Good morning. And welcome to the AngioDynamics’ Fiscal Year 2023 First Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

The news release detailing our fiscal 2023 first quarter results crossed the wire earlier this morning and is available on the company’s website.

This conference call is also being broadcast live over the Internet at the Investors section of the company’s website at www.angiodynamics.com and the webcast replay of the call will be available at the same site approximately one hour after the end of today’s call.

Before we begin, I would like to caution listeners that during the course of this conference call, the company will make projections or forward-looking statements regarding future events, including statements about expected revenue, adjusted earnings and gross margins for fiscal year 2023, 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 the actual results or events 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 operating results and financial performance during this morning’s call. I would 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 2023 first quarter earnings call. Joining me on today’s call is Steve Trowbridge, AngioDynamics’ Executive Vice President and Chief Financial Officer, who will provide a detailed analysis of our first quarter financial performance.

Before we talk about results, our thoughts are with all of the people who have been impacted by Hurricane Ian, particularly those in Florida, as we know how many people are still struggling as a result of the devastation. We are focused on supporting our employees and customers in the region and we are closely monitoring the situation.

Turning to our results, we ended the quarter with revenue of $81.5 million, representing growth of roughly 6% year-over-year, led by growth of approximately 30% from our Med Tech segment over the first quarter of last year. I am pleased with our solid first quarter performance and our ongoing progress towards our long-term goals.

At our Investor and Technology Day in July 2021, we outlined our three-year strategic plan and our operating goals. We detailed how we were going to utilize the proprietary tech -- proprietary technology in our Med Tech platforms to enter large, fast growing attractive markets and prioritize driving measurable, beneficial patient outcomes.

Macro challenges persisted during June, July and August. Despite these headwinds, we’ve consistently executed on our strategic goals. We remain committed to making the necessary investments designed to drive sustained growth in our Med Tech platforms, while maintaining a balanced focus on the bottomline.

Inflationary pressures persisted throughout our first quarter, as freight and raw material costs continue to rise. While this pressure does have an impact on our results, I am pleased with how our supply chain team has managed through this dynamic environment. Steve will provide some more details a bit later on our call.

Hospitals and care locations experienced significant staffing challenges during the summer, resulting in pressure on procedural volumes. While we anticipate that some level of staffing challenges will persist, hospitals are becoming more adept at managing through these issues.

In addition to the direct impact on procedural volumes, staffing challenges create some ancillary effects, as hospitals and care sites struggle with their reduced revenue streams, causing hospitals to lengthen the timing of their payables, which Steve will again discuss later on our call.

We continue to partner closely with our customers and have been more flexible with payment terms in light of the current environment.

Despite this challenging environment, our Med Tech segment continues to exhibit strong growth driven by year-over-year growth in Auryon, the impact of the full market release of our AlphaVac F18 product and the continued growth and utilization of NanoKnife by urologists.

This performance illustrates both the resilience of our product platforms and our team’s ability to execute. Auryon continued its impressive performance during the quarter, growing 50% over the prior year. Auryon was down slightly sequentially, which we expected giving the typical seasonality and our strong finish in Q4.

During the quarter, there are a number of presentations detailing clinical experience with Auryon, specifically, at SIR and Link [ph]. Physicians presented 12-month follow-up data from our PATHFINDER study. The original IDE for Auryon illustrated impressive safety and efficacy results.

The patient population in our PATHFINDER study included patients in a real world setting with significantly more complex peripheral disease than those included in the IDE. The results from PATHFINDER were similar to or exceeded the efficacy and safety results from the original IDE in this more challenging patient population.

In addition, at the AMP meeting, a presentation analyzing outcomes between chronic limb ischemia patients in the less complex patients reported that the long-term outcomes for the CLI patients were similar to those of the less complex patients.

This is just a great demonstration of how effective Auryon is in treating below the knee disease, as CLI patients typically fare much worse than less complex patients. We expect to see Auryon continue to grow rapidly as more physicians are introduced to and use this innovative technology.

Our mechanical thrombectomy business comprising AngioVac and AlphaVac grew 36% during the quarter. When including Uni-Fuse, our thrombus platform grew almost 32% over the prior year.

AlphaVac revenue for the quarter was $1.8 million and we were pleased with this performance, given the particularly challenging procedural headwinds we faced during the summer. Additionally, we entered into a full market release of our AlphaVac F18 product during the quarter. We are on track to meet our AlphaVac revenue expectations for the full year.

Our NanoKnife disposable sales grew approximately 12% during the quarter, as we’ve seen increasing traction within urology practices. As prostate procedure volumes continued to grow during the quarter and our PRESERVE clinical trial drove increased awareness in the space.

