AngioDynamics Inc (ANGO) 2005 Q4 法說會逐字稿

Welcome the AngioDynamics fiscal year 2005 fourth-quarter fiscal financial results. At this time, all participants are in listen-only mode. Following management's prepared remarks, we will hold a Q&A session. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded July 22, 2005. I would now like to turn the conference over to Ms. Kim Golodetz. Please ma'am, go ahead.

Thank you. This is Kim Golodetz with Lipper/Heilshorn and Associates. Thank you all for participating in today's call. Joining me from AngioDynamics are Eamonn Hobbs, President and Chief Executive Officer; and Joseph Gerardi, Chief Financial Officer. Earlier this morning AngioDynamics announced financial results for the fourth quarter of fiscal year 2005 ended May 28, 2005. If you have not received this news release or if you would like to be added to the Company's distribution list, please call Lipper/Heilshorn in Los Angeles at 310-691-7100 and speak with Cheryl Guertin (ph).

This call is being broadcast live over the Internet and a recording of the call will be available for the next 12 months from the Company's website at www.angiodynamics.com.

Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of AngioDynamics. I encourage you to review the Company's past and future filings with the Securities and Exchange Commission including without limitation the Company's Form 10-K and 10-Q which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

The content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, today, July 22, 2005. AngioDynamics undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

With that said, I would like to turn the call over to Eamonn Hobbs. Eamonn?

Thanks, Kim. Good morning everyone and thank you for taking time to participate in our first year-end conference call as a publicly traded Company. As you all probably know, we closed our initial public offering and began trading as a public Company last year on May 26. Our performance over the past 12 months has been outstanding and I am proud of our many accomplishments. We continue to see strong performance across our entire product portfolio as evidenced by 23% growth in net sales during the quarter, which contributed quarterly and annual sales records of 17.3 million and $16.3 million respectively. Our recent introduced products also contributed significantly to our expanding profit margin.

Joe is going to give you some color on our financial results, then I will be back to discuss a few of the catalysts that have contributed to our successes over the year and to share some insights as to where we see the Company headed over the coming months. Joe.

Thanks, Eamonn. Good morning everyone and thank you for participating in today's conference call. I would like to comment on the results for the fiscal fourth quarter and year ended May 28, 2005. I'll give you highlights of the income statement and give you a breakdown on how some of the premier productlines have performed.

As Eamonn mentioned, our net sales for the fourth quarter of fiscal 2005 were $17.3 million, an increase of 22% compared with net sales of $14.1 million for the fourth quarter of fiscal 2004. The increase reflects strong growth from many of our product lines, which we will analyze for you in greater detail shortly.

We are particularly proud of our manufacturing efficiencies as evidenced by our gross margin improvement. Gross margins rose to 56.3% -- from 53.3%, a 300 basis point increase. Gross profit was $9.8 million, which is up 30% over the $7.5 million for the fourth quarter of last year. The gross margin improvement is largely due to product mix favoring higher product margins as well as lower raw material costs and modest price increases implemented late in 2004 and early 2005.

To give you some insight as to how the improved gross margins gained 300 basis points over the prior quarter, I would like to describe some of the computing factors in more detail. Product mix accounted for approximately 200 basis points of the increase, or around two-thirds of the improvement. Lower material costs resulted from favorable purchasing terms where the major supplier accounted for 45 basis point increase while price increases allowed for us to improve our gross margins by 40 basis points.

Net production efficiencies accounted for 15 basis point improvement. Operating profit for the 13 weeks ended May 28, 2005 increased $2.5 million, compared with $1.9 million in the prior year fourth quarter, an increase of 31%. Total operating expenses for the fourth quarter were $7.2 million, compared with total operating expenses of $5.6 million for the fourth quarter of 2004. The increase was primarily attributed to higher sales and marketing expenses associated with higher revenues and to various administrative expenses associated with us being a public Company.

