AngioDynamics, Inc.
Q4 2012 Earnings Call Transcript

Published: 13 Jul 2012

[Operator:]

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the AngioDynamics Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, July 12, 2012. I would now like to turn the conference over to Mr. Bob Jones. Please go ahead.

[Bob Jones:]

Thank you, operator, and welcome to the AngioDynamics conference call to review the results of the fiscal 2012 fourth quarter and full year ended May 31, 2012. As Joe DeVivo has just had mentioned, we have sent the news release to the wire services and is in process of being distributed. But in the interest of time, we didn't want to begin the call. This call is being broadcast live with accompanying presentation -- slide presentation, which are now available on the AngioDynamics' website. A replay of the call will also be archived on the company's website. To access both the live webcast and the archived replay, including the presentation slides, please go to the Investors section under Events and Presentations. If you are listening by telephone, to view the slide presentation, navigate to the live webcast as noted and choose the no audio slides only option to view the slides in conjunction with the live conference call. Before we get started, during the course of this conference call, the company will make projections and forward-looking statements regarding future events, including statements about revenue and earnings for fiscal 2013. We encourage you to review the company's past and future filings with the SEC, including, without limitation, the company's forms 10-Q and 10-K, which identify specific factors that may cause actual results or events to differ materially from those described in forward-looking statements. Finally, during the Q&A period today, we'd like to request each caller to limit themselves to 2 questions and encourage callers to re-queue to ask additional questions. We appreciate everyone's cooperation with this procedure. Now I'd like to turn the call over to Joe DeVivo, President and Chief Executive Officer.

[Joseph M. DeVivo:]

All right, guys. Well, thank you for joining us today. We don't have no idea why it's not -- the release is not across the wire. There's nothing unusual. So aside from the fact that it's not across. But we have a really detailed presentation for you, really detailed slides that we'll go through, the business and growth rates, et cetera, et cetera. So we think it's worth not waiting for it to see why the wire service hasn't put it across. We have a lot of tables and reconciliations and maybe they have some formatting issues. But just so you know right now, there's nothing abnormal, there's nothing with the business. Everything is fine. Actually, everything is great. Let me go through and talk to you and start my prepared remarks. So with that. So good afternoon, and welcome to our fourth quarter and fiscal year-end 2012 Conference Call. With me on this call is Joe Gersuk, our CFO. I'll first provide some highlights of the fiscal year, and then Joe will provide details on the financial results for the quarter and for the year. Before taking questions, I want to take the opportunity to take with you our vision and outlook for fiscal '13 and beyond. Before I get into that, I just want you to know this call is really intended to communicate with detail our strategy and the components which will drive our growth. It'll be a more thorough presentation than the past, given the importance of the acquisition of Navilyst and the first view as to how we look like a consolidated organization. So we'd appreciate your attention and also, we appreciate your patience as we provide you with a lot of great information. Today, it's a new day for AngioDynamics. We are bigger, stronger, more competitive, more talented, more focused than we've been in years. Already, we are seeing the benefits of the integration. We have a new management team, comprised of experienced AngioDynamics and Navilyst executives. And also, new members of the -- to the combined company. Operations are improving, savings are being realized. Our product development pipeline is robust and the deal pipeline is active, as we again become a company led by innovation. Ahead of us is a clear path to success through the execution of our integration plan, which is well underway. And our 2013 operating plan, which we are in the initial stages of delivering on, is also underway. Longer-term, our goal is to grow the top line by a minimum of 10% annually, while improving EPS by at least 15% each year. We intend to exit 2013 well on our way towards achieving this goal. Now you can see on this next slide, AngioDynamics has a new logo and a new branding treatment, which visually casts a new image for the company. And we are bringing to the company a proud and successful legacy in this new brand to AngioDynamics. It's crisp, modern, unique, and is a beacon to the new successful days that are to come here at AngioDynamics. Moving forward, we intend to continue to cost effectively drive innovation to our growing number of customers of our Peripheral Vascular, Vascular Access and Interventional Oncology products. We will spend time during this call giving you clearer direction in these areas with unprecedented transparency, show you detail on what level of revenue we