AngioDynamics Inc (ANGO) 2009 Q3 法說會逐字稿

Welcome to the AngioDynamics third quarter 2009 earnings conference call. (Operator Instructions). This conference is being recorded today, Thursday, April 2nd, 2009. I would now like to turn the conference over to Doug Sherk, please go ahead.

Thank you, operator. and good afternoon, everyone. Thank you for joining us today for the AngioDynamics conference call to review the results for the third fiscal quarter of 2009 which ended February 28th, 2009. The news release announcing the third fiscal quarter of earnings crossed the wire this afternoon shortly after the market closed and is available on the AngioDynamics website. We've arranged for a recording of this call which may be accessed by phone. The replay will become available approximately at 6:30 p.m. this evening eastern time and will be 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 on the web at www.angiodynamics.com. A replay of the call will also be archived on the AngioDynamics website.

Before we get started during the course of this conference call the Company will make projections or forward-looking statements regarding future events including the statements about revenues and earnings for fiscal 2009. We encourage you to review the Company's past and future filings with the S.E.C. including without limitation the Company's forms 10-Q and 10-K, which identify specific factors that may cause actual results or events to differ materially from those described in forward-looking statements. In addition, today's presentation includes certain financial measures used to better understand our business that have not been prepared in accordance with the generally accepted accounting principles, better known as GAAP. An explanation and reconciliation of these non-GAAP measures has been provided in today's news release issued by AngioDynamics and is available on the Company's website. 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 today's call the Company has reported non-GAAP EBITDA and EBITDA per share. Management uses these measures in its internal analysis and review of operation performance.

Finally, during the question-and-answer period today we'd like to request each caller to limit themselves to two questions and then encourage callers to requeue to ask additional questions. In advance, we appreciate everyone's cooperation with this procedure and now would like to turn the call over to Jan Keltjens the President and Chief Executive Officer of AngioDynamics.

Thanks, Doug, and good afternoon to everyone. Thank you for joining us today for my first conference call with an afternoon. With me today is Joe Gersuk, our CFO. I'd like to begin with a few thoughts about these challenges and opportunities that lie ahead, then Joe will go through our third fiscal quarter financial highlights. Following that we'll take your questions.

Today marks my one-month anniversary at AngioDynamics, and it's been a great month as well as a very busy month. I've worked closely with Eamonn to complete the CEO transition we announced last December. The process has been very smooth as demonstrated by the Company's performance during our third quarter. I would like to thank Eamonn once more for all the support as well as his tremendous contributions over many years in building AngioDynamics into the successful Company it is today.

Since coming on board much of my time has been spent getting to know our Company. As I gained understanding of the drivers and dynamics I have become even more excited about our potential. Yes, we do have challenges. However, we have even more opportunities, and I like forward to working with our team to capitalize on those opportunities in ways that build value for our customers and patients, employees, and shareholders. During the past four weeks, I've been able to visit our four key operating locations in Georgia, California, United Kingdom, and of course here at our headquarters in Queensbury, New York. I've met many of the our talented and dedicated associates, started to get to know our product lines, and have spent time with some of our customers. We have started to identify a couple of areas that will benefit from a revised approach which I will touch upon today.

I've also found a lot of great elements that provide me with the optimism about the future of AngioDynamics. One of the strengths of our Company is the strong team the Company has built in multiple business areas. As demonstrated in the third quarter we have strong product lines with each of our three businesses. In particular, our VenaCure EVLT, laser vein [abrasion] business, our PICC's and access ports, as well as our oncology product lines offer a tremendous potential for the future. During the third quarter each of the three business units reported the best year-over-year growth rates.

During the quarter, our team also completed the purchase of the assets of privately held FlowMedica, which is pioneering the emerging field of targeted renal therapy or TRT. Flow Medica's benefit system offers a therapeutic approach that delivers drugs directly to the kidneys in order to prevent and or treat acute kidney injury which frequently occurs as a result of interventional procedures. We believe TRT addresses a significant unmet clinical need and as such is a solid market opportunity for AngioDynamics.

Now let us turn to IRE. Let me start off by stating that I've become to see IRE in general and our NanoKnife system in particular as a potentially life changing technology for millions of cancer patients around the world. And as such a tremendous opportunity for our Company. But I've also come to the conclusion that if we are going to maximize the potential of this exciting technology we need to significantly refocus our clinical and commercial programs. The most significant change being made is that we are shifting our focus towards building the safety and clinical efficacy evidence required to obtain specific regulatory indications and create strong professional education programs. With that as a foundation, we can accelerate the commercial rollout and build a large growing and most importantly sustainable leading oncology business.

Over the last two weeks we have notified the 18 sites that have been shipped NanoKnife systems that any clinical trial in the US which focuses on a specification will need IDE approval. We have taken this decision to pursue preclinical and clinical programs towards two therapeutic indications in the US. The first of these will be prostate cancer. The IDE for this has already been filed with the FDA awhile ago and was received very positively. We're now responding to requests for additional information and expect this IDE to be approved within the next several months.

