AngioDynamics Inc (ANGO) 2007 Q2 法說會逐字稿

Welcome to the AngioDynamics fiscal 2007 second quarter financial conference call. My name is Eric and I will be your coordinator for today. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes. I would now like to turn our presentation over to our host for today's call, Ms. Kim Golodetz. Please proceed.

Thank you. This is Kim Golodetz with Lippert/Heilshorn & Associates. Thank you all for participating in today's call. Joining me this afternoon from AngioDynamics are Eamonn Hobbs, President and Chief Executive Officer; and Joseph Gerardi, Chief Financial Officer.

Earlier this afternoon AngioDynamics announced financial results for the second quarter of fiscal year 2007, which ended on December 2, 2006. If you have not received this news release, or if you would like to be added to the Company's distribution list, please call Lippert/Heilshorn in New York at 212-838-3777 and speak with [Nidia Portea]. This call is being broadcast over the Internet and a recording of the call will be available for the next 12 months on 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 Forms 10-K and 10-Q which identifies specific factors that may cause actual results or events to differ materially from those described in forward-looking statements.

The content of this conference call contains time sensitive information that is accurate only as of the date of the broadcast, January 3, 2007. 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.

Good afternoon everyone. Thank you for taking the time to participate in our quarterly conference call. This has been an outstanding quarter in so many ways. We posted record financial results and positioned our Company for long-term industry leadership with our agreement to acquire Oncobionic and RITA Medical Systems.

Oncobionic brings us innovative irreversible electroporation, IRE, a soft tissue ablation technology that will allow us to play an important role in the growing field of interventional oncology.

We also entered into a definitive agreement to acquire RITA Medical Systems which, pending stockholder approval on January 29, will give us immediate access to a specialized tumor ablation salesforce and additional products to leverage our existing sales infrastructure.

Before I speak more about the exciting opportunities we have ahead of us, I will turn the call over to Joe Gerardi who will give you some color on the second quarter financial results.

I would also like to thank everyone for participating in today's conference call. I would like to take you through the income statement and give you an overview of the performance of key productlines. I will include a brief summary of certain balance sheet items as well.

If you have already read our earnings release, you know that we had a very robust quarter with sales and earnings reaching a record for the second quarter. We modestly outperformed sales forecasts and significantly beat our EPS expectations for the quarter. Our net sales for the second quarter of fiscal 2007 increased 30% to $24.4 million, up from $18.7 million for the second quarter of fiscal 2006. The growth in net sales reflects strong growth of the Company's main product categories.

Gross profit increased 31% to $14.2 million for the fiscal 2007 second quarter from $10.8 million for the prior year second quarter, and gross margin rose to 58.5% from 58% last year. Compared with the first quarter of fiscal 2007, gross margins declined slightly from 58.9%. The sequential drop in gross margin was due to an increase in Sotradecol, which is a product we market for the manufacturer, Bioniche Pharma -- it has a lower margin than the bulk of our traditional products -- as well a 30% increase in laser box sales over the prior quarter.

Operating profit for the fiscal 2007 second quarter was $3 million, or 12% of net sales, compared with operating profit of $2.4 million, or 13% of net sales, for the prior year second quarter. Operating profit for the second quarter of 2007 includes additional non-cash stock-based compensation expense from the Company's adoption of FAS 123R of $774,000 compared with only $40,000 in the prior year second quarter. Excluding the effect of FAS 123R, operating profit would be $3.8 million in the second quarter of fiscal 2007, or an increase of 58% over the operating profit of $2.4 million in the fiscal 2006 second quarter.

Selling and administrative expenses were $9.6 million for the most recent quarter, or 39% of net sales, up from $6.9 million, or 37% of net sales, for the prior year period. The increase in selling expenses was largely due to an expanding salesforce, increased marketing personnel, travel and administrative expenses associated with our most recent acquisition activities, and additional non-cash stock-based compensation expense from the Company's adoption of FAS 123R.

At the end of the second quarter of fiscal 2007 we had 65 field sales professionals, including eight sales territory managers, 55 sales representatives and clinical specialists, and two zone directors. Sales per sales rep averaged $1.7 million on an annualized basis during the second quarter of fiscal 2007.

Research and development expenses was $1.6 million in the quarter, or 7% of net sales, compared with $1.5 million, or 8% of net sales, recorded in the fiscal 2006 second quarter. Other income generated during the fiscal 2007 second quarter was $1.1 million, which largely came from the interest income on the cash proceeds of approximately $62 million from a public stock offering completed during May of 2006.

The effective tax rate for the 2007 second quarter was 39.5% compared to 36.5% for the 2006 quarter. The increase was attributable to the impact of graduated tax rates on the income for the 2007 quarter, as well as our inability in the 2007 quarter to record previous available R&D tax credits due to unsigned legislation. The legislation has since been signed, and our effective tax rate will be reduced to 38% for the fiscal year.

Looking now at the bottom line, net income in the second quarter of fiscal 2007 was $2.5 million, or $0.15 per diluted share. This compares with net income of $1.7 million, or $0.13 per diluted share, for the fiscal year 2006 second quarter. Without the impact of adopting FAS 123R, net income for this fiscal second quarter would be $2.9 million, or $0.18 per diluted share, an increase of 74% from net income of $1.6 million for the prior year quarter.

Now I would like to give you some insight into the exceptional performance of our product segments. Sales of angiographic products were $5.9 million in the quarter, up 15% or $758,000 over the prior year period. The Sizing Catheters and Mariner Hydrophilic catheters continuing to demonstrate excellent year-over-year growth.

Sales of dialysis products was $5.7 million, up 18% or $860,000, while Dura-Flow and EvenMore catheters continued to be the leaders in this category.

