AngioDynamics, Inc.
Q4 2018 Earnings Call Transcript

Published: 11 Jul 2018

[Operator:]

Good morning and welcome to the AngioDynamics Fourth Quarter and Fiscal Year 2018 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 fourth quarter and fiscal year 2018 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 1 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 free cash flow for fiscal year 2019. Management encourages you to review the company’s past and future filings with the SEC, including without limitation, the company’s Form 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. A slide package offering insight into the company’s financial results is also available on the Investors section of the company’s website under 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 conference call. I would now like to turn the call over to Jim Clemmer, AngioDynamics’ President and Chief Executive Officer. Mr. Clemmer?

[Jim Clemmer:]

Good morning, everyone and thank you for joining us today for AngioDynamics fourth quarter and fiscal year 2018 earnings call. With me on the call is Michael Greiner, our Executive Vice President and Chief Financial Officer. Today, I will provide a brief overview of the operating highlights for the quarter. Michael will then provide a detailed analysis of our financial performance and our fiscal 2019 financial guidance. After that, we will open the call to your questions. We are generally pleased with both our quarterly and our full year results as we further solidify our operational foundation, while also focusing on portfolio optimization. As we enter fiscal year 2019, we will experience operating leverage from the foundation that we have built over the past 2 years. We believe that developing a stronger portfolio on top of that foundation will create significant runway to achieve sustainable long-term growth. Our net sales for the fourth quarter of fiscal 2018 increased 1.6% year-over-year to $88.3 million. During the quarter, we continued to experience solid growth in our fluid management angiographic catheter and our AngioVac product lines. Additionally, our oncology ablation products, Solero and NanoKnife also experienced growth. This growth was partially offset by continued headwinds in our Venous Insufficiency business and our PICC product lines. While our revenue growth was moderate in the fourth quarter, we are very pleased with the year-over-year gross margin expansion and solid profitability combined with strong free cash flow generation. Focusing on the performance of each of our businesses, our peripheral vascular business was down 2.4% year-over-year as the previously mentioned growth in fluid management angiographic catheter and AngioVac product lines was more than offset by declines in our Venous Insufficiency business. AngioVac procedural volumes remain strong and were up 14% year-over-year in the fourth quarter. We continue to make targeted R&D investments in our thrombus management portfolio, while also identifying external growth opportunities as we seek to build out a franchise around our AngioVac offering. The Venous Insufficiency business continued to under-perform primarily due to our largest customer discontinuing their exclusive use of our EVLT products. We continue to examine various options to return this business to positive growth. For example, we just received 510(k) clearance for an expanded indication for 400-micron laser vein ablation kit for the treatment of incompetent perforator veins. This clearance was supported by the positive results of our clinical trial that we completed earlier this calendar year. We believe that this perforator vein indication demonstrates the comprehensive value that our EVLT product line can offer to the Venous Insufficiency market. Our oncology surgery business grew 37.5% year-over-year as strong growth from our Solero Ablation System and a robust increase in sales of NanoKnife were partially offset by lower sales of our RFA products. In the fourth quarter of the prior year, we withdrew Acculis from the market in favor of our newly approved Solero products. And as a result, we recorded a $2.6 million reserve for returns of Acculis probes. Normalizing for this reserve, our oncology surgery business grew 6% in the fourth quarter. Vascular Access revenue declined 2.5% during the fourth quarter as growth in ports and dialysis products was more than offset by declines in PICCs. During the quarter, we saw customers continue to gravitate through our BioFlo products, again providing evidence of the value that this one-of-a-kind technology is delivering. As we have discussed in recent quarters, one of our top strategic priorities has been portfolio optimization both internally and through value creating M&A. Our portfolio optimization will focus on the continuum of care within oncology as well as disruptive and patient focused technologies that are differentiated and truly changing healthcare has delivered. We will continue to seek out acquisitions focused on products and technologies that fulfill unmet needs in large addressable markets and generally have high margin profiles. NanoKnife and AngioVac are two examples within our current portfolio and we are enthusiastic about continuing to build platforms and franchises around these exciting technologies. In an effort to support how we think about our business platforms, we have renamed our Peripheral Vascular business to Vascular Interventions and Therapies and we have named our oncology surgery business to simply oncology. This renaming is effective as of June 1 and we will begin reporting using these new business names in the first quarter of FY 2019. The product families included in these business units will remain the same. However, we have realigned our sales teams to reflect our focus on portfolio optimization within both of these business units and we continue to shape our international approach around specific products in defined reasons that are well-positioned to win. With that, I would like to turn the call over to Michael Greiner, our Executive Vice President and Chief Financial Officer.

