AngioDynamics Inc (ANGO) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the AngioDynamics fourth quarter 2009 financial results conference call. (Operator Instructions). This conference is being recorded today, Thursday, July 16, 2009. I would now like to turn the conference over to Mr. Doug Sherk. Please go ahead, sir.

Thank you and good afternoon, everyone. Thank you for joining us today for the AngioDynamics' conference call to review the results for the fiscal 2009 fourth quarter and full year, which ended on March 31, 2009.

The news release announcing the fourth quarter 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. A replay will become available approximately at 630 p.m. 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 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 revenue and earnings for fiscal 2010. We encourage you to review the Company's past and future filings with the SEC, including without limitation the Company's Forms 10-Q and 10-K which identify specific factors that may cause actual results or events to differ materially from those described in forward-looking statements.

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 website at www.AngioDynamics.com.

Management uses non-GAAP measures to establish operational goals, and believes that non-GAAP measures may assist investors in analyzing the underlying trends of 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 operational performance.

Finally, during the question-and-answer period today, we would like to request each caller to limit themselves to two questions and encourage callers to re-queue to ask additional questions. We appreciate everyone's cooperation with this procedure.

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

Thanks, Doug, and good afternoon, everyone. Thank you for joining us today for our fourth quarter conference call. With me today is Joe Gersuk, our CFO.

Our results released this afternoon include overall topline growth during our fiscal fourth quarter up 13%. While double-digit growth during these difficult economic times is an achievement in itself, our fourth quarter also illustrates the work we need to focus on in order to restore solid organic growth.

I've been at AngioDynamics for four months now, and I've had some time to dig in and better understand the Company and the opportunities that lie ahead. During the call today, I would like to review where we are and some specific steps we are taking to address our challenges. Then Joe will go through the fiscal 2009 fourth quarter and full-year highlights, as well as our fiscal 2010 guidance, and following that, we will take your questions.

As I mentioned, over the past few months I've gotten to know our AngioDynamics team and evaluate the Company's strength and opportunities. Some of the issues we identified had been evident during the past fiscal year. For several of our product lines, our organic growth rate has been declining and is now trailing market segment growth. Our international business is underdeveloped relative to our peers, and new product launches have been delayed. Finally, the operation of our supply chain is inefficient, which is reflected in our gross profit margins, higher-than-desirable inventories, and occasional supply constraints.

In our last call, I emphasized our need to focus. Focus on market segments with above-average global growth potential, focus on innovation, and focus on operational excellence -- in particular, supply-chain management. I would like to take this opportunity to share with you in more details the steps we have taken and we are planning.

One of our key strengths is that we operate a business with tremendous opportunities in growing markets. And to reinvigorate revenue momentum, we will focus our strategic efforts on growth in venous intervention; oncology access, in particular PICCs and ports; and minimal invasive oncology. These focus areas are offering us combinations of growing markets, opportunities for market-share growth, favorable demographics driving long-term growth prospects, and opportunities for leveraging our technologies and IP.

Another area of opportunity for organic growth for our Company is in international markets. We will be accelerating our investments in developing our international business. To that extent, we are creating a new business unit, International, under the leadership of a general manager responsible for all commercial operations outside the U.S.. We are currently recruiting this individual, who will be based in Europe and report directly to me.

In the U.S., increasing our focus on GPOs also creates further growth opportunities. We plan on expanding the department responsible for this and provide more support to their strategic effort. We are happy to report that in the past quarter we did win an important GPO contract with the Broadlane group.

Our focus on innovation is reflected in a number of organizational changes. We are now focusing all new product development efforts in our three respective business units and we have decided to transfer our Manchester, Georgia, access development activities to upstate New York.

We've also realigned responsibilities in our global leadership team with a goal to increase agility and accountability in decision-making, and finally, we have decided to concentrate the leadership of our oncology/surgery business in Fremont, California.

In the past seven weeks or so, we have launched four new products. The Starburst XLi-E Enhanced Semi-Flex electrode is the third RFA device specifically designed to deliver a 7 cm ablation of a tumor in a single placement during CT-aided procedures. Starburst XL is an RFA device with a convenient, pre-attached main cable designed to provide reproducible spherical oblations up to 5 cm.

The DuraMax hemodialysis catheter is our latest innovation in the market-leading stepped tip design that improves ease of use, dialysis efficiency, and patient outcomes. And finally, the NeverTouch-FRS provides compatibility between our great NeverTouch fiber technology with a large installed base of Delta laser systems.