Sales of vascular access products were $4.1 million, up 37%, or $1.1 million, reflecting the continued sales momentum from MORPHEUS CT PICC. Sales of venous products were $4.7 million, in the quarter, up 76%, or $2 million, with VenaCure product procedure kids growing an impressive 60% over the prior year quarter. We sold 35 lasers during the quarter compared to 27 in the same quarter of fiscal 2006, and 23 lasers in the first quarter of this fiscal year. At the end of the second quarter we have had a total of 469 lasers in the field.

Sotradecol sales were almost $700,000 in the quarter compared to less than $150,000 for the first quarter of fiscal 2007. And no sales in the second quarter of fiscal 2006.

Sales of thrombolytic products were $1 million, down 7%, or $81,000, due to a decrease in sales of UNI*FUSE catheters, a small percentage which had been used in the Nuvelo now concluded pivotal clinical trial for alfimeprase. We do not believe that the conclusion of the Nuvelo clinical trials will materially impact our business.

Sales of drainage products were $961,000, up 91%, or $457,000, and were bolstered by the sales of the TOTAL ABSCESSION drainage catheter.

PTA Products sales of $1.4 million, an increase of 61%, or $528,000, over sales in the second quarter of fiscal 2006. The WorkHorse Balloon Catheter was the strongest performer in this category due to continued expansion of [valves for centers].

Moving on to balance sheet items. As of December 2, 2006 AngioDynamics had cash and investments of $87.9 million compared with $89.8 million as of June 3, 2006. Other non-current assets have increased $10.5 million during the first six months of fiscal 2007 due to the acquisition of the Medron port technology, which was $5.5 million, and the nonrefundable deposit on the purchase of Oncobionic, which was $5 million.

For the 26 weeks ended December 2, 2006 net sales was $44.6 million, up 27% from $35.1 million for the comparable 2006 fiscal period. The increase was due to general overall gain in the sales of products over a diversified product portfolio.

Net income for the 26 weeks ended December 2, 2006 was $4.4 million, up 48% from net income of $2.9 million for the comparable fiscal 2006 period. And diluted earnings per share increased to $0.27. Without the effect of FAS 123R our diluted earnings per share would have increased 43% to $0.33 from $0.23.

Our days sales outstanding was 48 days in the end of the second quarter of fiscal 2007 compared with 53 days in the first quarter of fiscal 2007.

With that summary, I would like to turn it back to Eamonn.

We are very proud of our financial results this past quarter. As Joe mentioned, we achieved record sales and earnings. I will talk a bit about about some of the highlights now, but won't go into each and every product category, given that our stellar growth and expanded array of product offerings makes a far more diversified Company than we have been. I will also talk more about the ways we plan to continue to diversify and grow.

Probably the most concrete evidence of the growth we have been experiencing is the construction we have got here in Queensbury now. During the quarter we broke ground on a new 36,000 square foot warehouse and distribution center, which will accommodate the Company's increasing number of employees and provide a foundation for future growth. The expansion is scheduled to be completed in the spring of 2007.

Turning now to some of our product highlights. Our venous products were tremendous performers this past quarter. Total venous products sales were up almost 76% in the quarter to $4.7 million. Alone VenaCure procedure kids sales were almost $3 million, up approximately 60% over sales in the same quarter of last year, and quite acceleration over the 25% year-over-year gain in kit sales the first quarter of this year. As a reminder, these are higher margin recurring sources of revenue.

Laser sales were also higher than both last year's second quarter and this year's first quarter. We sold 35 lasers during the quarter, as Joe mentioned, compared with 27 lasers last year and 23 lasers in the first quarter of fiscal 2007. Our installed base at December 2 was 469, all of which seed our kit revenue.

We have included almost $700,000 from sales of Sotradecol in our venous products this past quarter, and we are very, very pleased with this ramp. Our first quarter fiscal 2007 sales of Sotradecol were quite modest, because if you recall we had an issue with significant confusion in the distribution channel.

In order to eliminate all confusion in the marketplace, on August 1 we amended our agreement with Bioniche Pharma, thereby giving us sole distribution rights of Sotradecol to all customers in the United States. We believe that we are seeing the positive results of that amendment, and also the steps we took to focus our efforts on converting the market from a legal importation and custom compounding sources to our FDA approved product.

When we signed our agreement with Bioniche we indicated to you that we thought we could realize an additional $3 million in sales from Sotradecol in fiscal 2007. We're very comfortable with our ability to achieve that number.

Looking ahead, we are working to optimize our catheter technology for delivery of Sotradecol for potential use in the ablation of larger veins, including the great saphenous vein, which could accelerate the growth of the vein treatment market.

While we are speaking about our venous franchise, which by way accounted only for 19% of our fiscal 2007 second quarter sales, let me update you on our ongoing patent litigation with Diomed. A trial date has been set for March 12 in the Federal District Court in Boston, Massachusetts, and legal arguments are expected to last between two and three weeks. We continue to be very confident that we do not infringe on any of the claims of the 777 method patent, and that our procedure is materially different from the procedure that Diomed has described and claimed in that method patent. We are looking forward to moving this behind us.

I also want to remind you that under the terms of our supply agreement with Biolitec, we are indemnified. Biolitec has paid all legal costs related to the litigation to date, and is expected to continue to do so. I would also add that in the unlikely event the courts decides in favor of Diomed, we hope provisions in place that will allow us to continue to sell our VenaCure products.

Turning to the patent litigation with VNUS, this suit was filed in 2005 in Federal District Court in San Francisco. And VNUS accused us and our co-defendants, in this case Diomed and Vascular Solutions, of infringing four patents principally directed towards venous method for treating varicose veins. The VNUS patents described a procedure for treating venous disease with electrode catheter that delivers radiofrequency, or RF energy, directly to the inner wall of the vein. We believe that these patents are clearly intended to cover venous RF procedures only.

