AngioDynamics Inc (ANGO) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the AngioDynamics second quarter 2012 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) This conference is being recorded today, Thursday, January 5, 2012. I would now like to turn the conference over to Doug Sherk. Please go ahead.

Thank you operator, and thank you everyone for joining us today for the AngioDynamics conference call to review the results of the fiscal 2012 second quarter which ended November 30, 2011. The news release announcing the results crossed the wire this afternoon after the market closed, and they are available on the AngioDynamics website. The call is being broadcast live on the web at www.angiodynamics.com. A replay of the call will also be archived on the AngioDynamics website. To access both the webcast and the archived replay, go to the AngioDynamics website at www.angiodynamics.com and go the investor section under events and presentations.

Before we get started, during the course of this conference call the Company will make projections and forward-looking statements regarding future events, including the statements about revenues and earnings for fiscal 2012. 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 which may cause actual results or events to differ materially from those described in forward-looking statements. 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'd like turn the call over to Joseph DeVivo, President and Chief Executive Officer of AngioDynamics.

Thank you, Doug, and good afternoon everyone. Thanks for joining us today. With me is Joe Gersuk, our Chief Financial Officer.

Our sales and marketing organization did a great job this second quarter, which lead to a 9% year-over-year sales growth. Our strong Peripheral Vascular organization built on the momentum started last quarter, producing a 2% increase in sales. Our market leading Oncology/Surgery team continued to execute with a 25% increase in sales as compared to last year. And NanoKnife system was a major factor behind the team's performance, as sales increased to $3.2 million, up 100% over last year. And on the International front, our team continued to deliver consistent growth. They generated a 27% increase in sales which represented now 15% of our total sales for the second quarter, up from 12% in the second quarter of fiscal year 2011. Three product lines are driving our International growth; that's NanoKnife, RF Ablation, and the VenaCure EVLT system. The growth is coming from both Europe and Asia with RF Ablation sales in Asia being especially strong. It's important to know that our International growth has been generated without LCDs. Our expiring distribution agreement for that product line was exclusively for the US. Therefore we believe we can continue to grow International sales at the current healthy eclipse, and we expect continued success in the US as our sales team reemphasizes on our legacy oncology products.

Several quarters ago, the management team determined that there was a need to improve the leadership of the Company's quality systems and regulatory programs. For example, I believe the Company needed a more robust regulatory strategy for obtaining additional NanoKnife claims that would allow for greater utilization of the product for its full capability. Since Donna Haire, our new SVP of Quality and Regulatory, arrived two months ago, we've embarked on a broad based plan to evaluate a variety of our systems to evaluate and improve our quality, regulatory, and clinical processes. This effort being led by Donna is establishing a comprehensive approach to compliance. And we are intently focused on a significant transformation and implementation of corporate wide quality systems. As a part of the plan, we've reviewed and initiated augmentation of the quality system at our Queensbury facility and have temporarily shifted some of our engineering resources systems to help put a number of actions in place. We are committed to delivering a consistent high level of quality, as an organization, and these improvements will be implemented in the near future.

As a part of the process at the end of the quarter, we initiated three voluntary class two recalls that stemmed from nonconforming parts manufactured from suppliers. Necessary process improvements to address the situation with all three products have been identified and are currently being implemented. The good news is that shipments for all these -- all the three products have resumed in late December. We'll be working off a backlog for better part of the third quarter and as a result we've updated our guidance. While our third quarter isn't going to be as strong as we originally expected, we'll be back with our fourth quarter revenue and our previous guidance for the fourth quarter will be affirmed.

Then moving to NanoKnife, this quarter our International sales were slightly ahead of the US in NanoKnife system sales. As our International sales and marketing efforts increase, I expect International to continue to eclipse the US sales organization due to increased focus on expanding our regulatory approvals throughout the world along with advanced progress of our ongoing International clinical studies. The NanoKnife systems progress during the quarter extended beyond very strong sales growth. As I mentioned before, one of Donna's early contributions was to elevate our NanoKnife system regulatory strategy. We made a decision during the second quarter to focus all of our global NanoKnife clinical and regulatory efforts in the hopes that IRE may have the opportunity to become a standard of care for pancreatic cancer patients.

Two factors drove this decision. First is the large unmet clinical need and the lack of treatment options for pancreatic cancer patients. There are approximately 165,000 new cases of pancreatic cancer each year worldwide. Early anecdotal data being reported to us by physicians using NanoKnife is that a large portion of these patients may benefit from the NanoKnife system. Given this positive early indication, we believe focusing our efforts on getting a specific claim for the use of the NanoKnife to treat pancreatic cancer is the appropriate approach for the technology. Some of the first sets of data obtained from International clinical studies will be presented at upcoming clinical meetings beginning March of this year.