expect to accomplish in our key product segments, show you growth rates, which will build to our guidance and also share with you some of the structural makeup, which will help us better meet our customer's needs. So first, let's go through our fourth quarter accomplishments. In Q4, we closed the acquisition of Navilyst Medical on time and commenced integration on schedule. We accelerated the momentum of our VenaCure EVLT business and exited 2012 with a 17% worldwide growth rate performing over 90,000 procedures during the fiscal year. That's a record for the company and at it leads to a full year revenue growth for EVLT of 14%. NanoKnife recovered from our temporary stop in shipments to complete software upgrade, and achieved its first $4 million revenue the quarter with an excellent balance of sales between the U.S. and international. As I mentioned on previous calls, for NanoKnife, calendar 2012 would all be about data. The Journal of American College of Surgery published 2 peer review studies highlighting safety of NanoKnife, near vital structures, as well as safety of NanoKnife in the pancreas. We next -- we expect more peer review publications to follow this year and into next year. We signed an exclusive distribution deal with Microsulis to enter the microwave ablation business, thus strengthening the global leadership for AngioDynamics in interventional oncology. We launched the Navilyst embarked microcatheter and Charter guidewire for use in embolic procedures, a key reentry to the embolic market for AngioDynamics. We won an exclusive GPO agreement in Canada with Health Pro, driven by the early success of BioFlo, which we believe will increase sales in Canada this year by 30% alone. Lastly, we hired a new Chief Technology Officer, George Bourne, who has extensive experience from Boston Scientific and Navilyst, with direct expensive in vascular access and interventional oncology, and he's reengineering our research and development organization to bring to the market new innovative products that deliver sustainable organic growth for the company the future. All in all, not a bad quarter. So turning to integration. Some investors and analysts have expressed concern about the size of the deal we did and the risks associated with combining the organization into one company. While I understand the concern, it's their concern, not my concern. This is not my first rodeo. We have a seasoned team with significant integration experience in place. We've had a lot of time to plan and we made the most of it. At transaction close, the integration plans were announced and we hit the ground running. My leadership team was announced, as well as their respective organizations. A new quality organization was launched. Changes made in operations. Sales forces reorganized. In the U.S. and in international, 3 new global businesses launched, and new 2013 budgets rolled out, accomplishing for the company all of the $5 million to $7 million of synergies that we expect in fiscal year 2013. As we sit today, we have eliminated headcount costs, which immediately, aside from the onetime cost, impact positively the expense structure of the company. Day 1, our combined customer services teams started to receive combined purchase orders from customers. Orders received, order shift, all looks good. In addition to the immediate changes we made, we launched our projects to realize longer-term efficiencies which, as new systems are implemented, savings through efficiency will be realized. They include conversion to a single Oracle platform, a company-wide ERP implementation, consolidating a company-wide QMS system, creating a single functional shared services organization and accelerating our Operational Excellence programs. For now, let's turn our attention to our Quality Call to Action. To date, we continue to deliver on all the commitments we have made to the FDA to remediate the Form 483 observations we received in February. We continue to build our QMS and expect to use significantly fewer resources as fiscal year 2013 progresses. As you see on this slide, we have made progress and our commitment to quality, which of course, resulted in near-term charges to gross margins. In the fourth quarter, gross margins, as percentage of revenue, was reduced by 4.3%, as evidenced by our commitment. Based on the progress to date, looking at the slide, we expect QCTA expenses to be declining throughout the fiscal year, which is a very good sign. Another key development of our QCTA comes through the integration of Navilyst into AngioDynamics. Our operations leadership team from Navilyst has taken over the QCTA effort. Navilyst has a strong record in quality, and each of the key leadership positions today are led by a key member who come to us from the Navilyst team. There's experience, as well as proven processes, which are being implemented realtime, accelerating the timeline to complete remediation and success. The Senior Director, for example, of manufacturing for Navilyst is now also running Queensbury and Glens Falls facilities, making a real impact and real change. I have complete confidence today in his organization, and in our new VP of Quality, who also comes from Navilyst. With this backdrop, I'll now turn it over to Joe, who will provide more detail on the fourth quarter and full year 2012. Joe?

