AngioDynamics Inc (ANGO) 2009 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the AngioDynamics second quarter 2009 conference call. (Operator Instructions). As a reminder, this conference is being recorded today, Tuesday, January 6 of 2009. At this time I would like to turn the conference over to Mr. Doug Sherk with EVC Group. Please go ahead sir.

Good afternoon everyone. Thank you for joining us this afternoon for the AngioDynamics conference call to review the second quarter of fiscal 2009 results for the period that ended November 30, 2008.

The news release announcing the second quarter earnings crossed the wire this afternoon shortly after the market closed and is available on the AngioDynamics website. We have arranged for a taped replay of this call, which may be accessed by phone. The replay will become available approximately at 6.30 PM Eastern time this evening, and will remain available for seven days. The operator will provide the dial in information at the conclusion of today's call.

In addition, the call is being broadcast live, and an archived replay will be available to access the webcast through the AngioDynamics website at www.AngioDynamics.com.

Before we get started, during the course of this conference call the Company will make projections of forward-looking statements regarding future events, including the statements about the sales and the Company's beliefs about revenues and earnings for fiscal 2009. We encourage you to review the Company's past and future filings with the SEC, including without limitation the Company's Forms 10-Q and 10-K, which identity specific factors that may cause actual results or events to differ materially from those described in forward-looking statements.

Management uses non-GAAP measures to establish operational goals, and believes that non-GAAP measures may assist investors in analyzing the underlying trends in the Company's business over time. Investors should consider these non-GAAP measures in addition to, not as a substitute for, or superior to financial reporting measures prepared in accordance with GAAP.

In this news release the Company -- and in this conference call the Company has reported non-GAAP EBITDA and EBITDA per share. Management uses these measures in its internal analysis and review of operational performance.

Finally, during the question-and-answer period today we would like to request each caller to limit themselves to two questions, and then encourage a requeue to ask additional questions. In advance we appreciate everyone's cooperation with this procedure.

Now I would like to turn the call over to Eamonn Hobbs, President and Chief Executive Officer of AngioDynamics.

Good afternoon everyone. Thank you for joining us today. With me is Joe Gersuk, our Chief Financial Officer.

Overall we believe we had a solid quarter. We grew the top line 17% and made $0.12 a share, despite the $0.01 impact of a non-cash charge associated with an interest rate swap initiated in 2006 and foreign exchange losses.

We made good progress with the integration of the Diomed assets into our Peripheral Vascular business unit, and generated very strong sales growth for both the VenaCure and EVLT kits. And we recorded our first NanoKnife sales in the quarter, and are on track to achieve the $1 million goal set for our team for NanoKnife revenue during fiscal 2009.

The credit crisis has had a lingering impact on some of our hospitals' customers' capital equipment expenditures. In addition, some of our physician customers have adopted a very conservative approach towards equipment spending, given the current economic environment. We believe these two factors impacted the sales growth for certain AngioDynamics productlines during the quarter. However, at the same time, some of our productlines generated very strong sales growth during the quarter.

All in all our 17% topline growth illustrates the benefits of our diverse product offering, which now includes the EVLT productline we acquired from Diomed.

While Joe will provide more detail in a few moments, I would like to address what was probably the most disappointing operational issue during the quarter, and that was the 2% sales growth of our Access business unit.

Here we suffered from a domino effect. First, last quarter we told you about the single component supply issue that limited our ability to ship the Morpheus CT PICC productline. The inability to ship Morpheus forced our sales team to divert their attention to the Morpheus situation and away from selling our conventional ports. As a result, the conventional port business was impacted during the quarter. Our dialysis productline sales also continued to suffer from price competition and the lack of availability of Centros.

At this point we're not expecting Centros availability until our next fiscal year. However, there are very positive developments within the Access business unit, and we believe that we will begin to regain sales momentum in the third quarter.

Our optimism is based on two key factors. First, the market continues to embrace the Smart Port CT. In fact our expectations for Smart Port CT are being exceeded. The second factor is the Morpheus CT PICC. Since correcting the supply issue we have begun to rebuild inventories, and our team generated increasing levels of sales for this productline during the months of November and December.

Finally, with the Morpheus CT PICC back on track, our sales team has been able to refocus their attention on the conventional port business, which we believe will yield positive results. So we have a good deal of optimism about regaining our overall momentum within the Access business unit during the remainder of the year.

