AngioDynamics Inc (ANGO) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the AngioDynamics second-quarter 2011 financial earnings conference call.

During today's presentation, all parties will be placed in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions).

This conference is being recorded today, Tuesday, January 4, 2011. I would now like to turn the conference over to Greg Gin. please go ahead, sir.

Thank you, Michaela, and thank you, everyone, for joining us today for the AngioDynamics conference call to review the results of the fiscal second quarter which ended on November 30, 2010. The news release announcing the second-quarter crossed the wire this afternoon after the market closed and is available on the AngioDynamics website. The call is being broadcast live on the Web at www.AngioDynamics.com and a replay of the call will also be archived on the website.

Before we get started, during the course of this conference call, the Company will make projections of forward-looking statements regarding future events including the statements about revenue and earnings for fiscal 2011. 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 the Company and is available on the website at www.AngioDynamics.com.

AngioDynamics 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 compared in accordance with GAAP.

On today's call, the Company has reported non-GAAP EBITDA and EBITDA per share and has reviewed these measures as an 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. And now I would like to turn the call over to Jan Keltjens, President and Chief Executive Officer of AngioDynamics.

Thank you, Greg, and good afternoon, everyone. Thank you for joining us on our second-quarter conference call. With me today is Joe Gersuk, our Chief Financial Officer.

The discussion this afternoon will go as follows. I will start with an overview of our fiscal 2011 second-quarter results. Then I will provide an update on the progress of the NanoKnife program and review our strategy to achieve our long-term goal to grow at a rate that is significantly faster than the markets in which we operate. Joe will then review financial highlights for the quarter before we close with Q&A.

This afternoon after the market closed, we reported net sales for the second quarter of $53.4 million, virtually identical to the $53.5 million reported in the prior year period. Net income for the quarter increased 5% to $3.3 million compared to the year ago and diluted earnings were $0.13 per share.

Our improvement on the bottom line resulted mostly from continued strong expense management. And during his comments, Joe will provide more information on all this as well as on the encouraging gross margin gains versus the first quarter.

I would like to emphasize that we increased our net income while continuing to make substantial investments in key areas to build for future growth like our international business, NanoKnife and our R&D pipeline. On the top line, our second-quarter results were affected by the sustained challenging operating environment that we faced during the first quarter as well as the effects of the transition to a single US vascular salesforce initiated at the start of the first quarter.

We did begin to see some signs of market stability in certain segments during the period, although overall I would categorize the market and related pricing as generally being soft. Our expectations is that with a gradual improvement of the economy and the labor market, residual volume growth will cover and we do expect markets however to remain very competitive and that the innovation and competitive cost structure and organizational efficiency are key attributes for strong and profitable growth.

In our remarks last quarter, we indicated that the salesforce transition would take six to nine months to fully implement. Since initiating the creation of a unified vascular salesforce at start of Q1, we are focused on fully training our reps on all the Company's vascular products and allowing them to build the customer relationships necessary to achieve and sustain a high level of productivity.

To further strengthen our sales operation, we have increased marketing as well as corporate sales support. We are continuing to build momentum in our salesforce effectiveness and we expect to continue to see our growth rate accelerate as the second half of the year progresses.

While total sales were flat as compared to last year, we did generate solid growth from certain product categories and business areas. For example, our oncology product sales were up 16% from a year ago and we grew NanoKnife system sales to $1.6 million which represented a 42% sequential increase from our first fiscal quarter.

Included in the NanoKnife results this quarter was system sales to customers both in Taiwan and Hong Kong which represent the first sales of the NanoKnife system in the ever-so-important Asia-Pacific market. Also international sales which have been an area of strategic focus for our Company were up 12% as compared to the same period last year.

Our bright spot during the quarter beyond that were the growth in sales of our Micro-Introducer Kits, VenaCure EVLT laser fibers, LC Beads as well as our (inaudible) product lines. We remain confident about the long-term growth prospects of our Company and continue to execute on the programs to create sustainable long-term growth and profitability.

Our core businesses, oncology and vascular intervention, each represent significant growth opportunities. Our principal growth strategy is investing resources to drive innovation and we directed approximately 10% of total revenue to new product development in the second quarter.