We anticipate the introduction of an additional seven products in fiscal 2010, including the Centros catheter in the second half of the fiscal year, a triple lumen Morpheus PICC, and new versions of ports and drainage catheters, as well as several EVLT VenaCure family-line extensions. Each one of the new products will bring to market unique value-added benefits that benefit the customer as well as their patient.

We plan to continue to drive product innovation by investing nearly 10% of our fiscal 2010 revenue in R&D. In addition to that, we have initiated clinical studies for a recently acquired benefit product line, as well as the EVLT VenaCure product line.

Finally, we are focused on improving our operational excellence, and in particular, of supply-chain management and manufacturing efficiency. We have established a center of excellence for process engineering and technology at our Queensberry location, and we plan to transfer the manufacturing of FlowMedica benefit products there from California by the end of the fiscal year.

In the quarter, we also closed the former Diomed office in Andover, Massachusetts.

As a result of all these activities, we have decided to establish a corporate office near Albany, New York. This new office location will house the peripheral, vascular, and access business units, as well as some of the executive staff and many corporate functions, including R&D. As a result, we will be able to create the required supply chain focus and free up much-needed manufacturing capacity in Queensberry. And in addition, the new office space will provide an attractive and more easily accessible location, and should enhance our ability to recruit key talents to drive our growth.

A significant portion of our R&D investment is allocated to our existing ROE technology and NanoKnife programs. In fact, we anticipate we will invest approximately $0.24 per share from our fiscal 2010 earnings in the IRE NanoKnife program. An investment of this magnitude illustrates our belief in the potential of this technology.

Since early April, we have achieved several milestones in our NanoKnife program. For instance, version 2.07 software for NanoKnife was released and this new software release offers a variety of features, including a cardiac synchronization algorithm that prevents cardiac arrhythmia during IRE procedures near the heart and the currents that we discussed during our last call. And since that call, we have not seen any more arrhythmias being reported.

We've also made several important decisions regarding clinical development programs associated with the NanoKnife, and are accelerating investments in evidence-based medicine for the NanoKnife. Since our last call in April, we determined that we will focus on clinical studies designed to gain specific labeling for the treatment of prostate and pancreatic cancer in the U.S. and generate strong clinical outcome data for HEC/liver cancer internationally.

The IDE preclinical work is progressing nicely and the first patient enrollment in some of these trials are expected well before the end of calendar year 2009. We believe full completion of the three programs could take up to several years and we plan to provide you with increasingly more detailed updates once key milestones are achieved.

In addition to the three clinical trials, we have also supported the submission of two position-sponsored IDEs for IRE.

While we have a clear strategic direction on a clinical development progress for NanoKnife, we continue to commercialize the system. We tightened up our commercial offerings, provided training to our sales teams, and did complete our first professional education program.

Another recent milestone achieved by the program was the first commercial patient treatment using the NanoKnife system in the U.S.. The procedure was performed at Banner Good Samaritan Hospital in Phoenix and as of today, in total, an estimated 66 procedures, clinical procedures, have been performed using NanoKnife in the U.S. and overseas in a grand total of seven centers.

As we look ahead into 2010, we remain focused on delivering profitable growth. Our short-term target is to achieve organic revenue growth consistent with the markets overall growth of at least 7% to 9%.

Needless to say, longer term our goal is to exceed the market growth rate. And this will be created by improved organic growth through a steady stream of new products generated by better R&D processes, a stable supply chain, and the commercialization of significant R&D programs like IRE and possible synergistic acquisitions in business areas we focus on. We are committed to improving our operational performance as we drive this revenue growth.

AngioDynamics enjoys important strengths that differentiate us and give us confidence that we will achieve our longer-term goals. We address a large and growing market that is well positioned to benefit from general population trends. The diseases our products are indicated to treat are largely nonelective and our business is primarily based on disposables, providing some predictability and sustainability to our revenue streams.

We have a strong product pipeline across all of our business areas and our financial foundation is solid, and -- as characterized by our profitability, strong free cash flow, and a sound balance sheet.

As we move forward, we plan to capitalize on these strengths and focus our energy and resources. We're focused on global growth opportunities in core business areas, including interventional oncology, minimally-invasive oncology, vein intervention, as well as ports and PICCS, as I mentioned before, and we are focused on product innovation and we are focused on operational excellence.