VNUS then pursued a claim construction that covers forms of energy other then RF. We believe that this pursuit has put the validity of its patents at significant risk. We strongly believe that the judge, or a jury, will hold the patents are invalid and are not infringed. We will have an opportunity to file summary judgment motions prior to the trial, which is currently scheduled for October 2007.

I will also mention that our image-guided vascular access product sales grew 37% to $4.1 million in the quarter. This segment continues to be led by our MORPHEUS CT PICC. Sales of the MORPHEUS CT PICC, which we introduced in the second half of fiscal 2004, were up 46% year-over-year to $2.9 million in the second quarter. This catheter allows both imaging agents and chemotherapy drugs to be delivered through the same catheter, avoiding the need to put the second line in a patient in order to perform a CT study. We have very high expectations for this product offering, and judging from its rapid acceptance, physicians and nurses are very pleased with it as well.

These same customers for the MORPHEUS are also the customers for our vascular access ports. As you know, we have been very eager to expand our port business, and this is one of the reasons we entered into an agreement to acquire RITA Medical Systems. I will speak more about RITA in a bit. But we feel covenant that we can give the focused attention needed to grow RITA's port business, which had around $23 million in sales in 2005. The combination of our two companies brings us immediately into a strong number two position in the market behind Bard.

Also to solidify our position as a leader in cutting-edge technology, in May we acquired a very unique port technology from Medron. The patent still hasn't issued yet on this technology so that is all I can say, but it will be very complimentary to RITA's existing ports. I can also tell you that we expect the port to be commercially available within two years, and this will raise the bar on available port technology. Total consideration to Medron over three years is $8 million.

We estimate the total market for vascular access ports at approximately $200 million annually. But as is happening in CT injection capable PICC lines, with the advent of CT capable ports that the port market is poised for a potentially explosive growth.

As you all know from our news flow the second quarter of fiscal 2007 has been an outstanding one in terms of major achievements. Early in the quarter we announced that we had signed an agreement to acquire a small development stage company named Oncobionic, which will bring us irreversible electroporation technology, or IRE, for soft tissue ablation.

This technology is very rapid, is visualized through the use of ultrasound, and solves a number of problems that occur in the current ablation technology, such as being able to eradicate the whole tumor and eliminating the heat sink effect and damage to surrounding structures.

We were very pleased that the technology received 510-K clearance from the FDA in December, for surgical ablation of soft tissue, including cardiac and smooth muscle. Despite this clearance, we don't plan to market the product until we're satisfied with results of human clinical trials, and indeed the purchase agreement is contingent upon successful use in humans.

As part of our purchase agreement we placed a nonrefundable $5 million deposit. Our next milestone in our payment schedule will come after the successful completion of initial human trials, which we expect to complete before the end of calendar 2007. So that would then require a $10 million payment. There are two subsequent time based milestones totaling $10 million after successful human use, for a total purchase price of $25 million.

The first human trials would be in liver tumors and in prostate cancer. We anticipate marketing a product utilizing the IRE technology by the middle of calendar 2008.

All told we think we're looking at a cancer treatment market of $1.6 billion, and a Benign Prostatic Hyperplasia market, or BPH, of $4.4 billion based on average treatment prices of around $2,000 a patient. This technology serves as an entree into the growing field of interventional oncology practiced by our traditional customer base of interventional radiologists and surgical oncologists. For those of you who are new to AngioDynamics and would like to learn more, we have presentations and links to white papers on this technology posted on our website.

Given where we anticipate growth in the marketplace, we were thrilled to announce an agreement to acquire RITA Medical Systems during the quarter. In addition to being a market leader in the port products that I spoke about earlier, RITA is the leader in the use of RF energy for soft tissue ablation, and has the perfect salesforce and market position to upsell our IRE technology once it is available.

To briefly review the terms of the agreement, which will be voted on by both company shareholders on January 29, the value of the deal is approximately $224 million, consisting of stock and cash equal to $4.70 per RITA share. After the deal, approximately 34.5% of the combined company will be held by current RITA shareholders and 65.5% by Angio shareholders. I'm very excited about this transaction in that it is really a perfect fit of two businesses. As we have said, it provides an excellent strategic fit, an immediate strong tactical fit, a clear financial fit, and has an extremely low integration risk.

We believe that vascular access and tumor management are two of the most exciting growth areas for minimally invasive image guided therapeutic procedures and our core customer base. RITA is a leader in both these businesses, with the number one share in focal tumor ablation and a number two share in ports. And given the strategic fit allows us to leverage our commitment to interventional oncology, especially with respect to IRE, and to the growth field of image guided vascular access.

We will also gain a very compelling pipeline of products, some of which are very close to commercialization. Indeed, one product, the Habib 4X Laparoscopic Resection Device, was launched subsequent to announcing our agreement. The market opportunity for this device is estimated at more than $300 million.

The Uniblate, a single electrode RF tumor ablation probe, is scheduled to be introduced in early 2007. This product is ideal for treating smaller lesions and fills a current hole in the RITA RF probe productline. This is going to materially add to the diverse productlines that REIT's localized therapy group has to service the RF tumor ablation marketplace. This is a very exciting product and could also be a big driver in last half of our fiscal 2007 and throughout fiscal 2008.

Financially, the deal is instantly accretive to cash. RITA has $88.3 million in usable federal net operating loss carryforwards. This translates into a $30 million tax credit usable over sixteen years, and is tremendously front loaded. For example, for the remainder of fiscal 2007 following completion of the acquisition, we will expect a $1.8 million tax credit. For the full fiscal 2008 and 2009, we will have $7.1 million each in tax credit. Thereafter the tax credit drops to $1.1 million, until we have used the $30 million. This is very positive to cash flow and it is extremely low risk as long as we are paying taxes.