During Q1, physicians completed 100 prostate cases with NanoKnife, up from 71 prostate cases treated in the fourth quarter and an increase of more than 85 cases over Q1 of last year. Additionally, international markets, particularly the European markets had a really strong quarter.

While disposable demand remains strong, some supply chain bottlenecks encountered during the quarter impacted our topline growth and resulted in a small backlog of NanoKnife orders. For example, one of our subcomponents suppliers couldn’t meet our demand, which in turn led to a production shortfall.

While we expect to clear this shortfall in Q2, continuing supply chain challenges drove our decision to add raw material and work in process inventory, which increased our inventory levels.

On the operations front, we continue to work down our backlog in a deliberate and strategic manner, with total backlog of $7.1 million at the end of the first quarter, down $1.3 million from the end of May.

We continue to invest in our business during the quarter and our focus remains on supporting our existing platforms, while also continuing to drive the development of new products to expand into larger, faster growing addressable markets.

As a reminder, these investment initiatives include geographic expansion internationally, clinical research, product development, selling and marketing, and regulatory pathway expansion.

Our strategic investments continue to advance our growth platforms, in particular, with the recent regulatory pathway expansion for our Auryon product in arterial thrombectomy, when removing thrombus accumulation, adjacent to atherectomy, as well as FDA clearance of a hydrophilic coating on our Auryon catheters, and initiation of our APEX clinical study for the treatment of pulmonary embolism with our AlphaVac F18 product.

Our teams continue to execute on our clinical trials, including a three IDE studies; our PRESERVE study for the treatment of prostate cancer with NanoKnife; our APEX study, the treatment of pulmonary embolism with our AlphaVac F18, as well as our direct study for the treatment of pancreatic cancer with NanoKnife.

As a reminder, we believe that PRESERVE will demonstrate that NanoKnife can be an effective focal treatment option for men with intermediate risk disease and provide favorable quality of life outcomes when compared to other focal treatment options or surgery.

We estimate that the total potential market for focal treatment of prostate cancer that can be addressed by NanoKnife may exceed $700 million in the U.S. alone.

We believe that our APEX study will prove that our unique AlphaVac products can be an effective treatment for PE providing ease-of-use and another treatment option, while also unlocking an opportunity in a large addressable market that we estimate to be in excess of $1.5 billion in the United States.

I’d also like to provide you with an update on our antitrust suit against Becton, Dickinson’s C.R. Bard business as it relates to our Vascular Access business. The trial concluded this week and is now being deliberated by the jury and we are waiting a verdict.

Before turning the call over to Steve, I’d like to thank our team here at AngioDynamics for the continued hard work and dedication to achieving our goals. Their unwavering effort is essential to the transformation of AngioDynamics.

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 first quarter of FY 2023 increased 5.9% year-over-year to $81.5 million, driven by continued strength and our Med Tech platforms, including Auryon, NanoKnife and thrombus management.

Med Tech revenue was $22.8 million, a 29.6% year-over-year increase, while Med Device revenue was $58.7 million, declining 1.1% compared to the first quarter of FY 2022. For the quarter, our Med Tech segment composed 28% of our total revenue, compared to 23% of total revenue a year ago.

Our Auryon platform contributed $8.8 million in revenue during the first quarter, a 50% increase compared to last year. As Jim mentioned, Auryon was down slightly sequentially from Q4 in line with our expectations. Not this represented solid performance when considering typical seasonality and the strong finish to Q4.

We’re very pleased with the continued growth of the Auryon platform. August was a strong month for Auryon and we saw an improving growth trend throughout our Q1. As of today, our installed base is approximately 350 lasers with about 40 lasers placed during the first quarter.

Total lasers place since launch have utilized approximately $22 million of cash, adding quarterly depreciation expense to our gross margins. During the quarter, we launched Auryon catheter line extensions providing enhanced usability, and in September, we also received regulatory clearance for a hydrophilic coated catheter.

Our forecast for Auryon for the year remains unchanged, as we expect to see continued year-over-year growth throughout the course of FY 2023 and generate full year revenue in the range of $40 million to $45 million. Mechanical thrombectomy revenue, which includes AngioVac and AlphaVac sales grew 36.1% over the first quarter of FY 2022.

When including Uni-Fuse, thrombus management revenue grew 31.8% year-over-year. AlphaVac revenue for the first quarter was $1.8 million. We’re very pleased with this performance after generating revenue of $2.2 million during FY 2022 and are excited to have begun the full market release of our F18 product during the quarter.

Physician feedback on the F18 remains very positive and we’re excited that four sites have completed all initiation requirements and are currently recruiting patients for our APEX PE study. AngioVac revenue was $6.9 million in the quarter, representing growth of 8.5% over the prior year’s quarter.

