Good morning, and welcome to the AngioDynamics' Fiscal Year 2022 Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference call is being recorded.

The news release detailing the fiscal 2022 third quarter results crossed the wire earlier this morning and is available on the Company's website. This conference call is also being broadcast live over the Internet at the Investors section of the Company's website at www.angiodynamics.com.

And the webcast replay of this call will be available at the same site approximately one hour after the end of today's call.

Before we begin, I'd like to caution listeners that during the course of this conference call, the Company will make projections or forward-looking statements regarding future events, including statements about expected revenue, adjusted earnings and gross margins for the fiscal year 2022, as well as trends that may continue.

Management encourages you to review the Company's past and future filings with the SEC, including, without limitation, the Company's Forms 10-Q and 10-K, which identify specific factors that may cause actual results to differ materially from those described in the forward-looking statements.

The Company will also discuss certain non-GAAP financial measures during this call. Management uses these measures to establish operational goals and review operational performance and believes that these measures may assist investors in analyzing the underlying trends in the Company's business over time.

Investors should consider these non-GAAP measures in addition to, not as a substitute for or as superior to, financial reporting measures prepared in accordance with GAAP. A slide package offering insight into the Company's financial results is also available on the Investors section of the Company's website under Events and Presentations.

This presentation should be read in conjunction with the press release discussing the Company's operational results and financial performances during this morning's conference call. I'd now like to turn the call over to Jim Clemmer, AngioDynamics' President and Chief Executive Officer. Mr.

Clemmer?.

Thank you, Melissa, and good morning, everyone. And thank you for joining us for AngioDynamics' fiscal '22 third quarter earnings call.

Joining me on today's call is Steve Trowbridge, AngioDynamics' Executive Vice President and Chief Financial Officer and Chief Financial Officer, who will provide a detailed analysis of our third quarter financial performance and our reaffirmed FY '22 guidance.

Our third quarter saw continued excellent progress in our transformation into a high-growth, innovation driven med tech company.

We are reporting another quarter of solid revenue growth despite significant headwinds related to the COVID-19 global pandemic and the Omicron variant spikes which were particularly pronounced in December and January during our quarter ended February 28.

We credit our team's resiliency and focus on driving our transformation to our higher growth med tech platforms, including Auryon, NanoKnife and thrombectomy. We ended the quarter with revenue of $74 million, representing growth of about 4% year-over-year.

Net sales from our Med Tech platforms were $19.6 million, representing growth of about 29% over the previous year. Through Q3, our Med Tech business grew about 42% year-over-year and year-to-date comprised approximately 24% of our overall revenue base, up from 18% in the prior year period.

During our Q3, our Med Tech revenue was 27% of our total revenue. And as we've highlighted as part of our corporate strategy, we expect that ratio will grow over time. Our Auryon Atherectomy business continued its impressive performance, with revenue of $7.3 million for the quarter, up sequentially from $6.3 million in our second quarter.

Auryon performed well, particularly in light of the tough environment in January, when hospitals and OBLs were significantly impacted by COVID spikes, both in terms of patient admittance and healthcare worker shortages, due to nurses and providers falling ill.

Auryon procedures remained fairly evenly divided between above and below the knee, demonstrating the versatility of both our technology and platform, the unique breadth of our addressable market and opportunities for continued growth. We continue to expect Auryon to generate robust revenue growth during the fourth quarter.

And as a result of the strong performance, we are raising our Auryon guidance to a range of $26.5 million to $27.5 million for the year, from our prior range of $24 million to $26 million.

Our mechanical thrombectomy business grew 14% year-over-year, despite the fact that it was one of our businesses that was most impacted by Omicron during the quarter. As other participants of the market have noted DVT thrombectomy procedure volumes were significantly impacted during the December and January period.

But we have seen an improving environment, beginning with the back half of February, which has continued through March. We are pleased with the resiliency of this business, along with the feedback we have received from physicians regarding AlphaVac. We will provide more detail on AlphaVac a bit later in the call. Turning to NanoKnife.