[Michael Greiner:]

Thanks Jim and good morning everyone. Before I begin, I’d like to remind everyone that we have posted a presentation on our Investor Relations website summarizing the key items associated with our fourth quarter and fiscal year results as well as the list of key objectives supporting our 2019 outlook, including our financial guidance. This information is intended to complement these prepared remarks. As Jim mentioned, our net sales in the fourth quarter of fiscal 2018 totaled $88.3 million, which represents a 1.6% year-over-year increase. For the 12 months ended May 31, 2018, net sales were $344.3 million, a decrease of 1.5% compared to the same period a year ago. Foreign exchange had a positive impact on both our fourth quarter and full year revenue of roughly 50 basis points. We have not historically called out any foreign exchange impact on our revenue, because it has generally been de minimis. However, due to the benefit it provided in the fourth quarter and fiscal year, we believe it was appropriate to identify in the same sense. Going forward, we will discuss foreign exchange in certain quarters when the impact could be significant. Our gross margin for the fourth quarter of fiscal 2018 expanded 500 basis points to 53.7% from 48.7% a year ago. This improvement was largely attributable to the prior year Acculis recall that was announced in the fourth quarter of 2017 and had a negative impact on the last year’s cost of goods sold. Additionally, gross margins were positively impacted by the ongoing operational improvements, the recently completed facility consolidation and the expiration of royalty arrangement in the second quarter of fiscal 2018. Excluding the impact of the Acculis recall, gross margin for the fourth quarter still expanded 100 basis points. For the12 months ended May 31, 2018, our gross margin ended at 51.4%. While we do not achieve our full year gross margin target of 52%, we are very satisfied overall with our execution on closing two manufacturing facilities and improving net productivity throughout the year. As a result, we anticipate our fiscal year 2019 gross margin to be in the range of 54% to 56%. It is worth noting that this gross margin expectation for fiscal 2019 does not include any potential impacts related to our portfolio optimization objectives. Our research and development expenses during the fourth quarter of fiscal 2018 were $6.5 million compared to $6.7 million a year ago. For the 12 months ended May 31, 2018, our research and development expenses were $25.5 million or 7.4% of total sales compared to $25.3 million or 7.2% of total sales a year ago. Although R&D was up modestly in absolute dollars, our spending in fiscal 2018 was more intensely focused on key investments that are supported by high ROI outcomes as a result of the more disciplined R&D processes that we have implemented in the past quarters. We will continue to focus on these key areas of organic investment that will likely see an uptick in R&D spend as a percentage of sales in the upcoming year approaching approximately 8%. Now, moving to selling, general and administrative expenses, SG&A expense in the fourth quarter of fiscal 2018 was essentially flat at $28.8 million compared to last year. For the 12 months ended May 31, 2018, our SG&A expense decreased to $108.5 million compared to $110.2 million a year ago and was 31.5% of total sales in both years. Our adjusted net income for the fourth quarter of fiscal 2018 was $7.7 million or $0.20 per share compared to adjusted net income of $6.8 million or $0.19 per share in the fourth quarter of last year. And for the 12 months ended May 31, 2018, our adjusted net income was $27.6 million or $0.74 per share compared to adjusted net income of $27 million $0.73 per share a year ago. The presentation posted on our Investor Relations website includes a slide that details two of our specific income statement captions that impact our U.S. GAAP net income results versus our adjusted net income results that I just discussed. We specifically identify these items in our income statement under the caption changes in fair value of Contingent Consideration and Acquisition, Restructuring, and Other Items, net. We utilized consistently implied non-GAAP measures in the establishment of operational goals and we hope that these non-GAAP measures assist all external stakeholders in analyzing our underlying and continuing business trends over time. Adjusted EBITDAS in the fourth quarter of fiscal 2018 excluding the items shown in the reconciliation table on our presentation was $15.6 million compared to $14.3 million in the fourth quarter of fiscal 2017. For the 12 months ended May 31, 2018, our adjusted EBITDAS was $57 million compared to $58.7 million for the same period a year ago. Now, moving to the cash flow and balance sheet, in the fourth quarter of fiscal 2018, we generated $23.8 million in operating cash flow and $23 million in free cash flow primarily due to our solid core earnings and are laser focused on working capital management. With that, we ended May with $74.1 million in cash and cash equivalents and $92.5 million in debt excluding the impact of deferred financing costs. As Jim mentioned earlier, we are pleased with our consistent free cash flow generation, which bolsters our strong balance sheet and provides us with the capital we will need to pursue targeted investments in R&D and strategic M&A opportunities. Now, on to our financial guidance for fiscal 2019, we expect our fiscal year 2019 net sales to be in the range of $344 million to $349 million and as I mentioned earlier gross margin in the range of 54% to 56%. We are planning to generate between $38 million and $43 million in free cash flow. However, this does not account for approximately $12.5 million cash payment to the Department of Justice related to previously disclosed legal matters. As you know, we expected this payment to occur in the fourth quarter, but now anticipate that it will incur during our first quarter. Our adjusted earnings per share will grow double-digit percentage to a range of $0.82 to $0.86. This is supported by the full year revenue guidance and our new gross margin run-rate partially offset by an increase in R&D spend as I noted earlier as well as increased accruals for variable incentive compensation throughout the year, which will likely drive SG&A slightly higher as a percentage of revenue. Finally to assisting your modeling please note that we expect our sales for the first quarter of fiscal 2019 to be lower compared to the same period a year ago. In the first quarter of fiscal 2018, we recognized $1.6 million related to the reversal of the Acculis reserve due to product exchanges for our Solero product offering. Additionally, we are still annualizing the reduction in VCA volumes in our Venous Insufficiency businesses, which will result in at least a $2 million headwind in the first quarter of fiscal 2019. These two headwinds will be somewhat offset by growth in other areas of our business in the first quarter. With that, I would like to turn the call back to Jim.