Procedure volume for AngioVac during the quarter remained solid, particularly given the challenging macro environment. We believe that staffing challenges at hospitals have continued to impact AngioVac procedure volume due to the complexity of these procedures, which require procedunists and typically an ICU bed.

We continue to expect our mechanical thrombectomy platform to grow 30% to 35% and be a significant contributor to our overall growth and we plan to continue to invest in this platform as a key driver of our transformation. NanoKnife disposable revenue increased 12.3%, driven by 21.8% growth in international markets.

NanoKnife procedure growth continues to be driven by increased awareness from our clinical studies, ongoing expanded adoption within practices by urologist and a growing installed base.

Capital sales were down $500,000 versus the prior year, but our installed base increased by 16 units, as we implemented alternative placement models in the urology market.

Turning to our Med Device segment, in the quarter our core dialysis and microwave products, each achieved modest growth, offset by modest declines in the balance of the portfolio, resulting in the overall segment decline of 1.1%. As a reminder, almost all of the $7.1 million backorder relates to our Med Device segment.

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 first quarter of FY 2023 was 51.9%, a decrease of 20 basis points compared to a year ago.

Gross margin for our Med Tech segment was 63.2%, a decrease of 220 basis points compared to the year ago period. This decrease was primarily driven by increased depreciation costs associated with the increasing Auryon installed base and some pricing of Auryon catheters.

Gross margin for our Med Device segment were -- was 47.5%, a 70-basis-point decline compared to the first quarter of 2022, due largely to continued inflationary pressures.

In accordance with our strategy, we expect our consolidated gross margin to expand throughout FY 2023, as sales in our higher margin Med Tech segment grow and represent a larger portion of our total sales mix.

As Jim said, while we’re pleased with our progress on manufacturing, we expect to continue to see some variability in FY 2023 as a result of supply chain and other macroeconomic headwinds, including continued inflationary pressure. As we did with our fourth quarter, we’ve included a gross margin bridge in the materials published today.

Our consolidated corporate gross margin in the quarter was positively impacted by product sales mix, as well as increased efficiency in our manufacturing operations. These tailwinds were offset by headwinds from raw material inflation, costs associated with the continued tight labor market and increasing freight costs.

In the first quarter on a year-over-year basis, the impact on gross margins from product mix was a benefit of approximately 80 basis points. The increase in production capacity from our initiatives and increased efficiencies provided a benefit of approximately 240 basis points.

These benefits were offset by approximately 100 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 and higher freight costs had an approximately 60-basis-point negative impact.

Some of the heightened impact from freight is a result of higher levels of raw material purchases that we accelerated to address continuing component supplier disruptions. I’ll cover this in a bit more detail shortly when discussing our cash position.

Hardware depreciation costs from our increasing Auryon installed base negatively impacted gross margins by about 80 basis points. Our research and development expense during the first quarter of FY 2023 was $8.3 million or 10.2% of sales, compared to $7.4 million or 9.6% of sales a year ago.

We continue our disciplined investment in R&D focused on driving our key technology platforms, including the clinical and product development spend for our Med Tech portfolio. For FY 2023, we still anticipate R&D spend to target 10% to 12% of sales.

SG&A expense for the first quarter of FY 2023 was $36.6 million, representing 44.9% of sales, compared to $33.4 million or 43.4% of sales a year ago. The year-over-year increase in SG&A spending is primarily driven by the annualization of investments in our sales teams, particularly Auryon.

FY 2023, we continue to anticipate SG&A spend to target 40% to 45% of revenue. Our adjusted net loss for the first quarter of FY 2023 was $2.5 million or adjusted loss per share of $0.06, compared to an adjusted net loss of $900,000 or adjusted loss per share of $0.02 in the first quarter of last year.

Adjusted EBITDA in the first quarter of FY 2023 was $3 million, compared to $3.6 million in the first quarter of FY 2022. The first quarter 2023 we used $24.7 million in operating cash, had capital expenditures of $800,000 and additions to Auryon placement and evaluation units of $2.2 million.

As of August 31, 2022, we had $24.6 million in cash and cash equivalents, compared to $28.8 million in cash and cash equivalents on May 31, 2022. The cash balance at quarter end includes a refinancing of our credit facility that we closed at the end of Q1.

Details of our cash position are included in the presentation on our Investor Relations website published in connection with this call. We’ve also included a cash bridge in today’s materials.

As we discussed in our fourth quarter call, we expected to have higher levels of cash utilization in the first quarter than its subsequent quarters for our FY 2023.

Higher cash utilization was driven by annual incentive compensation in connection with our FY 2022 results, typical beginning of year payments for insurance and other prepaids, high levels of inventory purchases to proactively address supply chain disruptions, Auryon laser placements, and some other one-time payments.