As a result, we remain on track to launch approximately 10 new products in this fiscal year. I will provide more details on our new product development efforts in a few moments.

We're also pleased with some recent developments in the market for varicose vein ablation. We continue to see this area as an attractive growth opportunity and are pleased with the core strength of our franchise. Our NeverTouch laser fiber platform continues its strong performance and it benefits from several product line extensions.

We welcomed the recent settlement of a patent dispute with Vascular Solutions which underlines the strength of our VenaCure EVLT IP and will generate a per-unit royalty payment to us. We are also pleased with the recent jury award on the litigation of Total Vein Solutions and Biolitec by Covidien/VNUS and although any impact may be delayed, we do believe that share gain opportunities may open up.

NanoKnife continues to gain clinical and commercial momentum in both the US and abroad. During the second quarter, four new commercial agreements for the NanoKnife system were entered into and in total, 23 hospitals around the world are now performing procedures either as part of the clinical program or on a commercial basis. Physicians treated an additional 90 patients since October 1, 2010 bringing the total number of patients treated with NanoKnife to 412.

The pivotal driver for future NanoKnife success is clinical outcome data. That is why evidence-based medicine is a core strategy in our NanoKnife program.

We are making steady progress in this area. A total of four clinical studies have been completed and reported in the professional literature.

Two additional clinical studies are currently enrolling and in addition in the US, the University of Louisville under the direction of Professor Rob Martin is administering a Soft Tissue Ablation Registry, or STAR registry, which will collect data on up to 200 patients across liver, pancreas, lung, prostate and kidney treatments as well as other soft tissues.

The STAR registry currently contains data from 16 patients from two sites. Six more sites are currently going through their IRB approval process.

And finally, it continues to be encouraging to see positive early anecdotal clinical results on the use of NanoKnife being reported. This now includes a growing number of pancreatic procedures.

In the international [HCC] multi-center study, five patients have been treated in three enrolling centers. A further two centers are being trained in January and will start enrolling subsequently.

The pace of enrollment is being impacted due to the high scientific standards of this study and the corresponding strict patient inclusion criteria which were established in order to gain specific endpoints related to the efficacy of NanoKnife. We plan to further expand the number of enrolling sites.

Several studies are planned for the next calendar year including the prostate and pancreas IDE studies and we do remain on track to submit IDE applications for these studies to the FDA before the end of this fiscal year. We expect a number of clinical studies and resulting publications around the world to continue to increase and thus create an increasingly strong body of clinical evidence underlining the safety and efficacy of the NanoKnife system for current as well as future potentially expanded indications.

This belief is rooted in the continuing strong clinical feedback we receive from our customers as well as the broad and deep interest from the clinician side to participate in the programs. As mentioned earlier, our goal for the Company is to grow significantly faster than the market and this goal has not changed in light of the current soft market environment. We believe the markets in which we operate allow significant growth opportunities for our Company regardless of the macroeconomic market trends.

Underlying our growth strategies is a continued focus on innovation and in the second quarter we launched an important expansion to our Morpheus Smart PICC product line with the introduction of a 5 French dual lumen interventional radiology kit. To date, during fiscal year 2011 we have launced four significant new products in addition to a number of line extensions and we do continue to expect approximately 10 product launches to come from our internal R&D organization for this fiscal year.

Over the balance of this fiscal year, we expect launches of new products to further strengthen our successful NeverTouch platform as well as broaden our Smart PICC and Smart Port as well as dialysis franchises. We also plan to launch an upgrade to our NanoKnife platform and continue to expand our RF ablation product lineup.

In addition, we continued to make solid progress on longer-term R&D programs that we anticipate will result in new product launches during fiscal 2012 and beyond that will support and accelerate long-term growth for our Company. In summary, we remain confident in the long-term potential of AngioDynamics and we're focused on executing our long-term growth strategies even during this period of softer growth.

As we move towards completion of the salesforce transition and build on the momentum from our international operations, we're optimistic about improved results in the second half of fiscal 2011 and beyond. We remain committed to innovation to drive long-term sustainable growth.

Our financial strength gives us the flexibility to make disciplined investments to pursue additional growth opportunities. In the second quarter we continued our track record of delivering significant cash flow.