[D. Joseph Gersuk:]

Thank you, Joe, and good afternoon, ladies and gentlemen. We closed the fiscal year with solid fourth quarter top line performance, reporting a 3% net sales growth, inclusive of the Navilyst contribution following the closing of the acquisition on May 22. To measure the underlying condition of the business, we exclude the $4.8 million Navilyst contribution, as well as the $8.2 million in LC Bead sales a year ago, to arrive at a 10% growth rate for our core business in the quarter. At the same time, we acknowledged a 10% growth rate as compared to a weak fourth quarter performance a year ago. So while we do not suggest that our underlying business is growing at a 10% rate, as we exit fiscal '12, there are a number of strengths evident this quarter which fuel our optimism entering the new fiscal year. These include the laser vein ablation business, with strong double-digit growth in unit volumes and dollar sales of our 1470 lasers and procedure kits. We believe we have a sustainable competitive advantage in the vein ablation market based on the strength of our product line, our sales force that is highly skilled in selling the laser solution and excellent marketing programs, which support and help grow profitable physician practices. Secondly, NanoKnife is back in the U.S. market and delivered $2 million in sales in the 6 weeks it was available for shipment in the U.S. Worldwide NanoKnife sales were $4.1 million in the quarter, as a total of 8 hospitals became commercial sites and 7 generators were purchased. We ended the fiscal year with a total of 52 commercial revenue sites, which we define as the hospital that has purchased NanoKnife products in the past 6 months. Our optimism for NanoKnife is fueled by recent publications that speak to the clinical successes of the technology, the increased market awareness of its potential, and our strong funnel of hospitals and physicians interested in learning about its benefits. Thirdly, our international business enjoyed another strong quarter with 22% constant currency growth, excluding the Navilyst contribution. Our International business has averaged 20% year-over-year growth for the past 5 quarters and is poised to accelerate following the recent launch of the microwave product line for international sales and with the addition of the Navilyst International business. Navilyst brings a direct sales operation in Canada, making it our fifth international market for AngioDynamics sales directly. And fourth, our U.S. Vascular business performed well this quarter, growing 10%, primarily on the strength of the vein ablation sales mentioned earlier. You may recall from our third quarter call that Vascular sales declined due to product supply outages in the aftermath of our recent voluntary recall. The resolution of these supply chain issues during the quarter set the stage for the excellent Vascular sales report result reported today. And the final comment, with respect to the sales picture, is to note that pricing pressure was again a factor this quarter as ASPs in the vascular division declined by 3% year-over-year and for the company as a whole, the ASPs declined -- decline was 2%. Continuing down the income statement, gross profit totaled $31.2 million or 54% of sales in the quarter, including $1.4 million in cost for the Quality Call to Action program and $921,000 in product recalls, reducing the margin by 4.3 percentage points. Excluding these items, as well as the impact from Navilyst, our gross margin was 59.7% for the quarter. This reflects a 2 percentage point improvement from the prior year, as we continue to make progress with the material cost reduction program and initiatives to improve manufacturing utilization. Operating expenses totaled $38 million in the fourth quarter. We incurred 3 -- $8.8 million of acquisition, restructuring and other items this quarter, of which $7.4 million is associated with the Navilyst acquisition and restructuring action. Other items include professional fees with the recently announced Microsulis strategic relationship, and the transfer of laser manufacturing from the U.K. to our Queensbury, New York facility. Non-GAAP earnings were $0.10 per share, excluding our Quality Call to Action program, product recall, costs and acquisition restructuring other costs, which reflects the true operating performance of the business, absent the special items, all of which are detailed in the GAAP to non-GAAP reconciliation schedules, included in today's earnings release. On a GAAP basis, we reported a $0.27 loss per share. We are pleased to report that Navilyst was immediately accretive to earnings in the quarter, contributing $0.01 to earnings per share, excluding its acquisition and restructuring costs. During the final week of the fourth quarter, we reduced the headcount of the combined company by 28 heads, and we are well on our way to achieving the $5 million to $7 million net synergy goal we indicated on announcing this acquisition in January. Turning to our fiscal year result, we note the 4% growth in net sales, excluding Navilyst and LC Beads and 3% growth in Vascular sales, which is a substantial improvement on the prior year's result. The standout performance for the year, of course, was our International business, which successfully added a direct sales operation in the Netherlands and grew 22% for the year on a constant currency basis. Gross margin, adjusted for Navilyst and the cost of quality investments and recall was 59.5% for the year compared with 58.3% in fiscal 2011. The $0.20 reported loss per share becomes $0.43 in earnings per share, excluding all of the items. Turning to the other financial statements attached to the release, cash flow from operations was $10.8 million for the fiscal year, compared with $33.9 million last year. This year's lower level of cash flow from operations mainly reflects the lower net income, as a result of the acquisition of restructuring programs, as well as the costs associated with the Quality Call to Action program and product recall. As mentioned earlier, on May 22, we completed the acquisition of Navilyst Medical. The transaction was financed through the issuance of approximately 9.5 million shares of our common stock, $150 million in drawn acquisition debt financing and $94 million of balance sheet cash. Based on the closing price of our stock of $12.44 on the day prior to the transaction, the purchase price was approximately $362 million, or $355 million net of the acquired cash. In addition, during the quarter, we invested $5 million in the form of an equity investment in Microsulis Medical Ltd., a U.K. entity, through the purchase of senior preferred stock representing a 14.3% ownership position. We also received exclusive international distribution rights to sell their microwave products through December of 2013, an exclusive option through September of 2013 to purchase all of the global assets of Microsulis. For the year, we spent $2.1 million under the Stock Repurchase Program, purchasing 142,000 shares of stock. We did not purchase any shares during the fourth quarter in contemplation of the Navilyst acquisition, and the buyback authorization expired on May 31, 2012. We ended the year with $40.1 million in cash investments and $150 million of debt outstanding. Interest on the debt facility is LIBOR-based, and the current borrowing rate is 2.74%. In late June, we entered into an interest rate swap to lock in a fixed borrowing rate of 3.24% for the next 4 years on $100 million of the debt. On this basis, our blended borrowing cost today is just under 3.1%. Our debt service requirement in fiscal '13 and '14 is $7.5 million per year and we are comfortable with our ability to readily service this debt. And as for fiscal year 2013, we have included a table in the release, which includes GAAP and non-GAAP guidance. On Slide 14 of our presentation, you will note the details of fiscal 2012 pro forma operating results, calculated on the basis that AngioDynamics and Navilyst were combined throughout fiscal year 2012 with the elimination of the financial impact of LC Beads, and excluding acquisition, restructuring and noted items. On that pro forma basis, the combined entity would have generated $344 million in sales and $0.27 in EPS and that is the relevant starting point for considering our fiscal 2013 guidance and performance. Joe will now address the outlook for fiscal 2013 and beyond in his continued remarks. And I will now turn the call back to Joe.

[Joseph M. DeVivo:]