Beyond the two Company sponsored programs we will support US-based customers with physician sponsored IDE programs and support clinical trials in other markets outside the US. We continue to learn about IRE every single day, and recently beta reports from the field, we advised doctors involved in clinical world with the system about cardiac synchronization challenges that have occurred in some cases performed in tissue close to the heart. Our team has implemented and is currently validating a technical solution to this which so far has proven to be successful. Our new IRE strategy brings a much needed focus to the team. It is a great and promising technology, and it will take relentless focus and long-range thinking to convert this opportunity into a great and sustainable business. We are 100% committed to creating the required capabilities and devote the resources to do this. Near-term IRE revenue growth may slow down as a result, and we will most likely not meet the one million revenue goal for this year we had indicated before. However, the longer term rewards and significantly lower risk will more than offset that.

Before I turn the call over to Joe, I would like to share some preliminary thoughts about my vision for AngioDynamics as we move forward. Please do keep in mind that it's still early in the game, and I'm still in the process of learning here at warp speed. My first impression is really what I stated in the beginning. This is a great Company, a very motivated team and tremendous opportunities ahead. What we do need to add to this equation can be summarized in one word. Focus. Focus on those product groups with strong growth potential and healthy global markets, focus on improving and accelerating the introduction of new products and focus on operational excellence starting at supply-chain management and extending into other business processes.

We started to work with the leadership team to review our businesses identifying our biggest opportunities, narrowing down the R&D portfolio and improve supply-chain management and efficiency. The good news is that our peripheral vascular and vein business, our access business as well as our oncology business each presents plenty of opportunity for creating a healthy and prosperous long-term future for our Company. We have a healthy balance sheet and strong positive cash flow which we view as key assets for driving our business, yet at the same time are committed to maintaining as well. Also in terms of giving you the guidance you need to assess our direction and future we are committed to giving you as realistic an outlook as we can and are focused on meeting those expectations and driving shareholder value.

As I said in the beginning of my remarks, I'm genuinely more excited than ever about the potential for AngioDynamics and very much look forward to working with the team to capitalize on that potential. Now I would like to turn the call over to Joe to review our third fiscal quarter financial highlights. Joe.

Thank you Jan, and good afternoon, ladies and gentlemen. From an operating perspective our third quarter was an eventful and productive one for AngioDynamics. We closed our second acquisition of the fiscal year in January when we purchased the assets of FlowMedica and we successfully managed the Company through the transition to our new Chief Executive Officer. This followed the first half of the year in which we reorganized the Company into three market-focused business units, expanded the sales forces in the peripheral vascular and act access units by 40%, completed the acquisition and integration of Diomed.

The period we're reporting today was highlighted by our highest quarterly sales growth of the year with third quarter sales growing by 21% to $49.4 million. We managed to grow operating income by 23%, net income by 26%, and EBITDA by 25% over the prior year, if you exclude the effects of the two special items that were noted in the press release. We have accomplished this despite the very challenging macro economic environment. We continue to believe that AngioDynamics is well positioned to weather the financial and economic crisis, to continue to generate substantial operating and free cash flow despite considerable investment in the IRE program, and to grow our business in a strategic and profitable manner.

Peripheral vascular sales were $20.7 million in the third quarter which is a 35% increase from a year ago, and reflects the impact of the Diomed acquisition as well as modest sales of the benefit TRT product following its purchase in the middle of the quarter. Total laser ablation sales which include the entire VenaCure EVLT product category amounted to $8.3 million in the third quarter, a 171% increase from the $3.1 million in VenaCure sales a year ago. Late in the quarter, we began to sell our Never Touch Fiber with the Delco series laser, marking the completion of the product integration process. With this, we have now completed all aspects of the Diomed integration process.

With regard to the acquisitions of the benefit TRT product line, we have hired the ten people that FlowMedica employed at the time of the acquisition. They will continue to work from a facility in Fremont, California and we will continue to produce the benefit product from that facility for a period of time. As Jan indicated we are excited about the potential for this product in the emerging field of targeted renal therapy and our view is that this will be a successful product for AngioDynamics.

Third quarter sales in the access unit were $17.2 million, an increase of 8% from a year ago, improvement from the 2% year-over-year growth reported in the second quarter. This improvement stems from resolving a component supply issue with the morpheus PICC that affected PICC sales and diverted the sales teams attention from port sales earlier in the year. With the supply issue resolved we saw strong sales of PICC's imports in the third quarter with particularly strong smart port sales. This offset weakness in dialysis sales where we continue to see price competition.

Oncology surgery sales of $11.5 million increased 22% over the prior year, and were led by strong sales of LC Beads, our chemo-embolization product. NanoKnife sales totaled $110,000 in the quarter bringing fiscal year to date IRE sales to $152,000. From a geographic perspective, 89% of third quarter sales were in the US and 11% or $5.4 million came from international markets. Of the $5.4 million in international sales, $2.1 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 caused third quarter sales to be approximately $600,000 lower than they would have been had exchange rates been constant throughout the year. However, we also incurred significant cost in those currencies including our laser manufacturing operations in England, and therefore the impact of the currency movement on operating income was neutral in the third quarter.