We have a profitable business model despite current market pressures and continue to demonstrate improved operational excellence to enhance profitability. I would like to once again thank our global AngioDynamics team for their continued hard work and for the dedication and commitment to building our future. And I would like also to thank our shareholders and Board of Directors for their ongoing support and confidence. At this point, Joe will now take you through a more detailed look at our quarterly results. Joe?

Thank you, Jan, and good afternoon, ladies and gentlemen. Despite the challenges of the operating environment, our second quarter was highlighted by measurable improvement in gross margins, good operating expense management, excellent cash flow, growth in net income, healthy growth in sales of our NanoKnife product and double-digit growth in our international business. We accomplished this progress while continuing to work through the transition in the US vascular salesforce which has been underway now for two quarters.

Reported sales in the second quarter of $53.4 million are slightly lower than the prior year results, however, net sales increased by $64 million on a constant currency basis after adjusting for an unfavorable foreign currency translation impact of $150,000; still flat but slightly up rather than slightly down. We believe the 6% decrease in vascular product sales in the second quarter is mainly attributable to the near-term disruption from the salesforce transition with the balance generally related to the broader slowdown in hospital admissions and procedure volumes that have been widely reported.

We saw softness in sales across most vascular product categories including a slowing in the sale of capital equipment in the laser vein ablation business. However we did enjoy another quarter of double-digit unit sales growth in the disposable kits used in vein ablation, although the volume growth was partially offset by lower ASPs on the kits.

Turning to the oncology business, we achieved 16% sales growth in the quarter led by strong sales of LC Beads and NanoKnife products. Beyond the strength in Beads and NanoKnife, we're also seeing the effect of the slowdown in hospital admissions and procedure volumes in the sale of other oncology products.

NanoKnife sales of $1.6 million in the quarter marked our third consecutive quarter with more than $1 million in sales of this exciting new technology as four additional sites entered the commercial program in the quarter. This included sites in Taiwan and Hong Kong, marking the first of what we hope will be many NanoKnife systems in Asia.

From a geographic perspective, 88% of second quarter sales were in the US and 12% or $6.7 million came from international markets. International sales grew 12% from the prior year on a reported basis and 14% on a constant currency basis. This is our second consecutive quarter of double-digit sales growth in our international operations and reflects the progress we're making in one of our key growth initiatives.

International growth this quarter was led by strong sales of oncology products in the Asia-Pacific region including the NanoKnife Systems just mentioned. Continuing down the income statement, gross profit totaled $31.5 million or 59.1% of sales in the quarter. This was the same gross margin we reported a year ago and is an 80 basis point improvement from our first quarter margin.

While we continue to see pricing pressure in the vascular side of our business, the sequential quarter improvement reflects material, labor productivity and efficiencies in our manufacturing processes under the programs that we started last year. We expect this favorable margin trend to continue in the second half of the year although not necessarily at the rate of 80 basis points a quarter that we just reported.

Operating expenses totaled $26.1 million in the second quarter which is lower than the first quarter and lower than second quarter a year ago as we strive to minimize the impact of the sales shortfall by limiting our operating expenses. The $772,000 in nonrecurring costs reported this quarter includes severance and relocation costs relating to organizational changes following recent Executive appointments to the Company. The total operating expense impact of the NanoKnife program for the quarter was $2.8 million.

Including the sales revenue and operating costs, the net loss impact of the NanoKnife program declined to $0.04 per share in the quarter compared with $0.06 per share a year ago. Operating income was $5.4 million in the second quarter, a slight increase over the prior year while the operating margin was 10.1% compared with 10% a year ago.

EBITDA was $8.4 million or $0.34 per share in the quarter compared with $8.5 million or $0.34 a year ago. The income tax provision was recorded at a 36% rate in the quarter compared with 38% a year ago.

The rate reduction was primarily attributable to manufacturing tax credits. Turning to the balance sheet and cash flow statement, we ended the quarter with cash and liquid investments of $110.6 million, an increase of $8.6 million in the quarter and $10.5 million in the first half of the fiscal year. We enjoyed a particularly strong quarter in cash flow, generating $9.9 million in cash flow from operations in the second quarter.