Disposable sales grew 11% during the quarter. Year-to-date, NanoKnife disposables have grown 17% year-over-year. Growth during the third quarter was driven by strength in the United States, with U.S. disposable sales growing 56% over the prior year.

International markets, most notably in China and Europe, were impacted by the continuing global COVID headwinds. We remain very excited about the opportunities for NanoKnife, particularly in prostate. Our Med Device business, which includes the remainder of our portfolio, declined approximately 3% year-over-year in the quarter.

Our Med Device third quarter performance continued to be impacted by our larger than typical backlog. During our second fiscal quarter call, we discussed the tight labor market and the impact on our manufacturing capacity.

As we anticipated, the backlog at the end of Q2 did rise through our third quarter and we continued implementing our response plans, including increasing manufacturing capacity through our Costa Rican partnership, and increasing wage rates and retention bonuses at our facilities.

I'm pleased to tell you that as we exited Q3, our production hours were up by 20% relative to the December, January timeframe and we're making great headway on that side of the equation. As was the case last quarter, the demand environment for our Med Device products remained strong while our response plans are taking hold.

At the end of March, the backlog was approximately $11 million. Clearly, increased demand also impacts the rate at which we are able to work down our backlog. Year-to-date, our Med Device business declined 1%.

When adjusting for the one-time $5 million order from NHS during the prior period -- prior year period, our Med Device business grew 2% year-to-date. As we stated during our Investor and Technology Day last summer, we expect our Med Device business to grow 1% to 3% over our three-year strategic plan period.

We are very pleased with this performance, particularly in light of a challenging supply chain environment. As was the case last quarter, while the demand environment remains strong, macro-related factors weighed on margins, which Steve will discuss in more detail.

Over the last few quarters, we have noted several macro-related headwinds, including interruptions to the supply chain due to COVID, a tight labor market and inflationary pressures on wages, raw materials and freight. We saw COVID and particularly the Omicron variant contribute to delays of elective procedures during the third quarter.

However, we continue to manage through it well and saw a meaningful improvement beginning in late February. And we are pleased that our procedural volumes continued to increase in March.

As has been the case throughout the past two years, we are working through these challenges while simultaneously making the necessary investments in our Med Tech businesses to drive growth and facilitate our strategic transformation. Turning to earnings. We generated an adjusted EPS of $0.03 in the quarter.

This result was positively impacted by a benefit from the employee retention credit under the CARES Act, which resulted in a fractional reimbursement of expenses that we actually incurred during the first two calendar quarters of 2021.

This reimbursement related to maintaining employment for sales, R&D and support functions, materially impacted by restrictive state and federal COVID rules and regulations.

We made the decision to maintain our employment and investment levels before we knew this benefit was available to us, and we are appreciative of the assistance in maintaining our hard working, talented workforce and our investment imperatives. The CARES Act had an approximately $0.08 positive impact on adjusted EPS in the quarter.

While we didn't contemplate this relief in our original earnings guidance, it has allowed us to maintain and even accelerate certain investments across a number of areas in our business.

As a result, we do not expect this to be additive to our full-year adjusted EPS guidance, and we continue to expect full-year adjusted earnings per share to be in the range of a loss of $0.02 to a gain of $0.02. Turning to internal R&D during the quarter.

We continue to invest in our key strategic priorities, which are, first, to support our existing platforms to facilitate physician adoption and improve patient outcomes; and second, to continue the development of new products in order to expand into larger, faster-growing addressable markets.

These investment initiatives include clinical research, product development and selling and marketing, as we prepare to introduce these new products into the market. One great example is how we recently have received FDA clearance of our AlphaVac F18 mechanical thrombectomy system for use in the venous vasculature.

The F18 is a unique design that was purpose-built to allow physicians to treat VTE without lytics, with the control and the power they seek when utilizing mechanical thrombectomy as a first-line treatment tool for patients. The F18 device is also the subject device for our PE IDE.

We currently plan to initiate a limited market release later this quarter, with a full-market release anticipated in the first fiscal quarter of 2023.