Continuing down the income statement, the gross profit margin of 61.1% was slightly below the margin reported in the second quarter, and 1.1 percentage points below the third quarter margin a year ago. The margin decline from the prior year was attributable to product mix. Operating expenses were $27.6 million in the third quarter which included $2.8 million for the CEO transition. Excluding the special item operating expenses were flat from the second quarter, and increased by 19% over the third quarter a year ago, exclusive of the gain on the settlement of litigation that reduced operating expenses in last year's third quarter. As a percentage of sales, total operating expenses excluding these two items were 50.1% in the third quarter, compared to 51.2% a year ago. This 1.1 percentage point improvement in operating expense efficiency was achieved through lower sales and marketing and G&A spending as a percent of sales. With respect to the CEO transition, as noted in the release, we have recorded all of the current and future costs associated with the January 20th employment agreement and stock option agreement with Eamonn Hobbs. This reflects the fact the CEO transition was completed in the third quarter. The final point I will note is that we spent a total of $2.9 million on the IRE program in the quarter.

Reported operating income was $2.6 million in the quarter inclusive of the cost of the CEO transition compared to $7.6 million in the prior year which included the gain on the settlement of litigation. EBITDA was $5.7 million or $0.23 per share compared to the $10 million or $0.41 a year ago. Excluding the aforementioned special items, operating income increased 23% to $5.5 million from $4.5 million, and EBITDA increased 25% to $8.5 million or $0.35 per share from $6.8 million or $0.28 per share in the prior year third quarter. On this basis, the corresponding third quarter EBITDA margin was in excess of 17% of net sales, representing a half percentage point improvement over the prior year in spite of the heavy investment in IRE. Considering all factors we view this as a strong operating result in the quarter.

After other income and taxes are taken into account the result is $1.9 million in net income or $0.08 in diluted earnings per share compared with $0.20 in earnings per share a year ago. The cost associated with the CEO transition negatively impacted earnings in the current year third quarter by $0.07 per share. Prior year third quarter earnings include an incremental $0.08 per share resulting from the litigation settlement. Excluding these two items earnings per share was $0.15 in the third quarter, an increase of $0.03 from the prior year. The tax rate this year was 30% reflecting the recent reenactment of the R&D tax credit. We expect a tax rate of 37.5% in the fourth quarter.

Turning to the balance sheet and cash flow statement we ended the quarter with cash and liquid investments of $62.3 million, compared with $57.8 million at the end of the second quarter. We generated $6.9 million in cash flow from operations in the quarter, and $13 million in the first three quarters of the fiscal year. Year-to-date cash flow from operations would have been $19.8 million, excluding the first quarter payment to Venus Medical in settlement of litigation. Accounts receivable remain in good shape. DSOs were 48 days sales outstanding in the third quarter which is a two day improvement from a year ago. Our balance sheet and liquidity positions remain extremely strong and we expect to continue to generate significant free cash flow.

And 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 $195 million to $198 million, a decrease of approximately 2% from previous guidance. Gross margin in the range of 61% to 62%, consistent with prior guidance. GAAP operating income in the range of $17 million to $18 million, a decrease of $2 million to $3 million from our previous guidance, which is primarily a reflection of the incremental CEO transition cost and the slight decrease in the top line guidance. EBITDA in the range of $29 million to $30 million, always decrease of $2 million to $3 million from previous guidance. And GAAP EPS in the range of $0.42 to $0.45, compared with our previous guidance of approximately $0.45 to $0.50. This revised EPS guidance includes an additional $0.02 in costs relating to the CEO transition. I will now turn the call back to the operator to begin the Q&A session.

Thank you. (Operator Instructions). I would also like to remind everyone to please limit themselves to two questions and requeue for any additional questions. And our first question is from the line of Greg Brash with Sidoti & Company.

Hi, Jan. Welcome aboard. I know you're not giving guidance out here for 2010, but you guys have talked about in the past 20% revenue growth and starting to see a lot of operating leverage as spending ramps down or levels out on the NanoKnife.. Is that still the thought here, or are we thinking more along the lines of some of the growth rates you are seeing right now?

Greg, well, thanks for the question. Great question. Sounds like you know me a little bit as well in the sense that we indeed do not give guidance yet for the following year.

Let me make some holistic statements. I referred to that in my comment as well. I think we've got a lot of strength in various pockets of our business. I think if you take the entire portfolio, the entire product line, certainly that is the goal we would have. Again, at this point in time we stay away from specific guidance, and sometimes it may take a little while to get growth up to that kind of level as well. This year of course we're hitting about 20% average year to date, Joe, and that includes, of course, a favorable comparison, because of the Diomed acquisition, which we will lose in a quarter, quarter and a half, something like that. But the long-term aspiration certainly stayed there.

Okay. Then you touched on improving on some of the supply chain efficiency, and narrowing down the R&D. Just curious, when could we expect to see some of those changes taking place, and where are we right now in a planned launch of the Centros Dialysis Catheter in addition to the [Medron] ports?

Yes, again, great question. The changes I've been talking about, they are -- it's almost like a continuum of change. Something that started already pretty early on is also facing into the reality that times have changed, developing products in the medical device field today takes a lot more effort than it used to, more regulations and all that, and I'm just of the strong belief that focus and picking the right programs and driving them with vigor is the right approach here.

Specifically on Centros, we believe in the product and the teams are working on it and are fixing the challenges that led to the recall awhile ago. While doing that they also improving some of the design details. We reviewed the program about two weeks ago. As I said, very committed to that, and there's going to be a little while away before the products see the market (inaudible). It's probably more likely to see in that the second half of the fiscal year.