Thanks, Joe. And everybody, just so you know, the release did cross the wire. It is sitting there. I'm sorry, I don't know why it was delayed. But it is what it is. The results and the message are all the same. So now I'm going to take a little bit of time to look forward. Our mission is to become a world-class medical device company, delivering innovative solutions to our customers in Peripheral Vascular, Vascular Access and Oncology/Surgery, while delivering to investors growth, both top line and bottom line, minimum of 10% to 15%, respectively. We will grow in each one of our franchises through research and development, business development and clinical development of data to prove that our technologies are cost effective and clinically valuable. Each business has their investment area, which will drive future growth for the company. For Peripheral Vascular, we are actively developing an automated Fluid Management system to reignite our market-leading Fluid Management business. We are executing on a comprehensive Venous strategy, as much of the growth in new innovations we believe will occur on the Venous side Peripheral Vascularly over the next 5 years. We have active programs in thrombus management in both thrombolysis, as well as thrombectomy, and are actively reviewing plans for next generation of venous ablation to augment our market-leading EVLT laser system. For vascular access, it's BioFlo, BioFlo, BioFlo. I'll review the technology in more detail in a moment, but we intend to make BioFlo a cornerstone for us, and it's the closer we've reviewed technology its one of the gems that come out of this transaction. We are also actively pursuing a tip location technology, which is needed in the marketplace, and we look forward to communicating our progress soon. Through the oncology franchise, our top priority is to develop evidence to establish NanoKnife as a standard of care in pancreas ablation. Add microwave into our thermal ablation strategy, and continue to do talk ins, as well as R&D expenditures to fill out the interventional oncology offering. So as we go to Slide 13, for the first time, we are breaking out the size and growth rates of each of our global businesses. As you can see here in fiscal year 2012, consolidated pro forma, if AngioDynamics and Navilyst were combined, so we can get a real look at the deep rate of our business, we would have done, together, $180 million in Peripheral Vascular, $114 million in Vascular Access worldwide and $41 million in Oncology/Surgery. So of course, without the LC Bead business, combined AngioDynamics and Navilyst, if they were combined in 2012, would have done $344 million together, representing the current deep rate of the business. Next to each of those business numbers, you will see what we believe what those businesses will grow in 2013, given our current portfolio of products. We are increasing our revenue guidance from the $360 million to a range of $360 million to $363 million for fiscal year 2013. Our guidance implies revenue growth of 5% over the pro forma run rate I just described. We will revisit this again at the end of the presentation. So let's turn now to the next slide, so we can share with you another level of detail showing the breakdown of the key product lines and our expected growth rates for 2013. I earlier mentioned Peripheral Vascular business delivered $180 million worth of revenue in pro forma 2012. Our Peripheral Vascular business is made up of 3 categories

[Operator:]

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

[Jayson T. Bedford:]

I apologize if this is in the release or the PowerPoint. But when I look at the $360 million to $363 million in fiscal '13 revenue guidance, how much is Navilyst and how much is kind of core AngioDynamics?

[Joseph M. DeVivo:]

We haven't -- we don't have any way to really break that out. And I think it's relatively -- that's going to be very difficult to break out.

[D. Joseph Gersuk:]

Yes, there are elements of the business, there are crossing, right? There's port to ports and PICCs and dialysis products and some products or lines will be rationalized. We really are looking at the business and totality, of course. Certainly, the Oncology/Surgery number is a pure legacy Angio business. But the other two really are going to reflect some dynamics as to how the businesses are being combined. So we don't think of it as being particularly relevant, respectfully.

[Joseph M. DeVivo:]

You could see on Slide 10, in 2012, obviously what the contribution is. But yes, to Joe's point, because so many product lines are going to be rationalized and winners and losers, and moving one from left to right, it's not going to be a true indication of -- and we're not, we have internally, we are -- that's not how we're tracking, that's going forward.

[Jayson T. Bedford:]

Okay. I guess, so when I look at the $0.49 to $0.51 in EPS, I guess, it's not right to ask about the implied accretion from Navilyst, similar answer?

[D. Joseph Gersuk:]

Yes, really, I mean, the business is really completely combined. We view it as a single business entity, if you will, with complete integration throughout the organization and virtually all functional areas. So it just isn't really able to discreetly segregate it out, and we're not even going to try to do that.

[Joseph M. DeVivo:]

You saw that consolidated pro forma was about at $0.27. You saw that with beads, I think, with beads, it's at $0.43, but we don't have any beads anymore. So you get to pull all that out. And when you do, you get that number. And so when you start from scratch to roll the businesses out, you take all the cost out that we committed to, it gets to that $0.49 to $0.50. And we have a significant amount of amortization -- $17 million of amortization in there. Without amortization, it's $0.80. So that's how we look at it.

[D. Joseph Gersuk:]

As well, I'd just say, that the -- for example, I mean, we'll run with a single combined sales force in the U.S. and it's a little bit of a different approach overseas. But so it really is fully integrated from an operating expense structure. And although we certainly will maintain and understand what our separate gross profit margins are on all of our product lines. But in terms of bottom line performance, it really is just a fully integrated enterprise.

[Jayson T. Bedford:]

The $5 million to $7 million in cost savings, what's left to do on that, in terms of being able to realize that $5 million to $7 million and in which line item do you think we'll see those savings?

[D. Joseph Gersuk:]

So much of what has been done has been the sales and marketing consolidation of the business. And then beyond that, there's been some affected already in G&A, and some in R&D and a minimal amount in the operations or the cost of goods sold activities. And as we think about it going forward, our whole plan deals lightly with the cost of goods sold area, working on the Quality Call to Action and other programs. But the balance of what is yet to be achieved will be done on the operating expense side over the course of the year. But we've accomplished already the lion's share of that $5 million to $7 million range that we spoke about.

[Jayson T. Bedford:]

Okay. So is it fair to say you've basically already cut out, let's call it net $4 million of the $5 million to $7 million already?

[D. Joseph Gersuk:]

At least that amount.

[Jayson T. Bedford:]

Okay. Then just the last question would be, the EBITDA guidance, it looks like $44 million to $45 million. For some reason, I remember $60 million numbers thrown out? What's the delta between the 2?

[D. Joseph Gersuk:]

Well, it's the GAAP versus the non-GAAP. So the adjusted non-GAAP would be the $60 million to $61 million. And the difference between the 2 would be the $16 million worth of cost associated with the transaction and the various items that are detailed in Footnote C of the guidance table in the release.

[Joseph M. DeVivo:]

Yes, that's not a change. We've always -- when we put the $60 million out, that was net items that we have experience to go through the integration. And even at that time, when that number was out, we didn't fully have a hard number as to what those one-time charges would be. So nothing's changed to our guidance.

[Operator:]

And our next question comes from the line of Brooks West with Piper Jaffray.