We've got work to do, and 2010 in many ways will be a transitional year, but I believe we will be making substantial progress towards these goals as the year progresses.

Those are my formal remarks and before I turn the call over to Joe, I would like to thank once again our Board members and the AngioDynamics associates for their support and continued execution during the leadership transition, as well as their hard work in delivering the fourth-quarter results. I would also like to extend my sincere appreciation to shareholders for their support and confidence.

I would like to turn the call over to Joe to review our fiscal fourth-quarter financial highlights.

Thank you, Jan, and good afternoon, ladies and gentlemen. Fiscal 2009 was a year of transition for AngioDynamics. The Company reorganized into three business units and invested in the expansion of the sales forces into peripheral, vascular, and access business units.

In addition, the transition included the initial commercialization and marketing of irreversible electroporation technology, the completion and successful integration of two acquisitions, and the recruitment and transition to a new chief executive officer. We completed the fiscal year with fourth-quarter sales of $52.8 million, which was 13% growth over the prior year.

Growth this quarter was led by sales of vein oblation and oncology products, particularly our embolization product, LC Bead. This brought full-year sales to $195.1 million, which was 17% growth over the prior fiscal year, with the full-year growth again led by sales of vein oblation products and the embolization product.

We estimate the Company's organic growth rate in sales at 2% in the fourth quarter and 6% for the fiscal year, which we calculate by excluding in both periods the sales of all laser oblation products as a result of the acquisition of the Diomed business and the subsequent restructuring of the product line, as well as a benefit renal infusion system that was acquired in the third quarter.

Peripheral vascular sales grew to $22.5 million in the fourth quarter, which is a 26% increase from a year ago and reflects the impact of the two acquisitions. Total laser oblation sales, which include the entire VenaCure EVLT product category, amounted to $8.5 million in the fourth quarter, a 126% increase from the $3.8 million in VenaCure sales a year ago.

This was our first full quarter selling the benefit renal infusion system and we think this product has good potential in the emerging field of targeted renal therapy.

For the full year, peripheral vascular sales were $83.5 million and grew 31% over the prior year.

Access sales of $17.9 million were slightly below the prior year's results. This reflects the fact that the Centros dialysis catheter was on the market in last year's fourth quarter and has not been available since then. While SmartPort sales were very strong this quarter, we experienced component supply issues with the Morpheus PICC line again this quarter. And solving this problem is the number one priority for this business unit.

For the full year, Access sales were $66.8 million and grew 4% over the prior year.

Oncology/surgery sales of $12.4 million increased 15% over the prior-year fourth quarter, and were led by strong LC Bead sales, as mentioned earlier. For the full year, oncology/surgery sales were $44.8 million, an increase of 17% over prior year.

NanoKnife sales totaled $42,000 in the quarter, bringing fiscal-year IRE sales to $194,000.

From a geographic perspective, 89% of fiscal 2009 sales were in the U.S. and 11%, or $21.7 million, came from international markets. Of the $21.7 million in international sales, $8.4 million was denominated in sterling or Euros, and the balance was dollar-denominated. The decline in the sterling and Euro exchange rates against the dollar caused fiscal 2009 sales to be approximately $1.6 million lower than they would have been had exchange rates been constant throughout the year.

However, we also incur significant costs 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 fiscal year.

Continuing down the income statement, the gross profit margin was 61.9% in the quarter. For the year, it was 61.6% and masked the prior-year margin. The lower gross margin in this year's fourth quarter reflects the change in product mix, as well as royalty payments partially offset by price increases and manufacturing efficiencies.

Operating expenses were $27.9 million in the fourth quarter, which included $700,000 in nonrecurring costs, primarily to write off the cost of a project to expand office space in Queensberry. For the full year, operating expenses, excluding the restructuring item and the cost of the CEO transition, totaled $100.2 million, or 51.4% of sales.

We continue to invest heavily in the IRE program, the cost of which was $2.4 million in the quarter and $9.7 million in the fiscal year. On an after-tax basis, the investment in IRE amounted to $0.06 per share in the fourth quarter and $0.25 per share for the year.

We reported operating income of $4.8 million in the quarter, which would have been $5.5 million, excluding the nonrecurring costs. A year ago, we reported $7.1 million in operating income, excluding a litigation provision. The reduced operating income reflects the substantial investment in IRE, and sales and marketing costs associated with acquisitions, and the transition to business units.