Turning to the bottom line, net income for the fourth quarter of fiscal 2005 was $1.7 million or $0.13 per diluted share, compared with net income of $1.5 million or $0.15 per diluted share for fiscal 2004 fourth quarter. The Company's effective tax rate for fiscal 2005 fourth quarter was 36%, compared to a tax rate of only 14% for the prior-year period when the Company realized a tax benefit for the utilization of capital loss carryforwards by its former parent company, E-Z-EM.

To give some specifics on product sales, we would like to share with you the following productline analysis for our larger therapeutic lines. Morpheus has developed nicely as an important contributor to our net sales, contributing $1.3 million to the top line in the fourth quarter. We did not begin marketing the Morpheus CT PICC until September of last year, with the product only receiving FDA clearance last July. The sales of the total vascular access line, of which Morpheus is a component of, was up 150% to $2.3 million. To contrast the sales, the vascular access productline grew only 15% or $566,000 over the 2004 fiscal quarter.

Sales of our VenaCure products increased 33% or $653,000 over the prior year. Furthermore I would like to note that our sales for the VenaCure productline on a sequential quarter basis rose almost 53% or from $1.7 million in the third quarter of fiscal 2005 to $2.6 million in the fourth quarter of 2005. Eamonn will discuss further detail on how this validated our strategy of refocusing the attention on VenaCure in the past quarter.

So angiographic product sales were almost $5 million for the fourth quarter of fiscal 2005, up 11.5% from last year. Our Mariner Hydrophilic catheter was a new product introduced in this category. Sales of our dialysis products rose 15% or $566,000 over the prior year to $4.3 million. The EvenMore Chronic dialysis catheter is an innovative and internally manufactured catheter in this product line introduced in December of 2004 and is gaining traction.

Now looking at our yearly numbers for the 12 months ended May 28, 2005, net sales were $60.3 million, up 23%, from sales of $49.1 million in fiscal 2004. Gross margin for fiscal 2005 exceeded the prior year by 280 basis points, finishing the fiscal year 2005 at 55.4%, compared to 52.6% in fiscal 2004. The increase from the prior year is attributed largely to the same reasons we had good margin growth in the fourth quarter such as product mix, pricing, and better purchasing terms.

Operating expenses were $25.7 million for the 12 months ended May 28, 2005, as compared to $20.7 million for the 12 months ended May 29, 2004. As revenues have grown, so has our sales, marketing, and R&D expenses. In addition administrative costs necessary to support the operations of an independent public company have contributed to the rise of the overall expenses.

Net income for fiscal 2005 increased a sizable 45% to $4.5 million or $0.37 per diluted share, up from $33.1 million or $0.32 per diluted share in fiscal 2004. You may note that that the improvement in earnings per share from fiscal 2004 was partially offset by an increased weighted average shares outstanding from 4.9 million shares in 2004 -- excuse me, 9.8 million shares in 2004 to 12.3 million shares in fiscal 2005.

The Company's effective tax rate for fiscal 2005 was 40%, compared to 28% for fiscal 2004. The increase again is due to the capital loss carryforwards utilized in 2004.

We had cash and investments of $27 million for fiscal year ended May 28, 2005, compared to $2.5 million as of May 29, 2004. The increase is due primarily to the receipt in June of the proceeds from our initial public offering and the Company's positive cap closed from operations.

Cash generated from operations was $4.8 million during the past fiscal year. We improved by $2.3 million over 2004 due to net income and a tax benefit on the exercise of stock options. However this is partially offset by an increase in accounts receivable and inventory. Inventory growth was largely planned to support our growing sales.

To give you some specifics on our annual product sales, we will share with you the following productline analysis. Angiographic product finished at $18.1 million, up 13.5% over fiscal 2004. Hemodialysis catheters finished the year at $15.9 million, up 19.1% over fiscal 2004. VenaCure products finished at $7.7 million, up 35.7% over fiscal 2004. Vascular access products finished $6.9 million, up 105% over fiscal 2004. PTA dilatation catheters finished at $3.8 million, up 9.3% over fiscal 2004. Thrombolytic products finished at $3.6 million, up 13.8% over 2004. And finally our drainage products finished at $1.4 million, up 4.7% over fiscal 2004.