How about the [Medron] ports, just to follow up? I know it's something you guys acquired, I don't remember if it was two or three years ago. Is that close to a launch yet?

I'm not quite sure which product you are talking about, Greg.

I could follow up off-line.

Yes, I think -- is that the product with the light in it, the LED in it?

You didn't go into too much detail on what made these ports different than other CT ports, but I know it's a technology purchased several years ago.

Yes. That's awhile away, I would say. We can take the question off-line as well Greg.

Thanks, Jan.

Thank you. Our next question is from the line of Jayson Bedford with Raymond James.

Hi, good afternoon. Thanks for taking the question. Just on the Dear Doctor letter on NanoKnife, just wondering if you could give a little more detail in terms of what's the frequency of the arrhythmia issue and what's the fix?

Yes, the -- I'm not sure we call this a Dear Doctor letter. This was induced by ourselves. That title has a very specific meaning in a regulatory environment. It was more routine conversation with our current users, the 18 users of the NanoKnife system. What we have seen is there have been 21 cases where we ablated tissue in non-prostate settings, so non-prostate organs were ablated in the course of clinical practice, studies, we saw events in five of those 21 cases. And all patients are fine. One patient did require a cutter aversion and that was pretty much it. So it was enough for us to bring it to the attention of physicians.

We also reminded the users in the letter that this is part of our operator manual as part of the training program. It's not something that is entirely unexpected, but we -- and again, I want to remind everybody with IRE early in the game to a certain extent what we're doing is still research and early clinical development. This is part of the learning. The solution to this is fairly straightforward what we call cardiac synchronization, which now is implemented. We have not seen it since, and we're validating this and plan to make this part of our standard offering.

Okay. Great. Then just as my second question on the finance side, Joe, the leg vein business looked like it did, I think you said $8.3 million, which is down a little bit from the prior quarter. Was that reflecting any impact from the economy, or, I guess I'm just trying to figure out why the sequential decline.

Yes, we do think the economy has had some impact on the capital equipment aspect of the business and obviously the laser boxes are in that category. The kit sales have been quite solid, strong. We had talked last quarter about some softness in the laser purchases, and we saw some of that again in the third quarter as well.

Thank you. Our next question is from the line of Jason Mills with Canaccord Adams.

Hi everyone. Thank you for taking the question. Jan, welcome. It's good to hear your voice again. My first question is on IRE, you mentioned the change in strategy which makes a ton of sense to me to go clinically to prove the efficacy and safety of the technology. But obviously you are putting off perhaps some revenue that you maybe could have garnered over the next couple years if you would have stayed the course in the previous strategy. I'm wondering if, given this change in strategy, does it change the expense plans for this development effort? I think, Joe, you have laid out in pretty good detail in the past what you thought you would spend on IRE on an annual basis. I'm wondering if that changes at all given the changes in plans that you talked about a second ago.

great question, Jason. Good to hear your voice, too, by the way. I think, frankly, just to generalize, I think many of you have experience with bringing high-tech new technology to the marketplace. I guess this kind of an approach is not as surprising from that point of view. I think the Company has given guidance in the past on approximate expenses for the fiscal year 2009. The current thinking is we will certainly stay below that level.

I don't think we've ever given guidance going forward, but our current thinking is that it's well within the means of this Company, that we should be able to do this the right way. And in a way also with the other approach, if you want to call it like that, there was certainly also expenses associated with that. And is more like refocusing it, focusing us on a limited number of disease states, but investing more in them individually as such. Outside of the US, of course, we continue to have a fairly broad indication, very broad indication. We can continue our commercial development programs as originally planned as well. So I think from that point of view the impact should be very benign.

That's helpful. Just as a follow-up to my first question, I think while you haven't given 2010 guidance, to be sure, and understanding you won't do that here today, I think most of us that have to model out 2010 have the expectation, which we didn't receive at least from the previous management, any push,-back on when we published the models that perhaps the expenses would grow in 2010 as your -- your effort and your commitment to IRE obviously continues to grow. So I'm just wondering if, qualitatively, you could give some help to us as we model a year you haven't guided to as it relates to IRE expenses. Generally speaking are we talking about a new paradigm, new plateau in spending there as we move forward?

Well, Jason, we're still ramping up, if you will, on IRE. As you said, we spent about $2.9 million this year on it, impact on operating expenses, and, of course, that includes the amortization of intangible element of that, and this quarter, rather, and we're about $7.3 million in total year to date.

$7.3 million to date?

Yes, year to date for the program, and we do expect to spend more on it it next year, of course, and including spending money on clinical trials for that. So certainly it's going to be a higher level than this year, but we will expect to have more revenue next year, and that's I think as much as we can tell you right now qualitatively about the direction we're heading there.

Okay, that's helpful. I appreciate that color. Secondly, I just wanted to get an understanding of guidance. You walked through that very well as well as as where your lowering guidance and the reasons for that. Last quarter in your press release you gave GAAP EPS guidance of $0.45 to $0.50, and you laid out for us very nicely that $0.05 of that, or you would have to exclude -- you would exclude $0.05 associated with the CEO transition. You're seeing an additional $0.02. That brings us up to a range on last quaters guidance of $0.52 to $0.57, excluding that. Then $0.03 associated with impact of interest rate swaps. So that was giving us range of $0.55 to $0.60.