Inventory levels increased $6.2 million in the first quarter of FY 2023 from our inventory balance as of May 31. This increase is in large part driven by raw material purchases we accelerated to address continuing supply chain disruptions.

Supplier disruptions accelerated through the first quarter of FY 2023, quoted lead times from various suppliers have expanded significantly and suppliers that used to quote lead times of three months or six months are now quoting lead times of nine months to more than a year.

In order to mitigate significant disruption from these component suppliers, we have increased our raw material purchases, resulting in increased use of cash. We believe that it’s prudent to use of this cash as partial insurance against increased disruption in the future, especially as our capacity initiatives in Costa Rica take hold.

In addition to the increased uses of cash I just mentioned, our account receivable balances remain high and our DSOs have increased. As Jim mentioned in his remarks, we’ve seen hospitals and caregivers begin to push out payment timing. This has negatively impacted our cash conversion cycles.

We’ve been very deliberate about providing appropriate flexibility to our customers, while remaining pragmatic with our approach to order fulfillment and have placed certain customers on credit hold or withheld delivery when appropriate.

We’re taking a balanced approach to extending credit, working closely with our customers and believe that we have adequately addressed any increase in credit risk. From a balance sheet ratio perspective, we’re comfortable with our working capital, liquidity and current ratio.

Our current ratio in Q1 was 2.28, which is consistent with how we’ve managed the business historically. With respect to our capital structure, we refinanced our credit facility to accomplish a few specific goals.

First, the previous facility was set to mature in June 2024 and given the dynamic financing environment, we wanted to extend maturity to 2027 and replace LIBOR with SOFR as the reference rate. Second, the previous facility was $125 million revolving facility. Our current strategy does not support or require a borrowing base of $125 million.

So there was a significant amount of unused credit which carried a commitment fee. Lastly, we wanted to modify our capital structure to more closely align the cash used in Auryon laser placements with the expensing and revenue generation profile of those lasers. The new credit facility accomplishes each of these goals.

The new facility has a term through August of 2027 and the revolver was resized to $75 million from $125 million, reducing our commitment fee. We believe that the $75 million of revolving credit is appropriately sized for our cash and liquidity needs to support our current long-term strategy.

Finally, we added a $30 million delayed-draw term loan to better line the cash used for Auryon lasers with their expense and revenue profile. As we discussed last quarter since the launch of Auryon, we have utilized roughly $22 million of cash in the manufacturing of the Auryon laser installed base.

These lasers are placed at customer facilities and generate revenue over their useful life. In addition, cost of the laser is reflected on our balance sheet and amortized over a five-year period.

As a result, cash for each laser is spent immediately, with each laser then generating monthly revenue with the purchase of catheters, while also having an associated monthly expense. The cash utilization is front loaded compared to the revenue and expense profile.

But delayed-draw term loan effectively refinances the lasers already in the field, while providing some financing for future lasers we expect to place through FY 2024.

We will pay down the delayed-draw term loan in a manner consistent with the expense and revenue profile I just mentioned, and we believe that this is a more efficient capital structure for our business.

At the closing of the revised facility, we drew $25 million on the delayed-draw term loan in connection with the Auryon lasers currently in the field, as well as lasers we expect to place during the first half of FY 2023.

Finally, we also made a payment of $4.5 million to the Israeli Innovation Authority to prepay a 4% royalty obligation that was negotiated prior to o6ur acquisition of Eximo. Paying the IAA will provide a gross margin benefit for us going forward as this royalty which extended through at least FY 2024 had increased the cost of goods of Auryon.

The end result of this financing is that we reduced our total available debt facility from $125 million to $105 million, reducing fees paid on unused portions that were unlikely to utilize and adding a delayed-draw term loan to match the cash use of Auryon lasers with their revenue and expense profile.

The spread and pricing grid for the refinance facility remained exactly the same as the previous facility but now links to SOFR. We are very pleased with these terms, specifically in light of the current environment.

We continue to expect our net cash position that is cash net of debt by the end of our FY 2023 to be flat to slightly up from where we exited FY 2022. As a reminder, during the back half of our FY 2023, we expect to achieve the aggregate revenue milestone target for Auryon, which would trigger a contingent consideration payment of $10 million.

This contingent consideration payment is currently excluded from our operating cash expectations. Turning now to guidance, our guidance remains unchanged from Q4.

We continue to anticipate FY 2023 revenue in the range of $342 million to $348 million and we expect full year adjusted earnings per share to be in the range of $0.01 to $0.06 as we continue to invest in driving sustainable growth in our key Med Tech platforms, while also managing continued headwinds.