And with that, I would like to turn it back to Eamonn.

Thanks, Joe. With another year of solid performance now behind us, we are looking ahead to some exciting opportunities. We remain committed to innovation and to introducing new products that offer significant competitive advantages over others in the marketplace. On that front, we introduced four products, Mariner Hydrophilic Catheter, Morpheus CT PICC, EvenMore, and VenaCure disposable kit with internally developed sheath over the past twelve months which were quickly embraced by the PVD community.

To underscore the importance of innovation to AngioDynamics, more than one-half of our current products were introduced during the past five years.

Investors frequently ask Joe and me about our plans to maintain our growth trajectory. Putting aside projections of 16% compound annual growth for the PVD space over the next few years and our market focus within that niche, the quick and easy answer to that question is innovation and diversification. These two comments are carefully interwoven into the very foundation on which our Company stands today. Innovation creates opportunities within the markets we serve that often are overlooked or just not within the scope of some of our competitors.

Our team has fine-tuned an ability to anticipate the future needs of the physicians who treat PVD and other noncoronary and vascular disease and to design compelling products that will satisfy those needs. In some cases we develop new higher margin products that retire older legacy products. Other products are developed to address patients' and physicians' needs and new markets. For insight into these opportunities, we capitalize on feedback from our network of physician customers across the country and in Europe and in the rest of the world.

It also helps that I'm the only industry representative to serve on both the Strategic Planning Committee of The Society of Interventional Radiology and on the Board of Directors of the Society of Interventional Radiology Research Foundation. This allows us unique access to the thought leaders in the space.

Without the incredible R&D team here at our headquarters, all of the field knowledge would amount to very little in terms of tangible results. These men and women are the best in the business and are one of the cornerstones of AngioDynamics' success. Diversification within our market segment offers us the opportunity to service most if not all the needs of our customers with a wide variety of high-performance products. We offer multiple product lines with more than 3000 SKUs, which we believe provides our customers with a better chance to service their patients with better health care.

Although we are committed to a diversified strategy of superior products that does not rely on one Goliath product, that is not to say that we would not embrace a Goliath that complements our other portfolio products. In fact, we have some very exciting products in our pipeline that we have been evaluating for some potential product acquisition candidates that we believe could take our Company to the next level.

As Joe mentioned earlier, VenaCure and the overall varicose market are very important to us and over the past few months we have made significant strides in positioning this procedure as the new standard of care. To date, this product remains one of the Company's top sellers, contributing $7.7 million in revenues over the past 12 months.

We launched our laser vein ablation product in fiscal 2004 including a website to provide both patients and physicians with detailed information on the disease and our laser procedure. Offering patients this information not only helps our network of physicians to sell the procedure, it also serves as an effective poll strategy wherein patients actually seek out doctors offering VenaCure. We are very pleased with the results of this direct-to-consumer strategy to date.

The upgraded disposable kit -- marketing kit, which is an all exclusive marketing package, recently received an Award of Excellence Award in the dealer distributor materials category at the 29th annual ProComm Awards, which is the longest running and most respected business-to-business marketing communication program in the United States.

On the reimbursement front, CMS established new procedural codes and reimbursement rates covering VenaCure. The codes and payment rates were published in the Medicare program final rule for calendar year 2005 and went effective in January of this year. As you may recall during fiscal 2005, we were successful in securing coverage from Anthem, which serves more than 11.9 million customers. The total number of eligible covered lives for the VenaCure procedure now exceeds 150 million Americans. We believe that this is more than sufficient to build a significant franchise.