Now I would like to turn to the progress we're making with NanoKnife. Clinical use of the NanoKnife continues to both expand and be quite promising. As of today this system has been used successfully in clinical procedures at five sites in the US, Australia, Germany and Italy. A total of 35 IRE procedures have been performed at these sites for percutaneous prostate, percutaneous and laparoscopic liver, kidney, lymph node and lung lesions.

The physicians performing the percutaneous IRE procedures have all reported NanoKnife IRE system ease-of-use, rapid radiographic lesion resolution, and short procedure times compared to other focal therapies.

Dr. Ken Thomson, professor and director of the Department of Radiology at The Alfred has performed several NanoKnife procedures and has called our IRE technology and I quote, "the most exciting development in minimal access therapy I have seen". Dr. Thomson will be participating in the symposium we're sponsoring in New York on January 22.

In addition, most patients treated have also commented on a distinct lack of or very minimal pain, especially when compared to previous thermal focal therapy treatments.

Since we last talked to you in October, the number of systems shipped to key thought leaders in various clinical specialties has increased from 12 to 19. In addition to the five sites reporting successful clinical use, another two of the 19 sites have also completed pre-clinical pancreatic IRE safety studies.

On the regulatory front we are completing our response to the FDA's questions regarding our investigational device exemption for our clinical trial program to achieve specific labeling for use in prostate cancer, and anticipate initiating this trial within the next 90 days.

In addition, we have received CE Mark approval for both NanoKnife IRE electrode models, enabling the sale of NanoKnife IRE systems within the European Union. And we believe TGA and HPB approvals for Australia and Canada, respectively, are pending.

We have also generated our first financial success with our IRE technology. During the quarter we generated our first commercial sale of NanoKnife probes. The milestone transaction totaled $42,000. Since the end of the quarter we have experienced additional success with our IRE sales efforts, and our results to date give us increased confidence about our ability to achieve our total IRE revenue goal of $1 million for fiscal 2009.

I would also like to update you on where we are in the leadership development plan we announced about a month ago. The search for my replacement is progressing, and the committee has interviewed several highly qualified candidates. The process is thorough and deliberate, and we will report any updates when developments merit.

Meanwhile, we were very pleased to announce a few weeks ago that as part of the leadership development program Dr. Michael S. Sharp has joined us as Vice President Regulatory, Quality and Clinical Affairs. Michael brings AngioDynamics some 30 years of experience in regulatory and clinical affairs with a variety of medical device companies. He is a seasoned executive with a background in successfully developing clinical affairs and regulatory strategies, and we look forward to his contributions to the Company.

Finally, before turning the call over to Joe, earlier in my remarks I mentioned an AngioDynamics sponsored symposium on IRE technology. This event is taking place on January 22 in New York City, and will feature four independent clinicians, including Dr. Thomson, reporting for the first time on their human clinical experiences with the NanoKnife system.

If you're interested in attending this event, please contact the EVC Group at 646-201-5445. And I would urge you to do so quickly as we have limited space availability.

Now to give you more detail on the second quarter financial performance, I would like to turn the call over to Joe.

Good afternoon, ladies and gentlemen. Following our December 3 announcement of preliminary financial results, today we are reporting final results for the second quarter and first half of fiscal 2009.

From an operating perspective, we have made substantial progress in many important areas in the first half of the fiscal year. This includes a reorganization of the Company that established three market-focused business units, a 40% expansion of the salesforces in the Peripheral Vascular and Access units, the acquisition of Diomed and the integration of its operations into the Peripheral Vascular unit and the training of the salesforce on the acquired products. And the increasing successful clinical use of our irreversible electroporation technology, as Eamonn has just described in some detail.

We have accomplished all of this in the first half of the year while growing sales by 17% and EBITDA by 15%. The 15% growth in EBITDA has been accomplished despite spending $3.5 million for development, sales and marketing costs associated with the IRE program. And while the macroeconomic environment has never been more challenging than it is today, we believe that AngioDynamics is well-positioned to weather the unfolding financial and economic crisis to continue to generate substantial free cash flow from operations despite heavy investment in the IRE program, and to grow our business in a strategic and profitable manner.

For the fiscal second quarter Peripheral Vascular sales were $21.8 million, which is an increase of 33% over the second quarter a year ago, and reflects the impact of the Diomed acquisition.

Total laser ablation sales, which includes the entire VenaCure EVLT product category, amounted to $9.3 million in the second quarter, a 156% increase from the $3.6 million in VenaCure sales a year ago.