On the clinical front, the NanoPanc European Study, or what you've referenced in the past as ONC 208, has recently completed enrollment. This study evaluates the safety and efficacy of NanoKnife to treat pancreatic cancer in 10 patients. This a single-arm, safety pilot study of patients who have locally advanced unresectable pancreatic cancer, and who have failed chemo therapy. We currently estimate the first results of this trial in about 12 months after the enrollment completion. And when we have the results, we will begin meeting with investigators to develop a study protocol for a multi-country pivotal trial. I would expect that we would begin enrollment of that trial by the end of calendar year 2012.

On the US regulatory front, we continue to work with the FDA on obtaining an IDE for an approval for pancreatic cancer patients. Once we receive approval to initiate that study, we'll inform you. Our intent of course, will be to complete the study and move to a pivotal trial in the US as well. So with those opening comments, I'd like to now turn it over to Joe Gersuk who will discuss our financial results in the second quarter. Joe?

Thank you, Joe, and good afternoon ladies and gentlemen. We've had two consecutive quarters of solid revenue growth as we reach the midpoint of our fiscal year. The drivers of the second quarter's 9% top line growth included the Oncology/Surgery business which achieved its highest rate of growth in five quarters. And the International business which had a an excellent quarter once again. Foreign exchange had a negligible impact on the quarter's growth rate. However we did benefit from an additional selling date this quarter that added approximately 2% to the growth rate.

Our Vascular division delivered its second consecutive 2% growth quarter. This was accomplished in the face of NeverTouch recall headwinds which we estimate reduced sales by approximately $500,000 in the quarter, and continued pricing pressure. Pricing pressure in our Vascular division is not new of course, as it has persisted more than year. In the second quarter ASDs declined 5% year-over-year. The price erosion in the quarter was fairly broad based across most Vascular product categories. While reported sales growth is modest in dollar terms, increased unit volumes contributed 8% to Vascular division growth. This was lead by 12% unit sales growth in NeverTouch procedure kits, despite the recall, and 26% unit sales growth in Smart Ports. We are benefiting from excellent market response to recently introduced products in these product categories. Specifically the 1470 laser and the 90 centimeter NeverTouch disposable kit are driving our success in the [vainoplation] market, while the low-profile and mini ports are fueling Smart Port sales.

The three part recall that Joe discussed had a significant financial impact on the quarterly results with $1.5 million in cost associated with recalling, reworking, and scrapping products. It is important to note that all the recalls are voluntary and we have received no reports of patient harm associated with use or the recall of products.

Turning to the Oncology/Surgery business, we achieved 25% sales growth in the quarter with NanoKnife sales more than doubling from a year ago to $3.2 million. Eight additional sites entered the commercial program in the quarter including generative purchases in Russia and Poland. International sales were particularly strong this quarter, and accounted for half of total NanoKnife sales reported. As we mentioned on our first quarter conference call, we are no longer reporting the exact number of patients treated with NanoKnife as our user base has matured to the point where procedures may be done without our knowledge or involvement. Our view is that the best way to measure or progress with NanoKnife is the revenue generation and the clinical milestones we achieve. Finally, we sold $9.1 million in LC Beads in the US in the quarter and this will be our last full quarter of distributing that product.

From a geographic perspective, 85% of second quarter sales were in the US, and 15% or $8.4 million came from international markets. International sales grew 27% from the prior year on a reported basis and 26% on a constant currency basis. This was another very strong quarter from our International group as a result of strong NanoKnife sales and the conversion to direct sales in the Netherlands following the transfer of the business from our long time local distributor.

Continuing down the income statement. Gross profit totaled $33.2 million or 57.2% of sales in the quarter with the cost of the recalls reducing the margin by 2.6 percentage points. We continue to make progress with the material cost reduction program and actions to achieve manufacturing utilization to mitigate continuing pricing pressure in the Vascular business. As mention earlier, Vascular ASDs declined 5%, while ASDs for the Company as a whole declined 3% in the quarter. Operating expenses total $29.3 million in the second quarter, as we incurred $1.4 million in restructuring and other items this quarter, of which $600,000 is associated with the transfer of laser manufacturing from our UK facility to our Queensbury, New York manufacturing center. $600,000 is for costs to the CEO and executive transitions and $200,000 is due to an adjustment to projected earn-out on the transaction with our former distributor in the Netherlands. This quarter's increase in sales and marketing costs is primarily attributable to the plant expansion of our International business including a direct sales group in the Netherlands and higher commissions in the US sales group.