Finally on VenaCure, during our previous conference call we shared some thoughts into what we see as a very exciting opportunity for the treatment of severe varicose veins. We continue to believe the use of sclerotherapy to affectively seal the greater saphenous vein is a viable clinical solution and we are aggressively pursuing that market opportunity. We believe our UNI*FUSE catheter, which utilizes our proprietary Pulse*Spray technology, is uniquely positioned to deliver the drug Sotradecol, which was recently approved by the FDA for use in the treatment of varicose veins.

We believe our UNI*FUSE catheter will resolve many of the delivery issues that have been associated with Sotradecol observed in Europe, where this drug is firmly entrenched as a treatment option. We will keep you posted on our progress on that front.

Moving to some of our other new products released during the past 12 months, our recently launched Morpheus CT PICC line has been a runaway success to date. This CT PICC has no equal in the marketplace today. We designed this product in-house as a first-in-class product to provide increased flexibility to both administer medications and to perform CP imaging using a single PICC line. This benefits patients and physicians by reducing the number of times a physician must access a vein and can result in cost savings to the healthcare facilities.

During last quarter's conference call we discussed a sales plan in which we had temporarily committed our salesforce to the nationwide launch of the Morpheus CT PICC product. I'm very pleased to report that the strategy of migrating the sales back to the VenaCure now that the Morpheus CT PICC is well established has been very successful. VenaCure sales were up nicely during the fourth quarter and Morpheus growth remained on track. This success speaks volumes about our flexibility of our internal salesforce, which now stands at 46 sales professionals.

VenaCure total sales were $2.6 million, up 33% over Q4 last year. Q4 disposable kit sales increased 80% over the prior year. 37 lasers were sold in Q4, up sequentially from 22 sold in Q3. As of the end of Q4, we have 284 installed laser units.

Other products that were recently launched and have been experiencing good market penetration include our new EvenMore Chronic Hemodialysis Catheter. EvenMore is an internally manufactured 14.5 French end-hole design catheter that offers less than 5% recirculation. It was designed for long-term use with our proprietary Durathane shaft, which offers high resistance to chemicals used to clean the insertion site. We are taking the value added approach with this product by offering it in a kit that includes the EmboSafe Valve splittable sheath dilator. The sheath dilator is designed to reduce the risk of blood loss and air intake while allowing for smooth catheter insertion.

TOTAL ABSCESSION drainage catheter is another of our recent offerings. This product was designed for percutaneous drainage of abscesses and other fluid collection. This was showcased in the Society of Interventional Radiology 2005 annual meeting in New Orleans in March of this year.

As a final topic before Joe and I take your questions, let me turn to financial guidance for fiscal year 2006. We expect net sales growth to exceed 20% compared to fiscal 2005, to approximately $72 million. Year-over-year net income growth is expected to exceed 27% to $5.8 million, which includes the anticipated one-time charges totaling $366,000 net of income taxes to be incurred in conjunction with our requirement to comply with Section 404 of the Sarbanes-Oxley Act by May 2006.

Without the effect of these expenses, net income would be expected to reach $6.1 million or 35% net income growth from fiscal 2005. R&D and SG&A expenses should continue to top out at approximately 8% and 36% of net sales respectively. Our plans also call for continued expansion of sales territories including growing the salesforce. We expect to have 70 dedicated sales reps in the field over the next 18 months, up 30 months -- we expect to have about 70 dedicated sales reps in the field over the next 30 months, up from 46 currently.

Gross margins have increased nicely according to our plans and we see gross margins increasing in fiscal 2006 by approximately 200 basis points, continuing on our goal to achieve gross margins in the low to mid 60% range.

I want to thank the various financial media outlets that have played a vital role in helping us to educate the investment community about our business. Calling names is going to get me into trouble as I cannot mention all of them at this moment, but I would like to note that we were very frequently written up in Investor's Business Daily, which has named us one of their top stock picks. BusinessWeek also has named us as one of their top growth companies. In addition we were pleased to be added to the Russell 3000 Index and the new Russell Microcap Index. Clearly it has been a very exciting 12 months for us.

That ends our formal remarks. Operator, we would like to open up the call now to questions.