The acquisition integration process has gone well in most respects. The combined customer base is strong and loyal, as evidenced by very healthy sales of both VenaCure and EVLT procedure kits in the quarter.

While laser sales were considerably higher in the second quarter than in the first, they were lower than we expected. This may be partly attributable to customer hesitation to make capital commitments during difficult economic times, despite our having financing sources available to prospective new customers.

We are not resting here, and we have intensified our efforts to sell more lasers in the second half of the year.

Second quarter sales in the Access unit were $16.1 million, an increase of 2%. Eamonn reviewed our situation with this business unit during his remarks, so I will move on to the Oncology/Surgery business unit, which recorded sales of $10.6 million, an increase of 13% over the prior year.

Sales of our chemoembolization product, LC Bead, were strong again this quarter. And international sales of our RF ablation product and Habib surgical resectioning device were below our expectations. And this is partly attributable to international distributors not able to finance inventory purchases due to the banking conditions in Europe.

NanoKnife sales are included in the Oncology/Surgery business unit, and as noted in the release, we had our first sale of NanoKnife probes in the second quarter to one of the 25 sites included in our NanoKnife launch program.

From a geographic perspective, 89% of second quarter sales were in the US and 11%, or $5.5 million, came from the international markets. Of the $5.5 million in international sales, $2.2 million was denominated in sterling or euros, and the balance was dollar-denominated. The recent sharp decline in the sterling and euro exchange rates against the dollar reduced our second quarter sales by approximately $300,000 from our internal expectations.

However, since we also incur significant cost in those currencies, including our laser manufacturing operations in England, the impact of the foreign exchange movement on second quarter operating income was actually slightly positive.

Continuing down the income statement, the gross profit margin of 61.3% was level with the prior year margin and exceeded our guidance, as favorable manufacturing efficiencies are more than offsetting increased royalty costs associated with laser ablation sales.

Operating expenses were $24.8 million for the second quarter, an increase of 20% over the prior year period, as we invested in R&D and sales and marketing activities for the IRE and other activities, while reducing our G&A expenses as a percent of sales.

Total operating expenses were 51.2% of sales in the quarter, compared to 49.8% a year ago. R&D expenses increased to 9.1% of sales in the quarter versus 8.9% a year ago, due to IRE development and commercialization work.

Sales and marketing expenses increased to 28.9% of sales versus 27.2% a year ago due to the Diomed acquisition, the expansion of the Peripheral Vascular and Access salesforces with the addition of 26 new sales reps, and IRE sales and marketing activities. G&A costs declined to 8.5% of sales versus 9.8% a year ago. In total we spent $2.1 million in IRE development sales and marketing activities in the second quarter.

Operating income was $4.9 million in the quarter compared to $4.8 million a year ago. EBITDA was $7.8 million, or $0.32 per share, in the second quarter compared to $7 million, or $0.29, a year ago. This was 11% growth in EBITDA over the prior year second quarter, and represents an EBITDA margin in excess of 16% of net sales. Considering all factors, we view this as a strong operating result in the quarter.

Below the operating profit line you will note $500,000 of net interest and other expense in the quarter, compared to $163,000 of net interest and other income a year ago. There were a number of factors involved here, including $400,000 less interest income as a result of lower cash balances and lower investment returns, $170,000 in foreign exchange losses related to operating transactions denominated in foreign currencies, and a $400,000 charge associated with an interest rate hedge. The latter item is a non-cash mark-to-market item that stems from the sharp decline in LIBOR-based interest rates.

In 2006 the Company borrowed $5 million under a 20-year variable rate IDA financing. And a hedge instrument was entered into at the time for the purpose of fixing the interest rate. While the hedge achieved its economic purpose, there are technical reasons that preclude it from qualifying for hedge accounting, and therefore mark-to-market adjustments are recorded through the income statement.

If LIBOR rates continue to decline, we will have more charges to expense; however, all such charges will eventually reverse back through the income statement over the course of the financing. As we mentioned in the release, the non-cash swap charge and the FX losses reduced second quarter net income by $0.01 per share.

After taxes are taken into account the result is $2.9 million in net income, or $0.12 in diluted earnings per share, compared to $0.13 in earnings per share a year ago.

The tax rate this quarter was 33%, reflecting the recent re-enactment of the R&D tax credit. We expect a tax rate of 37.5% for the balance of the year.