Operating expenses for the NanoKnife program amounted to $3.7 million in the quarter, with the increase of $800,000 from one year ago primarily due to the ramp up of clinical and regulatory efforts associated with international liver and pancreas trials. The net effect of NanoKnife program was a loss of $0.03 per share in the quarter, compared with a $0.04 loss per share a year ago. The tax rate was 35% in the quarter, compared with 36% in the prior year period. The $0.09 in reported earnings per share increases to $0.13 if we exclude the restructuring and other items, and increases to $0.16 if we exclude the recall costs. The recall cost are real of course, but this gives you an idea of the true operating performance of business absent the special item.

Turning to the other financial statement. Cash flow from operations was $2.7 million in the second quarter, and $5.7 million in the first half, compared with $11.6 million in the first half a year ago. This year's lower level cash flow from operations mainly reflects some extended credit terms and increased inventory levels during the second quarter in anticipation of LC Bead distribution contract expiring on December 31. Consequently this use of cash in the second quarter will become a source of cash in the third quarter as we will return all unsold inventory to the supplier in January for full credit and collect some of the extended receivables.

We spent $2.1 million under the stock re-purchase program, purchasing 142,000 shares of our stock. And we ended the second quarter with $136 million in cash and liquid investments, an increase of nearly $5 million since the fiscal year began. Our revised guidance reflects the impact of the recalls on our second and third quarter operating results, the continuing cost of transferring laser manufacturing from the UK to Queensbury as we recently extended the data for closing the UK facility, and the narrowing of guidance ranges as we forecast second half performance.

From a earnings per share perspective, the revised guidance is only $0.02 lower in the third quarter and is unchanged in the fourth quarter. You'll also notice in the release, the pro forma sales growth rates for the third and fourth quarters which excludes LC Bead sales from all periods. The fairly high expectations in the fourth quarter reflect the strength of our International business, continued strong growth in NanoKnife and EVLT sales, and the comparison to a weak fourth quarter last fiscal year. Finally, we plan to report third quarter financial results on April the 5 after the market closes. And now I'll turn the call back to Joe.

Thank you, Joe. So before we open the call for questions, let me provide a brief update on our corporate development efforts. Our intent remains to put our strong cash balance to work in pursuit of licensing and acquisition opportunities that can benefit from our strong oncology and vascular sales organizations. We've been doing a lot of work in this area, and believe we can put a good part of the balance sheet to work within the next six months. In addition to the tuck and targets that we're pursuing, we've also been considering larger transactions which have the ability of being immediately accretive to our top and bottom line. So we've been looking at a lot of stuff. Meanwhile, we did use the balance sheet to implement as Joe said our share re-purchase program during the quarter.

In closing, we feel pretty good with the solid top line performance in the quarter, and are on our way of becoming a growth company again. Our Oncology/Surgery and International businesses remain very strong. We're again growing our core Vascular business. Our ablation business is strong, and despite the short-term delivery challenges. On an apples to apples basis, our fourth quarter revenue growth should be quite solid as we have affirmed of the original fourth quarter guidance. Our investments in quality systems will strengthen our infrastructure so we don't have these type of issues again, and will also serve as an important competitive advantage as we continue to improve the efficiency our operations. We're looking forward to what we believe to be also very good new data and 2012 for NanoKnife as we've mentioned in a variety of treatment applications. Lastly, we have a good operating structure and a team that I believe can take this Company to the next level. With that, I'll ask the operator to open it up for questions.

Thank you, ladies and gentlemen.

(Operator Instructions)

Jayson Bedford, Raymond James.

Good afternoon, thanks for taking the question and nice quarter. Just a few quick questions here. In terms of the impact of the recall on your third quarter revenue guidance, what is that impact?

Overall, the reduction from the last quarter is $2 million to $2.5 million is the range, and the vast majority of that would be the impact of the recall of the EVLT product line.

Okay. And then in terms of VenaCure systems, I may have missed this, but double digit growth in VenaCure system, is that box sales or does that include kits as well?

That was just the kits. The boxes themselves grew at a substantially higher rate than the kits did. Although the revenue is up from the sale of generators is much less than the sale of the disposable.

Right. Just from a growth standpoint, Joe, kits double digit, boxes -- or sorry boxes double digit, kits single digit; is that fair?

No, it was double digit in kit sales and then dramatic double digits in the laser.

Okay. Sorry for the confusion. And then last one for me, I'll jump back in queue. In terms of the comprehensive quality review, is it complete? Do you anticipate anymore issues here?

I would have told you last quarter, no. Aside from the fact that we have a lot of improvements going on. So I don't want to make any predictions. I think if you look over the last couple of years, the Company has had some surprises on product delivery, and you know we wanted to upgrade this area. We have an excellent executive in place today and a lot of efforts going on, and Jason, it's my intent to turn something that's -- I won't call it necessarily a weakness, because the Company does a great job delivering quality product, but we shouldn't have these surprises to our investors. And so I am making sure that we're making the investments that turn this into a great strength. We had a great quarter, and it takes winds out of our sales at the end of the quarter when we're dealing with this, and I have to tell you that we're starting off a little bit slow because of this issue, and it's not something I'm excited about, and I'm going to fix, because my team deserves better. Our sales forces globally are doing great. Our customers like our products, and our team is progressing on multiple fronts. So I'm doing everything in my power with a new executive and a new team in place to make sure that this doesn't happen to us again.