[Jim Clemmer:]

Thanks, Michael. Before we open the call to questions, I would like update you on the progress of our NanoKnife program. As we have previously announced, the FDA has granted the expedited access pathway designation to our NanoKnife system and a proposed indication for use for the treatment of Stage 3 pancreatic cancer. We firmly believe that our proprietary reversible electroporation technology provides unique platform upon which we can build a winning, differentiated oncology business. We are currently focused on driving our strategy, to obtain FDA claims, payment reimbursement and market adoption for pancreatic cancer, but are also planning on the next phases of a platform approach that will address treatments of other cancers, including liver, prostate, lung and brain. In June, we submitted our data development plan providing the details of our trial design to the FDA. As previously discussed, we are committed to executing our data development strategy by conducting a comprehensive clinical trial with three main goals

[Operator:]

Thank you. [Operator Instructions] Thank you. Our first question today comes from the line of Matthew Mishan with KeyBanc. Please proceed with your question.

[Matthew Mishan:]

Thanks. Good morning, Jim and Michael.

[Jim Clemmer:]

Good morning, Matt.

[Matthew Mishan:]

Hey, I just wanted to follow-up first on the NanoKnife progress you have made, could you give a little more clarity on what it means for you guys to have a new ICD code that’s IRA-specific?

[Jim Clemmer:]

So, Matt, good morning. We are joined here by Stephen Trowbridge as well and Matt, I would like to ask Steve to answer that question for you in more detail.

[Stephen Trowbridge:]

Thanks, Matt. Appreciate the question. It means a lot and it also means that there is still more to go. So, as Jim mentioned on his call, there is three pillars to reimbursement, you need to have coding, coverage and then payment. The step to get the code is the first step, but it’s also very important step. So whereas in the past when physicians were doing IRE procedures, there was some confusion and there wasn’t real good clarity around how they should code for the procedures that they were doing, which also meant that down the road, it was harder to collect the data and then go back and assess a lot of the work that was being done unless they were doing it under some of the IITs that we have talked about in the past that led to qualifications. So now that we have a code every physician who does the procedure will now have a very clear pathway to code that procedure and keep information around the procedures that they are doing. And what’s great about the current code that we have is that it is specific to IRE, so no other ablation modalities, so it differentiates IRE is any procedure that they are doing. It also differentiates whether they are doing the procedure in the pancreas or the liver and then even further percutaneous lacroscopic or open procedures. So this will provide great clarity going forward in terms of data collection, but it provides great clarity now to our physicians when they are doing these procedures. Those codes will eventually map into a DRG, which will probably be published by CMS sometime between now and when those codes become affected in October. That would set payment piece. Now, you still need coverage which is what Jim talked about, where we are engaged actively in conversations with CMS about providing that coverage piece specifically pursuant to our IDE around pancreatic cancer, but it gives us – the codes also give us the platform to then have additional discussions down the road through coverage for some of those other procedures in liver as well. So, it’s a great first step. It’s going to provide a lot of clarity to our current position, which is going to provide us great efficiency in terms of collecting data as we move forward and it provides us an opportunity to have those second step conversations around coverage some, which we have already had and have really moving down the road on with respect to our pancreas IDE, others that will come as we get into more specific indications later on.