Turning to the balance sheet and cash-flow statement, we ended the quarter with cash and liquid investments of $57.8 million, compared with $59.2 million at the end of the first quarter. Significant cash outlays in the quarter included a $5 million scheduled payment on the acquisition of Oncobionic. The final $5 million payment will be due next November. That is November of 2009.

We generated $4.4 million in cash flow from operations in the quarter, and $6.1 million in the first half of the fiscal year. First half cash flow from operations would have been $12.9 million, excluding the first quarter settlement payment to VNUS Medical, compared to $10.5 million in the first half of last fiscal year.

Our accounts receivable remain in good shape. DSOs were 50 days sales outstanding in the second quarter, which is similar to recent quarters. Our balance sheet and liquidity positions remain extremely strong, and we expect to continue to generate significant free cash flow.

Finally, as indicated in the release, today we are revising our guidance for the fiscal year. We now expect net sales in the range of $198 million to $203 million, a 2.5% decrease in our guidance; Gross margin in the range of 61% to 62%, as we expect to continue to see manufacturing efficiencies; GAAP operating income in the range of $19 million to $21 million, a decrease of $1 million to $2 million from our previous guidance; EBITDA in the range of $31 million to $33 million, a decrease of $1 million to $2 million from previous guidance; and GAAP EPS in the range of $0.45 to $0.50 compared to our previous guidance of approximately $0.55.

This revised EPS guidance includes $0.05 in costs relating to the CEO transition announced on December 3, a $0.02 per share impact from the interest rate swap, and a $0.01 impact from foreign exchange losses.

I will now turn the call back to the operator to begin the questions.

(Operator Instructions). Jason Mills, Canaccord Adams.

Eamonn, first off I have two questions, and then we'll get back in queue. I wanted to ask you about the leadership transition, and specifically your transition out of the CEO chair.

I am wanting to get your color, your take on how these changes may alter the Company's relationships or interaction with the radiology community. I know you sit on the board of that society. It is a very important relationship. I would presume that you're going to say that it won't have any impact at all, but I am just curious how not being the CEO could alter that relationship in working with high-level interventional radiologists in product development, which has been a key aspect of AngioDynamics success over the years?

And then after that I can ask the second question.

Well, the short answer is, you're absolutely right. I don't think it is going to have a material effect on AngioDynamics. I am planning to assist the new CEO in getting up to speed and to foster those relationships between the new CEO and the interventional radiology community.

I look forward to those relationships continuing between AngioDynamics and the interventional radiology community as close as my relationships are. You know, it is not a one-man show here. There is a very strong team that has very close relationships as well that I'm going to also help foster over the long run.

All in all, I would stress that this is a transition. It is not an abrupt one. And that I think the Company's relationships with the customer base will continue to thrive.

I would like to dig into that before getting into the second topic. Just more specifically, how do you think the Company, or do you think the Company will change its focus at all under new CEO leadership? And if so, how could it change from either a product focus standpoint or a difference in the way things are operated?

Do we expect -- obviously a new CEO has his own thoughts on how things should run, whether that be manufacturing processes or layers within the organization, or what have you. I am wondering if you could help us understand where we could see changes within the organization, and how -- I am assuming you think those changes as a shareholder could be good, and perhaps help us out a little bit with that.

I'll just ask my second question so that I'm not online all day. I wanted to specifically delve into your commentary about hospitals being somewhat conservative as it relates to equipment purchases in light of the macroeconomic environment. I am wondering if you could perhaps assign more color to that as well, and just how much of a bind are you seeing hospitals in now relative to any other point in your career?

And how, in your discussions with them, how long do they expect to be in an ultraconservative state as it relates to equipment purchases? Maybe provide us just -- remind us how much of your business is at risk, I guess is the wrong word, but you get my point to that, because you're a highly disposable revenue stream company?

Yes, the first part, as far as the changes that will come with a new CEO, obviously that will be an evolutionary aspect of the expertise and ideas that the new CEO brings to the table, so I couldn't really speculate on those.

But, obviously, we are all looking to make this transition a net positive for the Company. And looking forward to any changes that are instituted by the new CEO, being incredibly positive. And we're looking for the new CEO to really take the Company to the next level.

I am very proud of my accomplishments at AngioDynamics, getting it to the stage it is at right now, as a serial entrepreneur. We're definitely looking forward to new leadership in the -- especially in the areas that would allow the Company to grow from its size today to a much, much bigger company.