While the macroeconomic environment has improved in certain areas, it remains uncertain due to inflation, supply chain disruptions, the tight labor market and pressures facing our customers. We continue to expect FY 2023 consolidated gross margins to be in the range of 52.5% to 54.5%.

We expect this range to be comprised of Med Tech gross margins in the range of 65% to 68% and Med Device gross margins in the range of 45% to 48%. I’m proud of the tremendous efforts of our AngioDynamics team and it’s their drive and commitment that allows us to continue making progress towards delivering on our long-term goals.

With that, I’ll turn it back to Jim..

Thanks, Steve. At AngioDynamics, we are committed to improving our technologies so that we can partner with global caregivers to treat pout challenging patient needs. We will partner with and listen to those caregivers as they guide our investment decisions. We are transforming into a company that is important to these caregivers.

We will continue to balance our investments with the need to manage through these challenging times where uncertainty is a part of everyday life. We are a strong company. We will continue to grow our value while we serve our customers.

We are powered by talented and committed employees who view our company as one that gives them a platform to contribute to our success, while they grow their careers and take care of their families. We understand that investors are seeking opportunities to maximize value creation while minimizing risk. We believe we can accomplish these goals.

With that, Melissa, I’d like to turn the call over for questions..

Thank you. [Operator Instructions] Our first question comes from the line of Steven Lichtman with Oppenheimer & Company. Please proceed with your question..

Thank you. Good morning, guys. Jim, I just wanted to ask, on the ongoing hospital challenges you mentioned is, two questions. It sounds like AngioVac again was most pronounced.

Were there any other segments that you saw or product lines that you saw that impacted? And then two, you also mentioned hospitals managing through it a bit better? Can you talk about what you’re seeing on that front from your customers?.

Hi, Steve. Good morning. Thanks for the questions. There’s been different challenges that we said. First of all, remember, we have a staggered quarter, where most companies don’t, so we had a June, July, August quarter that we just reported.

And we really saw, for the first time, I was getting reports from our field from vacations, now doctors taking vacations, which you always hear and I started my shoulders a bit. So I called some of our customers to check in, turned out to be true. Doctors hadn’t taken vacations for a while.

That on top of ongoing challenges, some of these hospital CEOs said, to having a hard time staffing and recruiting more nurses. So they had a hard time in their OR suites.

One hospital in particular in Boston told me they have 23 OR suites could only staff 15, although they had enough patient demand to really have all staff and actually needed all as well for their own P&L to keep cash flowing through.

So a lot of that Steve challenges through to just serving their patients was a challenge, as ICU beds are full and nursing staff to fill ICUs were a challenge. I’ll give you another side -- a side commentary.

Even as we talk about the supply chain challenges, everybody’s using that term today, but we gave a couple of real life examples here, I’ll give you another one. AngioVac is an amazing product.

But it can be complex to use, it requires a profusion team there, also requires a specialty sheets to access the body, before we can put AngioVac in to treat the patient.

Some of these sheets run backward into summer and still remain on backorder in parts of the globe and that’s a component part that’s necessary to normally stocked by the hospital and they have a hard time getting them. So some cases, we believe we weren’t able to help providing AngioVac treatment.

They probably manage the patient using drugs in those cases. So those are some of the challenges. Steve, there were more. And second, we’re seeing some of that come back.

The whole vacation thing is we think behind us now is, September has come, we’ve seen anecdotes back, the hospital is now catching up on some of their patient loads that they want to take care of. But it hasn’t swung dynamically, Steve. So we’re seeing some positive trends in September. But I’ll still say we are not normal yet.

I think the caregivers are under still pressure..

Got it. Okay. That’s helpful, Jim. On Auryon, I think, you had talked on last quarter call that maybe seeing a little bit of a pivot this year with maybe fewer placements, but looking to go deeper in current accounts actually did see a step up in placements.

Are you still anticipating that dynamic as you go through this year in terms of really focusing on your current install base..

Yeah. It’s really a blend of both, Steve. But you’re right, as we said, we don’t want to, I’d just say, putting as many lasers out as we did last year, the demand is very strong.

But the team is also shifting a bit not just a new laser placement and there’s a lot of demand, you just saw highlighted some of the clinical work that was presented during the quarter is very strong. So it’s generating a lot of interest. But we’re also managing that.

We want to make sure we’re getting the usage at each laser already placed at our expectation levels. And by doing some of the things we just did, I mentioned the new hydrophilic coating product being launched.

We have some other product improvements that we be the roll that or rolling out over the next quarter in response to customer feedback and demand. So, Steve, you’ll see again, really strong placements during the course of the year.