We reiterated our guidance for the fiscal year in the press release and it is unchanged from the last earnings release. We expect net sales in the range of $220 million to $225 million which is 2 to 4% organic growth, gross margin in the range of 58% to 59%, GAAP operating income in the range of $20.5 million to $22 million, EBITDA in the range of $33 million to $34.5 million, and GAAP EPS of $0.47 to $0.50 per share inclusive of a $0.21 to $0.23 per share impact from the NanoKnife program of which $0.04 is the non-cash intangible amortization cost.

Additionally we expect a tax rate of 35% for the fiscal year and cash tax savings of $3.1 million from the use of RITA NOLs. Please note that our third fiscal quarter has 59 business days which is two fewer days than our second fiscal quarter. We plan to report Q3 financial results on Thursday, March 31 after the market closes. And now, Michaela, we are ready for your questions.

(Operator Instructions) Brooks West, Craig-Hallum Capital.

I wanted to start with some questions on the varicose vein business. You said capital was soft but you did see an increase in disposables. Net net, did that business grow this quarter year over year?

Yes, it did.

Yes, it did.

It did.

The balance of all that is some different moving parts. Indeed I should say capital equipment is tougher and is negative; disposable actually very encouraging. In Europe in particular in the British market because of some austerity measures over there, it's a little tougher as well. But the overall business is growing.

Okay, and do you feel now with all of the litigation that's happened or some results from the litigation that has happened over the last three or four months, are we finally through the kind of litigation side on the laser side and can we return to more of a normalized competitive market? And is that going to be a positive going forward? And then I've got a question on biocompatibles.

On the litigation, I mean, I would say the litigation -- for us, it has been a pretty stable environment, frankly. I think we did the right thing, Joe, what, about two years ago? Maybe a little longer than that in settling with at that time VNUS.

It was a painful decision but it was the right decision. Certainly looking at the jury verdict, we feel good about the decision and that has allowed us to focus entirely on driving the business over the last two years.

Beyond that, we spent a lot of money on creating IP and we will defend that if needed and that's what happened. But I wouldn't call it a major, major distraction for the business, for us at least.

And certainly, we are through with litigation from our perspective. We're at peace with everyone in the industry but certainly Biolitec and Total Vein Solutions are not through with litigation and what may come out of that could certainly have an impact on the marketplace in the future.

Can you quantify the savings on litigation going forward?

No, not -- it's not a large amount of money but it's something in terms of reduced legal fees as well as the economic impact of the settlement.

Okay, and then if I could just sneak one more in on the biocompatibles? Have you seen with the announcement of the acquisition of biocompatibles by BTG, any impact in the marketplace in terms of maybe some negative perception on your ability to continue to carry that product and then are you any farther along in understanding beyond the guarantee through the end of 2011 how that might resolve itself or when could we know something from the BTG side there? Thanks.

Great questions, Brooks. You know, I would qualify the current business environment as business as usual on two fronts, both our relationship with Biocompatibles as well as our relationship with customers here in the US market.

Cooperation with Biocompatibles has been great over the last couple years and continues to be great under their negotiating process and now the pending deal with BTG. And on the customer, it's very, very transparent to customers and I think we have a joint interest in driving a -- developing a healthy market and continue to drive that going forward.

Beyond that, hard to give you guidance on when you could expect significant news. I think it's in the public domain that BTG and Biocompatibles expect the deal to close I believe early February.

We would expect to not engage in serious conversations with them about a possible extension until after that closing. So I would say it's going to be easily late spring, maybe into early summer before we get some material news on the potential continuation there.

Jayson Bedford, Raymond James.

Good afternoon and happy new year to you guys. Just a couple quick questions and the first one may be simplistic here, but what will it really take to grow the top line? Is it a salesforce issue, is it an issue of new products gaining traction or is it market related? What are the key factors there to get you on a growth trajectory?

Well it's a very fair question, Jayson; a very, very fair question. And it's a little bit all of the above.

In a way, we got hit somewhat by a perfect storm, the two key waves there being the salesforce integration that created the situation where a good portion of the US salesforce, the entire vascular salesforce in the US, had to look at a lot more new products, had to be trained on that, had to re-create relationships with customers and accounts and I think that got compounded by undoubtedly a softening of the procedural volumes in the US and I think various companies have been reporting on that.