[Brooks E. West:]

Joe, did I hear you correctly, that you said the BioFlo product is going to be the singular product that will get Angio to 10% top line growth?

[Joseph M. DeVivo:]

I believe when we launched BioFlo in PICCs, ports and dialysis, our Vascular Access business will be a 10% grower.

[Brooks E. West:]

The Vascular Access, but not the whole company?

[Joseph M. DeVivo:]

Our Vascular -- yes -- no, that's why I broke out each of the businesses individually, where the contribution growth rates are. Right now, in general, the Vascular Access business can be said to be a bit of a lagger to the overall growth, because we have an EVLT in the Peripheral Vascular business and the NanoKnife in the Oncology business. That growth driver in Vascular Access will be BioFlo, once we get it approved.

[Brooks E. West:]

Okay. And then, any update on the FDA approval timeline there? And then I wanted to get your thoughts on the Teleflex Semprus BioSciences acquisition. I've got a couple more behind that.

[Joseph M. DeVivo:]

Well we think, in this environment, it's very difficult to give an FDA timeline. We think we're nearing the end. We hope we are. And we hope it's in the early part of '13 that we'd be able to get that clearance and then we have to go through all the process of launch and whatnot. That's what our hope is. We don't believe we're early in the process. We definitely think we're late in the process. We just can't predict when it'll occur.

[Brooks E. West:]

In the early part of calendar '13 or fiscal '13?

[Joseph M. DeVivo:]

Fiscal. It's just what we hope, Brooks, I really don't know. Well, we think we're at the end, but we're not there yet.

[Brooks E. West:]

Okay. And then thoughts on the Semprus BioSciences?

[Joseph M. DeVivo:]

Great validation for BioFlo. Great validation for the Navilyst deal, makes our Navilyst deal look cheap.

[Brooks E. West:]

Do you have a sense, though, from, I mean, if your technology guys looked at it in terms of comparability to BioFlo?

[Joseph M. DeVivo:]

Yes, we -- our, actually -- interestingly enough, our team's seen it and the Navilyst team, prior to the deal has seen it, and was not an option that we chose. Let me just let you know, I'm not saying anything bad about it. It's probably great, but we're thrilled with what we have.

[Brooks E. West:]

Let me -- 2 other areas, if I could. I just wanted to explore a little bit the thought process on going straight to pivotal on NanoKnife versus doing the safety study. I guess what gives you confidence in your interaction with the agency? That they're going to be comfortable in the safety profile? And just a little bit more on that thought process, and maybe an updated longer-term timeline there.

[Joseph M. DeVivo:]

Well, I mean, given the amount of time that technology's been on the market, and given the peer review data and other experiences that exist, it's our view that safety is not the primary issue. And we think that the marketplace would dramatically benefit from the type of trial that would compare NanoKnife to the standard of care. So it's a proposal that we're making, and we hope they agree with it. But we get so many questions as to what our strategy is that we felt we wanted to tell you what our strategy was.

[Brooks E. West:]

I appreciate that.

[Joseph M. DeVivo:]

Brooks, we got to get moving. We have a lot of other people on line, can we get one more?

[Brooks E. West:]

Yes, it's just quarterly cadence with Navilyst on board. And should we -- is that kind of typical seasonality for business? Or any changes there?

[Joseph M. DeVivo:]

Yes, for us, as you know, first quarter is very light, given the summer months. So it's kind of even in our press release I think there is a footnote, which kind of goes through a 23%, 25%, 25%, 27% type of waiting. So we're not going to be giving quarterly guidance, but I mean, those numbers probably just did. But we want to just give the annual guidance. But the first quarter always is a slow quarter, just because of the months that fall into that fiscal calendar.

[Operator:]

Our next question comes from the line of Matt Hewitt with Craig-Hallum.

[Matthew Hewitt:]

Thanks for the very detailed update and progress that you've made so far. My first question, could you update us on NanoKnife? As far as the remediation was concerned, it was going to take some time to get the systems that are in the field, get the new software uninstalled, and get it back into the customer's hands. Could you update us where you are in that process?

[D. Joseph Gersuk:]

Yes, I don't have the exact numbers in front of me. But in the quarter, we -- I think it was near the end of April when we released the software. For the new systems that we shipped in the quarter, we were able to upgrade the software. But with the 40 accounts, I'd probably say, we got to more than half of them. And we're, I don't think there's that many left now. I think we've probably gotten to all of them now. And we didn't ship needles to anyone who didn't have an upgrade. So I think the team has responded unbelievably well, and I think the business rebounded very well because we told him how long it would be, it was that time. So everyone dealt with it, and so now they're back up and doing procedures.

[Matthew Hewitt:]

All right, that's great. And then just, I guess, my follow-up. With the Supreme Court ruling here a few weeks ago, med device companies are now faced with a 2.3% device tax, assuming that everything stays in place. Have you started the discussions with your team on how you plan to address that starting next year?

[Joseph M. DeVivo:]

Those right now are internal discussions. I mean, right now, it's purely a part of our plan. It's part of our guidance. It's -- we have it as an expense item in the second half of our fiscal year in all of our numbers. We know we're going to have to pay it. I guess there the big elephant in the room is, are we going to be able to pass it on. And I don't think we know that yet. We're already dealing in an environment of significant pricing compression and a lot of competition. So we'll see. But I don't think we haven't come to a conclusion, Matt.

[Operator:]

And our next question comes from the line of Charles Croson with Sidoti & Company.