The second part of your question, as far as the hospital situation, what we are seeing is a bit of a bunker mentality across the board. Everyone in society today is hunkered down and rethinking their finances, rethinking how leveraged they want to be. Hospitals are no different. They are looking at every expenditure under a bigger microscope these days.

We are not seeing people say no. We're just seeing them hesitate a little longer than normal. We have only seen that in capital equipment purchases, specifically lasers. And the only capital equipment that we are associated with in Q2, anyway, was lasers and RFA boxes. And that makes up less than 10% of our revenues.

So we are dominated by consumables, and we did not see any real slowdown in the United States in consumables. We did see distributors have a bit of a slowdown in certain OUS markets that was due to the credit crunch and their ability to finance their inventory, which they have done typically. As the credit markets are loosening up a little bit, we are seeing business credits being restored to -- not normal, but a level where there is access again.

We don't anticipate that this is going to be a long-term issue, but -- and that is everybody is hunkered down and being very, very conservative.

Makes sense. Thank you very much, Eamonn.

Jayson Bedford, Raymond James.

Just a couple of quickies. First, on the Peripheral Vascular revenue it looks like if I take out the venous therapy portion of it, it was essentially the business was flat year-over-year. I am just wondering were there any products in particular or productlines that came in below your expectations? And then I guess what do you guys have to do to create some growth going forward?

You want to take that one, Joe?

Yes, it was fairly flat. It was growth, but slight growth. And the others there include our PTA products, Sotradecol, where we did see some growth in Sotradecol. But we have seen some competitive situations in our PTA business that has had something of an impact, where it has become price sensitive somewhat. And we're looking at doing a few things differently in the third quarter with regard to our laser ablation business, and specifically in order to improve our laser sales.

I would also say though, in general though, our large focus in the second quarter was fully on the laser ablation business as we worked on the integration of the Diomed productline, getting the salespeople trained. And it was a near complete focus on that part of the Peripheral Vascular productline in the second quarter. And we had some real positive results there.

But you're going to see a broader focus on the rest of the products in the Peripheral Vascular line in the second half of the year. And that gives us some confidence that we're going to have a better result out of Peripheral Vascular in the second half than we just saw in the second quarter.

Okay, that's helpful. And then just switching gears to NanoKnife, if you look at the procedures performed in the US, have they been reimbursed?

And then secondly, in terms of the tissue specific trials, any update there in terms of when they will start?

As far as reimbursement goes in the US, I am not aware of any of the procedures that were conducted in the US being reimbursed yet. I think we do have a few open issues there as far as whether a couple of them will get reimbursed or not. But they were really done in the context of initial clinical work, and we really weren't working very hard for reimbursement issues on those.

As far as the tissue specific studies, the Italian trial is about half completed. Our pilot trial in Italy with Dr. Maurizio Brausi, we expect that study will be completed by the end of February. And that is going very well. It is being done in two tranches, and the first tranche is complete.

We have filed an IDE for a tissue specific study in prostate in the US, a multicenter randomized trial, that we expect to be able to commence within 90 days. We are on our -- we have had multiple Q&A with the FDA on that protocol. And this will be our first Company sponsored domestic trial, our second Company sponsored trial worldwide.

The Australian experience has been pretty broad as far as tissue types go with liver, lung, kidney, lymphatic tissue all treated successfully. And we are assessing how we're going to pursue that as far as formal tissue type programs.

And then last but not least, we have two sites completed pre-clinical pancreatic cancer treatments. That went extremely well. We are evaluating our next steps as far as the potential for a specific tissue type pursuit for pancreatic tissue.

Greg Brash, Sidoti & Company.

I just wanted to talk a little bit about -- you said hospitals are cutting back on capital equipment a little bit. Obviously, it is a small portion of your business. Do you believe that it is primarily the reason why it came in a little below your expectations in both the Surgical and Peripheral Vascular segments? Are you seeing any increased competition there?

And then just to follow on, I know you provided the laser sales in Q1, can you provide that here in Q2?

As far as the capital equipment marketplace, we do think it had to do with the market conditions. And also it had to do with the radical and dramatic increase we had in the number of salespeople. We had a lot of new salespeople in both Peripheral Vascular and the Access groups in Q1 and Q2. Q2 was, for many of them, the first quarter with the product. And selling capital equipment is a longer sales cycle, so that had some impact as well. But there is no doubt that it has gotten harder, not easier, to sell any sort of capital investment.

Most of our laser sales are sold, actually not to hospitals, but to physician offices. We may -- we still sell to hospitals, of course, but the majority of the procedures are done in the office space.