EBITDA was $7.8 million, or $0.32 per share, in the quarter, compared with $2.8 million, or $0.12, a year ago. For the fiscal year, we reported $16.1 million in operating income, compared with $16.2 million in the prior year, while EBITDA was $27.9 million, or $1.14 per share, compared with $25.4 million, or $1.04 per share, in the prior fiscal year.

After income and taxes are taken into account, the result is $2.9 million in net income, or $0.12 in diluted earnings per share, compared with $0.12 in earnings per share a year ago. The nonrecurring costs reduced fourth-quarter earnings by $0.02 per share.

For the fiscal year, net income was $0.41 per share in 2009, compared with $0.45 per share a year ago. Excluding the special items in both years, fiscal 2009 net income was $0.51 per share and 2008 net income was $0.54 per share, reflecting the substantial IRE and sales and marketing investments.

The tax rate was 35% in the fourth quarter and 34% for the fiscal year. While we recorded a tax provision in the income statement, we paid minimal federal income taxes in fiscal 2009 and saved $6.7 million in tax payments through the use of NOLs available as a result of the acquisition of RITA Medical.

Turning to the balance sheet and cash flow statement, we ended the year with cash and liquid investments of $68.2 million, compared with $62.2 million at the end of the third quarter and $78.2 million at the beginning of the year. We generated $6.9 million in cash flow from operations in the quarter and $19.9 million in the fiscal year.

2009 cash flow from operations would've been $26.7 million, excluding the first-quarter payments to VNUS Medical in settlement of litigation.

Our Accounts Receivable remain in very good shape. DSOs were 46 days sales outstanding in the fourth quarter, a three-day improvement from one year ago. 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, we are providing guidance for fiscal 2010. We expect 7% to 10% organic growth in net sales, which is a range of $209 million to $215 million; gross margin in the range of 61% to 62%; GAAP operating income to increase 12% to 24% to a range of $18 million to $20 million; EBITDA to increase by 8% to 15% to a range of $30 million to $32 million; and GAAP EPS of $0.43 to $0.47 per share, inclusive of a $0.24 EPS impact from the investment in IRE.

We expect a tax rate of 37.5%, and to achieve cash tax savings of $7.5 million from the use of RITA NOLs in fiscal 2010.

I will now turn the call over to the operator to begin the Q&A session.

(Operator Instructions). Jason Mills, Canaccord Adams.

So, first question, I guess more of a macro question with respect to your markets. Perhaps it would be helpful if you could give your assessment, Jan, of your -- the growth profile within your three target markets today -- sort of a multipart question here. The organic growth you're showing within those target markets, and how long do you expect it to take to get to or surpass market growth in each of those target markets? So focus on the target markets for my first question, and I will ask a follow-up.

Fair enough. Good question, Jason, obviously. Let me give you some high-level information. There's sort of a little bit of black science in reading the market size, but the way we packed the markets. and these are global numbers, we think what we -- if you look at our peripheral vascular division, that overall market is growing at about 7%.

Within that, of course, the varicose vein ablation market is growing faster than the average but the average we think is about 7%. Sorry, about 8%. I got that number wrong there.

On vascular access, we think it's about 7% order of magnitude, and interventional oncology or minimally-invasive oncology, we think it's about 9%, maybe 10%, something along those lines. It's a [bent] with me to those numbers.

So actually, what you see is if you take our guidance, we think that we have a good shot at growing that market rate. I mean, it averages out, I think I said in my comments, about 7% to 9%, 7% to 10%, if you want to say. That's actually in line with our guidance. So I don't think we are going to incur all that much damage in terms of losing market share, but our ambitions are more far reaching than that.

Within what timeframe? So do we see the first half of fiscal 2010 lower than those market growth rates and then with new products -- you have the Centros in the second half, you -- my second part of my question asks about vascular access. Perhaps resolving some of the issues there and filling a product line towards the end of the year helping the second half -- am I thinking about that right?

I would be a little cautious. We don't give quarterly guidance and there is a reason for that. So I want to stay away from that a little bit here as well. As I mentioned, we have launched four -- frankly, if you pull in the software release, 2.07, we have launched five products in the past two months -- six or seven, eight weeks.

They will help driving some growth. Some of the products will continue to grow, of course, and then there's some other stuff that comes onstream later in the year. But I wouldn't want to give too much color on is growth going to be backloaded or front loaded. I think we should see a fairly stable performance throughout the year, I'd say.