[Charles Croson:]

Just a few questions then, here. Starting with BioFlo. I mean, you talked a lot about how this is going to be a game changer. But can you go towards more the market opportunity that you see there in terms of numbers, I'm sorry.

[Joseph M. DeVivo:]

Well, I mean, the PICC market. I don't have the exact market number for -- the PICC had $400 million market growing 9%. One where we are lagging the market right now. We don't have the tip location technology, which is definitely meaningful. And of course, we don't have a coating, which we think, or a solution right now in thrombolysis, which we think is also meaningful. So given the -- how novel this technology is, and how valuable it will be across the entire portfolio, we most certainly, and given also how well it works on the bench and now to our, I don't want to say surprise, but it's -- when you see the type of clinical benefit and customers unsolicited turning to us with their experiences in that theater like the one I just showed, it tells you that you have something. And if you go and you identify, what with the cost of occlusion is, in the hospital, what the cost is of delivering TPA [ph], what the costs is of a BTG. For these devices, the market is substantial if we get this in the market and we execute. So it most certainly can be a growth driver beyond the 10%. And it's -- that growth is not about the fact that we're just going to catch someone else's wave. That growth is, we believe we will be taking market share.

[Charles Croson:]

Okay, okay, that's helpful. And then, if I heard this correctly, you're not including that in the F 2013 guidance, is that right?

[Joseph M. DeVivo:]

No, because we don't have an FDA approval right now. We have, of course, BioFlo revenues in Canada, but it's in a small base. We are starting the process of the European launch. And so, those numbers are in, but we think the fastest and the largest opportunity is in the U.S. and that would really power the business, and that's not in there, of course, because we don't have any approvals.

[Charles Croson:]

I see. And then just one, tailing off on that one last thing then. So we could definitely see some upside in F 2013? And then just looking kind of at your estimates here for 10% growth in the Vascular side, and getting numbers anywhere from $6 million to $10 million or so, just doing a quick check. So is that kind of how you guys are looking at it? Or would you be able to -- is that asking too much in terms of numbers?

[D. Joseph Gersuk:]

Well, it all depends on when in the year, Charles, we get that approval and how quickly we can get it. If you got it tomorrow, I'd feel pretty comfortable with those numbers. If they got it in 6 months, it's going to be whatever it is to ramp it up. But a lot of people have questions whether we have growth drivers in this business. We've gone, in this call, we believe, above and beyond to be transparent, to show you our businesses, to show you what's growing and also to give you some of our strategy. And we'll see on a quarter-over-quarter basis, we'll report these numbers, in general. And we'll keep score. We think we're going to deliver. I feel very good with the organization, and the quality of our teams. And the BioFlo, there's a lot of things we don't control. And so we can't predict what we don't control. But what we do control is the information that we've provided you today, Charles.

[Operator:]

And we have a follow-up question from the line of Jason Mills.

[Jason R. Mills:]

If I was away and someone asked about this, please just cut me off, but let's start with your largest business, the Fluid Managing business. I think, when you did the acquisition with Navalyst, you talked about how soon the, the prior owner of that business, is that at loss some share there. It seems like you are expecting to gain some of that back. But maybe you sort of juxtapose your current guidance, I think, we'll see immediate growth in Fluid Management with what the opportunity is, with respect to what was lost in that business during the stewardship of the previous owner.

[Joseph M. DeVivo:]

Well, it's a very mature business, and it's a very price sensitive business. And to be quite honest with you, in our view today, it was not as much of a focus as it should have been with the prior owners. It's a great franchise and a great brand. And we think, it was growing 1% in their hands. And we think with our additional energy, with the amount of additional sellers that are going to be with the business and also, with the quality of our international organization, we just simply think in 2013, with basic blocking-and-tackling, we're going to grow a little bit faster. But we are excited about 2% or 4%? No. But we're going to invest. We have some programs now for some line extensions and some new additions to the Fluid that really wasn't funded before that we're going to make sure is a priority. We have potentially in '14 or '15, a desire to launch a fully automated system, and enter that part of the market. So -- and also, we have very strong relationships in IR and in vascular surgery that I think the prior management didn't spend time in with this product. So I'm not blown away by 2% to 4%, but we think that we are going to get the business on a good footing, and then with that momentum and some new product launches, to drive market share gains in 2014.

[Jason R. Mills:]

So it being your largest business and then also having a goal of growing total top line growth 10% at some point, it begins hard, obviously, as you mentioned, if that's a low single-digit grower or so. I'm just trying to get a sense for whether or not the Fluid Management business, longer-term, do you see it is a core franchise? Or is this a build and potentially divest it type of business longer-term, or is it too early to tell at this point?

[Joseph M. DeVivo:]