We are excited about our progress in the mechanical thrombectomy market, and we look forward to continuing to open up a larger, faster-growing segments of this market through new product clearances and subsequent launches.

Regarding our clinical programs, we remain in investment mode to drive our Med Tech platforms, and we are excited by our continued progress with respect to our clinical initiatives associated with our thrombectomy and NanoKnife platforms.

We are pleased to announce that the FDA has approved our IDE study for the use of our AlphaVac F18 system to treat acute pulmonary embolism. The study is named APEX-AV. And we expect to start enrollment in the second half of this calendar year.

We are proud to announce a partnership with the pulmonary embolism response team, PERT Consortium, in this important study. APEX is a single-arm, multicenter investigational study of 122 subjects. We expect to initiate approximately 20 sites.

The primary efficacy endpoint is the reduction in RV/LV ratio between baseline and 48 hours post procedure as assessed by CT angiography. Subjects will be followed for 30-days post procedure. We are also excited to announce that we have enrolled our first patients in our PRESERVE study for NanoKnife, treatment of prostate cancer.

We have more than 20 sites in the initiation process for PRESERVE, and we are excited about our progress. NanoKnife's unique mechanism of action enables it to be used as a focal option for physicians and patients seeking alternatives to radical prostatectomy.

We think the NanoKnife system can grow the focal treatment market due to its ease of use and unique mechanism of action, and can potentially serve as a more favorable treatment option for patients and physicians alike. This could open up a potential addressable market for NanoKnife, which we believe is more than $600 million in the U.S. alone.

We currently have 22 active sites in our DIRECT study, and we remain excited by the awareness generated by this study. We also note that the U.S. DIRECT study has pawned interest in initiating similar research in other countries. For example, the multicenter DIRECT-INSPIRE study in Australia recently enrolled its first patient.

Finally, I would like to congratulate our international team for the very successful International Life Symposium held March 10 through March 12 in Barcelona, Spain.

This international symposium brought together leading experts in the surgery, oncology, urology and vascular fields to discuss the latest clinical learning and explore new and exciting directions for future patient care.

Physician and partner feedback has been exceedingly positive, and this is a testament to the investments that we've made in building out our talented international team. With that, I'd like to turn the call over to Steve Trowbridge, our Executive Vice President and Chief Financial Officer, to review the quarter in more detail..

Thanks, Jim. Good morning, everyone. Before I begin, I'd like to direct everyone to the presentation on our Investor Relations website summarizing the key items from our quarterly results.

Our revenue for the third quarter of FY '22 increased 3.9% year-over-year to $74 million, driven by continued strength in our Med Tech business, including Auryon, NanoKnife and thrombectomy.

Med Tech revenue was $19.6 million, a 28.6% year-over-year increase, while Med Device revenue was $54.4 million, declining approximately 2.8% compared to the third quarter of FY '21. For the first nine months of the year, Med Tech grew 41.8%.

Med Device was down 0.8% compared to the prior year period and grew roughly 2% year-over-year when excluding last year's NHS order. For our third fiscal quarter, our Med Tech platform comprised 27% of our total revenue. Year-to-date, our Med Tech platform comprised 24% of our total revenue compared to 18% at this time last year.

Overall, demand during the quarter was impacted by both macro level and company-specific dynamics. Macro level demand was clearly challenged in December and January, but did improve during the second half of February as Omicron cases declined and hospital access improved.

Staffing remains a headwind and likely will remain so through the rest of this calendar year. Customer demand for AngioDynamics products has been resilient as evidenced by our results for the quarter and the status of the backlog that Jim mentioned.

Revenue in our Endovascular Therapies business increased 14.5% year-over-year to $38.1 million, benefiting from the continued adoption of Auryon and our thrombectomy portfolio. Auryon contributed $7.3 million in revenue during the third quarter, continuing the momentum we've been building since last year's launch.

As of today, our installed base is 285 lasers, with 43 lasers placed during the third quarter. As planned, we continued to build out our commercial infrastructure during the third quarter in order to drive ongoing consistent growth.