Okay, second question, on the VA side, it was a little bit lower than our expectations. I'm wondering what holes you may have in that line in terms of where you are now relative to where you want to be, and how do you best address -- it sounds like you've got some projects in place to increase production capacity, etc. What are you doing to address a product line that used to be a very fast grower for the company and has fallen on some hard times recently, and within what timeframe should we expect the VA line to bounce back?

And I think Joe gave a good chunk of the answer there. There were three effects, if you like, that hurt us in that quarter -- certainly quarter over prior year comparison. One is, a year ago we actually had Centros out there with tremendous performance, certainly on a relative scale in that quarter, so a very unfavorable comparison.

The PICC supply issues, the multi-PICC supply issues, continue to haunt us, and I think it's one of these things that we have to just arm wrestle into shape a little bit while we work on more structural solutions. We'd like to believe we can -- it's going to be hand to mouth. It's going to be hand to mouth for a while and we'll continue to push that. Trying to avoid that becomes a constraint in growing it, but it was a bit of a constraint in Q4.

And then, I think the third dimension is a bit of a mix. I mentioned the Broadlane agreement we were able to gain. That's a big help for the access business. We had to run out a product line; in particular, our trip aluminum PICC is very important for us. So I say once those things start materializing, that should help growing that unit further.

So actually, I'm quite optimistic on the prospects of the access units but yes, you've got to work out that, all right. But I think it's a fabulous business with tremendous opportunities for us.

Okay, great. And I'm just going to cheat and slip one in here for Joe. Why are you calling out the IRE investment from GAAP EPS? The $0.24 compares to the $0.25 investment this year for IRE suggests about $6 million to $7 million. But your earnings -- your GAAP earnings guidance is, I guess, a little bit lower in line, etc.. I'm just wondering -- I'm trying to figure out why we call that out specifically, given that it's roughly the same year over year.

Just to clarify that in both years there is substantial investment and to make clear what the numbers are. Yes, corrected, they are about the same year over year, but it -- just to be clear and certainly that's the discretionary investment that we are making. We believe in it in the long run (multiple speakers) obviously is penalizing our earnings in the short run.

It doesn't seem to be uncharacteristic in terms of the costs associated to run trials commensurate with the ones you're planning to run though, right? Am I right about that? $6 million to $7 million seems to be -- it's a lot of money. It seems to be characteristic of IDE trials commensurate with the ones you are running.

If I can say, yes, and you are really cheating now, by the way.

Okay. I'm out.

No, no, no. But I think, just to answer the question because maybe in the heads of many people, I think you are correct as to the right number, but it's a very significant number. Something we have not done in the past. A long-range program like with that, with that many upfront investments, I think that's why we chose to give a little more color on the impact of that long-range program with that significant revenue for the time being.

So there's not a guidance element as such. It's just to enhance your understanding of the business model. All right?

Brooks West, Craig-Hallum Capital Group.

Jan, I wanted to focus in, kind of the first question, on the base business. On the divisional and sales and marketing structures, what do you feel like you've been able to accomplish so far and what remains to be done? And then, I guess as a second part of that question, if you were to point to upside in your guidance in any of the product franchises, where do you think we might see that?

You're doing it again, Brooks.

You follow Jason and you've got to ask questions like that, right?

That's okay. I'm not sure where you're going with the first part of the question, but let me maybe say this. If you ask me the last conference call also brought a lot of questions about the sales force and business units and all that kind of stuff, and productivity of the sales force.

If you ask me, really, and I guess you do, you know, what's our key issue, I don't think it is the sales force or the business units and stuff like that, it is what I would say feed the animal. So I want to be very, very clear -- we are committed to business units. We think it's the right structure to deal with complexity. It gives the right focus in certain product families, which can be quite [averse] and we are committed to that. And the second thing is, I think sales force productivity will start looking a lot better if we get some traction with those new product launches and they will pull us forward.

And the final comment -- I don't think the new year is still damp behind the ears, if you like, I don't think this is the time to start talking about upsides. We gave guidance which is balanced guidance in many, many ways. I'm quite pleased with the business model we have and I think there's genuine opportunities to start accelerating growth in each of our business units. I think oncology/surgery is the most obvious one.

But I think those business areas that we singled out for focus, frankly, grow above the average of the market. And I think that will be one way of doing it. Again, the nice thing here is we have a number of options to accelerate.

Christopher Warren, Caris & Company.

Just housekeeping, I guess. Tax rate on the nonrecurring expenses in the quarter?