[Matthew Mishan:]

Steve is this more of a collaborative event between CMS and the FDA and Angio that helps enable you to do a better clinical trial or was this done in separate conversations?

[Stephen Trowbridge:]

Look, it absolutely does what you suggested which provides us an opportunity to run a more efficient better clinical trial once we are approved by the FDA. Each of these divisions are separate divisions within the government. I think there is probably some communication that goes on. It’s not as much as industry would like some of the time, but these are very different paths that you have to go forward and you have to touch each of these bases before you can get to the final outcome. So, there is some element of communication, but this is a lot of work that’s being done by the broader Angio team to bring all these elements together.

[Matthew Mishan:]

Great. And then could you walk us through process, Jim, by which you decided what is core and what’s non-core as part of the portfolio optimization process and what’s changed since the Analyst Day last year?

[Jim Clemmer:]

So back at the Analyst Day kind of set forward where I should share with you up to my 1 year in the role kind of where I saw our 11 product categories, remember under our 3 GBUs. We really have 11 product categories. In the past, I think maybe one of the areas that Angio could have done better was really differentiating between those categories. We treated all 11 more or less equally as far as resourcing time and energy and then we will work in a company our size. So at the Investor Day, we identified 4 of the 11 that we thought we are going to get continuous investment at higher rates than the others. And now, Matt, really a year after that as we learn more, looked at more things and even from an Investor Day if you remember them, Bob Simpson had just joined our company right before that if he runs our largest GBU. And since then too, Brent Boucher has joined us that runs our oncology GBU. So we have got new eyes and ears on this business. They have new people in their teams. So, we have crystallized what we are doing there. The work that Chad and the VA team have done have been very clear to specific, the growth that our BioFlo portfolio within the VA business has been strong. So really the three different GBUs getting better market knowledge, we have eliminated a layer I think as you know internationally and globally. So, we can pull our decision-makers closer to the external markets as well. So, we are just little tighter on, Matt, how we make decisions.

[Stephen Trowbridge:]

Matt, I would just add the one product category that we have in our invest grouping on Investor Day in Venous Insufficiency is joint category that has not executed the way we had hoped for. We are still investing behind that. We still believe we have the best laser in the market in that space. But as you know what the reimbursement headwinds, with the RF competition, we got a tough year this year. So as Jim mentioned, we just had a 510(k) approved for vein perforation and we are looking at other opportunities to get that particular product family back to growth.

[Matthew Mishan:]

Okay. And then last question and then I will jump out what’s your ability to carve out or divest pieces of the portfolio without significant disruption or to synergies?

[Jim Clemmer:]

Matt, in any company, if a company were to make a decision to carve out the business or divest something, there is always disruption and you know my background I was at a company that did a lot of M&A internal and external. Here at AngioDynamics if we decide to make a portfolio move that would carve something out as you mentioned or divest something, the good news is the operational aspect of our company is much higher than it was 2 years ago. We have got plans in place that if we were to do that, how we could execute. We have also got the right people in place now who have done that before. So anytime you do something whether you are carving something out or bringing something in, there is always disruption, but here at Angio, we are prepared for that. We are ready for it. We think we would execute well on either aspect with M&A.

[Matthew Mishan:]

Alright. Thank you, Jim, Michael, Steve.

[Jim Clemmer:]

Thanks Matt.

[Operator:]

Our next question comes from the line of Jayson Bedford with Raymond James. Please proceed with your question.

[Jayson Bedford:]

Hi, good morning and thanks for taking the question. So, I guess maybe just to follow on with the last line of questioning when should we realistically expect to hear something on the optimization of the portfolio?

[Jim Clemmer:]

So Jayson, this is Jim. Good morning. Jayson, we have talked about it now for a couple of quarters that we are in that phase. As you know the first, I’ll call it, we have 4 to 6 quarters of my tenure here at Angio was more shoring up the business that we talked about getting gross margins right in the operational aspect. With the last 6 months or so, we have shifted a little bit, because we know the market is better than we did before. So we are really in that phase, Jayson, where we are doing deep analysis around potential opportunities to either bring it to our portfolio or maybe to shift out. So it is hard to gauge exact timing, but we are actively engaged in the process utilizing discipline I think we have shown to you over time. Maybe soon we will have some announcements, but we are actively engaged in that process.

[Jayson Bedford:]

Can you just walk us through the renaming of the two segments there and more specifically how does that improve the business?