As Jim stated earlier, we now expect Auryon to generate revenue in the range of $26.5 million to $27.5 million for the year. Mechanical thrombectomy revenue, which includes AngioVac and AlphaVac sales, grew 14% over the third quarter of FY '21. When including Uni-Fuse, thrombectomy revenue grew 7% year-over-year.

As Jim noted, DVT thrombectomy procedures were negatively impacted during the quarter, particularly in December and January. We did see improvement beginning in the second half of February, which continued through March. For our fiscal year-to-date, mechanical thrombectomy grew 18% and when including Uni-Fuse, grew 12%.

Given the acute demand disruption due to lower procedure volumes, particularly during that December and January timeframe, we now expect mechanical thrombectomy to grow approximately 20% for the full year as opposed to the 30% growth we expected before the Omicron disruption.

We remain confident that it will be a significant contributor to our overall growth, and we plan to continue to invest in the platform as a key driver of our transformation as evidenced by the recent clearance of our AlphaVac F18 system and the approval of our PE IDE.

The launch of our AlphaVac F18 system provides an initial entry into expanded portions of the DVT market. And the IDE for PE, as we've indicated in the past, gives us the opportunity to more than double our overall available peripheral market. Vascular Access revenue decreased 5.6% during the prior year period.

Vascular Access is one of the three businesses, along with our core angiographic catheter business and our EVLT business that felt the most impact of the supply chain headwinds and tight labor market that resulted in our backlog.

Demand has remained strong for our VA products, and we expect this business to return to growth as we implement our supply chain improvement plans and work through the backlog. For our fiscal year-to-date, our VA business is down 4.4%. And when accounting for the one-time $5 million NHS order last year, our VA business is up 2.5%.

Revenue from our oncology business declined 5% during the quarter as compared to prior year, as oncology-related procedures were acutely impacted by COVID and hospital staffing disruptions. NanoKnife disposable revenue increased 11%, driven by 56% growth in the United States.

NanoKnife growth was driven by increased awareness from our clinical studies and a growing installed base. Year-to-date, NanoKnife probe sales were up 17%. The capital environment remained challenged with capital sales during the quarter of $1 million. Sales of our microwave product declined 6%. Now moving down the income statement.

As illustrated in the gross margin bridge included in the earnings presentation posted this morning, our gross margin for the third quarter of fiscal year '22 was 52.2%, a decrease of 190 basis points compared to a year ago, but up 40 basis points sequentially, including the impact of the CARES Act reimbursement Jim mentioned earlier.

In accordance with our strategy, we expect our gross margin to expand as growth in our higher-margin Med Tech platforms accelerates and our manufacturing initiatives have an increasing impact. In our third quarter, we did see approximately 100 basis points of a benefit from product mix.

This benefit was offset by a continuation of the headwinds we discussed during our second quarter call, including the ongoing COVID impact, increases in labor and manufacturing costs, inflationary pressures and freight costs.

For our third quarter, gross margin was negatively impacted by approximately 110 basis points versus the prior year period due to increased labor and manufacturing costs. Inflationary pressures on raw material prices resulted in another approximately 100 basis point negative impact.

Higher freight costs had an approximately 10 basis point negative impact, and production volume had an approximately 40 basis point negative impact. Auryon and AlphaVac start-up costs accounted for an approximately 50 basis point negative impact.

And these headwinds were partially offset by an approximately 20 basis point incremental tailwind provided by the CARES Act benefit. We began to see the positive impacts from our capacity improvement initiatives during the second half of the quarter. As an example, excluding the CARES Act benefit, gross margin in the month of February was 53.7%.

We expect these dynamics to continue to pressure margins near term and still expect FY '22 gross margin to be in the range of 52% to 54%. Our research and development expenses during the third quarter of fiscal year '22 was $7.3 million, or 9.8% of sales, compared to $8.6 million, or 12% of sales a year ago.