As Joe mentioned, we just had an effective tax rate of 39.5% in the second quarter, so we are indeed a full taxpayer. However, GAAP accounting doesn't allow us to flow that through the P&L. In any event we expect the deal to be at least $0.05 per share accretive in our fiscal 2008, owing to the elimination of duplicate public company and marketing expenses and other synergies. In terms of cash impact we still estimate a $0.40 per share positive cash impact in fiscal 2008.

Note that we're not yet estimating many other potential synergies such as the increase in sales and margins we might expect in Europe as we move away from the current system of distributors in several countries to direct sales, being the existing RITA direct sales force.

Before we open the call to questions, we will turn now to guidance. It would be premature to offer guidance based on the completion of the RITA acquisition right now, so we will discuss AngioDynamics' guidance as a stand-alone Company. We're raising our previously announced guidance for fiscal year 2007. Once again, this is for AngioDynamics as a stand-alone Company only.

For fiscal 2007, we expect net sales growth to exceed 30% compared with fiscal 2006 to approximately $103 million. Year-over-year net income growth, including the impact of FAS 123R, is expected to exceed 57% to approximately $10.8 million. R&D expenses are projected to be approximately 8% of net sales, while SG&A expenses are projected to be approximately 37% of net sales.

Without the effect of FAS 123R, net income would be expected to reach approximately $12.7 million, representing 84% growth from fiscal 2006. The impact of FAS 123R is expected to reduce net earnings for fiscal 2007 by approximately $0.11 per diluted share, from $0.76 per diluted share to $0.65 per diluted share.

The Company will continue to expand its salesforce from the current 55 sales representatives to approximately 70 within the next 18 months. Gross margins have increased ahead of plan thus far, and the Company anticipates gross margins improving in fiscal 2007 by at least 40 basis points towards its goal of achieving gross margins in the low to mid 60% range. Without the impact of FAS 123R, gross margins would be expected to improve by at least 80 basis points.

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

(OPERATOR INSTRUCTIONS). Phil Nalbone, RBC.

Thanks for the nice start to the New Year. Eamonn, can you talk a little bit more about the RITA transaction, both the timeline and the mechanics of the consolidation? What happens after the shareholder vote on the 29th, and at what point do you expect to begin the financial consolidation?

Happy New Year to you too. The timeline is that we expect to close the deal immediately following the shareholder vote on the 29th. And immediately implement our integration plans, which are pretty straightforward in that we are maintaining the vast majority of -- or intent to maintain the vast majority of the RITA organization as it is.

We are going to be eliminating duplicate corporate and some duplicate marketing expenses, i.e., tradeshow expenses. So it is not going to take us very long at all -- a matter of fact a few weeks to be able to start enjoying the benefits of those integration synergies.

At as far as consolidated financial reporting, we would intend to shortly after the deal closes issue combined guidance for the remainder of the fiscal year -- our fiscal year. And we would expect that our Q3 and Q4 numbers would -- Q3 would have a partial impact of the RITA acquisition and Q4 would have the full impact.

Okay. You have talked about this as representing very low integration risk. Can you talk about what some of those risks are? And are there any scenarios under which this could wind up being neutral to dilutive on a GAAP basis in fiscal '08?

I certainly don't want to come across as being cavalier in thinking that integrations are always easy. They are not, having been involved in a few in the past. But in this particular case, on the scale of integrations this is a very, very straightforward one in that we are maintaining the RITA organization virtually intact, and offering an organization with tremendous performance and virtually half of their business with 54% growth year-over-year in their localized therapy products group in their last report. We're going to be focusing their current salesforce -- the current RITA salesforce -- totally on that product group, which should further accelerate growth there.

And we are going to be taking the other half of the business, the RITA business that hasn't been doing very well, in the vascular access, which is primarily their port business, and putting it into the hands of the current AngioDynamics salesforce, which is -- fills a big hole for AngioDynamics, and is very complimentary and we anticipate synergistic with our MORPHEUS CT PICC line sales efforts.

So from our perspective we are very comfortable that this deal is going to be accretive. We said at least $0.05 accretive in fiscal 2008, and we're still standing by that as being very conservative and very, very doable.

Can you remind us, that $0.05 of potential accretion on a GAAP basis, what does that represent in terms of operating expense savings? What was that dollar figure?

That's approximately $9 million.

Just one other question, and I will go back into the queue. Can you give us the potential timeline on patent issues for the Medron port technology?

That is always hard to estimate, but we would start to be looking for office actions in the Patent Office in the middle of the summer at the earliest.

Jayson Bedford with Raymond James.

Good afternoon and Happy New Year to you. A couple of questions. Just so I have it straight, $4.7 million in venous therapy revenue, that included $700,000 in Sotradecol, $3 million in kits, and $1 million in capital equipment. Is that how it broke out?

That's correct.

I just wanted to make sure Sotradecol was included in that. I guess looking at that 60% growth in disposables, just wondering what accounted for that growth? Is it more just a function of salesforce focus, or are you seeing a positive impact on your laser business with Sotradecol now in the mix?

There are a number of factors that led to an excellent quarter in Q2. One, we had relatively -- we had a very slow Q1. The summer months are always very slow, but it was a bit slower than usual. And that was, we believe, totally based on lower than usual procedure volume. So there was a little pent-up demand in Q2 that we took advantage of.

In addition, the focus on Sotradecol is definitely benefiting our ability to sell VenaCure lasers and kits in that our salespeople are focusing more in that area. There is no doubt about that. Lastly, the installed base is increasing very, very well, and we see a bit of an acceleration in the -- or a decrease in the amount of time it takes to get a new laser sale up and running doing procedures.