[Jim Clemmer:]

Renaming the segments does not improve the business, Jayson. We think it helps describe the focus of the business change. AngioDynamics has been tied for a while to our legacy and our history, which is strong. We have served the interventional radiologists at a very high level in all three of our business GBUs and we will continue to serve the IR doctors, but over time, I will give you a couple examples. You see this double-digit growth we have had in procedure volume in AngioVac, it’s been tremendous what that’s done. We know what the unique tool can do when it’s in a physician’s hands. So, what Bob and his team have done this year, we have also carved out our sales force a bit differently allowing people to focus on just representing that product to our surgeon partners. So Bob and his team felt they would also kind of rename the business to focus on where they are going within our peripheral vascular franchise, but it has four segments, but the future business has been better defined by what they have named it. On the ontology surgery side, the same thing, Brent and his team are focused on developing an oncology business. Today, we are the leader in ablation technology that we want to be a full oncology provider. We have always had a small surgical tool in our bag, but it’s not that we are focused on. So, tomorrow we want to know the medical oncologist, the radiation oncologists at much deeper levels than we do today. So we want to let people know we are an oncology company and we are focused upon it. Other than that, Jayson, our strategy and our execution will drive results up in those.

[Jayson Bedford:]

Okay. Maybe for Michael, couple of financial questions, one, it appears that the tax rate was pretty high in the fourth quarter, I guess the question is why and what the assumed tax rate in fiscal ‘19?

[Michael Greiner:]

So the effected tax rate in fiscal ‘19 will approach around 50%, but remember again, given our NOL situation, we only had about $2 million of that of the $6 million tax expense that is cash based, the other $4 million relates to a variety of deferred tax items that we are working through. And then when you look at the full year for fiscal ‘18 we had a significant tax benefit related to the revaluation of the deferred taxes due to the tax reform act as January 1, 2018.

[Jayson Bedford:]

I guess what I am getting at is the $0.82 to $0.86, what’s the tax rate tied to that adjusted EPS?

[Michael Greiner:]

Sorry about that, I missed that Jayson, so 23%, so that’s the 21% plus 2% for state and local, so full year 23% next year versus we had the blended rate this year given our fiscal year versus the January 1 effective date for the tax reform act.

[Jayson Bedford:]

And just to be clear the $0.20 in adjusted EPS you reported for the fourth quarter here, what was the tax rate tied to that?

[Michael Greiner:]

That was 30.62% which is the blended rate for the full year.

[Jayson Bedford:]

Okay. And then when we look at fiscal ‘19 if gross margin is 54 to 56 and I realized there is a little step up in R&D, but it seems like there is a big step up in OpEx, so where are you spending all of these additional dollars that weigh on margins?

[Michael Greiner:]

So, you are right, so we are going to have some additional gross margin drop to the bottom line offset some partially offset by increased R&D. And then as I mentioned in the prepared remarks, we will have at least at the beginning part of the year an accrual for variable compensation for commissions and bonus tracking at 100% going into the year, which is a headwind versus where we ended up this year with the lower revenue outcomes that we have. So we didn’t payout full commissions or full bonuses in FY ‘18 as we didn’t achieve the intended results, but obviously as we accrued going into the year for FY ‘19 we are assuming we are going to achieve the results that we laid out today, so that’s a big portion of that headwind is that.

[Jayson Bedford:]

And is there any way to quantify that?

[Michael Greiner:]

It’s about 150 basis points in total as a percentage of revenue across SG&A, selling and marketing and general and administrative.

[Jayson Bedford:]

Okay. And then last question and I will let someone else jump in queue when do you anniversary the customer loss in the Venous Insufficiency business?

[Michael Greiner:]

So, towards the back half of the second quarter, so October-November timeframe was when we saw some acceleration and then as we get into the third quarter we will start to see some leveling off of that, but it’s not going to happen to fully anniversary into the fourth quarter.

[Jayson Bedford:]

Okay, thank you.

[Operator:]

Our next question comes from the line of Jason Mills with Canaccord Genuity. Please proceed with your questions.

[Jason Mills:]

Hi, guys. Thanks for taking the question. Can you hear me okay?

[Jim Clemmer:]

Good morning.

[Jason Mills:]

Good morning, Jim. So two questions, one on portfolio management, the other one on NanoKnife, starting with portfolio management, Jim, sort of trying to give us guidance on the cadence of how things play out can be very difficult, there is not so much you can say about what you are going to do from a divestiture standpoint if anything in acquisitions, but as you think about the next couple of years are you looking to add more than subtract or add before subtracting or is there any sort of strategy you have in place or as you look at what you are looking as you can talk about what you are looking at now from those standpoints. Can you give us any sense for what looks it may have reached the bottom of the funnel first?