How do we juxtapose that guidance with this based on those very delineated line items you gave last quarter? If you could just help us out. I think what we're getting to in our model, and the way that most analysts are reporting to first call is sort of that GAAP number excluding that $0.05, $0.03, and then the $0.02 so about $0.10. How do we look at your current guidance relative no that $0.55 to $0.60 excluding all those things?

Yes, I would say that the previous guidance of $0.05 over the balance of the year, the third and fourth quarter, in terms of the impact of the CEO transition, is now the $0.07, all in the third quarter, and there won't be any beyond this third quarter for that. And then our view is that there won't be any further swap impact either gain or loss in the fourth quarter, and that's what's implicit in the guidance that we're producing now.

Okay. And then for the rest of it, maybe the other one or two cents is just simply a little lower on the sales side, I guess.

Exactly right.

Got it. Okay. I will get back in queue. That's my two.

Thank you.

Thank you. Our next question is from the line of Tom Kouchoukos with Stifel Nicolaus.

Hi good afternoon guys. Joe, a couple quick ones on just some of the financials. Could you -- I know in the past your 10-Qs you've been able to quantify what Diomed's contribution was. Can you give that number this quarter?

Don't have that. Really the best way -- we fully integrated Diomed and rationalized the product set, if you will. And having now completed that I think what you'll see in the 10-Q is simply the total laser ablation revenue, and that's the figure that I quoted, and that's really the only way you can look at our business because of the rationalization of the product line. That was the figure that I quoted.

Fair enough. Real quick, to follow on, can you quantify the FlowMedica contribution?

Very modest in the quarter. We acquired it in the middle of the quarter, and we said when we did acquire that we'd -- that it would have a modest impact on our fiscal year sales, so we don't expect a lot in Q4, either, but we also said at the time of the acquisition we would expect $3 million in sales next fiscal year, and that is still very much our expectation.

Okay, great. And one more for Jan. I wanted to ask you, as you look at the R&D pipeline, as a new leader with some outside perspective, if you take NanoKnife out of the picture and just look at the core business, coming in from the outside how do you look at the pipeline, and what's your perspective on how healthy you think that is?

Well when I look at the pipeline, it's a great question, by the way, and that's why you hear me thinking here for a second. When I look at the pipeline, frankly, right now I think there's a number of good products in there, good opportunities. Centros was mentioned before. Obviously had some questions, but it's absolutely worthwhile to pursue it. It will make a marked difference. When I think about pipeline I'm right now more obsessed in getting it going in terms of execution, and having a flawless transition into manufacturing, ramping up the volumes rapidly after appropriate marketing programs, so that we can harvest the maximum potential of these programs we have in the pipeline.

A more holistic pipeline review in terms of between IRE and the core pipeline, if you will, is there enough to drive this business to levels we think we need and the levels where we want to be, I don't think we quite there yet. We're also in the thick of the business planning cycle. We have a bit of an accelerated strategic planning cycle in parallel to that, if you are like my personal curriculum to learn as well, and maybe next quarter we're in a better position to make some more qualified comments about it.

Okay, great, thank you very much.

Our next question is from the line of Christopher Warren with Caris & Company.

Thanks for taking the question. Could you give us an idea for what year-on-year organic revenue growth of the business model was in the third fiscal quarter?

About 9%. If you simply extract the laser ablation business out of it, again because of the way we've rationalized the integration of the Diomed product set, if you take that out of last year's figures and the $8.3 million out of the current year's, you'd come up with about a 9% growth rate on the rest of the business.

So just comparing that sequentially to the prior quarter, that was about flat, and versus two quarters ago it was up a couple percents. Is that about right?

Last quarter I think was 3%. And the quarter before that was -- the first quarter was 9% with a similar calculation.

Okay. And are you expecting that to be roughly ballpark about 9% for the fourth fiscal quarter embedded in the guidance, or do you expect that to accelerate?

Give or take a bit.

Got you. Now, here's my question. So you've added 40% to your sales force on the peripheral side, and I think most of those additions have been in the field now for three quarters. Can you help me understand where the return on invested capital is coming from in those guys and when we should expect to see that in terms of accelerating revenue?

Well, it's in the -- both peripheral, vascular, and access units together was increased by that 40%.

The two tidbits I want to add to that is one, of course, the business is growing 20%, it's also supporting the acquisitions, the acquired sales reps etcetera so that's half, and it takes a little while for sales reps to get up to speed. Where he reached a plateau, last position was filled only 90 days ago, something like that. I think it takes a little time to get some traction there as well. So you're asking the right questions, Chris, and let me put it this way. Be assured that we are asking ourselves that kind of question as well, and we are stable now on the sales force and want to make sure the revenues continue to grow.

Understood. If I could just follow up there are you seeing any incremental sales force turn over, and what sort of implied return on invested capital do you assume in those investments you've made in your sales force?

