specific code, allowing them to come in and do it as the primary therapy.

Does that makes sense, Jayson?.

It does.

So the thought is once you get the ICD-10 code that just relaxes some of these capital equipment constraints that hospitals have?.

True. And if we also -- if we get a nice recommendation, we think a lot of private payors would follow that recommendation as they have done in the past with other technologies we have had before and would allow for a procedural cover -- covers on the private pay side.

Because especially if someone is going to use it for some of the applications that are being used today, this is a Medicaid population but also there is -- if they use it for the terrible disease, it has no -- it will affect people of all ages. So, I think that’s how I view it.

The procedures will increase more with the private pay coverage; capital will increase more obviously with the private pay coverage but also with ICD-10 code..

On the PV side, growth picked up there, couple of questions. What was revenue growth in laser or EVLT? I missed that.

And then also it was unclear, it sounded like you expected that business to soften a bit in the second half and I was unclear as to why?.

I don’t expect it to soften from where we are today but I don’t expect it to do what we thought it would do originally, and it is a part of the guidance takedown. We had hoped to see more of a normalization in reimbursement between RF and lasers, and we had forecast a little bit more growth originally at the beginning of the year.

So, we took some of that. But it’s not going to soften from where we are, I don’t believe. Actually the comps are pretty favorable; we had a horrible first part of the calendar last year.

And some of that was as we had talked about the elective procedures and what some of our customers were telling us, but also frankly some of that was we were going through some sales force attrition at the end of last year and there was definitely some internal challenges that as we did more and more analysis and root cause where this was, it was self inflicted.

We are blessed right now Jayson actually to have virtually a full sales force in place, great compensation; they’re all tracking very well with our plan.

And by actually now really sequestering fluid management to a separate organization, we’ve now alleviated a lot of work that that business has and the balance of the sellers are now laser focused on EVLT and AngioVac. So from an overall market standpoint, if we receive the RF parity with laser in this cycle, it would have been an extra boon.

But since we did -- as there is a little bit in our guidance that moderates that but it’s not off of these levels, it’s off of what the original guidance expectations were..

And then just lastly from me if I can squeeze it in, thrombus management, how big is that business?.

You mean Uni-Fuse….

You referred the 17% growth and I am guessing that’s both in Uni-Fuse and AngioVac. So, I’m just wondering how big is that..

Between 80-20 something like that; I have to see what the exact number is. Uni-Fuse is a product Jayson that we have 20 years.

And it’s one of these products that we forgot about and it’s been used to -- if someone’s got a clot burden, then they’ll go into the ICU, have the catheter to this clot and will stick there overnight with this pulsing through the clot trying to dilute it.

We find that doing in all AngioVac call points and AngioVac is not for every single thrombus case with a specific case that we go for. But now every single call that we make we’re pulling out Uni-Fuse like we’ve never done before and we’re pretty surprised actually that we’ve seen the type of benefit just a little bit of focus has created.

So between really retraining everyone on Uni-Fuse and getting them pull it out. And then also the sales force put a lot of work into transferring their customers, their relationships, the competitive dynamics from managing in their territory to special -- to another seller, it was just a lot of work.

But I guess I get criticized for being too positive, so I won’t be too positive but I like where we are. I think the leadership in our PV business is strong and I think the strategy they put in place at the outset of the year is starting to pay dividend..

[Operator Instructions] We’ll now move on to Charles Haff with Craig-Hallum..

Just a follow-up on the previous question; what was the EVLT growth this quarter?.

1%..

And what was AngioVac revenue in the quarter?.

I don’t think we gave a revenue number, but it was a 6% growth over prior year..

And Joe, you have the version two product….

It’s about $3 million..

And then you have the version two product out there; the physician feedback that we have heard is very positive.

Why do you think you only had 6% growth in the AngioVac this quarter, given the fact that you had a new product that seems to be very well received right now?.

I think after the launch of the product in this trajectory for the first year and half, two years, it’s become a sales issue, Charles. It is a product that requires a lot of handholding and account development; after you get passed out first grade case, there is still a lot of work to do. And these reps have day jobs.

They’re out there some on EVLT and lasers, and then they’re going to -- 40% of their revenue is a fluid management business. And when you root cause and look at the amount of activity that they had, we said to ourselves we need to create greater focus and energy to accelerate this growth.

And you would think that you would take that investment and put it on AngioVac, but actually the investment we made was on fluid because it alleviated the entire organization. I’ve seen early signs that that’s working. I think you’ll be pleasantly surprised with AngioVac in the second half of the year.