I guess what has changed with Sotradecol from the August quarter to the November quarter here? It is nearly a doubling, maybe a is tripling of revenue. What has really changed quarter on quarter?

Two very material things changed. One, we renegotiated our contract with Bioniche Pharma to become the exclusive distributor. So we -- as of really the end of September, we completely eliminated any confusion in the distribution channel. In Q1 we suffered from a lot of confusion where we would establish accounts only to have that business find its way back through drug wholesalers to the manufacturer, Bioniche Pharma.

Two, we have been benefiting from a lot of success in educating customers about the illegalities of importing competitive drugs from outside the United States. And also the issues associated with illegal compounding. And we're getting lot of traction there in that a lot of the physicians, or the vast majority of the physicians, really had no idea that there was any problem at all with importing drugs that were approved outside the U.S. And, two, since they had been using compounded sources within the U.S. for a while, they didn't understand that that also had its own issues once a FDA approved drug is readily available.

Is the bulk of Sotradecol revenue coming from the interventional radiology channel or are you now seeing contribution from derm.

We are still -- the majority of our revenues is in interventional radiology and vascular surgery, but one of the fastest-growing segments is in dermatology.

I guess just switching gears to gross margin, if I just look at it sequentially you did -- ex options you did a little under 59% on $24.4 million in revenue versus 59.3% on $20 million in revenue in the August quarter. I would have thought gross margins would have been a little higher. Is it solely the impact of Sotradecol been impacted margins?

That was a big contributor, and the other one was laser box sales being so high. They always knock us down a little bit because they are much lower gross margin.

I would also like to point out that our Sotradecol gross margins are currently -- and on track -- at approximately a 50% gross margin. And that is something that we have discussed in the past and still plan to improve over the course of the remainder of -- or by the end of this fiscal year.

We intended going into our arrangement with our supplier, Bioniche Pharma, to renegotiate the contract to improve our gross margins right from the get go, but wanted to minimize our commitments to the program. So this is a bridging margin. In fiscal 2008 you should expect to see our gross margins not diluted in any way by Sotradecol sales.

Great. Last question and I will get back in queue. Are you still on track to launch the Profiler PTA dilation catheter in the third quarter of '07?

Yes, we are.

Jason Mills with First Albany Capital.

Congratulations on a good quarter. Happy New Year to you. Not that is a very big part of your business, and everyone is focused on Sotradecol, but I will just ask one question and then get to some other things. But stemming from Jayson's question, I was just curious, what sales runrate in Sotradecol would you consider buying the supplier? You talked so much about gross margins and actually it being an impact. Actually as I understand it, this product is pretty darn high gross margin if you owned it. Understanding you don't want to commit to it until you see whatever you need to see, I guess the question is, what do you need to see?

That is a very good question and we are hotly debating it internally. Certainly one of our options is to approach Bioniche Pharma, which is owned by an equity -- private equity firm, and propose a number of options, one of which is purchasing the whole company. I think from -- my preference I think it would be more likely that we would purchase higher gross margin and leave the drug manufacturing to the experts, and let them enjoy some sort of manufacturing margin. But where that shakes out, what we are committed is to making sure that it is at least neutral to our overall gross margins, if not accretive.

What I need to see to make that happen is we are already seeing it. The ramp is real. It is very tangible and it is very comforting. That is why we intend to renegotiate the deal prior to the end of the fiscal year.

Then on Sotradecol, you may have said it and I missed it, what were your expectations for all of fiscal '07? And you're halfway through the current quarter, I guess it is ramping towards that.

It is. What we disclosed was we expected the amended agreement that eliminated the confusion in the channel to provide an additional $3 million in Sotradecol revenue for this fiscal year, which totals a little over $5 million in total Sotradecol sales.

Perfect. Then I wanted to shift gears back to a discussion about RITA. I appreciate the guidance being AngioDynamic specific, excluding RITA. But a couple of questions, if we can go down this path. Specifically starting with fiscal '08 and the comments about potentially at least $0.05 accretive in fiscal '08, just I guess a very simple question, $0.05 accretive to what baseline level?

We haven't given fiscal '08 guidance, other than the general guidance that we will increase topline north of 25% and bottom line north of 35%.

So you are now guiding $0.65 GAAP in fiscal '07, excluding RITA. So the Angio business to grow 35% on that number, and then an additional $0.05?

Yes.

Then with respect to fiscal '07 because --.

I'm sorry. That is at a minimum. That is what our long-term guidance has been. We're very comfortable with that, yes.

Good. Then so obviously what happens in fiscal '07 with respect to when you close the deal, how quickly you assimilate the businesses, how quickly you're able to achieve the synergies and so on, will have an impact on your ability to hit or exceed or miss those targets for example in fiscal '08.

So could we get on the path in the late third quarter, early fourth quarter sort of broadly speaking what you guys are thinking about with respect to topline additions -- let's say just fourth quarter specifically?

And then you probably won't be able to achieve the synergies that you will in fiscal '08 on the SG&A line, but you do expect gross margins to expand immediately. Then are you expecting any one time charges? I think you talked about on the conference call and we have included in our model, net of tax, about $0.5 million to $600,000. Is that about right?

There are several questions in there, but generally speaking the line of thinking is helping us sort of -- I think most of us, at least I have modeled RITA in the fourth quarter, and wanted to see if I'm on the right path here.

You're on the right path from -- and nothing has really changed, other than we have become more comfortable with those sorts of estimates that we presented in the conference call. We would expect, as we stated earlier, that we would see RITA fully consolidated in our numbers in Q4.