Would be the 35% (multiple speakers) the accrued rate.

Thanks, and just a question. If you're spending $0.25 a year on IRE, how can investors get their hands around the justification for the expense? When should investors begin to see some payoff in terms of at least revenue from it?

Yes, Chris, that's an absolutely valid question, and I do realize and we do realize that we're probably not providing the level of insight and detail you all would be hoping for, but we made a choice there.

What we are committed to doing is two things. If significant events happen in the IRE program, let's say we submit an IDE or get an IDE approved, we will share that with all of you and I think you will get increasingly more insight into timelines associated with that.

For instance, the number of patients we want to enroll, the end points, the follow-up period, number of centers, actual enrollment state, so I think quite rapidly you will get a better feeling for when those programs start converging and lead to better indications.

The second thing is that we have started sharing with you, in a bit more detail I think than we did historically, the actual number of cumulative procedures and the number of sites around the world that actively perform procedures. And I think they are the most fundamental measure of traction in this whole area. How many cases are being done commercially in particular and how many centers are using it, and I'll repeat, users, and I think, and I know we're asking a lot of trust here, it's a significant investment. No qualms about that.

The fact that we are doing it and continue to do it and we review the whole program means that we are comfortable and see the long-term potential, but I also acknowledge it's going to take a little bit of time before you can really see that materializing and start projecting it out a little bit.

(Operator Instructions). Tom Kouchoukos, Stifel Nicolas.

I wanted to ask you, on the PICC side, I understand you had production issues on the Morpheus front. You know, Cook, when they came out with their antimicrobial PICC, had a lot of press on that and made some noise. I'm just wondering, are you seeing that out in the market and how important do you think that is to the PICC space to have something like that for the hospitals?

Let's put it this way. It was not a factor in our performance. We see the product out there as being trialed in certain areas, but it has not been a factor in our performance and we don't expect it to become a material factor in the foreseeable future. That's the short answer.

The longer answer is, as I said before, I have an R&D background. Any technology innovation is interesting. There's been a lot of talk about infection prevention, in particular in CVC lines in dialysis, maybe a little bit less so in PICC lines. We are not convinced that the Cook answer is the right answer, but it's certainly an area we continue to keep a finger on the pulse.

We've got some programs and we're trying to understand to make sure that we're ready once the right technology breaks through.

And then the second one. I'm going to fold two in here on the VNUS side. One, just -- I know it's only been a month or so since VNUS was acquired, but I'm wondering if you've seen anything different from them out in the field yet, and then to follow up on that, I think at [FCS] there was some, maybe -- I can't remember if it was a news story or some data that was presented that talked about recovery trial versus laser, and maybe it was saying it's not -- it's a little slanted towards recovery or towards RF because it's comparing the closure of [ats] versus the old version of the laser, not the new NeverTouch type fiber.

I'm wondering, when you talked about the clinical work that you're looking to do on EVLT, is that something that you're looking to maybe do an apples-to-apples study and take that out to market?

Yes. So recovery trial, you're absolutely correct. It was comparing the [flex] closure or RF technology with our old fibers. Some emerging articles are there already. They'll do a little bit of a comparison of our NeverTouch system against RF, and we feel very, very confident that our NeverTouch technology that we can, as a minimum, level the playing field when it comes to pain and bruising, and feel that, or at least as good if not a hair better, or more versatile when it comes to the actual clinical efficacy.

Yes, we are going to get more and more active when it comes to evidence-based medicine and get some articles behind that that we can use.

Greg Brash, Sidoti & Company.

Maybe you could help me a little bit on the expenses that you're looking for in 2010. The way I look at it, in fiscal 2009, if you exclude some of the recurring and redo an operating income around $19.6 million in 2009, yet you're guiding towards $18 million to $20 million in 2010 with similar spend on IRE, 7% to 10% revenue growth, and similar gross margins. So where are all these extra costs coming from? Why aren't we seeing any leverage this year?

Part of the answer is on the marketing side. Some of the clinical trials are actually marketing expenses. So that's another area of investment for us next year as well.

Wouldn't that be included in your $0.24 estimate per IRE?

No. There are some trials being done on the EVLT, for example, that -- as well as the benefit product, the TRT product as well, that would be considered marketing expenses. These are products that are already on the market, so it is additional marketing expenses there.

All right. I mean, this is the fourth straight year where adjusted EPS is either flat or has gone down. When can we start to see leverage in the business and start to see earnings growth again?