So although our lasers have an average selling price of approximately $30,000, which is very, very small for a hospital, you can imagine it is a much bigger consideration for the individual physician practices. So they're not so concerned about financing them. They typically pay for their lasers with either cash or a MasterCard or Visa.

But they are still -- everyone is second guessing themselves is this the right time to buy it? Could I put it off a few months? Having said that, we are -- so far we are optimistic about getting back on track with regard to laser sales.

We have seen some very positive signs in December. And we hope that the shock and awe of the economic slowdown has started to wane a bit, as well as our -- we're getting the benefit of a salesforce that has been on board now for a full quarter.

Okay, and just to -- also curious if the laser sales in the quarter, if you could supply that number. If there is anything -- if you're seeing any increased competition?

Then I know, Eamonn, that you have talked about having one of the deepest product pipelines in the Company's history. Besides the NanoKnife, can you talk about anything else you have planned to launch this year in 2010? Maybe why the Centros is now not going to launch until next fiscal year, and when could we expect to start to see the Medron ports?

This is Joe. With respect to the laser ablation sales, those were $9.3 million in the second quarter. And in the first quarter they were $6.1 million, so it brings it up to $15.4 million in total laser ablation sales for the Company in the first half of the year. That would include the lasers as well as the disposable products as well. And those sold by -- in the former Diomed products, the EVLT line as well as the VenaCure line. So that entire product category of the business [got] $15.4 million in the first half of the year.

As far as new products go outside of NanoKnife, we do have a very strong pipeline. One of the new products that we have been working on that we have already discussed in prior calls is adapting our NeverTouch platform to be usable on the installed Diomed laser platform, which is quite large.

So the salesforce in Q1 and Q2 had quite a challenge in that the only consumable laser products that would work with the installed base, because of the interlock system, were the bare fiber systems. And we believe that our NeverTouch covered fiber systems provide tremendous benefit and advantage. So we hope to roll that out soon. I don't feel comfortable giving any specific date yet, but that should rollout before the end of the fiscal year.

And it will provide a big advantage for the salesforce as far as being able to not only service the installed base, but also be able to sell interlock lasers, which are the only lasers we're selling these days.

With regard to Centros, I really don't want to get into much detail there, but -- because it is still a development stage project, but we are now looking for Centros to not be available for the rest of the fiscal year.

The Medron port is scheduled for next fiscal year. We wouldn't expect that this fiscal year either.

Christopher Warren, Caris & Company.

I wanted to ask about the salesforce additions in light of maybe weaker than expected second quarter revenues. And specifically to say, one, have the addition plans changed? And two, could you share some details on the return on investment calculation for those new additions and the timing of that expected return on investment?

Well, the salesforce additions, we were not fully staffed until approximately the middle of Q2. We were relatively full by the beginning of Q2, but still had maybe between 5% and 10% open territories until the middle of the quarter. Typically it takes at least six months before we would anticipate to be getting full traction out of a new salesperson.

So we increased the salesforce -- or we embarked on a program to increase the salesforce overall by 40% at the beginning of Q1, and should start to see real payback on that really in Q3 and Q4, as these people pass their six month anniversary with us.

Just chiming in on that, the guidance that we are offering here implies substantially higher levels of sales growth than what we have just seen in the first and second quarters of the year. So we built that into our expectations that they will be up to a greater level of productivity in the second half of the year and starting to produce more topline growth, and hence the overall growth expectations are higher in the second half than what we have just reported in the first half.

Got you, and so safe to assume by the third quarter in the field these new reps are at a runrate of sort of average productivity?

Very close to it. And certainly by the fourth quarter they should be at that average.

Okay, thank you for that. Could you just remind us what the new number of reps is at the end of the quarter, and where that stood versus the beginning of the second fiscal quarter?

Yes. We had said coming into the year that you'll recall that we had 56 quota carrying sales reps in the Interventional Group, and that was split between Peripheral Vascular and Access. And we said we had planned to increase that to 80, was our goal -- 41 in Peripheral Vascular and 39 in Access, and to do that as fast as we possibly can.

And we had hired all of those, but five, by the end of the second fiscal quarter. And as we sit here today there is only one more yet to be hired. So we are now virtually at the full complement that we'd intended to get to by about the midyear point, as we sit here now, as I said.