I just wanted to let people know last quarter, don’t expect as many as last year, but also we’re going to work on getting the volume per placement up on a monthly basis in each site that has a laser..

Got it. Got it.

And then -- and lastly, Steve, as you look at gross margin throughout the year, obviously, you’re anticipating improvements sequentially beyond mix and it’s the margin benefit you noted from the Eximo milestone came in? What are the other key things that you anticipate can improve here sequentially throughout fiscal year?.

So there’s a couple of things, a couple of ways to look at it, Steve, both on a standalone basis and also on a comparison a year-over-year.

If you think about the comparison, as we get through Q2 and 3, more importantly, the comparisons are going to change, because we’re going to anniversary some of the real big upticks that you saw in the inflationary pressures that really accelerated during our Q3.

So we’re going to anniversary that and I don’t expect inflation to continue to increase at that same pace as it did last year. Mix is going to be the biggest driver of our gross margin accretion, as you pointed out.

I also expect we’re going to see some benefit from some of the pricing initiatives that we talked about last year, looking to take price maybe in areas of our Med Device business, also some handling fees, some minimum order fees, some other structural things that we put in place.

And then there’s also the dynamic that we deal with every year, where the standard reroll, we’re running through that during the first half of our year, so the first six months on inventory turns and then you see a structural step up in gross margin for us in Q3 and Q4. That dynamic has been a hold as well..

Got it. Thank you, guys..

Thanks, Steve..

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

Hey. Good morning, guys, and thanks today the questions. Just firstly on Auryon, I think, you continue to place a lot of these boxes? Could you give us a sense of kind of utilization per system.

I think you’re going to get a hit at a point now where you’ve had these systems in place long enough, where you could have some kind of same -- like same-store metrics for how people are utilizing these year-over-year, is it up, are you seeing it -- are you seeing a trend higher and like where you could back out the new placements and kind of what that -- what they’ve been doing from numbers?.

Hi, Matt. It’s Jim. That’s a good -- great question. So we do exactly what you’re saying. And you’re right we have enough in the field now. So our Auryon team does a really good job of analyzing customer placements. They break it down a bit.

We were finding that the first three months to four months, after a customer gets the laser installed, they really develop a level of familiarity now and understand how much they can treat, where they can treat and how to help patients.

So we really break it down into segments of four months and last, and once they get up and running post four months, we do have a same-store sales comparison that we track. So that follows back to my statements to Steve a few minutes ago.

That’s why the team is also working with our customers who have lasers and gaining that confidence in the product, we want to get that increased same-store sales up in each account on an ongoing basis and we’re seeing that. We don’t publish the numbers of our averages. But we’re tracking that very carefully.

So you’re going to see growth the next couple of years come from both sources, new customers coming online due to their increased awareness of the product and our same-store sales going up by really two main factors driving that, Matt, one is the new product innovations we’re doing like the hydrophilic coating, where the arterial thrombectomy indication, things like that, where people can use it for more.

And number two, us just working with those caregivers, as they gain that confidence level and see that whereas the other laser has been out for years, was really good above the knee. But now we can treat above and below really effectively as the data in PATHFINDER showed.

So we think we’ll take more and more cases throughout the PAD spectrum over time, Matt, and both of those things will help drive Auryon growth for really a long time to come..

And Matt, just to build on what Jim said to, there’s two other dynamics that are at play here. So, Jim said exactly right, we’re managing this and we’re definitely seeing in accounts increase utilization. We’re also using the same methodology to determine which accounts we may want to switch around.

And so we’ve had some lasers that have been placed from one OBL and move them to another OBL based upon volumes. And so we’re going to continue to see that play out as we aggressively find the right customers. There’s also the dynamic of increasing placements in the hospital setting.

We launched this product right in the midst of COVID, when access to hospitals was really limited and that’s why you saw the percentage of our OBLs really outpacing hospitals at a clip that was greater than what you see in the overall market. That’s switching a little bit now to and we’re prioritizing getting into those hospitals.

Hospital settings have a little bit of a lower utilization rate than the OBLs, but they’ve got higher economic dynamics too is offsetting that. So you’re going to see a couple of those trends working together, but it flows in exactly what Jim said.

We’re managing that, we’re seeing it and we’re going to be driving growth in this business through both utilization of existing customers, as well as continuing to drive new lasers, because there is still significant demand for us to increase our installed base..

And this is -- just follow up to that, I mean, you guys continue to finance these -- the rollout of the installed base as part of your own CapEx, but you have a lot of clinical evidence and you have a lot of use cases now of the benefits of Auryon.

What is the trade off here between you guys owning these boxes and your sales force now going out and selling them and your customer’s kind of owning these devices? What -- why is this -- why is one model better than the other?.