Well, as I said in my comments, it's a transitional year and, as very often in medical devices, some of the investments go ahead of the returns and I would look at it that way.

So there's a lot of conflicting forces, if you like, in our 2010 P&L, and to a certain point also in Q4. So whereas gross profit stays, in terms of guidance, virtually flat, there is a lot of underlying improvement but continued headwind when it comes to mix as well as investments, and I mentioned this process technology and engineering team consolidating some of the production efforts. There's some expenses associated with that.

But there is a lot of underlying improvement. The same in sales and marketing. Whereas there is a trend towards leveraging the sales force, there are ongoing investments when it comes to marketing, and in particular, also in marketing and evidence-based medicine, and those will start getting some traction and generating some traction in hopefully not a too distant future, but too bad, and we are disappointed as well, and we are committed to shareholder value from that point of view. That uptake we don't think is visible in the fiscal 2010.

Jayson Bedford, Raymond James & Associates.

Just a couple of questions. I will ask them up front, and then I will get back in queue. The first question is just on the revenue growth assumed in 2010. You did 2% organic growth here in the fourth quarter. Your fiscal 2010 guidance is 7% to 10% rate. Could you maybe just highlight the one or two key assumptions that get you to that type of growth?

And then, my second question is typically AngioDynamics introduces a price increase in the first quarter and is that something you still plan to do this year?

I will try to take a stab at this. Joe, chime in with some details if you have them.

I think the 2% in Q4 is probably a little bit deflated because of a very strong Q4 '08. There is some pipeline effects in Q4 '08, so I think the underlying strength of the organic growth is a little better.

Also, if you paid careful attention to the way Joe explained [profilmagroid], it's a little conservative because of the nature of the Diomed business when we acquired it, the nature of the business when we acquired it, it is very hard to do a real pro forma analysis. So we assumed that we did not have the laser business at all in both years, and that's a growing business for us. So I think the 2% is a little deflated, look a little conservative.

And the second one is, as I mentioned, we did launch four or five new products in the last couple of years. They will start getting some traction. We start getting a little bit more confident when it comes to marketing of EVLT VenaCure. We think we got a little more traction there. A few other things, and it all adds up to a decent number.

In terms of price increases, I don't think we should be talking on conference calls about price increases too much. There's all kinds of people listening in and I think it could be construed in the wrong way.

But let me put it this way. There is a lot of price pressure, obviously. I think we've been handling it very well, and whenever we see an opportunity to increase prices, either pound for pound or through innovation, we will certainly capture that kind of an opportunity.

And Jayson also mentioned the EVLT business in particular. This year was a year of integration of that business, and it was really an enormous undertaking when you consider the fact that the business had been through bankruptcy prior to our acquisition of the business.

So it was a major undertaking that is now completely behind us, and we are expecting a substantially better performance out of that part of our business in 2010 than the integration year that we had in 2009. As you know, that market is growing faster than -- among our faster-growing markets, so that's one area where we would expect to grow.

And secondly, the PICC business, we are highly confident that over the course of this -- the fiscal year that we are going to solve all of those problems. We now know them well and we firmly believe that we will solve them and have better performance in the Access business, and the PICC part of it in particular.

And then, of course, if and when we get the Centros back on the market, that too should fuel growth as well. So I would say we are quite confident of that range that we've given on the topline performance for next year, all things considered.

(Operator Instructions). Christopher Warren, Caris & Company.

I wanted to know what the component PICC issue du jour was, and also what went wrong with the first fix attempt at addressing the problem?

The component issue du jour is the same as it was -- I don't know the French word for yesterday but yes, the same thing. And you know I don't, in the public setting of this kind of a conference call, I don't want to go into too much technical detail, but it really revolves around the interaction between a compound and an extrusion, a complex extrusion, with one of our suppliers.

We're not blaming the suppliers. It's a complex product, complex design. And the skinny answer is, we are revising that part of the design to get it more robust. We had some intense reviews of this over the last couple of months and we are taking a slightly different direction in the fundamental design of that part of a PICC.

Won't affect performance. Might actually enhance performance and certainly will drive manufacturability quite a bit, and frankly, drive gross profitability as well.

So it's a win-win scenario. We have to [tip] through it. It's a regulated industry and all that kind of stuff, and hopefully we're going to get this on the market sooner rather than later.

Got you, and then just to verify. So are you guys saying that the market itself that Angio serves hasn't really slowed down? It's just a share-loss issue that led to the 2% organic growth this quarter?