[Jim Clemmer:]

Yes, Jason, fair question. As you know you identified, it’s really hard to time these things exactly. We are looking to add things around a couple of our businesses that we see where we have deep platforms. We talked about a couple of those this morning with NanoKnife or AngioVac and some other things we have. So, we are going to add around those and so those maybe smaller in scope out of the gate, but adding a few small things to an already established base we think makes some sense in those areas. And they are also very specialized there as there is not a lot of large things there. So, we are not trying to time one over the other. They maybe mutual activities occurring simultaneously we think we can execute them as I mentioned earlier we planned for this. So we are ready to execute now our portfolio objectives. I can’t tell you today what may happen first obviously if something does we will talk to you about it given the rationale as to why, but we are active in both ways. Through effective portfolio management, it’s usually a combination of in and out. In both of those we expect the practice during this fiscal year.

[Jason Mills:]

Fair enough. Just as you follow-up on that Jim, maybe you could give us a sense for you mentioned smaller – sort of smaller assets in some of those growing areas with lot of those assets aren’t big, are we talking about assets that are generating revenue today or will there be clinical trial time periods and cost associated with the assets that you mentioned? And then maybe more for 20,000 foot level as you are looking at valuations with those that you may have to valuations you may have to buy and valuations you may get for your businesses, at least in my 20-year career and this never traded at multiples this high. So it’s a good time to be in med-tech, so perhaps you could comment about what you are seeing within the marketplace both from an acquisition and a divestiture standpoint in terms of what folks are willing to pay and maybe what they are wanting to get paid?

[Jim Clemmer:]

So, good series questions. Let me try to jump on kind of your theme here. So, couple of things here, 2 years ago, as you know our company was valued if you look at just a revenue valuation, our company’s valuation was about 1x our revenue and today we are a little over 2x our revenue, okay, fine we are still underneath the average as you just identified med-tech valuation. So we climbed the curve. So you make the assumption that we were to divest an asset probably priced about 2x revenue. And as you just mentioned earlier, some of the valuations they are very high externally. So the discipline that Michael has financially, we have a really good set of strategic objectives that our 3 GBUs have driven about where they wanted to be. We have also got to match that then with financial sense that will work for us. So, we will probably pay, Jason, to your point a little higher bringing the asset in-house to make it a value of something that may exit our home, but we are going to try to find fair value of what we buy. We also believe that when we add that product, it will drive our whole company’s valuation higher, because it will be in areas that have higher growth and higher margin. And back to your question you asked earlier about do we look at things that are probably not revenue-generating initially, it’s about our initial targets. We like to find something that has revenue streams initially that may benefit from our commercial execution capability or the alignment of that technology, the current technology within the AngioDynamics family. We have on campus already, Jason, a couple of things that I’d call “science projects” and some of that we have talked to you about today with NanoKnife, which is a proven effective ablation technology, but the work had not been done at Angio to the level that we expect as far as the regulatory and clinical pathways open it up. So, we are doing around “science projects” internally around NanoKnife, around AngioVac expansion and some other tools we have inside that we will talk about later. So really looking externally to the things that are clearest focus are things that today already have the regulatory pathway clear and may already generate some level of revenue that we believe we can accelerate a curve adding for our family.

[Jason Mills:]

That’s helpful. Thanks for the color on that, Jim. With the last sort of winding question for me on NanoKnife, could you sort of take us back a little bit to the 20,000 foot level and as you are running through these clinical trials which we have all been waiting I think for years to see progress in, so kudos to you on that front in reimbursement, it sounds like it’s moving in the right direction. But as you are thinking about the patients you are studying in this trial and the patients that your clinicians are seeing or expect to see once you hopefully post good results what’s your low hanging fruit target additional market, what’s the patient flow through the clinicians offices today, patients that would be prime candidates for NanoKnife treatment. What does that market look like and with good data what kind of adoption rates would you expect? I guess the other part of that question would be how many centers that we have good data here eventually how many centers will have NanoKnife and really truly be developing the therapy continuum within their hospitals?

[Jim Clemmer:]

That’s a lot of questions, but I understand where you are going. And Jason, what we want to do this morning was share with you where we are at right now. We hope to have other news in the very good future, we will share with you a more defined pathway, but let me take a quick swing that the genesis of your question off, Steve had a little bit of detailed color. What we have done in the last year and a half here is really developed clear pathway what we believe in is the right way to get the regulatory clinical pathway done. If you have access to our customers, physician partners to use NanoKnife in a proper way that we can train them properly, make them treat people properly. We have a good idea of how many people are diagnosed with Stage 3 pancreatic cancer on an annual basis, talked about the U.S. for now. And today very few of those people are able to receive coverage from our product, but we are timing the deals on these pathways up. When we do just getting the pathway in the reimbursement coding isn’t an early challenge. We also have to make sure that the medical oncologists are people that drive care within the medical centers are aware of the clinical efficacy of NanoKnife. So, we have a lot of work to do, but we are very encouraged by that fact we have done a lot of work the past 12 to 18 months in the background anticipating positive results in this trial. Steve?