(OPERATOR INSTRUCTIONS) Phil Nalbone, RBC Capital Markets.

First just a few housekeeping things. Can you talk a little bit about the extent of price increases? You told us what the contribution was to the gross margin, but could you give us a sense of what it was on a percentage bases and which product lines were involved?

The price increase -- good morning Phil -- the price is -- or nets out to approximately about a 1-to-1.5% impact over the course of the year across the board.

Okay. Joe, what should we be thinking about in terms of an effective tax rate going forward?

Somewhere in the neighborhood of 39%

That is a little bit lower than historically -- a little bit lower than what we have been projecting. Anything in particular that has helped with tax management?

Well, I think just having increased revenues and profits, we have a base set of nonqualified expenses and as the revenue and income exceeds that base, the effective tax rate will decrease.

Great, thanks. Eamonn, could you give us those figures again for VenaCure, the units sold during the quarter and what that was in comparison to Q3?

The number of laser units sold during the quarter were 37 units and that was up from 22 units in Q3.

And can you talk a little bit about pricing for both the capital equipment and the disposables in VenaCure?

Well, we see slight price erosion in lasers. The average selling prices of the lasers is approximately $30,000 -- 30, $31,000, in that range. We have seen some settling out in the market actually in laser prices. The consumable kid prices have been very stable and average around $350 per kit.

Great, thanks. And finally and I will go back in the queue -- Eamonn, can you talk perhaps a little bit about what your expectations are for new products in the coming year, both organically? And can you maybe remind us of some of the product categories that you are targeting for possible in-licensing or collaboration or acquisition?

Needless to say we have a very full pipeline of products that we are expecting to introduce over the coming fiscal year and subsequent fiscal years. The areas that we are focusing on are certainly additions to the VenaCure line and vein disease, the vein subset of peripheral vascular disease, in addition to products for the arterial segment of PVD.

Interventional oncology is an area that we are very interested in and would view -- should expect that we will be introducing products in that area over the course of time. The other areas are image guided vascular access, as demonstrated by our Morpheus productline is a very exciting area for us. And we plan to introduce more products in that area as well. And dialysis catheters are still a very strong group for us -- still represent our second-largest product group after angiographic products. And we expect to introduce more products in that area as well.

The easiest way to understand our new product strategy is our strategic plan is basically to provide innovative products that add tremendous value to the clinicians such as interventional radiologists and vascular surgeons who are treating PVD. And we look out five years and spend a whole lot of time trying to map out what procedures they are going to be doing to make sure that we are there with the right product at the right time and provide tremendous value at that time.

Okay, thank you.

Jayson Bedford, Adams, Harkness.

A few quick questions for you. Is there any way you can quantify the number of new products you expect to launch in fiscal '06?

As a rule of thumb, you should expect at least two new products every fiscal year. That is a rule of thumb we use. Now the Company has a strategy to be very opportunistic. We are always looking for opportunities to supplement two product introductions but definitely our plan is every year are to have a minimum of two organically developed new products per fiscal year. That should give us ample time to take advantage of strategic opportunities as well as give us the ability to focus on a proper product introduction.

Okay, and just jumping over to VenaCure, obviously up 52% (ph) quarter-on-quarter is quite strong. Can you just talk about some of the contributing factors? Obviously there was more salesforce focus but were you also helped by the line extension on the disposables with the tray sheaths?

We were indeed. Certainly I think you've hit the two main factors for pick up in sales of VenaCure in Q4. We refocused our salesforce on VenaCure once the Morpheus CT PICC introduction was well underway. And on top of that, we have been enjoying tremendous customer acceptance of our new tray sheath, which is a proprietary product that is the only ultrasonically and fluoroscopically visible laser fiber delivery sheath in the business. So it really is a first-in-class product that is receiving accolades from the physician base.

And are you going to keep that salesforce focused going forward now or are you going to refocus it back maybe to the hospital market and your breadth of products?