Well, we're not seeing is much turnover at all, so there's very little turnover of the sales force. And the way we track it would be what we're spending on sales and marketing as a percentage of the revenue dollar, and our goal is to, of course, to have that number declining and so it's lower -- certainly is lower in the third quarter than it was in the second and lower in the second than it was in the first. So the trend is heading in the right direction, but understand as well there is a learning curve there and a productivity curve. Just because you hire them, they don't become productive immediately, of course, so there's a matter of absorbing the learning curve impact, but nonetheless, in the aggregate, as I said, sales expense as a percentage of revenue has been going down all yearlong.

So we're looking at sales force productivity as simple as that. As that gets better, the Company gets better.

Thank you. I appreciate it.

(Operator Instructions). Our next question is from the line of Brooks West with Craig-Hallum capital.

Good afternoon.

Hey, Brooks, how are you?

Good. Jan, first of all, congratulations on your first call. Macro question for you. As you look at AngioDynamics, you look at the opportunities in front of you, what do you see this Company becoming longer term? What's the opportunity? And then as a part of that, is interventional cardiology a part of that opportunity?

Thank you, Brooks. With those kind of questions, I now certainly want to meet you.

There's enough rope to hang yourself there.

Well, there certainly is. I was kind of mulling this whole thing, congratulations on the good call. There's a saying in my home country, don't praise the day before the sun is set. And then you throw those kid of questions behind it. Listen, cardiology is a genuine opportunity. The question is whether we want to go there or not. I use the word focus a lot, and I would say right now, shooting from the hip a little bit that would go contrary to increased focus. So be careful what you wish for. I don't see us going into that space any time soon. From a more macro point of view this is a very, very interesting Company. I can be nice if I have to but I certainly meant that I'm having a lot of fun here. It's very intriguing. There's a broad portfolio. You have different kinds of products, exciting stuff like IR E, very specific challenges about developing new technology, developing the markets, reimbursement referrals, et cetera, et cetera, and yet a much more down to earth roll up your sleeves competition from that point of view, but all in healthy, growing markets.

I think one of the opportunities for the Company is make sure that we are developing the appropriate capabilities to be successful in each of those areas, and again, that gets back to what I mentioned before, make sure we pick the right businesses to focus on, make sure we get a very effective and efficient innovation engine, and I think we can improve on the operational execution side, and getting smoother there. It's too banal to say at the end of the day we want to be bigger and better, but growth is a stated objective. And I always like to add, too, that profitable growth in some form or fashion, overtime, not meaning every single quarter but as a trend line, we want to improve our financial ratios. So that's what I call profitable growth. We want to grow the top line and increasing portion of that over time should drop to the bottom line and be available to shareholders as a value of the Company. Was that holistic enough for 30 days?

There you go. Follow-up question, then, on IRE. You mentioned 18 sites in the US. How many systems do you have out globally, or was that 18 a global number? Then what, again, were the specific indications you're pursuing in the US beyond prostate cancer, and is there a difference in what you're doing O-US versus US?

The majority of the 18 systems are US. It's a worldwide number. The indications are prostate, absolutely set on that. That we're pretty much down the path on what the second indication is going to be, but I want to keep it to our chest a little bit at this stage in the game. We're still mulling around one or two details on that, but I'm pretty confident that next call we can actually be pretty granular on that. O-US, some of the data and some of the work we do O-US may support and probably will support (inaudible). However, it's quite likely that we will do some additional work on a third disease state, outside US.

And maybe if I could follow up one more question on the prostate cancer indication, obviously a huge market opportunity, but also potentially a huge clinical bar in terms of getting a specific indication. Do you have -- do you have associated time frames that you can give us on a potential -- your thoughts on getting an actual indication in the US for your first indications?

Well, I mean, I think you picked up correctly on the fact that these can conceivably be long range programs and probably will be. Doesn't mean there's no returns on those programs in the meantime, but at this stage, I probably want to stay away from getting too granular about specific guidance. I think once -- as I said, within a few months we should be at that point. IDEs are approved. We may be able to start articulating how protocol would look like , what end--points would look like and what kind of time frames are associated with

Okay, great, that's helpful, and I'll jump back in line here. Thank you.

Thank you. Our next question is a follow-up from the line of Jason Mills with Canaccord Adams.

Thanks. Actually I could ask this in a follow-up conversation but just in the quarter, Joe, you said the tax rate was 30%. Wondering what the -- is that -- was the tax rate a little bit higher just on pro forma earnings if we're backing out the expenses? Wondering what the tax rate we should use for non-GAAP earnings was in the quarter, something closer to the 37.5%?

Yes, indeed.

Was it -- didn't look like, to get to your $0.15 it was more like 34%. That about right?

Yes, it was lower this quarter. It was actually 30% in the quarter, due to the R&D tax credit.

On the GAAP number. I'm wondering on the non-GAAP number, it looked to be like 34%, 34.5%.

Probably something like that, yes.

Okay, that was it for me.

Okay, thank you.

Our next question is from the line of Beth Senko with Williams Capital.

Hi, good afternoon. Couple questions. First, on the oncology business, if you go back through the [Rita] notes and go back through previous press releases from you all, we hear a lot about growth in the LC Bead and we hear a lot about Habib, but we don't hear much about the core RF ablation business. And I'm wondering if you would give us some color on that. Has that been stable? Has it continued to grow in line with those other items? Anything along that.

I was looking at Joe while you were asking the question, Beth. At some point you said you want some color, so I'll do the high level color. If you are asking for numbers I'll give you to Joe here.