It’s a good question, Matt. Historically, I think, the precedent has been set. There’s a level of customer expectation, because the other company that had a laser component with their catheters and really established that criteria. So a lot of customers are expecting them. We have sold them. We’ll sell some more lasers over time.

We will offer different economic models of those customers. They buy the laser. There’ll be a different structure on how they contract with us going forward. So, Matt, I think, you’re right, we see a long runway here with what this product can do clinically and scientifically.

So, over time, as we build more value with our customers and it does more, as we have a lot of interest in gaining more treatment options with the science. I think maybe you’ll see that shift. But today, it’s really primarily, Matt, us serving what current customer expectations have been..

Okay. And then just lastly, it seems like you -- I don’t know if you re-segmented, but you’ve changed how you report it.

How should we think about where you kind of moved up? You reported in Med Tech and Med Device versus previously endovascular therapies, Vascular Access, like Oncology, is that a new segmentation or just reporting? And then if you can call out of the growth, what do you think the Med Tech growth looks like for FY 2023 compared to the Med Device growth?.

Yeah. Good questions, Matt. It’s Jim. I’ll now hand this to you for the detailed questions. But just so you know, we still run our company, manage our customers with three business divisions. So we still have Oncology business, our Vascular Access and our DVT. It’s how we manage. It really helps us treat our marketplace and our customers serve them well.

But according to the accounting, I’ll point over Steve, now to give you details on the accounting rules here..

Yeah. So, Matt, good eye. We absolutely did change the way that we’re reporting our business going forward. So we do have two reportable segments. Now we think that that is more reflective of the product lines that we have and how we’re managing our business. So we’re going to be reporting going forward in two segments, Med Tech, Med Device.

We will be reporting revenue pursuant to those segments, as well as gross margin. And so we have moved away from giving revenue detail according to what were our foremost -- what our formal business units.

We think that the way that to drive our business way that we’re managing it, it’s more transparent, reflective, to look at it on that Tech and Device segments. That -- what we’ve said is, historically, we said, expects our Med Tech business to grow 30% to 35% in the long-term and our Med Device business to be 1% to 3% grower.

That was part of our long-term strategic plan. You saw last year where we came up. We were a little higher than that in Tech and right around that level in Device. Expect that going forward. That’s really what we’re targeting. And then we gave some gross margin guidance as well.

We expect that Tech segment to end the year with gross margins of 65% to 68% and for the Device segment to have gross margins between 45% and 48%..

All right. Thank you, guys..

Thanks, Matt..

Thank you. Our next question comes from line of Bill Plovanic with Canaccord Genuity. Please proceed with your question..

Great. Thanks. Good morning. Thanks for taking my calls -- my question.

So first is, just on guidance, I was hoping you could help us understand kind of the puts and takes between the high end and low end of guidance, especially given first quarter results and then how should we think about the cadence sequentially? And then in line with that question is just how do we think about cash usage as you get into second, third, fourth quarters, you mentioned you expect flat by the end of the year, but how should we expect that to kind of play out during there?.

Yeah. So, thanks, Bill. With respect to the guidance, our full year revenue is $342 million to $348 million. We gave some specific guideposts to kind of show you how we expect to get there and build it. For Auryon, we said $40 million to $45 million and you saw the 50% growth that we saw this quarter. We are right on track to hit those numbers.

On mechanical thrombectomy, we had said we expect AlphaVac and AngioVac together to give you growth of 30% to 35%. You saw we had 36% growth in that business this year. And again, we’re looking at Nano probes to be in that double-digit 20% range.

So as you put all those together and we’re methodically working through the backorder that we have ending the first quarter at $7.1 million having taken about $1.3 million out, we expect to continue to drive that down in the Med Device business.

We were a decline in that Device business this quarter of 1%, as we continue to work through our supply chain plans, you’re going to start to see that get back into that positive growth and you’ll see we got the backstop some of the backorder there.

So, all in all, that put together we think the revenue guidance we were pleased with this quarter -- the quarterly cadence.

We’ve talked about this before, we see a little bit of a typical pattern and seasonality in our business, Q1 always down sequentially from the Q4 of last year, Q2 usually up sequentially from Q1, Q3 is a weird quarter, we’ve got December, January and February in there, that usually takes a small step back with Q4 being the highest quarter again.

I would expect that seasonality to repeat itself, maybe a little smoothing from what you have seen in previous years, because you’re dropping in growth products like Auryon and AlphaVac, but that pattern is going to continue. And then a question on cash, Q1 is always the highest utilization of cash for us.

If you look back at our previous quarters, it’s pretty similar to what you saw this quarter. So as we move into Q2 and 3, and 4 as well, you’re going to start to see significant building of cash throughout the year.