Well, that is a good question and the strategy for Q1 is along the lines of keeping all the balls in the air. We took the salesforce and hyper-focused them on the Morpheus CT PICC introduction and the lack of attention to VenaCure was evident. In Q4 we put them back on VenaCure and made sure they got that ball back up in the air and now it is more of a balancing act of keeping them all up in the air. Not a lot of volatility in Q1.

Okay, and it looked like Bioniche did launch its product in mid-June. Are you seeing any early use of the product with your UNI*FUSE catheter?

I believe that they just started shipping in the last week, although they had a press release. And we -- it is a bit early but we definitely have seen a lot of excitement in the marketplace to utilize that product. And we would anticipate that that excitement is going to grow as time goes on.

Okay, great. And then just lastly you mentioned the salesforce growing to 70 reps over the next 30 months. How many do you expect to add over the next 12 months?

We expect to get up to 53 reps by the end of our fiscal year at a minimum. If we get ahead of plan, we will and certainly take advantage of that and potentially add more.

Okay, great. I will get back in queue. Thanks.

Arnie Kaufman, Brean Murray & Co.

Actually a lot of questions have been answered here. Regarding -- I just want to get a little better understanding on the gross margin since you had a nice increase there. You mentioned modest price increases. I guess it's sort of a twofold question. What I am wondering is going forward do you still see modest price increase? And also you are saying the guidance for '06 is a 200 basis point increase. I was wondering if you could give us a little more flavor on where that is going to be coming from, gaining another 200 basis points? Thanks.

Well, the answer to that question really is we have given guidance that we are going to increase our gross margin an average of 200 basis points per year until we get to the mid to low 60s for an average company gross margin, because that is where we think benchmarked we should be at a minimum.

Of the gross margin increase, 70% of that comes from the introduction of higher gross margin new products. So the higher margin new product mix is 70%. 20% comes from efficiencies, manufacturing efficiency improvements and vertical integrations and 10% comes from price increases. We do annual price increases as a rule. We have done them for years and we plan to continue to do so. And they typically net out anywhere between 1 and 2.5% net impact to our average selling price.

Okay, thanks a lot.

Andrew Oberwager (ph), Columbus Circle (ph).

Do you have any comments on Venice's (ph) IP? They have started suing some of the EVL players and I assume they'd come after you and I just wanted to see if you have any comments on their IP?

Actually they have not come after us and we appreciate that. We don't believe that we infringe in any way their IP. We are looking at a little more closely now that they have initiated litigation against Diomed, but our more detailed analysis so far shows that we don't think that Venus is going to have any issues with our position.

And is it a noninfringement issue or is their IP invalid?

No, it is a noninfringement issue. We really don't think we infringe.

Michael Davidoff, Sidoti & Co.

Good morning. Just following up on that question, can you give us an updated status on the Diomed patent infringement suit and just where you are with what the next steps are?

Sure, as we have said in previous conference calls, we wouldn't anticipate that this case would be wrapped up until mid to late fall at best case scenario, assuming that we file for a summary judgment when discovery is finished. And we are currently still in discovery. So timing wise, that can go on for at least another three to four months and then preparations for a summary judgment can take a few months. So November timeframe to file a summary judgment; the judge can take as little as 30 days and then as much as six months to review it.

If we are granted the summary judgment, we're done. If we're not, then this would be scheduled for trial and that means another minimum nine months to a year. So the long and short of it is we don't anticipate any end to this for another few conference calls at least.

Are you seeing -- is there any effect on the market? Are you seeing or are your sales reps hearing anything in terms of competitor selling tactics or anything holding back market growth related to the infringement suits?

No. That rhetoric was very loudly proclaimed early in the game. But it is very old news now to the customer base and the customer base is much more interested in getting the best product to service their patients and that puts us in a very strong position on a competitive basis. So the lawsuit in general is something we have grown quite accustomed to. We are indemnified so it does not cost us anything material and we are just chugging along there and we are very happy with the results of that productline.