I'll take both.

Well, you got me. You got the short straw there. Listen, the fact that we highlight the LC Beads, I think you can derive from that that it's the growth driver, which means the rest is below average, that's probably as granular as we want to get on that at this particular point in time. Joe, would you agree with that?

Indeed. Yes.

To follow up, probably more of a follow-up to Brooks, but again, recognizing you have only been there a month, but, it strikes me that given the Company that's $200 million in revenues, the Company has such a huge portfolio, and I think that's been one of the challenges from a management standpoint over the years, does it make sense to peel some of these businesses off maybe as you focus further on, either the PTA product or something like that?

Beth, you are not exactly mincing your words there are you?

No I don't. It's not my strong point.

I want to meet you, too. You're on the list as well. Listen, great questions. The only thing I can say, what I want to add to that is, following, and I think it's appropriate that I say it here as well. I think nine months ago this Company restructured along the lines of strategic business units. That was done for no reason and I looked at that for about half an hour, I'd say, then came to the conclusion that it's the right thing to do. If anything, it will drive the focus around these product lines. They are fairly diverse. A lot of synergy as well, especially on the commercial side.

Three weeks ago the SAR meeting was in San Diego, and customers come by, and they have as much interest in each of our three business units. A good chunk of synergy on that end of it. Through the business units we believe we can drive appropriate focus around those product lines and make sure that we stay competitive or become competitive in each and every one of those. So we're going to drive that forward. I'm very committed to that structure. I want to go on record as saying that. And we're going to do some fine-tuning work in terms of what is it correct separation between things that are being dealt with in the business unit level whats being handled at the corporate level, make sure we continue to capture any leveraging opportunities and synergistic effect but that's the model we're going to drive going forward.

Groovy, thank you.

Our next question comes from the line of Chris Sessing with AMI Asset Management

Yes thanks for taking my call. I'm still a little fuzzy on the IRE refocusing as I missed part of the call it but sounds like you are going to continue to support the existing programs that are in place with the doctors but tighten up on any new trials going forward? Do I have that correct?

Can you repeat that I missed part of it? Sorry about that.

As far as all of the work that is currently going on throughout the world at various clinics, you are going to continue to support those programs, correct?

Yes. And that's a great question. And, sorry, I also missed your name, it broke up there for a second.

Chris Cessing with AMI.

Chris, yes, I heard about you. Great question. So let me be very clear, we have indications in Europe and we have a generic indication in the US, and doctors are free to use our product, pretty much as the discretion of doctors what they use it for. And under that umbrella there will be clinical work, commercial clinical work. Patients are being treated by the system today and going forward. That will not be affected.

This is all about what we're going to add to that and what we need to do to drive the system to a point in time where we can really harvest the potential it represents, and for that we're adding to that a very focused, very specific clinical approach that will prove safety in a bigger setting. It will prove efficacy and with that, we're going to drive the appropriate approval programs indications as well as reimbursement and market development. Was that helpful, Chris?

Yes, but I was kind of under the impression you were doing that anyway to begin with, so I guess I'm a little confused as to how this new strategy is all that much different from the old strategy.

I think the big difference is that we are now heavily committed to running IDE trials, company sponsored IDE trials in the US multi-center prospective trials as opposed to no trials or physicians trials as such, and there's a few more details behind it, but that's probably the single biggest difference in the approach.

Okay. And I think I did hear you mention that you don't have a time frame and you will have one once you get the trial protocols hammered out in the next couple months. But what is a typical product like this take? I'm not going to pin you down to a timeframe but obviously there's other product out there that are approved. What has been their typical time frame? Is it two years?

Well, first of all, I don't think we really want to go there, and the second thing is every situation is unique. I've been privileged in the sense that I've been associated with a number of companies where we've done this kind of stuff a couple times, and every single one of them is different. One reason why we also, at this point in time, don't want to get too granular is in discussions with the FDA, you talk about follow-up periods, time you want to track patients, and they can have a significant impact.

You can also think of picking a certain disease state and inclusion criteria and end-points has a different impact on when you can actually have conclusive evidence on whether this thing can be taken to the next level. So a lot of variables and that is why we don't think it is appropriate at this point in time to give particular guidance. In general, this can be multi-year programs but again I want to be clear, in the meantime we can deploy and are deploying commercial efforts to drive the adoption of the system in various markets in the US as well as outside the US. But on a more limited indications our hands are tied to a certain point.

Thanks.

All right.

And our next question is from the line of Larry Haimovitch with HMTC. Please go ahead.

Hey, Jan, Joe, good afternoon.

Hey, Larry.

Two quick questions on more mundane or more minutia, I should say. In the Venus ablation business, we know Venus Medical is doing very well right now. You guys are not -- don't seem to be growing as quickly. I'm just wondering if there are competitive issues there you want to comment on. I know you haven't been on board very long so it might be a bit early, then I'll ask my second question when you take that one.

Hi, Larry. Jan here. We're looking at that as well and we're trying to get as much intelligence out of the markets. We're on a slightly different quarter and things are changing rapidly in the marketplace at this day and age, I'd say. So -- but we're monitoring that carefully. I think they got some financial advantages in certain areas, which translate into some economic headwind for us. And we're trying to understand more detail, I'd say.