The real question is how you model our positive impact to the RITA port business. And what we said in the conference call and feel more comfortable about today is that we believe we can get the growth in the port business up to a level where it is at least neutral to our overall growth, which has been pulling down RITA's growth numbers very significantly.

How quickly do you think you can achieve that accretive growth?

That is the part we will be giving you when we give the guidance for fiscal 2008. But it is over the course of 2008, our fiscal 2008.

In that vein, one more question and I will get back in queue. Have you, or do you, need to train your Angio specific salesforce on the port business? Is there anything technically challenging or anything with respect to the port productline that necessitates additional training, or anything that is going to over the course of the next couple of months take them out the field for example for a day or two that we need to be concerned about?

No, no concerns there. It is really couldn't be a more ideal fit for our current salesforce in that a port is really a subcutaneously varied PICC line. So our salesforce is very, very well-trained on the overall area. They're very comfortable with it. What they will be getting is field training, which is very specific to the RITA productline and RITA productline positioning, which is not anything like we will pull them out the field and focus them on. It really couldn't be a better fit from that perspective.

That is very helpful. Just lastly on that port side, you mentioned the potential to expand the growth in the overall market vis-a-vis CT capable ports. Could you talk about who has that productline? C.R. Bard I believe has a CT capable port. And really how ubiquitous, or maybe it is not ubiquitous at all, in the market CT capable ports are currently?

They are a new product, and what we are anticipating is that CT capable ports will be -- will enjoy an uptake in the marketplace like CT capable PICC lines have. So the kind of ramp we are seeing in CT capable PICCs is exactly what we expect to see in ports. And the impact to the market is that it could easily double the market size in that the ASPs for the Bard CT capable port, which is the only one that has been introduced so far, are in excess of twice the price of their standard port line.

So the same kind of pricing structure has existed in PICC lines and has held up, where CT capable PICCs are over double the average price of a standard PICC line. We're very optimistic that the port business is staged for pretty explosive growth.

The current RITA productline is actually engineered to be CT pressure capable as it is today. And what it really needs is some relatively minor tweaks to -- from a marketing perspective and from an FDA indication perspective to be sellable as a CT capable port line. So a few more bells and whistles. So we are very excited about that, and would expect, and be disappointed if we didn't see a ramp up along the lines of what we have enjoyed with MORPHEUS.

I guess -- I promise I will get back in queue after this. In your discussion so far about RITA in both this conference call and last conference call you had been noticeably bullish about it. Phil asked you a question about risks. It almost seemed hard for you to find it.

And then the flip side of that we have all known RITA as a publicly traded company for a little while, some better than others. I'm just wondering it almost sounds too good to be true with respect to what you found, and if you're able to assimilate it, what you would be able to derive from a leverage standpoint in your business.

I could have asked those questions in a different vein, just so that we don't miss anything -- we're not -- I would hate for people to get too far ahead of you with respect to the synergies here. Where -- if there might be minor hiccups with respect to, or what things you need to work on with respect to assimilating this business, where might they be and what might they be?

The linchpin to the deal being successful are focusing the current RITA salesforce on doing what they have been doing really well. And if you look at RITA's historical performance over the last few quarters, they have really been blown away. The localized therapy products structure last quarter was 54% year-over-year. So we are leaving them alone, other than taking away the port business, which has been holding them back. We are taking the albatross around their neck and basically releasing the hounds and giving them tremendous upside to focus on the localized therapy products. And that is the bead block, the Habib and the classic RF business solely.

That albatross that the RITA salesforce was suffering with, and really not focusing on at all, is an absolute joy to the AngioDynamics salesforce, which has had to suffer with the lack of a port in their productline. So they're going from having no port to supplement a bundle with the MORPHEUS success to having the number two market position with, we believe, the best port technology out there, and a strong pipeline behind it.

That is what makes us really so bullish in that from an integration perspective we're leveraging all the good things that RITA has developed and executed on recently, and we're taking the things that RITA has not been executing on because of lack of focus and putting it in the hands of really the best salesforce out there to run with them.

On a more logistics integration perspective, the biggest challenge we will have, since the facilities are remaining as they are, will be to implement IT integration and get RITA's manufacturing facility up and running on SAP.

Now the good news about -- the good news, bad news on that issue is AngioDynamics team implemented SAP very successfully last fiscal year. And we are up and using it now. So we have a team of people that have a successful track record of implementing all of SAP, and are very, very confident that they will be able to implement the manufacturing modules of SAP with the RITA facilities very quickly and successfully.

You're absolutely right. We're very bullish on the deal. It is going to be a lot of work. There is no doubt about it. But as acquisitions go, it is really hard to paint a better picture as far as implementation goes. It looks really good.

Matthew Scalo, Canaccord Adams.

A very good quarter here. I wanted to talk a little bit about hemodialysis catheters, kind of the rebounding growth there. It is nice to see. Can we assume that maybe some of the product rationalization, and maybe even kind of those price sensitive accounts that were rationalized in the fiscal first quarter, is that done with now? Should we see a mid to high teens growth going forward for dialysis catheters?

Yes. Our expectation is that that business should continue to grow in the mid to high teens on a minimum. We did get some relatively good news in the quarter with regard to reimbursements in that our most price sensitive accounts are the stand-alone dialysis access centers, which were pressuring us to lower our pricing and were some of those accounts that we were rationalizing.

They have been hit with a reimbursement reduction, which now makes hospital-based procedures much more favorable for those same physicians. So what that means is in the -- there is going to be less price pressure on dialysis catheters going forward than we would have modeled just a quarter ago.

So the long and short of all that is, in answer to your question we're more bullish than we were a quarter ago that we will be able to maintain ASPs and product mix in dialysis catheters going forward.