Well, no, it's a core franchise. And it's a core franchise because it's right in the sweet spot of our business. I would never have purchased Navilyst for the Fluid Management business as a standalone satellite that didn't have any synergy to my company. But this gives us critical mass to really rationalize our sales channels. You rewind 6 months ago, 9 months ago, 1 year ago, and the biggest frustration is that we have this very diluted channel. We have all these call points for one seller, And we can't go deep anywhere. Now Fluid Management, it is, and like example I gave you, and I can -- I have e-mails here that I can read off success stories already, where, an AngioDynamics rep who really didn't have that much access into the cath lab, now walks in with a major Fluid Management business, and they're opening up their bag as if these old products are new products. So the value for us is core. The NAMIC brand for us is core. And we can't look at the value of the NAMIC business based upon its growth alone. We have to look at it based upon what it can do for the other parts of our business. It's going to accelerate our EVLT growth. It's going to turn around. I mean, our core products, angiographic products, our thrombolysis products were orphans because so many of those procedures were leaving the IR suite, and they were draining. These were negative growth product lines. So now they have an opportunity and a whole new life because our channel is rationalized. That's what I want -- you guys -- I've mentioned it over and over again that we didn't buy Fluid Management, the only asset of Fluid Management in its isolation on its own. No one would have done that. But we bought it for what it does for us. And what it does for us is it gets us into a channel that we don't -- that we really didn't have an excuse or reason to be. Now being in that channel, we continue now with our vascular access and Oncology and Peripheral Vascular, service the IR and also service the vascular surgeon where necessary, but we now get into interventional oncology. And if we didn't believe that being in interventional oncology with a market-leading brand, with the Rolls-Royce brand, not the me-too brand, not some other product. NAMIC is the Rolls-Royce in this segment, and the only reason why it wasn't growing was because it was -- Navilyst was a Vascular Access company, and they were selling PICCs to nurses. They were not going into that cath lab. Now we have both, and that's going to -- and we're going to turn it into a core part of our business. We are going to launch new products and we do have a fabulous core competency in custom fitting, which is tremendously valuable to these hospitals because we're giving exactly what they want in our convenience kits. So no, it's a core -- I would never would have paid the money we paid, I never would have done this deal if I didn't think it was a core part of our business. And I'm telling you, it's already paying dividends from a standpoint of our sales force understanding that value. And so that's why we will report it separately. It is the biggest product line. We're not going to hide it someplace. We've not given you all these numbers and all these growth rates to make it easier on you to understand us. And we felt that was always an issue. But it's going to be a core part of our business.

[Jason R. Mills:]

That's a very robust answer. I have just one final one for Joe Gersuk. Just on the cadence of the gross margins as you go through the year. Appreciate the guidance for the year. But how should we sort of think about it, first quarter through fourth quarter?

[D. Joseph Gersuk:]

Yes, so 52 to 53 for the full year. But the QCTA costs, of which there's a couple of million dollars in the course of the year, but most of that will be spent in the first half of the year and then heaviest of all, in the first quarter of the year. So it's likely to be low 52s to start off the year and then rising over the course of the year.

[Operator:]

And our next question comes from the line of Robert Goldman with CL King & Associates.

[Robert M. Goldman:]

A couple of questions on the numbers. On the numbers, it looks like your non-GAAP operating profits in the quarter were down about 3%. If we take out the penny from Navilyst, a penny per share, it looks like the non-GAAP, non-Navilyst operating profits would be down a little bit more than 10%. Perhaps you could speak to my number crunching if it got it right or wrong. And if I got it right, why the weakness in the core business?

[D. Joseph Gersuk:]

So the, it would be $0.09 a share, x Navilyst, right?

[Robert M. Goldman:]

No, I'm looking at the operating profits, Joe. And I've got a separate question, I might as well ask a separate question, that it looks like your non-GAAP tax rate in the fourth quarter was about 16%, down from about 35% in the prior year. Maybe you could speak to that too, if I got it right. And if so, why the decline on the tax rate? So it's 2 questions. It looks to me like the non-GAAP, non-Navilyst operating profits were down in excess of 10%, but the tax rate was halved versus the prior year.

[D. Joseph Gersuk:]

Okay. So on the reconciliation of the operating income on Page 8 of the release, would show you the reconciliation of operating income to the non-GAAP, right? So you'd have essentially flat year-over-year, right, $4.247 million to $4.281 million. And you see that, then the reconciling items that would get you to those figures from the GAAP numbers. So that answers that one. And the tax rate, I think there's just a massive complexity associated with the tax calculation that's intertwined with the acquisition and the acquisition transaction fees and various other factors. So there's -- I just would say it's significantly complex, and I apologize that I can't give you a better answer than that.

[Robert M. Goldman:]

If I could then just follow up. Accepting, Joe, what you said on Page 8, that the non-GAAP operating profits were sort of flat.

[Joseph M. DeVivo:]

Right.

[Robert M. Goldman:]

Take out the Navilyst component, then the operating profits look like they would be down 5%, 6%, 7%.

[D. Joseph Gersuk:]

Yes.

[Robert M. Goldman:]

Am I looking at that correct?

[D. Joseph Gersuk:]

No, but let that but -- I don't have it in front of you, but the, our revenue at the end of the year with beads, if you're going to include that, was like $56 million -- $57 million at the end of fiscal '12, and that included beads. So you can't -- year-over-year, yes, we lost beads and lost that $50 million of contribution, and we've known that for about 6 months.

[Robert M. Goldman:]

Okay, it's the beads. Okay, that explains that.

[D. Joseph Gersuk:]

Yes, beads coming out of the business.

[Joseph M. DeVivo:]

Yes, pure NGO, we unfortunately are not -- we can't wait until we anniversary this damn deal and all the bead stuff, by check they're talking about beads. But I know it's so confusing, Robert, and I'm very sorry for that. We tried really hard, in the releases to try to break all this stuff out. We don't really see a reduction in our overall profitability aside from a kajillion onetime events, which I can't wait until we get all -- we resort the deal, we get all these one-time events, we get rid of bead revenue. We get rid of all this transaction costs and we just grow our business. But it's a much better business today that it's ever been.

[Robert M. Goldman:]

No, it's helpful. And then tax rate, Joe, just finally, given the fourth quarter was complex, but a low tax rate. What's that tax rate guidance for 2013?