And so we’re holding this quarter and believing that our net cash position at the end of FY 2023, it’s going to be right around where we ended FY 2022, understanding we’ve got the financing, there was a little bit more debt taken this quarter and we expect to be building those cash balances.

And one of the things I did talk about in the prepared remarks was the increase in our account receivable balances, as well as the increase in our inventory levels. All four reasons to deal with the continuing disruption that we’re seeing, I do expect to continue to work down as AR balances and move into that cash conversion cycle.

But there’s no doubt that our customers are extending out their payment terms, I think, it’s a dynamic a lot of people are seeing in this environment. So we’re keeping an eye on that. And as well, the inventory, that’s not going to be a permanent thing. We’re going to be very thoughtful about how we go out and increase purchases of raw materials.

We feel like we’re in a good position now to try to deal with some of those acute supplier subcomponent disruptions. We’ll pull back on those a little bit, which will also kind of give you some visibility into that increase in cash throughout the year..

So, thanks, Steve. So on Q2, I mean, historically, you’ve increased about 1.5% to 3.5% sequentially. And I guess the -- we can all take guesses that kind of how the business will improve sequentially.

But we can’t -- we don’t have the look into the manufacturing supply issues that you do in terms of kind of working down that backlog? As you think of the backlog work down, is that something that’ll get cleared out in fiscal Q2 or does it take the whole year to clear out, how should we think of the cadence of that?.

Hi, Bill. It’s Jim. And we don’t think it will clear in Q2. We’ve been fortunate now. We’ve got a more stable base of employees at our current facilities that we run here in the U.S. We stabilized our plant base, which is terrific. That comes at a little cost as you know.

And we’ve also got a Costa Rican operations that we announced a few quarters back up and running. We’re adding more capacity there as we speak. So the combination of both build a better stability internal and our Costa Rican capacity expansion, we’ll probably have the backorder cleared by the -- really the end of the fiscal year.

I wouldn’t expect that by the end of Q2..

Okay.

And then on the cash, so just clarify, Steve, so are you saying that cash flow should be positive in second quarter and then get that more positive as we go through the year? I’m just trying to understand?.

Yeah. That’s -- that directionally yes. Again, we’re still dealing with a rising inflationary environment and pricing environment. But yes, all in all, that is what we’re expecting..

Okay. So positive Q2 cash flow? And then the last question….

Yeah..

… I just have is on the accounts receivable, in terms of, is there a specific part of the business it’s most exposed, say, OBLs are maybe slower to pay than the hospitals or is this an across the Board thing?.

It’s across the Board. Clearly, you do have a dynamic where typically office based labs, some of the doc offices, they tend to be slower than certain hospitals. There’s certain hospitals that are as slow as anybody else and you’ve had that experience as well. So it has been across the Board.

I wouldn’t say there’s any particular area of focus that has really been driving the ARR, but we always knew as we increase, for example, the Auryon business, that the payment terms would be extended in that setting, because it’s a little bit different than a typical hospital setting..

Yeah. And Bill, it’s Jim. I’ll give one other final comment to -- on cash. We mentioned how we’re being flexible with our customers during these tough times. But we’ve also drawn a line here too. We weren’t chasing a revenue number this quarter.

If we were, we would have shipped some other stuff, but we would have some customers that where we’ve drawn a line with some credit hold situation.

So we’re being careful and thoughtful as stewards of, our cash, our inventory being flexible customers, but we are also, there’s a line that we’ve got to be careful with for some customers and we haven’t just pushed products at the door..

Yeah. And Bill getting just to clarify what you said, too. I mean, clearly, we expect to see some of the payments that were in Q1, as we talked about being structural to Q1 not repeat in Q2. The cash conversion dynamic, it’s still with us in Q2. I expect it to get better. But that’s not going to turn overnight.

So there’s that’s going to be an element that to think about as you move into Q2 and Q3..

And then -- and I’m sorry to throw one more in, but on the Bard, they’re -- it’s out with the jury now, when do you expect that final result to be available?.

Well, I don’t know how long the jury will deliberate. It’s actually there. It’s in the jury’s hands as we speak. So we could something we hear about in the next couple of days. It’s depends on how long they choose deliberate. There was two holidays. Yesterday was a holiday. There’s a holiday last week, which is slowed down the court process a bit.

But we’ll see. It could be something we hear about anytime..

Great. Thank you..

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

Yeah. Thank you for the investors who are listening in and keep touch with AngioDynamics. Again, I’m pleased that during these challenging times, our company has persevered, serving our customers and treating patients with our technologies that are innovative and that are efficient.

So we’ll continue to drive value for our shareholders by growing the value of our company. Thank you again and thanks to our employees for the tremendous work..

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