We continued our disciplined investment in R&D, focused on driving our key technology platforms, including the clinical spend for our Med Tech businesses. For FY '22, we continue to anticipate R&D spend to target 10% to 13% of sales.

SG&A expense for the third quarter of FY '22 was $29.1 million, representing 39.4% of sales compared to $28.6 million, representing 40.2% of sales a year ago. We continue to anticipate FY '22 SG&A spending to approximate 40% to 45% of revenue.

Our adjusted net income for the third quarter of fiscal year '22 was $1.3 million, or adjusted earnings per share of $0.03 compared to adjusted net income of $0.7 million or adjusted earnings per share of $0.02 in the third quarter of last year.

COVID relief expense reimbursement under the CARES Act in the third quarter of FY '22 and FY '21 were 4.2 and $1.9 million, respectively. Adjusted EBITDA in the third quarter of fiscal year '22 was $6.7 million compared to $5.4 million in the third quarter of fiscal year '21.

In the third quarter of fiscal year '22, we used $8.8 million in operating cash, had capital expenditures of $1.1 million and additions to Auryon placement and evaluation units of $1.5 million. As of February 28, 2022, we had $23.9 million in cash and cash equivalents compared to $34.3 million in cash and cash equivalents on November 30, 2021.

As we discussed in Q2, cash utilization was higher in Q3, primarily as a result of our manufacturing enhancement initiatives. In addition, in line with our expectations, DSOs have increased largely due to customary market terms associated with our Auryon customers and the growing revenue contribution of that business.

Our debt outstanding remained consistent at $25 million. Turning now to guidance. We continue to anticipate that fiscal year '22 revenue will be in the range of $310 million to $315 million. And this does imply a significant step-up in revenue from our Q3. Our fourth quarter has four additional selling days relative to our third quarter.

And in addition to the improving procedural environment, we continue to add manufacturing capacity and work through the backlog.

We also continue to expect full-year adjusted earnings per share to be in the range of a loss of $0.02 to a gain of $0.02, as we continue to invest in driving sustainable growth in our key Med Tech platforms, while also managing the continued headwinds we discussed.

As Jim mentioned, while we saw an $0.08 tailwind from the impact of the CARES Act during the quarter, we used this as an opportunity to continue and accelerate investment in R&D and SG&A across certain areas of the business. And this is contemplated in our full-year guidance range.

Accordingly, our guidance range remains a loss of $0.02 to a gain of $0.02 despite the CARES Act impact. Overall, we've seen steady improvement in procedural volumes during February and March and even here in the first week of April, and are confident in our ability to continue to grow the business.

And we're pleased with the progress we've made towards our strategic transformation. We continue to balance our priorities of achieving top line growth in the near term with investments that will create sustainable, profitable growth over the long term.

I'm proud of our team's ability to continue working towards these goals despite a very challenging operating environment. With that, I'll turn it back to Jim..

Thank you, Steve. This is an incredibly exciting time at AngioDynamics. We are continuing to prove our ability to service a growing demand through our manufacturing capacity expansion programs and increased capabilities of our sales, marketing and clinical support teams.

The COVID pandemic presented unprecedented challenges, and we are proud of how we're managing through it as a resilient company committed to supporting physicians who treat our patients with our unique technologies.

We remain focused on transforming AngioDynamics into an innovative medical technology company with solutions that address some of the most dynamic opportunities in health care. We want to improve patient outcomes and drive high physician satisfaction.

We are committed to improving patient care and proving our ability to do so by supporting data collection and research studies. Our third quarter results are evidence of our progress towards that goal, and we plan to continue to deliver on our strategic initiatives in the coming quarters.

I'd like to thank, everyone, on the AngioDynamics team for all of their hard work during the quarter and their ongoing commitment to our mission. With that, I'd like to turn the call back to our operator to open up the call for questions.

Melissa?.

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

I hope you're doing well. So a few questions.

First, on the $11 million backlog, what's the timing and I guess, more importantly, the key steps into bringing this down?.