Okay, thank you.

Thomas Kouchoukos, Stifel Nicolaus.

Hi, good afternoon guys. Nice quarter.

Hi, Tom.

Quick question on the R&D line. You talked about more focus on the pancreatic cancer. As I look at the expenses this quarter, they came in pretty well below what we were looking for on percent of sales basis. Should we think that if there's more focus on just one program going forward that we can taper those expenses back in our models going forward?

Yes. Joe was just about to speak, I interrupted him. So I'll say my piece and ask him what he was going to say. I don't think, I think focusing ourselves is a good thing. I do think that, I don't see us remaining at the levels of investment in the future. I don't think it's as necessary. We are currently, for some of the trials that we are doing, continuing to follow patients and have that ongoing cost. But in order to really deliver a high impact, we're looking to invest where we think that the greatest singular impact to focus our energy. So I don't see -- I don't want to forecast our R&D spend, but I don't see a desire to drive it up to the historic levels. Joe, do you have any other comments?

Yes, I would just echo that and say that we did indicate the expected level of $21 million of R&D spending here, and that as a percentage of revenue is actually down slightly from the 10.6% that we had previously talked about, you'll recall, Tom. Part of our quality call to action program is that we will be redirecting some of the, of the money and the resources that had been working on some R&D activities towards the quality program and that will move some costs off the R&D line, but into the quality line which impacts the gross margin and so all of that is as reflected in this guidance. So just add that as additional color to what Joe said.

Okay, thanks. If I can get one follow-up. Just on your sales force, Joe, I know in recent analysts presentations or investor presentations you talked about stabilizing the sales force and having things kind of where you want it to be now, and not as much turn over. Can you just update us on where you are size wise for each of your sales forces?

Do we have that at our fingertips? You want to go through that Joe?

Yes, so we have about 75 -- in the US we're talking about first -- we have about 75 reps in the Vascular sales force, direct sales reps plus all the clinicals and the support functions that go with that. And then approximately 25 or so in the Oncology sales force in the US with the additional people that support them. And then the direct sales people in the UK, Netherlands, Germany, and France on the International side as well.

Okay. And I know your SG&A went up because your investing in that OUS, do you expect to continue growing that or do you think you're at a place where you need to be now?

No, we're going to continue to invest. As they continue to deliver 25% growth rates, they will need more salespeople and more infrastructure, but at the end of the day, we'll still have higher operating margins out of that International business. So it's great to fuel it with the cost they need to continue to grow and they tend to be able to grow at a faster rate than we need to add cost, so it's a real successful operation there that Stephen McGill is running.

They have a lot of gas in their tank.

Okay, great. Thanks so much for taking my questions.

No problem. Thank you.

Jason Mills, Canaccord Genuity.

Hi, guys. Thanks for taking the question. Congrats on the good quarter. Can you hear me okay?

Yes, we can hear you great. Thank you.

Joe, with respect on the Oncology business, clearly outside the US things are going exceedingly well. Could you talk about your US Oncology business excluding the LC Beads which we all know has gone away now? How did that perform and what are your expectations for the Oncology business in the US both with the NanoKnife contribution here over the near-term and also outside of that in the core Oncology business?

That's a great question, and I appreciate the question Jason. I'll let Joe give some specifics, but before I do the winding down of this LC Bead agreement has been a great distraction, and it has consumed a lot of the energy of the sales force near the end of this deal. And as you see in International, who does not have LC Bead, the team has done a very good job of growing the business with our legacy portfolio. We've been able to preserve the core of the business. There are a few reps that did go with the distribution deal. But we have the excellent management team. We have all of our major senior reps and the core of the sales force is very well intact. Rick Stark who is our SVP who runs that business, now has his challenge of redirecting his team towards driving the legacy products, which I know he'll do. I spoke with him today, and he feels, as we have guidance out there, he feels very good about where he is, and I think he'll replicate some of the success that Stephen's having in the International here in the US.

We are also from a business development standpoint still focused on identifying opportunities, or closing opportunities, let's say now, that help reinforce that channel and I know that channel knows that we are busy. So I think it's a transition time for them in the US, and if I didn't have a leader like Rick and our regional managers who have been with us for so long in place with their experience and their knowledge I'd be a little more worried, but I think they'll make the transition fine. So I think the actual numbers are irrelevant at this point. The team's in place, they delivered, and they're going to just continue to deliver for us.