Okay, and Eamonn, can you just give us and update what you think today the end of Venus laser market in terms of procedures and just market opportunity? Maybe what you think it is today and what you think it can grow to next year?

Well, as far as procedures go, it is currently running at approximately 40,000 to 60,000 procedures per year and that is the summation of Venus or radiofrequency ablation, laser ablation, and sclerotherapy, which is being done with -- was being done with off label use of custom compounded sclerosing agents. And with the advent of the now FDA approved Sotradecol sclerosing agent, we would expect that that would at least continue or potentially increase the market size as well.

Where that will all settle out is anybody's guess. We have taken a position and believe that the Sotradecol or Sotradecol sclerosing of varicose veins, larger veins is going to play an important role that may -- we don't see it slowing lasers growth, but we see it potentially being a catalyst for increased growth in the marketplace. We would anticipate that the market is going to grow well north of in consumable sales or consumable use well north of 60% next year.

Okay. And did you notice any uptick in terms of the Medicare reimbursement? Or maybe a better way to ask is is there a natural lag for doctors in terms of how long it takes them to get their practice up and running at an accelerated pace from Medicare and what have you seen in relation to that?

Definitely the Medicare reimbursement has been a strong catalyst for the marketplace and will continue to be one so there is a natural lag in physicians adding this procedure to their office-based practice. And we are seeing physicians add this to their office-based practice in that if you look at the average office-based practice schedule, it is not so easy to carve out a day a week or two days a week to focus on laser vein ablations -- anything short of looking out six months ahead of time and sometimes nine months.

So we're definitely seeing people who in January committed to do the procedure come on line today in a material way and I think we're going to start to see the real impact of the approved reimbursements be felt later in the calendar year.

Just two more questions. Joe, the other income expense, is there anything in there besides interest income expense in the quarter?

Not for the quarter, no.

And then, Eamonn, if you can give us an update what your thinking is on acquisitions and how aggressively you are pursuing them at this point?

We are very bullish on strategic acquisitions as a way to supplement our 20% per year revenue growth and greater than 35% per year bottom line growth outside of one-time hits. We are actively engaged in looking for strategic opportunities that fit seamlessly with our current business and the strategic opportunities have to be products that fall into three categories. They are platform technologies, products or operational companies. All three of those have to provide three things.

One, they have to be salable to our current customers; the interventional radiologists and vascular surgeons. Two, they have to provide within a realistic timeframe a gross margin north of 70%. And three, they have to provide the probability that they can be market leaders, a dominant position; give us a number one position in their market segment. So we believe that there are a lot of opportunities out there. We are very selective. We are looking for opportunities that can be accretive in a short period of time.

And in the case of an operational company or an existing product, we would be looking for it to make accretive contributions in 18 months or less. In the case in a platform technology, we would expect it to not be dilutive in 18 months or less and to be accretive within a realistic amount of time depending on the development cycle for that platform technology. So we are not -- we are a conservative management group. There is no doubt about it and we have a very strong organic business model that is working very, very well. And we are selective in what we're going to add to that to make sure that it is synergistic.

Okay, thanks a lot.

Jason Mills, First Albany.

You know, unless my math is wrong you added six reps in the quarter. That is more than you have added I think ever in one quarter and the revenue per rep seemed to be pretty consistently strong, 330, 350 a rep throughout the year. And yet next year it looks like you are being maybe you are being a little bit conservative I guess with respect to that if we go to 53 to 55 reps. At 72 million, it would be a little bit less than that. Is it just that, Eamonn? Are you being a bit conservative and leaving room for upside with the new reps coming on board, giving them three to six months to ramp up here and potentially if they ramp up quicker, there would be upside to that number?

I think you have put your favor right on it, Jason. That is we're a conservative management group and our guidance policy is to be conservative. We have given guidance that is consistent with the guidance we have given since we have become a public company that we are going to exceed 20% revenue growth and 35% bottom line growth outside of any one time hit. And that is right in line with the long-term guidance we gave last year for this year.