Jayson, it's Jim. Key steps are expanding our capacity, Jayson, to do so. Some of those we outlined on the January call, some of which we reinforced today. To us, Jayson, the largest part of the backlog is really two facet. One, still really strong demand, not just in our Med Tech products, but our Med Device products.

Our VA team has done a great job articulating the value of our products, as you know there, and we have strong demand in our VA business, our EVLT lasers, strong demand in our core angiographic catheters, what this company was founded upon. So really strong demand, Jayson, is one half of that.

Second side, obviously, is our ability to produce, which has been challenged by COVID, not just with absenteeism and employees having issues dealing with COVID and recovering safely to return to work, but also us attracting the level of employees that we'd like to have.

So, we made the decision to move some processes to our Costa Rican partner, and we'll continue that process until we get to a stabilized workforce on our facilities that can support our growing demand. So it's been a challenge, Jayson. That's part of it.

We believe now, as I mentioned on the call, we're now producing 20% more than we were in the past quarter and we're starting to eat into that backlog. It will take a while, Jayson. We don't believe we'll be clear by the end of Q4. It will bleed into the first quarter or so of next year.

But we have a detailed recovery plan internally, and we know when we'll recover in each of those three categories..

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

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

Okay. Okay..

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

Right. Okay. That's fair. Just from a macro standpoint, you called out staff shortages as a continued issue.

Can we make the assumption that it's better today than it was in January? And is this kind of the single biggest macro weight on demand right now?.

Jayson, it is better. Our employees are healthier. So, they're back to work in a more consistent basis. So that's a good sign. And we've attracted new employees and maybe not at the rate we'd love to, as we know there's still a challenge of getting labor for some roles that we offer.

We're not the only company having that challenge of attracting employees in this environment to come work for us. So we've also done things. As we mentioned earlier, we've increased wage rates, other things, as Steve mentioned, which impacted gross margin. But we are better today than we were three months ago..

And Jayson, certainly on the macro side of the equation, staff shortages at hospitals and OBLs were particularly pronounced in December, but more -- even more so in January. That dynamic has changed as we've come out of February and into March and April.

So, we have seen that as a lifting pressure on the macro side that isn't there quite as acutely today as it was back in our third quarter..

Okay. And then maybe last one, and I'll jump back in queue.

On the mechanical thrombectomy guide, the delta between kind of the old and the new guidance, is it more of a reflection of softness in AlphaVac, AngioVac? Or is it almost all -- is it almost all COVID related?.

It is primarily COVID-related. The difference in the guide is really stemming from the procedural pressures that we saw in Q3. And if you think about that, a lot of that is AngioVac because we're in the very early stages of the AlphaVac launch.

But we definitely saw the DVT procedure volume be impacted in that December, January timeframe because of the macro COVID headwinds.

And then that will have kind of just a lingering effect as you push those procedures out does not change our perspective at all in terms of this market or the products that we have to go into this market and the benefits that will drive for us over our strategic planning horizon. But it does impact -- it is a follow-on impact from what we saw in Q3..

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

One clarifying question on the backlog. You ended at $9.6 million. You were at $11 million.

The commentary was that it would be lower at the end of the fourth quarter than it is today or versus the end of the third quarter? Like how much do we expect to bleed off over the next quarter is my first question?.

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

But number two, we can control our output, our capacity expansion programs, and those are growing as we speak..

Okay. And then you made some commentary, specifically, I think this hits mostly the Vascular Access.

Does this have any impact on any of the other areas? Or -- and if you could quantify, is it like 70%, 80% into the Vascular Access? And are there any one or two products it's impacting?.

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

Great.

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

So Bill, most of the comments we made is regarding AngioVac. And as you know, we have products that are okay to using the right heart. And now with AlphaVac, we're looking at DVT as the first line of VTE we are treating. As you know, we have the PE study kicking off the pivot for AlphaVac F18 for PE.

So ultimately, what we saw was some DVT procedures were being postponed or suspended or people were treated differently with the hospital shortage and ICU full beds. I think on the PE side, it was more acute. Other companies were treating PE, maybe in a more acute space than what we saw for DVT.