Fantastic. Joe Gersuk, did you have any details to add to that?

No, Joe said it better than I could.

Okay. I thought maybe you were going to give details. That's fine. That's very helpful. So Joe, it's gratifying to hear you identify some of these one time charges that have popped up within the Company from time to time, and identifying that you'd like to not have that happen going forward. I think that's going to be very important to investors. So as a follow-on to that and what you're doing with quality control, the investments you're making now, Joe Gersuk, I'm wondering if you can give us a sense for what you think that could mean to your gross margin line over the medium to longer term, understanding what's happening near term very well? I'm curious to see, in light of ongoing price pressure, how much this can offset it and in fact augment your gross margins as you move into next year and just thinking about it from a longer term perspective?

So the commitment to the quality program is steadfast, and we will spend whatever it takes to get to where we need to be. As an order of magnitude we're talking about an amount of money that would impact the gross margin by about 1 percentage point a quarter and that will persist for several quarters. Certainly through the balance of this fiscal year. But as we said earlier, we think we'll spend that much, that dollar amount less in R&D and not be any worse for the wear for that. So I think the bigger dynamic on our gross margins is going to be the absence of LC Beads, which as you know, was a significantly lower gross margin product than our company average and even lower still than the average of our Oncology business. So that will -- that is what is driving up the gross margin expectations we have for the second half of the fiscal year, and that should continue into next year.

So just directionally, you would expect gross margins to continue to move up over the next couple of years, it sounds like at this point you're not ready to give quantification to that, but just directionally? Is that fair?

Yes, and I would just say that the impact of the quality program is about a 1 point reduction in what gross margins would have otherwise been.

Right, that's helpful. Thanks, guys. I'll get back in queue. Thanks.

Thank you.

Matt Hewitt, Craig-Hallum Capital Group.

Good afternoon, gentleman. Congratulations on the good quarter. I'd like to follow up on your comments regarding the M&A pipeline. I think historically the pipeline has been described or your wishes or expectations were to be three of four $40 million-ish acquisitions. It sounds like now you're looking maybe for a few smaller tuck-ins as well as potentially a larger acquisition. Did I hear that correctly? And has there been a slight change given maybe some of the opportunities that you're seeing?

Well, yes and no. First of all, I wanted to define it a little bit better because there's been this perception that we would do -- I think what I was initially trying to say is the acquisitions that we are looking at given the strength of our sales forces, my top priority is to look into small tuck-in acquisitions that would be completely synergistic with the existing organization. I had mentioned in the past also that I wouldn't do a big type of deal that would take on a lot of risk, and in that context, the -- if you look at some of the deals that have been consummated by competitors or in the marketplace, there are deals where for $10 million, $20 million, $30 million of revenue we're seeing 6, 8, 10 times multiples. And what I wouldn't want to do is one big bet the farm type of deal on one technology.

But we have looked at the concepts of business combinations or larger type deals that could be accretive and whatnot, and I just wanted to make sure that as we are -- in our cash balance, there was a lot of opportunities that have been coming our way and more each day, and I just want to make the mention that we're not just looking at smaller L&A deals. I don't think I can put -- if you've seen some of the competitors and some of the premiums for a one for smaller revenue side, it's not the type of things that I would do, but if there was an accretive deal, and it was of a larger size, I would consider it. I hope that was a little clearer.

No that is. That's very helpful. I just wanted to make sure I understood what you were intimating earlier. So, thank you.

I was intimating that I have a cash balance and I wouldn't put the cash balance on one single product and bet the farm hoping that sales would go up. But if there was an entity that had size and it was immediately accretive, I would do it. So I think given some of the interpretations of my comments before, I just wanted it to be clear.

Okay, thank you. Maybe a little bit different direction. I think last quarter we saw the improvement on the Vascular business, the 2% growth in Q1. I think there was maybe some, I don't want to say expectation, but it sounded like maybe some stability in the ASPs this quarter. Sounds like they were down 5%. Maybe you could update us on where the trials fit, whether or not you're seeing some stability even if it is just 5% down, or we will we continue to see this drag as the year plays out and maybe even next year?

Again, Matt, it's not 5% quarter to quarter. It's just a continuation of the same pressure we felt last quarter. So there's nothing different between last quarter and this quarter, it's just that is still annualizing. And I don't know, Joe, if you want to, if you wanted to define it a little bit better?

Yes, so year over year is what we were talking about as a 5%. However, we have seen it stabilize at about the same level for the last three quarters say. So therefore next quarter we might think that we won't have that kind of a significant number. If it's the fourth quarter of stability than the year over year number would have to be stable as well. So maybe there's a light at the end here on the price erosion.

Does that makes sense Matt?

No, it does. Thank you.