So everything is right on track but those are not really floors. We anticipate that there is ample opportunities to exceed those given certain circumstances and as we did in fiscal 2005, we exceeded our guidance with 22% growth instead of 20% and 45% growth instead of over our guidance of 35. So I think you have put your finger right on it. It is conservative.

We have added a lot more salespeople than we ever have before, but our strategy is to increase our salesforce in line with our top line. So as our top line base increases, the numbers of salespeople that we can afford to add increases as well. And we are looking forward to them being major contributors over the course of the year.

The other thing to consider is that we layer the new people on during the course of the fiscal year. So we won't get to 53 until Q4 and their impact is only going to be partially felt during the year.

Sure, and I know those guys are probably listening so you have to be careful but the six reps you added in the quarter, are they consistent with your previous history where you kind of plug guys in that have good sales come into your train program but not necessarily all of them have medical device experience? Is that fair?

Yes, that is very fair. Our philosophy in salespeople is to hire the best athlete. We are looking for people that have a track record of sales performance that is excellent and has been awarded top honors and then we train them in the specifics of the medical device industry and specifically our products.

Okay, and then maybe Joe or Eamonn, on the thrombolytic catheter side, should we see that growth accelerate throughout the year with the advent of sclerotherapy here in the U.S. starting sort of at a modest maybe low teens growth and then accelerating from there? How do you see that playing out?

We see that starting slowly as we're going to pursue some good science behind the use of our proprietary catheters for the delivery of Sotradecol. So it is hard to gauge when that impact is going to be felt. There may be early adopters that don't wait for the clinical results to become readily available and we will see an uptick there.

The other thing to consider is that from a productline basis, how we break out our products, although the currently available UNI*FUSE and Pulse*Spray products are indicated for the delivery of therapeutic solutions into peripheral vasculature, which is a very general indication, we categorize those as thrombolytic products. And they would continue to show up in thrombolytic areas of our performance statements as we are not going to be able to gauge where they are being used.

Now our plans are to refine those technologies to make them specific to the delivery of sclerotherapy agents and seek specific indications for those. And then once we do that, those products will fall into the VenaCure product segmentation. So a very long answer to your question. We should see some uptick but it may be very minimal this fiscal year until we get our ducks in a row.

And two just real quick ones and I'll hop off here. The Profiler in the angiographic line, is that expected to be launched here soon or has it and maybe I missed it? And then lastly, just to lump the two together here, Joe, do you give free cash flow guidance for the year? Or could you sort of guide to what we may expect here free cash flow-wise in '06?

I think our guidance for free cash flow for '06 would be 2 to $3 million.

Okay.

Profiler is a new product that we would look forward to introducing in this fiscal year, hopefully in the first half of this fiscal year. It is an angioplasty product that will specifically be targeted at the arterial side of PVD.

Got it. Thanks.

And Phil Nalbone, RBC Capital Markets.

Just circling back again on the guidance for fiscal '06, I just want to be very clear about what expectations are incorporated into your guidance. Am I correct that this is all organic growth? This is all current products and the expectation of a couple of new internally generated products for the year?

Yes, that is exactly correct, Phil. It is based solely on what we have in hand and some modest estimates for two new product introductions. And the two new products are the ABSCESSION drainage productline which is in test market and as we just discussed the Profiler PTA product which we hope to introduce in the first half of this fiscal year. And again stressing we are a conservative management team, in our first year of sales forecasts we are pretty conservative and usually look to exceed those expectations.

Great. Thank you.

There are no further questions at this time. Please proceed with your presentation or any closing remarks.

Well, thank you, operator. I would like to mention that we will be presenting at the Adams Harkness Summer Seminar in Boston on August 2 at 10:00 AM. We hope to see some of you there. We will also be webcasting this presentation and archiving it on our website for those of you who cannot make the trip.

Thanks again for your continued interest in AngioDynamics and for taking the time to join us today. All the best.

Ladies and gentlemen, this concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines at this time.