As I said in my remarks, we think the market is stabilizing. I wouldn't call it strong yet, but certainly more encouraging signals coming out of the market.

I think the salesforce is getting through this whole training cycle and relationship development cycle and I think those are two fundamental issues and that's why we are comfortable maintaining the guidance which implies that there's going to be a -- I would call a substantial uptick in sales and growth rates for our Company in the back half of the year. On top of that, innovation continues to be important and that's why we continue to provide the investment community and you as analysts with an update on our R&D progress, I'm going to say two big buckets there.

NanoKnife is a significant growth opportunity. It was $1.6 million on a $53 million quarter. That is noticeable.

The other one is launching 10 products besides NanoKnife for supporting the rest of the business. And that is even shy of introducing existing products in the international space on top of that.

That will fuel the sustained growth. We would frame the aggregate of the markets in which we compete today growing in the mid-single digits, maybe 6% or so give or take a point.

We have said we want to substantially outgrow that, so we want to be in the high single digits or even a bit more than that as an organic core. And then of course through acquisitions or maybe some other things, we could accelerate beyond that. So I think it's not too far away, Jayson, but these things have to fall in line.

Okay, and maybe can you just comment on the traction or the uptake of Centros and then maybe the triple lumen PICC? It would seem to be kind of highlighted new products over the last year.

Yes, I think there's been in the access space in general, there have been three buckets of products. Centros indeed was one. Triple lumen PICC and now more recently the dual lumen Smart PICC but that was just very, very recent actually.

And then I also want to reiterate the to Smart Ports that we launched at the beginning of Q1, fiscal Q1. Frankly the last one has done best. In the port business, the Smart Port line is doing very, very well and has become a real engine of growth.

We're losing some of the port business in the more classical, conventional older port models. But as a whole, our port franchise has been growing in Q2 which it's been a while that we could say that. So we're very pleased with that.

The triple lumen Smart PICC, we have always said it's going to be -- in itself it's going to be a limited revenue source but it does [run under] the PICC product line and makes us more competitive in corporate accounts. I think and I think, Joe, you made some comments in your remarks as well on this, we are making inroads in corporate accounts but I think the selling cycle has become much, much longer and I would call the impact of triple lumen PICC right now marginal and I would say actually the same for Centros.

I would say that has not been bringing us the success we were anticipating. It's -- there's a new wave of launches coming up in the next few months that gives a new shot at the whole thing. But Centros in itself has certainly not been bringing us what we were hoping and expecting, frankly.

That's fair. (multiple speakers) sorry.

I was just going to comment, Jayson, as we get through this transition with the salesforce, we are optimistic. We think those are good products that we will sell well in the future, but it's all part of the whole transition that we are going through, the sales organization.

And if I may just sneak in a last one on gross margin, can you just maybe comment on one, the pricing environment; and two, the source of gross margin strength in the quarter? Thanks.

Yes, the pricing environment continues to be difficult on the vascular side and it has been like that for the last four of five quarters now and hasn't gotten any worse and hasn't gotten any better. And in the aggregate, we're seeing about a two percentage point ASP erosion overall impact on the Company.

No negative impact of pricing on the oncology side, actually slightly positive there. And in terms of the gross margin, we have got the favorable mix impact within the oncology business of NanoKnife representing an increasing percentage of total sales on very strong gross margins that that product represents, and then the factory utilization and efficiency program that is beginning to really show some good fruit here and a lot of good work that our operations teams have been doing here in Queensbury and in Manchester, Georgia.

So all of those things are coming together well. And the material cost reductions have also had a significant impact as well. We've got an active program to reduce our material costs and are going back to our vendors and seeking improved terms from them and that also [is very improved].

Jason Mills, Canaccord Genuity.

Congrats on a good bottom line quarter. Happy new year to you. Couple questions, let's start with your guidance.