They've got some more favorable reimbursement which sometimes is attractive to some of our customers. Although we also have a lot of individual success. There's also competition in the low price range. Again economic pressure also on healthcare providers is quite significant nowadays. We've seen them become a little bit more susceptible to low price competitors out there that didn't used to be as much a factor as they seem to be today.

Again, bottom line, we like the market space a lot. It seems to be growing healthy which is an opportunity we think. We think with the acquisition of Diomed we have created a business with enough critical mass for us to be very competitive today as well as in the future, meaning we can compete with the sales and marketing effort. We can put a healthy pipeline in place, and we are very committed to this space. And I think we'll ge there.

Second question, Brooks West I think asked this question, regarding interventional cardiology. In any case, actually from what I know about the product you acquired from FlowMedica, to me it looks like a very good opportunity, I think it was a very sound strategic move for you but my impression after being at (inaudible) is that product may be more successful in interventional cardiology than in interventional radiology because of the number of procedures. So here you have it again. Now you're facing interventional cardiology again. I just wanted to get your thoughts on that, Jan.

I think you're spot-on, Larry. I don't think you heard me saying that we're not going to follow the money, so we do sell to interventional cardiology. We have sold to interventional cardiologies in the past. A lot of peripheral interventional procedures are performed by interventional cardiologists as well as by vascular surgeons, by the way. So we know them, we call on them, and all that.

The way I interpret Brooks' question -- I thought it was Brooks -- was more like will we make a concerted effort to build an interventional cardiology business? On that one I gave--hopefully a fuzzy answer that leans toward denial.

You agree that that clearly is the larger opportunity for FlowMedica?

No, I didn't say that necessarily. I said it's also an opportunity, and we have seen -- folks like Dr. Tierstein has been instrumental in putting (inaudible) on the map. I know him from my cardiology days and we work closely with interventional cardiologists in developing this. Today I would not be able to say that the bulk of the opportunity or whether it's nice additional opportunity as such. Bottom line, Larry, and I think I agree with you on that I've become much more enthusiastic about TRT. I think the FlowMedica team is great. I think it's -- I think it meshes well with the Company from a cultural point of view. It gave us pizzazz in the peripheral vascular sales force, and I think the entire team is quite excited about the opportunity.

Yes my checks are very positive about that product too. Good luck to you. I look forward to hearing more good news in the future.

Thanks, Larry.

Our next question is from the line of Brooks West with Craig-Hallum capital.

Hi, just a follow-up on the IRE. Jan trying to quantify US plans versus O-US plans, and you mention in the release here approval for commercial sale in Australia and Canada. Are you going to try to restrict the sale of in any way of IRE before some of this clinical work is done? I guess O-US versus US, and, you know, we've heard of some instances in the US where you might have physicians that are looking at out of pocket pay opportunities which is never a big market, but can you comment on that at all? Maybe plans for specifically O-US market.

Yes, it's a good question, Brooks, very good question. I would say typically restricting sales is a tricky word. What I would say is this. Will you probably hear me using the word sustainable more and more, and I think the one thing we certainly want to avoid, and I'm not going to say that we're going to deny sales to people but the one thing we want to avoid is complications through getting a NanoKnife system in the hands of physician without us being able to train that individual or provide the appropriate clinical guidance and patient selection and stuff like that.

So I think you'll those two elements being developed hand in hand, so we're not restricting sales at all, but it's going to be a very controlled release, and we will only give this to physicians as part of a comprehensive program of supporting that individual, clinical special specialist on site, appropriate training, getting a person connected to our network of other users, and make sure we got the best possible clinical outcome, first and foremost for the patient, but secondly also for the reputation of this technology. Good reputations typically come as a snail and goes a horse, so we're still trying to build it a step at a time.

Good, thank you.

Our next question is from the line of Jayson Bedford with Raymond James. Please go ahead.

Hi, thanks for taking the follow-up. Just a couple of quickies. Just on the laser business. I had in my notes that you guys had implemented a price increase earlier this year. And I'm just wondering is that sticking, has that been ruled out through entire user base?

Yes, we did, you are exactly right, we did increase the prices at the beginning of the year following the settlement of the litigation, and the price increases have been sticking, but as Jan said, there is competition on the low end of that business, and the space remains in litigation, although fortunately we aren't part of it, but some of the low-priced competition that we see in the marketplace pays no royalties, and is the subject of ongoing litigation with Venus Medical. And no doubt that low price competition is having an impact on the entire marketplace, and we're certainly hopeful that Venus Medical continues to pursue the litigation there as they have already started with some of those players.

Okay, that's fair. Thank you.

And there are no further questions. Management, you may continue.

Okay. Thank you, and thank you all on the phone call for the excellent questions and your interest in AngioDynamics. And we will be providing you with updates on our progress as developments merit, and we genuinely look forward to talking with you again during our year-end conference call which is currently scheduled for July. Thank you, and have a very good evening.

Ladies and gentlemen, this concludes the AngioDynamics third quarter 2009 earnings conference call. If you would like to listen to a replay of today's conference please dial 1-800-405-2236 or 303-590-3000 followed by the access code of 11128472 and the pound sign. ACT would like to thank you for your participation. You may now disconnect.