So, that was the experience we had built in the last three months were really related back to the shortage that we had a little bit of procedures on AngioVac. Second, I think your question was on AlphaVac. We have terrific feedback from AlphaVac. You can probably go online and read what doctors are saying.

We're really pleased not just with the F22 that was launched in the first week of December, we also remind everybody, we knew that was a limited opportunity market as it only can treat certain parts of the anatomy that allow a product of a 22-French catheter design to enter the body.

Now with the new F18, we'll be able to go lower into the body, treat more parts for people with DVT and ultimately start our PE study. So, Bill, we're off to a great start. Feedback is terrific, and we're excited now to get the F18 product in the limited market release and full release in the summer..

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

How would you categorize the driver of this?.

Great question, Bill. We are pleased, too. It's a combination of an amazing product. It is truly amazing, and we have more to come on what it can do beyond this current atherectomy indication. We think it can do other things. We'll talk more detail at another time. So number one, the product, it does a really effective job.

And some of the proof of that is the ratio of the below-the-knee procedures that patients now are being treated for, because there weren't a lot of other options before in that space. There may have been one or maybe two devices that could do that. Now, we're offering customers the safety and security of a laser with the power Auryon brings.

So Bill, it's really a combination of both. We're expanding. The use is based on demand. So, we highlighted another 43 lasers placed. Strong demand is there for the product. And number two, back to your same-store sales comment, we agree. And we're getting more and more people once they get the unit in-house.

They get confidence in using it and try in more situations. We're seeing increases then in the procedures on a monthly basis in our current settings. And that's really our goal over time, Bill. Over time, we're not going to keep putting 43 or 45 lasers in every quarter.

We want to work on that utilization and getting customers confident to use Auryon as their first-line treatment in their care settings, and we think we'll grow same-store sales over time at a more robust rate and it will be more important part of our growth for years to come..

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

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

Steve, we're really pleased. One of the things that drew us to the device initially was the fact that it could do ISR, was approved by the FDA during the study to do ISR. So, we're really pleased. So what you do -- it's funny, Steve.

And I quote, about half of above the knee and half below the knee, that's taking out about 10% of the overall procedures that are done for in-stent restenosis.

So, when you look at it on a macro scale, Steve, 10% of the overall procedures that we track are really for ISR and then the ones -- the other 90% are split about half and half above and below the knee. So that's about what our expectations were. We're pleased with that ratio..

It's a great question, Steve. And it's important to realize that laser technologies are the only technologies that are out there that can do ISR.

And so getting that segment of the market with this particular product really does help us, but then you add into the fact that we can go above and below the knee, it really does highlight the versatility of the Auryon technology..

You also mentioned commercial investment in Auryon.

How many sales reps did you reach in the quarter in that business and where do you anticipate ending the fiscal year?.

Yes. So it's a good question. So, we have 77 dedicated employees in that business as of today. That includes roughly 40 field-based sales reps, quota carrying reps. We also have 14 employees that are clinical field specialists and then we have a number of per diems that are helping support that business.

We're going to continue to invest in that business, probably not exactly at the same pace that we have over the last two years as we continue up our ramp on this business. But we're really pleased with the trajectory we've seen in this business, and we want to make sure that we continue that trajectory going forward.

So, we're going to continue those investments. I would expect we'll end the year a little higher than the numbers I just quoted you, as we continue to be very thoughtful about how we invest in the business..

Got it. And lastly, we focused a lot on the macro dynamics in the US, obviously makes sense given the proportion of sales in the U.S. for you guys.

But how are things trending internationally? Are you seeing improvements there as well in terms of the end markets?.

We're starting to, but it's very choppy. I'm sure others would probably comment in a similar fashion. But there still are regional challenges. As you know, China is a massive challenge with the issues they've had and the way they're trying to take care of their population there presents challenges for us on a commercial scale.

You look at areas like our Latin America business, our Canadian teams have done an excellent job. A lot of parts of Europe, our European teams and our Middle East teams have done a really, really good job. So, we have a lot of, not just solid business, but people are really interested now.