And building on Jayson Bedford's question a second ago on the top line specifically, guys, what do you think needs to happen in the second half of the year to get you to the top end of your guidance? Because to your point, Jan, getting to the bottom and will show percentagewise positive growth and acceleration but to the top end of your guidance, it would be material and I think it would get people's attention, more so obviously. Could you give us a couple of things that would maybe get you to the top end of that guidance range?

Yes, if the math on my feet works, I think that means in the back half on average we have to run on about 5, 6% growth to hit the top end of the range of 4%. You know, we kept the upside on the -- the upper end of the guidance as it was because we think it's conceivable that we hit the number obviously and it's our best guess on the upper end of the range.

What needs to happen is I'd say ongoing good development of NanoKnife. Let's put it this way. The key growth drivers that we've leaned on for the last year, year and a half is the varicose vein business has been very strong. For that to come back I think is important.

So I mean, there's two answers to the questions. Sorry for being a little convoluted. (multiple speakers) mentioned there's an operational capability that I mentioned. So on the product side, I would say corporate accounts coming through, that would be mostly in access.

I think first and foremost, we do expect over time a bit of an uptick in PICCs, some of the product launches that are around the corner for dialysis will help. We feel very good about the potential of NanoKnife, good momentum in the business, good buzz and we think we can continue to look at that as a source of growth.

And the two other ones as I said before, the varicose vein business and the international business, these growth percentages are up solid double digits, become more and more meaningful off a bigger base and they will help us. But I think the biggest single parameter is probably just salesforce effectiveness. That's where we have been taking the biggest hit.

I mean, I would say oncology growth is probably a few points down from last year but the bigger hit was clearly in vascular where we've been seeing negative 6%. Just correcting that has stopped the bleeding there, will certainly get us back into some space with more oxygen.

That's very helpful. Let me target in on a couple of things you mentioned within that answer. NanoKnife, I wondered if you could give us a sense for where you think on a quarterly basis you will running at exiting the year on the corporate account side.

Maybe give us a little bit more color of the opportunity. And then you mentioned the oncology procedures, traditional oncology procedure at the hospital level is down a bit. Can you give us just maybe one or two points on each? And then I have one more follow-up and I promise not to go beyond that.

There's a lot of questions there, I'm not sure I wrote them all down.

So NanoKnife, run rate exiting the year, maybe a little bit more color on the opportunity in corporate account coming through and then [the oncology and] procedures?

You know, we don't give quarterly guidance and there's a good reason for that. Because it is hard to do for the Company. it's even harder to do in individual product lines.

And although we like the $1.6 million in revenue for NanoKnife, it's still very much contingent on being able to have a capital equipment sale [yes or no] it's going to be a little lumpy from that point of view. So I'd like to stay away from any guidance on run rates at the end of the year for NanoKnife except for that we believe that the step forward we had in Q2 over Q1 is not a coincidence and this is kind of sort of a new baseline going forward and we continue to see significant growth in this business.

On corporate accounts, a bit of a mixed bag I would say. It's becoming undoubtedly more important for us as a Company and, Joe, you may want to weigh in here with certain elements as well.

And I don't have the stats here in front of me, but we do know that an increasing portion of our revenue in the vascular business in particular in the US is subject to what you would qualify as corporate accounts whether that's an individual contract, IDN or a GPO.

But it's becoming more and more important and we are actually putting more and more resources in that and that is professionals in the field, corporate account executives that are able to work in that world and I would say our whole set of capabilities as an organization what some people would call work in the C suite in hospitals rather than just in the clinical level is being enhanced and I think it's yielding success and I think in the recent quarter also, two what we believe are significant contracts were closed and that will help drive that business. The other thing we see as opposed to also my reference from a few years ago in the US, I think the discipline of many of these corporate organizations is becoming much, much higher. So the compliance with agreements is stronger than it used to be and that helps also I think.

Okay, that's helpful. And then on the oncology procedures side?

You know, I think oncology is an interesting disease from that point of view. I mean, it's not a molecular disease by any stretch of the imagination, although, the point at which one receives actual therapy is variable and we do believe that there is a delay at least in the referrals.

I'm not saying there's no referrals but there's certainly been a step back in the number of referrals and patients got treated at later stages. And typically RF ablation and that kind of procedures are done in earlier stages of oncology.