Perfect, and as a second question, I wanted to ask about laser placements. I know it has been talked about. Help me understand whether or not you have a no cap laser program in place? And if you do, why physicians would still be more incrementally reluctant to buy a laser if they don't have to put up any money up front, and they could just pay you a higher disposable fee per use?

We have not relied on a no cap program in the past. We sell the vast majority of the lasers. Because it is such a small capital expenditure, approximately $30,000, we have found that although customers entertain that kind of program, they end up usually biting the bullet and writing a check and getting it done. We have those programs available. They just have not been, at the end of the day, where the customers want to go.

I would also stress that leasing is still a very, very viable option for the customer base. And that will in effect stretch their payments out considerably over a long period of time. And leases are not very popular either. Although they're considered by the average customer, the customers end up usually working the math out and realizing that the leasing company needs to make a pretty sizable profit, or at least enough of a profit to be a viable business. And the risk benefit curve tends to go back to the customer writing the check for the laser in the first place.

Brooks West, Craig-Hallum Capital.

Two questions. One, I guess just further digging on the capital equipment portion of the business, and then one for you, Eamonn. Can you, Joe, give me an idea of as you look at your business plan, how much risk do you have, I guess as a percentage of sales in boxes in both the laser and the RF products? I mean, are boxes 20% of sales in those categories typically, or is it a higher number than that?

Within the respective categories, you mean?

Yes.

Yes, they're less than 20% of -- considerably less than 20% of the total in the respective categories.

Okay, so if you -- say you don't sell another box for the year, are you still confident that through disposable sales you can get to your numbers for those businesses?

Well, at the low end of our expectations, yes, I am sure we could do that if we didn't sell any, but there is virtually no possibility that we're going to sell none at all. There is some level of fundamental demand to be sure. And we've got programs, quite a good program, we think, with regard to lasers that should bring us substantially better results in the third quarter.

Okay, and then maybe just one more thing there before I get to the question for Eamonn. As you -- I'm sorry, I guess that does it for me.

On, Eamonn, with your -- I want to try to understand, and I know it is somewhat in flux, but as you transition up to the Board, and you have described your ongoing role with IRE from a somewhat high level, can you give us an idea of what your role is going to be with IRE? And are you going to be able to have any operating say or any remuneration for your efforts, anything that you might be able to say at this point?

Well, you know, it is a number of things I can say. First off, I'm incredibly passionate about AngioDynamics and the IRE NanoKnife opportunity, and that is going to continue going into the future -- long into the future.

The role that I'm going to play with the Company is I think best described as I'm going to do whatever it takes to ensure the success of AngioDynamics. And clearly my passion is over the long run going to be more towards the NanoKnife and the IRE opportunities.

But I think we will have to be patient and see it evolve -- my role evolve as we get some time under our belt with the new CEO on board. My first priority with the new CEO is going to be to do everything in my power to get them off to a great start, get them very comfortable. And then work out with the new CEO how I can best help the Company in the long run.

Great, okay. Thanks, guys. Appreciate it.

Tom Kouchoukos, Stifel Nicolaus.

Just a couple of follow-ups. One, I wanted to talk -- I know you haven't said much about 2010. And on the last call you talked about a 20% topline growth rate. I wanted to see if that is something you are still trying to work towards, and think you can get there?

And then secondly, looking at the R&D budget for next year, with all these clinicals coming into play midyear of this year -- you talked about a 9% expenditure this year, going to 8% next, and I'm wondering, do you still expect it to decline that much, or would we expect to see those expenses kind of trickle into next year as well?

I think it is premature to start talking about 2010. We are just starting our budgeting cycle for 2010, which starts in June. We really have nothing to add over what we have said in the past as far as that goes. That is really because we just have not refined that plan yet, and would not normally do so in the course of our normal budgeting cycle.

Okay, I'm just going off of commentary from last quarter there. But we can take it off-line. Okay, and then secondly, Joe, just one for you to clarify on the laser sale contribution. I just want to make sure I'm looking apples-to-apples here. You did $6.1 million in Q1. That did not include Sotradecol, so this $9.3 million number does not include Sotradecol contribution either?

That's correct. Yes. That is pure laser ablation sales.

Okay, and then did your IRE revenue come from US or OUS?

OUS.

OUS? Okay, and then finally one more for you, Joe. Could you update the expected growth rates for each of the three businesses for the remainder of the year?

No, we aren't breaking out the guidance to that level of granularity. The implied growth rates in total for the Company are between 20% and 25% year-over-year growth in the aggregate.