[D. Joseph Gersuk:]

It's 37%.

[Operator:]

And our next question comes from the line of Larry Haimovitch from HMT.

[Larry Haimovitch:]

Couple of quick questions. One was just asked. The tax rate, what, Joe Gersuk, are you using for guidance for cash flow? And then what should we think of as a fully diluted number of shares outstanding?

[D. Joseph Gersuk:]

So no specific guidance for cash flow from operations. It's a complex number. So we limit this guidance to the EBITDA figure there, which is, in some ways, is a proxy for cash.

[Larry Haimovitch:]

And what's the EBITDA number for the year in your forecast?

[D. Joseph Gersuk:]

$60 million to $61 million on a non-GAAP basis and $44 million to $45 million on a GAAP basis. And then with respect to shares outstanding, about 36 million would be a good figure to use.

[Larry Haimovitch:]

Okay. And the cash flow number is closer to the GAAP or the non-GAAP number, Joe? In other words, $60 million is non-GAAP, $60 million, and it's $44 million, I think, you said was GAAP. What -- is the cash flow number -- which was -- which is the cash flow number correspond better to?

[D. Joseph Gersuk:]

Closer on the GAAP, on the GAAP figures. But again, we aren't going to offer guidance on cash.

[Larry Haimovitch:]

Great. But it's reasonable, just based on what you said that cash flow should be, I must say, just picking a ballpark number somewhere in the $45 million to $50 million area, without -- I'm not trying to get a specific, exact number. Just trying to get a real ballpark.

[Joseph M. DeVivo:]

Larry, it's really, it's affected by all of the one-time expenses in the year. That's why we went with the -- to show the EBITDA number on a non-GAAP basis. Even if you saw in 2012, all the one-time expenses and all this other stuff, it's a tough number right now to peg, we think it's a very strong cash generating business off of that $60 million EBITDA, but we still have all these, all the one-timers that make it difficult to phase the cash flow.

[Larry Haimovitch:]

Well, that's why I asked the question is precisely because of what you said, which is, you've always been a very good cash flow generating company. It's obviously one of the real strengths of the company, and it gives you a lot of flexibility to pay down your debt, buyback stock, do acquisitions, et cetera. So that's why I was trying to get a better handle on it.

[Joseph M. DeVivo:]

Right. Yes, absolutely. And all of our assumptions haven't changed. We still will be a great cash flow generating company. You just got to get past all of these ebbs and flows of our one-timers and hopefully, one day, I'd love to be able to get into an earnings call and just talk about GAAP.

[Larry Haimovitch:]

And Joe, well either Joe, the presentation you made today was terrific in terms of the slides. Did I understand you to say you're going to continue to go through that level of detail either on a quarterly or annual basis?

[Joseph M. DeVivo:]

Yes, it's my intent to be transparent with the business. The more I speak with investors, Larry, the more people just don't understand. And they don't see what our growth drivers are, or there's a couple of lines that are weighing on the business. For me right now, I don't care what the competition does. If they want to know our numbers, they know our numbers. It's not going to affect me in the marketplace. I'm going to do whatever I can right now to be transparent, because I want our investor base to measure our progress for what it is, both good and bad, and be able to hopefully, as we start delivering and things start clicking up, you get to see it more transparently. So it's my intent to run a transparent business and see and deliver something very similar to this.

[Operator:]

And we have a follow-up question from the line of Robert Goldman with CL King & Associates.

[Robert M. Goldman:]

Just 2 other little details. First, the guidance of $0.49 to $0.51, Joe, does that include the amortizations?

[D. Joseph Gersuk:]

Yes, it does.

[Robert M. Goldman:]

Okay. And on NanoKnife, did you say the number of systems placed in the quarter? Or could you tell us that?

[D. Joseph Gersuk:]

Yes, we did have that. We indicated that there were -- 8 hospitals became commercial sites this quarter and 7 generators were purchased. And then we ended the fiscal year with 52 commercial sites, which we defined as a hospital that has purchased products from us in the past 6 months.

[Robert M. Goldman:]

And then would you care to say what the number of procedures were with NanoKnife in the quarter?

[Joseph M. DeVivo:]

No, we don't have them. There are more and more procedures that are done without any of our people involved at the time of the procedures. So it's just impossible to tell.

[Operator:]

And we have no further questions. I'd like to turn it back over to Mr. DeVivo. Please go ahead.

[Joseph M. DeVivo:]

Okay. Well, I know this is a long call. Sorry that the release got hung up in the beginning. But as you see, the results are the results. I feel we have an organization today, especially in our sales and marketing organization that's delivering for us now very consistently. I'm very pleased with our U.S. and our international leadership. I think they are predicting the business well, developing talent well and growing well. I believe we've integrated the businesses quite well in the early part because we became very decisive in our integration planning and very decisive out of the gate. Our sales force has their plans and know what they need to do for the year. Our marketing teams are deployed. Our Quality Call to Action continues as we elevate and improve our overall operations. Everything's going. And it's not easy, but everything is going because we have a great team and we are executing. And it's one of the main focuses that I have as the CEO of this company, is to get to a consistent level of execution, which we are getting there toward, and to minimize the surprises and to deliver value for all of you. We appreciate your attention on this call. And we will continue to update you and hopefully, deliver for in the future. So thank you.

[Operator:]

Ladies and gentlemen, that does conclude the AngioDynamics Fourth Quarter 2012 Financial Earnings Conference Call. Thank you for your participation. You may now disconnect.