Later stages (inaudible) the very first stage would be surgery, then you see an ablation, then you might see an embolization, etc. etc. And we have seen broad feedback and also from physicians that they see fewer patients in this space.

We think those patients won't come back because again, it is disease stuff, it's not going to go away as such. But they maybe receive more treatment in more severe stages of the disease.

That's helpful. Joe, on the operating expense side, really nice OpEx management in the quarter especially on the SG&A line. Can this level of OpEx be continued into the back half of the year at least as a percentage of revenue?

It's likely to actually rise a bit as a percentage of revenue and what we saw in the second quarter was the situation where given the shortfall in sales against our plan, it drives lower variable compensation which lowers the operating expenses and in particular in the SG&A area and we expect to be on a better path in the second half of the year in terms of performance relative to our plans and that will drive higher commissions levels and variable compensation levels. So not likely to continue at the efficiency levels that you saw in the second quarter, but hopefully driving the achievement of the expectations on the strength of better revenue performance as Jan was talking about and therefore the earnings expectations as well.

(Operator Instructions) Thomas Kouchoukos, Stifel Nicolaus.

Can I turn back to vein side? We have been hearing going into the Covidien/VNUS trial against the lower tiered players that there was some pretty heavy discounting going on into that. And given the magnitude you have mentioned, you had pricing pressure on your fibers, can you quantify kind of what the magnitude of your pricing impact was?

And if I guess assuming the trial goes the way you would like it to through the appeals process, do you think the market could come back to where we were historically or do you think we have long-term kind of lower prices going forward?

Tom, we can't quantify specifically the pricing on a single product line. Just for competitive reasons we wouldn't be inclined to do that.

We did say though that there was downward pressure on the kit side of the business. We have seen that now for about five or six quarters in a pretty persistent way. So we would -- it's unclear as to what the outcome of all of the litigation is going to be.

But certainly we think there will -- we're driving towards a level level playing field and everybody that has been in litigation with VNUS Medical over their patents has either settled with them or been the subject of a judgment against them. So, we think it is beneficial to the marketplace for it to be a level playing field and that's where we are heading. And that could certainly have an impact on the pricing environment.

Okay and maybe (multiple speakers) go ahead, Jan.

Maybe, Tom, just to add to that, of course what we have been enjoying -- the pricing environment as Joe described. But the launch of NeverTouch about six quarters ago really was a very important launch for us looking back now has allowed us to generate significant volume growth that certainly if you add up those last six quarters has been significantly outweighing any price erosion as such. So it continues to be a very effective market even under those circumstances. If anything, there's going to be some opportunity coming out of this whole litigation situation for us at least.

Okay, okay, maybe if I could follow on. I think you had said that as a whole, maybe pricing in your vascular business might have been down 2%, something like that. I guess what I'm trying to figure out too is is it -- I know there's some deep discounters on the PICC side as well.

I mean, is it irrational pricing that is forcing your pricing down or is it hospitals pressuring you? Can you just describe what maybe the balance is there? Because certainly it seems like there is some irrational pricing going on on the vein side as well.

I think there's good old capitalism and free market enterprise at work here. So (inaudible) customers are getting stronger. I think companies are focusing on the cost of doing business.

I think it's -- I think all in all, it's a tremendous efficiency gain, so here we are. On one hand [we brought in] price pressures in the market, yet make a sequential quarter increase in gross margins. So so far, it works for both parties, I would say.

You know, price erosion as such is not the end of the world as long as it is managed and as long as it's stable and predictable. Reasonable numbers are certainly something that we can deal with and certainly in a normal market environment, the volume growth would allow it to offset it.

Again, it doesn't mean that we want to be a [price fighter] or drive it down, but it's forces at work and I think hospitals are getting more confident. I think the administration of hospitals is getting more influence in the purchasing decision and they're using that power.

Okay, great, thank you. Then one last one on the -- you'd mentioned a NanoKnife upgrade that is coming. Is that hardware or software? And then could you describe a little bit about what that wll bring to your customers?

Yes, it's actually both software and hardware. It's bringing the hardware to the next level, adjusting the software to that.

I don't think the market is going to notice that big of a difference. But for us to support the platform and maintenance, being able to support it remotely, upgrade the abilities and overall stability will be significantly enhanced.