It’s a sales issue, it’s not a product issue, it’s a sales issue or a sales and marketing execution. We have to now get the resources because we have so many different things out that we are selling in that bag. Fluid was just taking too much away from the organization.

And interestingly we have put one of our best people in the Company to run our fluid management specialty organization. And here we are just hoping he can maintain and manage it. And as I mentioned in the call script, the amount of evaluation accounts we have right now is up 100% from last year.

And the amount of kits that we are putting to evaluate is great and that’s with only a small team of people. So I think again our PV leadership and our team under John Soto and Chris Crisman’s leadership have made some good decisions. And I think we’ll be pleasantly surprised.

The real difficulty in the story Charles is that recall and the momentum really hurt us on VA. We had much bigger expectations for growth in the second half. We should have taken it down in the first quarter given how off we were but we thought it would turn quicker and it just didn’t.

And we don’t want to do that again and we have taken it down to this level..

And then specifically back to AngioVac, you think it’s going to return to double digit. Obviously when you have emerging product, it’s sometimes hard to predict where the growth levels will be.

But when you say double digit, are you thinking more like 10% or 20% or how should we quantify double digit in the back half growth for AngioVac do you think?.

I would say, it’s kind of a slippery slope. I mean I guess I would say that we didn’t buy AngioVac for 10% growth but in order to get to the growth rates that the marketplace and the product we think are capable of, we have to get our sales model right.

And we kind of hit at wall during the last year even with AngioVac 2 coming out; AngioVac 2 did a wonder for us from a clinical perspective and from a case coverage and from a clinical success and ease of use.

The product has performed as build but it’s also we have had growing pains with the amount of products in a portfolio and that’s where we made our investment to address it.

And now at December 1st, we had 60 sales people; we told them stop selling fluid, you are not going to get paid on it, don’t even don’t think about it because we have successfully transitioned to another organization. And that’s pretty profound when you have 40% of your territory all of a sudden not have to focus on it.

And there’s going to be a lot of energy and bandwidth displayed not only on AngioVac but also for the thrombus category we talked about and also on EVLT.

So, I am very curious to see -- you know Charles that I believe in our business and I get kind of bullish, I kind of have to pull myself back a little bit, because I am meeting some growth [ph] today on the second of the year but the opportunity for AngioVac is very strong.

And I am hoping that the additional bandwidth it is going to receive in the second half of this year will pay dividends. But we didn’t get to this and our forecast and our belief for this is not a 10% business. But I don’t want to give you guidance and an expectation until I can deliver, unless what those results kind of form our view in the future..

And then on NanoKnife did you have any placements this quarter in capital equipment?.

You know Charles we placed one in the U.S. and we did….

Okay..

Six o-U.S. Our forecast -- we thought in the second quarter, we were going to place four and till mid of the quarter we are like those are in the bad. It’s just unbelievably frustrating till all of a sudden 1 million, 800,000, 900,000 of 75% gross margin, not get into the number and that’s kind of where we sit.

You know what, until this goes, I am done. We are just going to take the capital out; we are going treat it as upside. We are going to focus on the root cause for that and not let our sales get ahead of ourselves.

First up for years, we weren’t getting ahead of ourselves, beginning of this year we allowed ourselves to get ahead of ourselves and I regret it and we are making the correction now Charles..

Now last question for Mike here. So Mike, on maintenance CapEx, you mentioned it was kind of $6 million to $8 million; you are doing a little bit better than that for fiscal 2016.

What should we be thinking about for CapEx for fiscal 2016?.

Yes. So, I would say if you say $4 million to $6 million. That’s probably a reasonable guess. I wouldn’t want you to be too aggressive in our free cash flow. But I think the $4 million to $6 million range is probably where baked in..

Okay, great. Thanks for your time..

Thank you. With no further questions in the queue, I would like to turn it back over to management for any additional or closing remarks..

All right, everyone thank you so much for being with us on Thursday evening, it’s been a long call, and we appreciate the questions. We know where we are. We have a lot to be bullish on but also we need to -- given we need to deal with some of the realities but we are managing the business.

And we are managing our cost, we are managing our cash, we are managing our operational excellence. And we continue in my view, especially with the warning letters being lifted, have a stronger story for the future than we have ever had. But we have to also keep our expectations in line. And I appreciate your time and attention.

I hope to see many of you at JP Morgan in the near future. So thanks..

That does conclude today’s conference. Thank you all for your participation. And you may now disconnect..