[Stephen Trowbridge:]

Yes. So, your question you invited us to kind of go up to the 20,000 foot level and then you are asking little specifically about what we think the markets are for some of the low hanging fruit for the patients coming through. And I want to build on that theme, because I think that the right way to look at it I want to harking back to what Jim said earlier in his prepared remarks where he talked about irreversible electroporation in our NanoKnife technology as a platform and then us trying to move that platform or jump off that platform to go to a variety of different cancers, including liver, lung, prostate and brain and we see that the promise that our technology has is great in all of those areas, but we do think that the pancreatic cancer patient is the first place to go after and that’s one of some things that we talked about when we discussed to achieving our breakthrough designation is that there is a huge unmet need in pancreatic cancer now. Over 55,000 patients are diagnosed every year in the United States in that Stage 3 area and they are very limited options. So that’s why we are going after that first, but we really do see NanoKnife as a broad platform that has promised the patients throughout the spectrum of cancer care. This is the first step, but we would anticipate going after all of those. So this pancreatic cancer patient population is the low hanging fruit from our perspective because of the unmet need. There are a lot of other options, but it’s probably not the biggest market that we are going to go after as we start to build out on the promise of this technology.

[Jason Mills:]

Thank you, guys. That’s helpful.

[Jim Clemmer:]

Thanks Jason.

[Operator:]

Our next question is from the line of Matt Hewitt with Craig-Hallum. Please proceed with your questions.

[Matt Hewitt:]

Good morning gentlemen. Thank you for taking the questions.

[Jim Clemmer:]

Good morning.

[Matt Hewitt:]

Just to follow-up on the NanoKnife line of questioning a little bit how should we be thinking, I realized it’s not a short-term situation, but how should we be thinking about those other disease states? Are those markets that you will be going after simultaneously, the liver, the lung, brain or would you not want each one-off separately in succession?

[Jim Clemmer:]

So, it’s a good question. We identified a few of those other disease states today on the call, because we are aware of the efficacy. We have seen published results as what Nano has done the physicians have used our product. What we are going to do here though I think it’s so important for our company. Credibility wise, number one, the execution wise, number two, to get our pancreatic cancer program done. NanoKnife has been in the market for a number of years and it hasn’t had the regulatory and clinical pathway that we desire. So we think it is very important around as Steve just mentioned the largest unmet need and the patients who can benefit the most are those folks that are diagnosed with Stage 3 pancreatic cancer. So we are committed to try to get that program done as efficiently as possible to get those patients access from this treatment device that we have. When we do that, then we will give you clearer view as to what our staging will be of your next disease states. We have the benefit here at Angio having people like Steve and good people on a regulatory and clinical work group, we also have a blend of people who have run this business for many years have very good and deep knowledge and good ties to the KOLs externally and new people have come into run this business. We have a lot of good history and a lot of good forward-looking view. So we will share that soon. But right now to us the largest hurdle for us is clearing our NanoKnife pancreatic pathway.

[Matt Hewitt:]

It sounds good, alright. And then maybe one question a little bit different here though during the prepared remarks you had mentioned that you had recently completed a realignment of the sales teams in a couple of the groups. Maybe if you can provide a little bit more color on what the new targets are and whether or not you anticipate any near-term or short-term disruption because of that realignment?

[Jim Clemmer:]

It’s a good question. So there is really not a whole lot of disruption as really positively. Look at our peripheral vascular business that we just renamed. So Bob and his leadership team on the commercial side has taken a look at how our businesses have performed. You look at our fluid management business that has been up over 5% this year. We are the really strong competitor, but we have just out executed them. One of the gifts we have there is not only talented people that manage the business and sell those products, but we also have the gift of focus, we have a defined sales group that is responsible for those products in the U.S. They have outperformed the marketplace. So, we have taken some of that gift now and aligned it to another category that is very important to us. Our AngioVac or our thrombus category now has a defined sales team. While there is couple things to happen the folks then on the venous side are now aligned and defined as well. We had a tough year last year on venous. Now, the new team cannot worry about one corporate customer that we lost, they can do what they do best, generate relationships and trust with smaller individual customers that understands the efficacy of our laser. So we have really just broken down our sales team to be closer to the customer, closer to the acts where decisions are made and to make sure we clinically represent the technologies that we have in a better manner. We have really good people. Now they are aligned in a better manner.