It's been consistent over the last three quarters. I think there was a point in time where a lot of stuff hit. We took the hit and now as that annualizes, now as that continues on an annual basis, year over year you see that impact. But once it annualizes, I don't think we are predicting or believe that we're going to be seeing an additional 5% continuous if that makes sense?

It does. Has there been any movement on the settlements in those two cases, or I apologize if I've missed it?

I think there have been a Total Vein Solutions has also settled with Covidien. That might be news that's within the last month or two. And biolitec had settled with them probably three or four, five months ago. So perhaps the newer event would have been Total Vein Solutions' settlement with Covidien. And we do see some signs of better pricing, a better pricing environment in the EVLT market which is probably traceable to those settlements.

That's great news. All right, thank you. I'll jump back in the queue again. Congratulations on the quarter.

Thanks, Matt.

Charles Croson, Sidoti & Company.

Hi, guys. Great quarter. Can you hear me okay?

Yes.

Okay, great. First question, I just wanted to prod a little bit more on that International push. Can you give a little bit of sense on are you going to try to get into more countries in Europe, or are you kind of happy with where you're at geographically and then just trying to build up that sales force there?

Our International team has a five year plan, and we've identified, as Joe had said, a continuing investment and that investment includes all the above. We're building the back office infrastructure to handle the business. We're building the, the front office infrastructure to handle the clinical programs, the marketing programs, the direct selling efforts. Our team has their sights on new markets to go direct in and has their sights on other opportunities. So it's what's -- I'm very pleased with Stephen and his team because they've developed a plan and they're delivering to a plan and it's not a blip. So as Joe said, it's typically something that's been delivering the revenue before the next set of investment and they're relatively self-funding. So when we look at Asia, when we look at Europe, when we look at Latin America, when look at Canada, all throughout the world this very well run team has a plan.

They've executed well recently with the acquisition of our EVLT distributor in the Netherlands, so that was at the beginning of this calendar year. It's met all of our expectations, so we're now direct in four countries, and at some point, you would think that we would go direct in some other markets whether it's in Europe or in Asia that would take place some point in the future as well given the strength of the basic model. And the last comment I'd make is I'm happy to report that we just hired a finance director for our International business just starting this week, and he'll be based in our international headquarters in the Netherlands. So all part of international growth strategy that the team is delivering on.

Okay, that's very helpful. Just a couple more quick ones here. On the physician data that you guys are expecting to roll out here in the new year, do you kind of have a sense of what that's going to be like or is that pretty much kept hush until it comes out?

These are individual clinicians submitting papers to their society to have peer review podium presentations and their data. Our teams are pretty close to them, and so anecdotally I think we have indication, but it's their data. It's their work. And we look forward to them presenting it.

Okay. That's fair. And then just on the RF side. I remember you guys mentioning that it's fairly strong in Asia. Can you highlight what the underlying trend there as to why that's doing so well there?

Just great execution by the team. Simple as that. Relatively mature business, but also the RF business is continuing to grow in adoption internationally and the team is just executing well.

Okay. I guess maybe I need to rephrase that. As far as outside NanoKnife sales, is the products, the other RF products is it somewhat similar growth rate again as the US or is that doing fairly well too?

Do we talk about International?

Yes, we have don't talk real specifically. The growth rates of RF in the International business are greater than they are in the US. Our market share is lower in the US, so therefore there are bigger growth opportunities internationally. And then the international markets in general are growing very rapidly, and you know as in China there's an enormous in healthcare spending in other Asia markets so we think we should be able to increase market share and continue to have healthy international RF revenue growth in the future.

Robert Moses with RGM Capital.

Good afternoon. Just a question relative to the NanoKnife more on qualitative milestones. I think you mentioned, Joe, IDE for the pancreas, can you just refresh my memory on the timing if you discussed that already?

Robert, the timing is when ultimately when we satisfy the FDA with their request. We have an ongoing dialog back and forth getting ourselves prepared for that, and I wish I had a time that would say when we've satisfied the FDA. But it's a very good dialog, and we are providing them information as they're requesting and working on additional information. I would have liked to have it done by now, but I think it's going to take a few more months of dialog. If I give you a date and don't hit it, I don't want to let you down. But I can tell you that the team is actively working with the FDA to respond to questions that they have regarding the IDE. They're very good questions and we look forward to answering them.

Could you talk then about the opportunity in prostate and liver, I know that it sounds like from a clinical perspective your focus would be on pancreas, but I believe we had some studies. We also have an IDE relative to the prostate in the US. Just trying to understand how you focus your energy on the clinical side on pancreas, yet still keep the opportunity set for prostate and liver down the road?