Well, I don't think you can look at the 2% in the quarter in isolation. I think, Joe, the number was 6% for the year?

Yes.

I think it's probably a better reflection of our true performance, you know, something along those lines. Quarters go up and down quite a bit, as I mentioned -- simple example, Q4 2008. Centros was in there for a significant amount relatively, so if you [field] up a way, yes, we actually like the markets in which we operate. As we said, largely consumables, very few elected cases. We've not seen a slowdown or a material slowdown in the underlying business.

We're not going to sit here and take that as an excuse the markets are good. We have to work hard and probably -- and I'm sure the sales force are listening in partially here. The sales force has to work increasingly hard and has to see more people than they used to have to see to make the sale, but the business is there. We are competitive, and we are focused and focused on execution.

Chris, this is Joe. On your earlier question about the tax rate applicable to the restructuring item, the nonrecurring cost there, it's actually 36%. Our Controller, Wayne McDougall, is here and he informs me of the exact rate.

Brooks West, Craig-Hallum Capital Group.

Joe, just a couple of follow-up questions on the cost side for 2010. Can you give us any guidance in terms of the spend, the increased marketing spend, for the two marketing studies there? And then also, on the Albany facility, kind of cost and timing for that?

We aren't going to provide specific cost information on those marketing studies that we're going to do, obviously for competitive reasons. So I can't be specific about that.

The office in Albany, the likely occupancy there is the February timeframe of the next year. It will be leased premises, and -- so we won't have capital tied up in it. We're likely to sign something like a 10-year lease for that property.

(Operator Instructions). [Alan Goldstein], [ADM Trical Services].

Thank you for taking my call. I just had a real quick one and that's -- inventory, I guess, came in at about $36 million. I know because of acquisitions it's up a little bit, but overall, can you just discuss the level of inventory and how you feel about it?

Yes, $37 million is what it is, end of the fiscal year, and frankly, it's higher than we want it to be. Part of the answer, of course, was the acquisition of Diomed and we are now in the business of manufacturing lasers, so that was an expected and understandable increase in inventory.

But beyond that, there are some increases in safety stock associated with the supply-chain issues that -- some of them that Jan mentioned. So we actually have a program to reduce inventory levels and have set a specific goal for ourselves as to what we want to get them down to.

So they are a bit high now, higher than we would like them to be, but for understandable reasons. The reserves against them are certainly adequate. But we would expect them to be going down next year in response to some specific programs that we have to get them better under control.

Greg Brash, Sidoti & Company.

Would you guys be willing to quantify how much of the supply issue in the PICCs hurt you in the quarter?

No, not really. And Greg, also on top of that, even if we could quantify it from a back-order position or extrapolation of revenue, these things sometimes have a more far-fetching effect in terms of creating some uncertainty with the sales force. Some uncertainty with customers. You lose an account for it. So we don't take it lightly.

We think the PICC market is a very, very healthy market. Didn't perform well for us in Q4. That's enough call to action for us to give it our all and get this fixed as soon as possible.

Just one more. You're trying to build your presence overseas. How much a part of that is getting into or expanding your business on the vein side? I know one of your competitors has been doing quite well in Europe.

As I said in the beginning of my remarks that we are very much focusing on three segments, if you like. There is obviously vein intervention. But within that, very much, vein ablation. There's the whole oncology side where we've got some exciting products. And then, ports and PICCs. And I think those three elements will be our spearheads also when it comes to international expansion.

In different gradations -- when you talk about Asia, I think oncology is relatively maybe more important. I think the ablation business, the vein ablation business, is a bit more accessible for us in Europe, but I think along those vectors, you will see us getting increasingly ambitious.

Thank you. And there are no further questions in the queue. I will turn it back over to management for any closing comments.

Thank you very much and thank you all for your questions and your interest in AngioDynamics. We will continue to provide you updates on our progress as developments merit, and I do look forward and we all look forward to talking with you again during our first-quarter fiscal 2010 conference call in about two months or so, I guess. Thank you all. Have a good day.

Thank you, sir. Ladies and gentlemen, this concludes the AngioDynamics fourth-quarter 2009 financial results conference call. This conference will be available for replay. If you would like to listen to a replay of today's conference, please dial 303-590-3030 or 1-800-406-7325. Enter the passcode 410-4137. (Operator Instructions). Thank you for your participation and for using AT&T Conferencing. You may now disconnect.