So it's going to help us run a much more efficient organization in developing this. [There's going to be ready] for some potential future product launches as well, but of course that has to wait until we get approval of other specific indications.

Okay, and I'm sorry, I told you this was the last one. I have one more, if it's okay.

Just in terms of the salesforce transition, I would assume you already have some pockets that things are going well. Based on where you are in this transition, are you liking what you are seeing in the areas that seem to be up and running and finding their stride? Do you think this will all work down the road as the integration completes?

When that's all summarized and condensed in the guidance we gave which implies a significant uptick in the business in the back half of the year is that based on some factual knowledge and some perception and getting the finger on the pulse of the organization, yes. There is a saying in my home country that spotting one sparrow doesn't necessarily mean it is springtime yet. But we have seen a couple of sparrows and there's good buzz in the air.

Thank you very much, guys.

Robert Goldman, CL King.

Okay, good evening. A couple of questions, first on NanoKnife. I might have missed it, but how many units did you place in the quarter?

Four.

Four, Bob.

Four, two in the Asia region and two in the US.

And the other question is on the SG&A again. First on this nonrecurring expenses, 772 for severence, who did you sever? What kinds of folks and why?

We covered it and it was some reorganization of the Company following some executive appointments to AngioDynamics. And I don't want to talk about it anymore specifically than that. It was not only severance, it was relocation costs and other items.

But these were executive level people, you are saying?

Yes.

Can you offer any more commentary as far as who is going to be doing those jobs or why at the executive level folks had to leave?

Well, Bob, first of all, this is obviously over the last three or four months now and I think very simply if you look at the officers and executives of the Company today as opposed to four months ago, I think you get a pretty good feeling for it. That's kind of the gist. So all these positions are filled. We consolidated some roles and running -- trying to also run at the senior level a lean organization.

The people coming in in the last four or five months I guess at the executive level, meaning reporting to me is Scott Solano, CTO and Senior Vice President, R&D; Scott Ettinger, Senior Vice President, Worldwide Operations; and Linda Wallace, SVP, Global Business Development. Those positions were filled [somewhere in the past] as well.

Just one last question is on the balance sheet and the use of cash. You obviously have a good cash level.

It strikes me that your bias for that cash was just sort of save it for potential acquisitions. Is that still the bias or why not have a nice share repurchase here to show some Board-level faith in the strategy?

I think there's different ways of showing faith in the strategy and never say never but I think our current belief is that by redeploying this money into top line growth and developing some of the key elements of the business is going to yield a better return for shareholders. But you know, that's our current strategy, let's put it that way.

What about the acquisition part? What is your current thinking there?

Our current thinking is not much different from the last quarter. We have obviously fairly extensive pipelines ranging from early conversations with prospects to more involving conversations and we are picky, picky not because we're nervous or scared or anything like that, but we only want to buy stuff that works for us and working for us means it has to fit our strategy as we drive the top line.

We've said on prior occasions we wanted to be accretive in a reasonably short time frame for the six quarters I think we mentioned and things like that. We're certainly not in a panic get to buy. We don't have our back against the wall [in a buy] scenario. So we're looking at a couple things here and again as I said, in some of the more and more advanced conversations and the right thing will come.

(Operator Instructions) Larry Haimovitch, HMTC.

Good afternoon, Jan; good afternoon, Joe. My question was just asked, so I will jump back in the queue.

Thank you. At this time, I'm showing no further questions in my queue. Please continue.

Michaela, just one more thing before Jan wraps it up. And I just want to point out that the net sales increase was $64,000 on a constant currency basis after adjusting for the foreign currency translation impact in the quarter. I misspoke when I said $64 million. I wish it were $64 million. Jan?

I think Joe has his head in the New York Lottery which is drawn tonight I think which is closer to the number, I think. So, thanks, Joe, thanks, Michaela, thank you, everybody, for participating today in this call. We do look forward to keeping you abreast of our progress and we will talk with you again in early April 2011. Thank you all.

Ladies and gentlemen, that does conclude the AngioDynamics second-quarter 2011 financial earnings conference call. We thank you for your participation and at this time, you may now disconnect.