Right, that's a great question. On the liver side, as we mentioned, last quarter we completed enrollment of a study called ONC 205, where we had 26 patients where IRE was a primary therapy. Now we're currently continuing to spend on that trial as those 26 patients need to be followed up. It is a survival. There is survival component to it and we are incurring those costs. But I think when it comes to liver given how well-known the organ is from an ablation standpoint and how that this initial study was all we were going to need in order for people to understand how NanoKnife works in the liver. So from a future generation of data, the Company won't be investing in a new liver trial.

On the prostate side, NanoKnife originated in the prostate pre-clinical work and we do have an IDE, but we've decided that we are not going to continue going forward with that prostate IDE. Not because we don't think it's an opportunity, but we think we need to focus our efforts on a greater opportunity of unmet clinical need in the pancreas. And there's many clinicians around the world who continue their prostate work. I know there's some activities in Europe where we'll probably have some more organized prostate post-marketing studies. But if we're going to accomplish something special, we need to focus our efforts and we've identified as pancreas being the first effort to be focused on. Now, it doesn't preclude the fact that we would have a serial effect, that if we get the pancreas work to where we'd like to see it, and have the momentum and are getting ourselves toward the pivotal that we wouldn't revisit initiating the prostate serially, but doing it all in parallel, Robert, is just impractical.

No, I agree. Just last question, relates to the clinician presentations, I guess Dr. Martin and others. Are they largely going to be evidence based on a specific either pancreas or others, or do you have a sense of the, not the results themselves, but are they pancreas largely or they're also liver and prostate?

The presentations are pretty interesting. Some are revolving around where IRE is used in multiple organs where ablation wouldn't be used. So showing the differentiable clinical impact for those patients. But yes, some are, they are multiple organ presentations. I think some of the most exciting ones from a pure listeners perspective is the first set of progress from a survival standpoint on pancreas in these single experiences. And it kind of gives an indication as if we get our trials going in the right way, we could prove out. But it is -- the technology in general has been in the marketplace, I think historically we've mentioned the number of procedure that were performed by organ, and I think these investigators are now with the time it's taken to get some of their experiences, create the publication, submit it to their societies, it seems that a lot of stuff throughout 2012 is going to be coming out. So we're pretty interested for that to occur.

Great, thank you.

Thank you, Robert.

Robert Goldman, CL King.

Hi, thank you, good afternoon. A couple details on NanoKnife and then one on the Beads if I can. But on NanoKnife, could you tell us, Joe, of the number of generators placed, what percent were placed outside the US?

Joe, do you have that?

Yes, four of them were.

Okay. And also of your R&D spend in 2012 that you mentioned in the press release of, was it $21 million, how much of that is NanoKnife?

On the order of 40% or so give or take a bit would be a NanoKnife related.

Okay. And then finally on Nano, Joe, I was a little bit confused on what you were talking about relative to not giving the procedural data in the quarter. You did mention last quarter that you wouldn't, but in this press release you do mention that 158 patients were treated in the quarter. Are you making a distinction between patients and procedures? I'm a bit confused on that.

No, we have some firmer number in the quarter than we might have on the cumulative numbers. And even the 158 could be off somewhat, but we felt like we had good enough handle on that number to put that one in the release.

Okay. And then one detail on LC Bead, and I think it was asked previously, but I wasn't sure I caught the answer. But in previously quarters you did give out the LC Bead dollar sales in the quarter versus the prior year. Could you do that for this quarter?

Yes, so the LC Bead in this quarter were $9.1 million and the prior year's comparable number was $6.5 million. Okay, Joe, thank you very much.

Jim Quinton, Barrett and Company.

This question is for Joe. Joe, I'm not in the office, and I tuned in a little late, could you give me the total revenue numbers for the quarter?

Sure. Total revenue was $58.1 million.

And the earnings per share?

The earnings per share was $0.09.

$0.09, and that's versus $0.13, right?

$0.13 a year ago, yes.

Okay. Now the $0.09, that's ex the $0.16 for the NanoKnife, correct?

No, if you were to add back the effects of the restructuring items that we had talked about, that would take it up to $0.13 and then if you were to exclude the cost impact of the recalls that would take it up to $0.16.

Okay. Now the recall was in how many, 3 different items right?

Yes. So NeverTouch, and the Morpheus PICC, and the DuraMax.

Could you repeat that again for me slower?

Sure. NeverTouch, Morpheus PICC, and DuraMax.

Okay. And those items are starting to ship to show up in the Q4, is that correct?

Yes, they're back shipping again now.

So this recall is what's causing a little lightness in Q3, is that it?

Yes, somewhat.

Okay. Thanks, Joe.

Thanks, Jim. Take care.

Larry Haimovitch, HMTC.

Good afternoon, gentlemen.

Hi, how you doing Larry?

Great, how are you Joe?

Great.