[Matt Hewitt:]

Understood, great. Thank you very much.

[Operator:]

Thank you. [Operator Instructions] The next question is a follow-up from the line of Matthew Mishan with KeyBanc. Please proceed with your questions.

[Matthew Mishan:]

Hi, thanks for taking the follow-up guys. I just wanted to talk a little bit about the competitive landscape around IRE, are there other players who are trying to enter this area and how confident are you in the ability to protect like the patent portfolio?

[Jim Clemmer:]

Sure, Matt. I will jump in on that. There are other people that are getting into this area more broadly. I do think that we haven’t seen a lot of people getting into the specific irreversible electroporation or other parameters that we have proven out with NanoKnife, but we do know that there are other people that are looking at the delivery of energy as a way to treat cancer patients. We are continuing to build out our patent portfolio. We do feel very strongly that we have created the right sense around our technology and all of the history of patients that we treated throughout the 8 years that Jim talked about NanoKnife being on the market. So, we feel pretty confident in our IPE position as well as the position that our technology currently has. We are currently – we are always looking to see who else is looking to get into this game and make sure that we continue to stay on the leading edge of the development of this particular type of therapy. So, look, yes people are looking at it, but we feel pretty strong about our current position and we are going to continue to bolster that position.

[Matthew Mishan:]

Okay. And then in the EVLT business, in addition to the headwind from a customer contract loss, we are also seeing Medtronic move in, our competitor move in with VenaSeal with some good reimbursement for that product. What’s the headwind, the additional headwind you may see from a competitive entry like that entering the market?

[Jim Clemmer:]

Matt, I think we have seen more of an issue around the RF product from Medtronic than the VenaSeal. I think they are working hard probably in their end I can’t speak for them, so maybe balance their portfolio a bit. But really we have not seen as much maybe adoption or marketplace disruption from VenaSeal, I think that their issue was to get that aligned in their portfolio, but the RF reimbursement has been the bigger hurdle we have seen and now we think we can face it well, we know the efficacy of our laser, it works really well. Physicians globally understand the value of what it does to help treat patients. So now part of the realignment we have done is allow our sales reps to communicate that message in a more clearer fashion. Medtronic will always be a tough competitor, but we think we are better aligned now than we were in the past.

[Stephen Trowbridge:]

And Matt, I would just add to that. I think just even broadly to non-thermal, non-tumescent categories, including ClariVein and VenaSeal we have not seen a ton of disruption there that doesn’t mean that might not come later on next generation forms, but Jim is exactly right, the RF impact has been far more significant.

[Matthew Mishan:]

And then last question on AngioVac it seems like the growth has been much more sustainable at these levels over like the last three or four quarters what do you see has been the drivers of it previously it’s been more fits and starts there?

[Jim Clemmer:]

Well, if you look at it internally first of all we have a really good marketing team that understands that product, second a good R&D team that’s working with that marketing team adding value to the product, third the product is really good, it does what nothing else can do in that space. And then finally we are looking at, these cases shift or watching clinicians who have done cases shift what they’re treating or seeing more cases being done in the right heart by our physicians who have treated things differently. So watching the shifting in care I think they are now seeing positive results in that area so we are very very careful into how we support that and we're now looking at expanded regulatory and clinical pathways that we're interested in that'll speak to you about in the very near future, to help open up the way we can get AngioVac to market. So, it's just more -- Mat may be hopefully you will see -- or maybe you'll look back at AngioDynamics and use the AngioVac example of what we are trying to do here, where we have something that we know is really differentiated, the technology is terrific, what we have not always had is maybe a really strong business plan around that technology that encompasses not just to go to market plan but a clinical and regulatory pathway plan. So now we built those and we got really good clinical and regulatory people combined with good marketing people and great effective sales people to carry the message to the street. So take AngioVac that you just identified as consistent success and hope you will see that from us in a few more categories going forward.

[Matthew Mishan:]

Thank you.

[Operator:]

Thank you. At this time I’ll turn the floor back to our CEO Jim Clemmer for closing remarks.

[Jim Clemmer:]

So, folks, thank you for joining us this morning. Again at AngioDynamics, we are a work in progress. We are proud of the lot the results we could report this morning, but we also have identified areas that we can improve upon, areas that we know we can do to increase value to our three most important stakeholders, our customers who represent our patients, our employees and our shareholders. Each of those three stakeholders deserve value from AngioDynamics and will deliver. Thank you for being a part of our story. We look forward to sharing our growth in the future.

[Operator:]

Thank you. This will conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.