I hate to keep talking about Sotradecol here, but you mentioned the majority of the growth came from the IR and vascular surgeon side. Is that correct? So moving from say $200,000 last quarter to about $700,000 this quarter, a majority of that growth is still being driven by the IR and vascular surgeon channel?

Yes, that's correct. And that really stems from a couple of aspects. One, that is our strong point. We started focusing on markets outside of our strong point, our core customer base, only in -- subsequent to September really and October and November. So the dermatologists really just were latecomers as far as our intention. They are squarely in our focus today, and are going to be -- continue to be the fastest-growing segment of our Sotradecol sales. Because that -- they account for at least half of all the procedures done, and are readily approachable and very, very interested in the drug.

Good. As far as the Sotradecol (indiscernible) utilization within the greater saphenous vein, have you provided details on the trial update? It sounds like it has just begun, and maybe you can provide some details as far as the progress there that we should expect in fiscal '07?

We haven't provided many details. And it is sensitive area in that the investigators, we don't want to take the wind out of their sails. They like to publish this stuff, and they deserve to. So we will tell you though that the trials are underway. We're very, very pleased with the results so far. And when we can talk about them without doing a disservice to the investigators involved, we will be doing that. But we're giving it a big thumbs up at the moment. The results are outstanding.

Then a last question. As far as the excellent number of laser boxes placed, were there any kind of multiple box orders that maybe skews the quarter here?

No.

[Gregg Brash], Sidoti & Co.

Looking at RITA's ports, what sort of timeline are we looking at where -- that you could receive an indication from the FDA so you can market these products as CT compatible?

We would expect that we would be on the market with full-blown CT compatibility in the -- sometime in fiscal 2008, towards the latter half of 2008. That is the first half of calendar 2008.

Now as far as your guidance on the SG&A line, in the past two quarters you have been up around 39%, 40% of revenues as your SG&A. What is happening here that is going to take it down to 37% for the year?

It is going to be predominately the revenue ramp. The expenses are going to remain constant but the revenue ramp is going to continue to increase and then decrease as a percent of revenue.

In addition, there's also some seasonality in our admin expenses being heavy into Q1 due to the audit for the prior year. So there's some leveling out that happens.

Our goal and expectation is we will be getting it back to 37% on the course of the year.

Were there any extra costs in this quarter from the RITA acquisition, any sort of administrative paperwork fees?

There was some minor expenses, mainly for us running around doing our due diligence expenses and that kind of stuff. We can't capitalize that, but you will see the majority of the RITA acquisition costs come in after the closing..

Yes, would you venture a sort of couple of hundred thousand dollars in due diligence expenses hit the quarter?

Yes.

The final question was on your MORPHEUS CT PICC, the insertion kit, I was wondering how that is selling, and if there is any worries about Bard's new product, their Sherlock system? I believe that is a new technology used for the bedside insertion.

No, we are seeing that product ramp up. It is performing as we expected, and we are not especially concerned about Bard's competitive products. We're competing very effectively against Bard. And the only issue we have had with the insertion kit has been that, although the orders are large when they come in, the selling cycle is longer than MORPHEUS that is placed under image guidance. The orders take longer to come in, but when they do they are larger.

(OPERATOR INSTRUCTIONS) Larry Haimovitch, HMTC.

Eamonn, a question for you and then a question for Joe. The question for you relates to the RITA productline. I am quite familiar with RITA. And I agreed, I think the acquisition looks like a really terrific fit. The liver cancer bead business in my mind is one of those little gems that probably many people didn't appreciate. I wondered how much knowledge you have of that business, how it looks to you, and your thoughts going forward?

The product is a gem. There is no doubt about it. The clinical results with the product are really outstanding. And it is getting a lot of attention in the interventional oncology community. Customers we have spoken to with regard to that product just rave about. And the whole area of chemo embolization is one that is in its infancy, and we expect it to be a big part of focal tumor therapy going forward over the next five, maybe ten years at least.

The RITA product is the LCD and it is basically a time released drug delivery device for very potent chemotherapeutic agents. So it is easy-to-use. It is approximately $1,500 a dose. Typically two doses are used on a patient, so it has high gross margins. It is an absolute gem. There is no doubt about it.

Joe, I have a question for you, and that related to the tax loss carryforwards. I'm not as much up on my accounting as I used to be when that was something that I followed more closely. But I was surprised, it sounds like you're going to get the full benefit of their tax loss carryforwards. And my impression was that those benefits weren't quite as good as they used to be. I wonder if you can just shed a little bit of light on that issue.

Actually, we're not getting the full benefit because every time you consolidate a business, you have to reevaluate, and some of those loss carryforwards no longer qualify. But we do get $80 million, which still is a significant amount. That is the amount that we feel that we can actually utilize. There's more out there that is available to us, but unless you can utilize them we can't really recognize that.

If I remember correctly, we started out with about $138 million in NOL carryforwards, and by the time the accounting analysis was completed we ended up with $88.3 million.

Is very timeframe under which you have to use that $88 million?

Yes. Sixteen years is -- but it is tremendously front loaded.

You should experience in the next couple of three years some significant tax savings from that alone?

That's right.

The tax savings from an income tax perspective, what we pay out not from a book perspective, what we're going to show close to the P&L.

On the P&L then, Joe, does that mean the tax rate will be close to current rates. But from a cash standpoint in terms of the taxes you pay, the cash required to pay your taxes will be less, but we won't see it in terms of the book -- the number you report to shareholders?

That is exactly correct, yes.

That gives rise to what a deferred tax account or --?

They will combine as deferred tax assets on our balance sheet when we book the purchase.

How much cash savings would you anticipate in the first full year? Any kind of ballpark (multiple speakers).