NanoKnife adoption has been very high, and we're really pleased how that goes. And over time, we're building out a commercial team with a new international leader, and we're putting a lot of resource deployment into that team behind her strategy. So, we have more to come and we'll share more with you over time..

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

One of the questions we're getting this morning is around free cash flow. Just wondering what's the free cash flow expectation for the remainder of the year? And it seems like spending is increasing here to fund growth.

Kind of how are you thinking about funding the growth into next year?.

Yes, it's a great question. So as we had talked about coming out of our Q2, we did expect that we were going to see higher cash utilization in our Q3. The investments that we needed to make to bring the additional manufacturing capacity online was a big part of that.

The disruption that we've talked about is also going to have an impact in that quarter. And so we're seeing an improving environment as we move out of Q3 into Q4. One of the other things to point to is we saw that increase in our receivables, particularly in our days sales outstanding. That was expected.

That's something that we see with that Auryon customer base becoming a larger portion of our overall customer base. Those are customary market terms to give them a little bit longer payment cycles.

So, you see some element that was coming from the additional cost to bring the capacity online and then some being a little bit more structural in terms of timing, but that we were expecting that. We do expect they're going to see a reversal of that trend as we head into Q4 and so some of those spending will abate.

And then as we move into Q4, I expect to see a different profile in terms of cash utilization. Your question on investment into the growth drivers, I think one of the things I'll point to is the balancing that we had mentioned coming from some of the CARES Act.

We do expect that, that cash will be coming in, as we get towards the end of our fiscal year or into next fiscal year. But it shows some of the balancing that we do as we handled the EPS question. We're always looking at prioritizing, first and foremost, those investments that are necessary to drive short- and medium-term growth in our growth drivers.

And then we're looking from there ways to balance that with other areas of OpEx in the business. So, we're still confident that we're on track to fund the investments that are necessary to drive our long-term growth initiatives as set out in our Investor Day plan. We're always looking at it.

And we definitely saw higher cash utilization in Q3, but we do expect that to flip a little bit as we head into Q4 and then certainly into next year..

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

But what can switch on from '22 to '23 to the positives?.

Yes, it's a good question. And I think the first thing to point to is that product mix benefit. That's right in line with what our long-term strategy has been. As those Med Tech products comprise a much larger portion of our revenue base, they're going to see gross margin accretion. And that's really our story over our strategic planning horizon.

As you saw in this quarter, the COVID impacts did take a chunk out of that and it kind of reset a little bit of the baseline. So, we talked about inflation coming from raw materials. Look, I think that's going to be around for a little while. That probably continues as you move into Q4 and into the first half of next year at least.

We'll see where the macro environment goes. Labor inflation, that's also something that's going to be with us for a while. The tight labor market just has that follow-on effect of additional wage rate increase being necessary and some of those retention and referral bonuses that we talked about, keeping people in our plant.

I think those things are going to be around for a while. I do expect that over our horizon, they will normalize and that you'll get back to seeing the full story of that gross margin accretion coming from product mix..

All right. Excellent. Then the last question.

Just can you give us a sense of the timeline to completion for the IDE on PE?.

Yes. So what we really are excited about that product is that the precedent has been set, right? So Jim talked about the RV/LV ratio as being the primary efficacy endpoint. The other products that are out there that have a PE indication, that's the endpoint that they use. So it's a nice, predictable target to go after.

We talked about a 30-day follow-up. And so, with 120 patients or so, we think that can be a relatively quick enrolling trial, it's going to be very different than what you saw with some of those oncology endpoint trials that we've talked about with NanoKnife in the past..

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

Thank you, Melissa. And again, we're really proud of the work that our team has done here working through the pandemic. We have employees across the globe, who are committed to serve our customers, who serve patients in need of our technologies for wellness and care.

So, I want to thank the AngioDynamics' employees and remind investors on the call, we are committed to our future, investing in our growth, investing in our platforms. Thank you again for joining us today on the call..

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