Okay, directionally in Access is that something we should see pick up steam in the back half of the year, or should we see one more quarter where you are gaining momentum into a big fourth quarter? How should we think about that? Is that --?

We think Access should pick up actually in Q3 with some programs and some things that have been fixed, and would actually be looking for double-digit type of growth in Access in the third quarter, and the fourth as well.

Okay, and not to back into an answer to the question that you said you couldn't answer, Peripheral, would you expect to see that pick up, or should we expect kind of flattish growth going forward?

I think that picks up as well, and we're pretty bullish on the laser ablation business in the second half of the year.

Okay, great. Thanks a lot, guys.

Christopher Warren, Caris & Company.

I wanted to ask about the conventional port business, which you cited as being a bit weak. Could you help us understand why maybe this is a little bit more intensive of a salesforce sell?

Conventional ports really suffered because of a distraction hangover on the Morpheus manufacturing issue -- the inventory issues. The salesforce found themselves in Q1 and on the first two months of Q2 having to rob Peter to pay Paul with our Morpheus productline. And it really just -- they took their eye off the ball with regard to conventional ports.

We expect that that is going to -- that that issue is behind us now. The third month of the second quarter, as well as December, we have seen the Morpheus sales pick back up, and the salesforce is now in an inventory position. So we think that was just a blip that was a distraction, a pretty serious distraction, but it is gone now and we would expect conventional port sales to recover.

So no change then in the competitive market that you guys can see in the quarter?

No, none at all. I would add that Smart Port CT, despite the distractions, was an outstanding performer in Q2, and we expect that is going to continue.

Morpheus is now fully supplied, and you guys don't have a problem there on manufacturing it?

That's correct.

Okay, and the second question, could you give us some more details on the CEO transition expense that you lined out for the remainder of fiscal '09?

Well, we have made the assumption that we will have another CEO in place for much of the balance of the fiscal year, and related costs of relocation and other aspects of it. So it is -- all of the costs combined are reflected in the figures that I mentioned of $0.05 a share in the second half of the year. Obviously, none of that was planned for -- budgeted and were reflected in our initial guidance for the year.

Larry Haimovitch, HMTC.

I wanted to ask a little bit more about the Oncology/Surgical area, which is an area I always have a lot of interest in. And you had talked about a 13% gain in the quarter. Could you give us a little more color on Habib versus Bead, versus other of the RF business to see what is driving that growth?

Habib is the outstanding growth driver in that product segment. The uptake of the -- excuse me, the LC Bead is the big growth driver in that segment. The uptake of local chemo delivery with the LC Bead is tremendous. The traction is building momentum. And penetration is still very small, so we're very optimistic that that is going to continue.

Habib is really an open question. We're not quite sure about the results of Q2 with Habib as far as a number of initiatives we have going on there, so it is a bit early to tell.

And RFA really suffered primarily OUS. And that was due to the credit crunch, we believe, with some of our biggest stocking distributors, that the orders just did not come in as they normally would. It was not because of competitive issues or anything and the like. So the domestic performance of RFA was on track, but the Oncology/Surgery group really took it in the teeth as far as the OUS shortfalls.

So, first then the Beads in local chemotherapy. Second, Habib, and then third, RF in terms of performance?

Yes.

Okay, and where did NanoKnife sales come in? Are they put into that division? Is that where we see the revenues?

They are.

Okay, good. So that was -- even though you had quite a few shipments, I gather the revenue contribution was still relatively small?

Yes, it was $42,000, so very small initial sales. As we mentioned, we are still bullish on being able to hit our $1 million stated guidance for IRE sales for the fiscal year, and that sales have continued through Q3 so far.

The $1 million in revenue, Eamonn, it is that primarily through capital equipment or disposables, or a combination of both?

It will be a combination of both, that is our anticipation.

Okay, great. Thanks very much.

At this time we have no further questions. I would like to turn it back to Mr. Hobbs for any closing remarks.

Well, thank you, operator. And thank you all for joining us today. We hope to see many of you on January 15 during our presentation at the J.P. Morgan Healthcare Conference in San Francisco, or on January 22 during the IRE symposium in New York. Thanks again and all the best. Happy New Year.

Ladies and gentlemen, that does conclude our conference for today. If you would like to listen to a replay of today's conference, please dial 303-590-3000 or 1-800-405-2236, using the access code of 11123338 followed by the pound key.

ACT would like to thank you for your participation. You may now disconnect.