The first full year would be about $7.1 million.

That's great, because that is a significant improvement to your (multiple speakers).

And $7.1 million in the next fiscal year, then it drops off to about $1.1 million, $1.2 million thereafter.

Thanks, Joe. And back to you. It sounds like the changeover of the Angio salesforces carrying RITA vascular access business will occur pretty quickly right after the deal, is that correct?

That is absolutely correct. They are salivating right now to get their hands on the port business. And we will be incentivizing them to make it a major focus for the rest of the fiscal year.

As you well know, you've got FIR coming up March 1 in Seattle. Will the AngioDynamics booth be a combined booth then of RITA and AngioDynamics?

Yes. Although I believe RITA has already paid for their FIR space, so we will have two booths, but the Angio booth will be a combined company. And I'm not sure what we will do with the -- we may have a beer stand over in the other one.

I will be there. Congrats on all the progress. I look forward to talking to you soon, Eaamonn.

Tom Kouchoukos, A.G. Edwards.

Just a quick question, most of them are already asked. On the bedside insertion kit, just to follow-up on that a couple of callers ago, looking at the dynamics of the market and the size of the MORPHEUS productline versus Bard's position out there, is your insertion kit exclusive to the MORPHEUS product or can it be used across different companies' platforms.

It is exclusive to the MORPHEUS product.

You can't leverage on that. But in terms of -- can you go into a little more detail about the ordering flow on that? You lost me there on that last comment about --.

Sure. The point I was striving to make is that it is much easier to get a MORPHEUS order for MORPHEUS kits that are not bedside placed. That has to do with the fact that the decision-makers are fewer for an image guided MORPHEUS kit product purchase. So the [interested] radiologists and the physician extenders and nursing component are much more straightforward than when we go to bedside insertion, because that opens it up to more decision-makers within the hospital in general. The same set of decision-makers, plus a larger group around them. So the selling cycle, there are more calls to make, more boxes to check off, and more time involved in closing a sale. But once you do close that sale, it is more of a hospitalwide purchase in a much larger order. So the payback is definitely there, but the selling cycle is quite extended based on that. If that makes it any clearer.

Yes, it definitely does. Once you have made that first sale and it has been established in place, do you see it evolving like the PICC teams that we used to see, whether it would be dedicated teams that go around bedside to bedside and insert these things?

Yes. As a matter of fact, the PICC teams evolved into interventional radiology, or what is called special procedures, during the vast majority of the procedures. And they got rid of the PICC teams. And what that has evolved into is the interventional radiology, or special procedures group, within the hospitals actually bringing on their own physician extenders, be they PAs, MPs or RNs to do bedside placement. So we have PICC teams now that actually report in through our core customer base, which is why we're involved in bedside placement of these products.

Then looking -- you went quickly over the Nuvelo trial that has now ended. And it seemed like it made an impact this quarter, but going forward you don't think it is going to be -- the sales should return to historical levels. What do you think will account for that rebound going forward?

The Nuvelo trial was not material at all to our current quarter. We don't think it is going to be material going forward. And although the Nuvelo trials that were ongoing and have now concluded were -- increasing business a very small amount, those same customers were doing thrombolytic procedures using our catheters before the trials ever started. So Nuvelo -- what was very exciting about Nuvelo was the potential upside of that business, not the fact that we were benefiting tremendously from any of their clinical trial work.

We were very eager to support them, and are still eager to support them, in their development efforts. We never counted any of that upside in any of our forecasts going forward. It was a wildcard upside that would not have been appropriate we felt to include it in any of our financial models or metrics or anything else. It was just something that was out there and maybe it will happen, if it does it is fantastic. If it doesn't happen, well we're right where we started from, and we have still got a fantastic business.

I would like to say though that the customers we spoke to who were using our product to deliver the Nuvelo drug really still are very convinced that is an outstanding thrombolytic agent, and are expecting that the hiccups that Nuvelo have experienced in their two recent trials are just that. And that these trials are going to be reengineered, refined, and that alfimeprase will ultimately get approved, because the drug really does offer tremendous benefits over what is available today. Those is our customers' -- that is what they're telling us.

Having said that, nothing has changed for us. It is still a wildcard upside. Maybe it will happen, maybe it won't. But those trials concluding have no material impact on us at all.

It is just business as usual going forward.

Exactly.

One last question. On the Oncobionic trials that you had talked about earlier, looking at BPH, as you go in the neurology market, what kind of trials do you think you'll have to do to prove utility in that market, and what would you have to compare it to?

We would -- in BPH we would be comparing it to other ablation technologies that are available today in microwave and laser and cryo. All those technologies of course compete with the drug pharmaceutical therapies and wait and see therapy. Really we would position this as a better, best or cheaper, less invasive way of ablating the tissue and debulking the prostate and relieving symptoms with a very, very low complication rate. We would be selling features and benefits. Our trial really is going to be set up against the other approved modalities that are there now for tissue ablation.

Would this be a -- when you say debulking, would it be more of a surgical transurethral procedure like a CBT, or would it be kind of a one zap treats all like microwave?

It would not -- although it is potentially down the road to do transurethral, we think it would be more likely to be transrectal or transperineal, which is along the lines of how urologists do office biopsies today.

That is helpful. Thanks a lot.

We have no more questions at this time. I would like to turn the call over to the CEO, Eamonn Hobbs.

Well thank you. In closing we're very, very pleased in the direction we're going. We have continued to grow our diversified business revenues at greater than 25%, and drive earnings growth at a far higher level through gross margin expansion. In addition, we have strategically positioned ourselves for continued excellent growth through the coming years. I thank you for your attention this afternoon. And a Happy New Year to you all. Good day.

Thank you for your participation in today's presentation. You may now disconnect.