See you next week. I'm looking at the press release, and seeing for Q4 pro forma revenue guidance of 10% to 15%. Obviously, that's without the Bead. What's inherit in that? Is that a significant jump in NanoKnife sales? Because I know last year's fourth quarter was on the soft side, but I'm just trying to -- that's a big jump in your sales, and I'm just trying to understand what ingredients will be contributing to that.

Sure. So four ingredients and we talked all about them here. So the first is the International business which continues to roll ahead doing strong double digit sale growth. NanoKnife as well we've done two straight quarters, 100% growth year over year. I'm not necessarily forecasting in 100% in the third and fourth quarters, but still very strong growth there. Thirdly is the EVLT business continues to do very well. 12% unit volume last quarter despite the recall. And the fourth item is the one you mentioned is the comps for the last year, as you recall, Q4 last year was extremely soft and revenue was down actually 6% year over year. So it's a much easier comparison due to the softness of last year's fourth quarter.

Okay. And I can probably do the math, but you probably do it faster than me, Joe Gersuk, the average cost per share on the buyback?

Was $14.80.

Okay. Do you have a particular price in mind where you'd probably step out of the market or a price in mind where you want to be more aggressive, or was that as aggressive you could have been considering the rules are pretty restrictive on buybacks?

So the plan was approved during the course of the quarter so there wasn't that much time to buy shares. And our view on implementing the program is to do it more a function of our free cash flow than it is to any specific price per share in the purchasing.

Have you bought any shares in December?

No, we're in blackout.

Of course, yes. So you're window really is what, about a month or six weeks every quarter?

Yes, it's not long. And so it doesn't open up until after we've reported results here and then it closes before we end our quarter, so --.

When does the blackout start, Joe, is it 30 days ahead of the quarter ending or 15 days?

No, it's about 15 days.

Okay. And so the buyback in that you reported, how many weeks of buyback was that?

It was probably a month or so.

Month or so.

Three or four weeks or so, something like that.

Okay, great. Thanks, guys.

Thank you very much, Larry.

Jayson Bedford, Raymond James.

Thanks. Just one quick question. Can you maybe approximate the quarterly revenue impact from the transfer of the Netherlands business, how much does that add in the quarter?

It's something less than $0.5 million a quarter. In terms of what, picking up the margin on the distributors, what would have been distributor sales?

Yes.

The end to end user, something on that level. Less than $0.5 million a quarter.

Okay, thanks.

Is that it?

Thank you. There are no further questions at this time. I will turn it back over to management for any closing remarks.

Great. First of all, thank you for all the great questions and also thanks -- I thank all the employees at AngioDynamics for a lot of great work this quarter. We're pleased with the revenue momentum. We're pleased with the overall sales and marketing efforts. We have a desire to build a large strong dynamic medical device company. We have a lot of exciting opportunities we're working on while we improve the day-to-day blocking and tackling. And again I'm very proud of my team for not only delivering a good sales number, but also being able to stare at issues that if they need to be resolved, we go ahead and resolve them. So our quality teams and our people on the floor are doing an excellent job, and I look forward to continuing to deliver in the future and making sure that, that we have our strong systems to lean on. I'm being flagged here that there's one other person in queue that would want to ask a question, and since we're not too far over time, operator if you wish to allow that question, we'd be happy to take it.

Chris Sessing, AMI Asset Management.

Sorry about that. They jumped to final conclusions a little too fast for me.

That's okay.

Question, so on the IR machines sold, I didn't catch it if you gave it in the quarter. Did you give that exact number?

So on what machines you said, the --

NanoKnife.

Right. So there were 4, the question was about International sales, and 4 of them were sold internationally.

I heard that. And how about in the US?

Pardon me?

How about US?

Pardon me?

And then how about in US?

There are 4 in the US as well. So total of 8 additional sites entered the program.

Okay. With 158 patients, I'm not quite getting to the numbers. I'm just curious if, if there's something else in there?

A new site wouldn't necessarily be doing patients in the quarter or they may only be starting. So there's a period of delivering the machine, training physicians on it. So the actual number that would be done in a -- of the new sites of doing procedures would be relatively small in number.

Right. So it's mostly based on a cumulative number going into last quarter?

Correct. It would be the installed base if you will, and we had at the end of the quarter, I think the more relevant number would be 47 commercial sites is the total number of commercial sites that were active at the end of the second quarter.

So 47, okay. I guess we can take it offline. I'm still not -- I'm still coming up -- based on those numbers, I'm still coming up low. You guys did $3.2 million. I'm still coming up with something on a lower figure, but maybe the ASPs have changed and I don't have that updated. So we can take that offline.

Happy to talk with you about it offline, Chris.

The other question is, are you guys still doing the lease program for those?

No, we're not.

Okay, they're all straight sales.

We are doing some loaner programs, but we've shortened those and now they are no longer than six months. So there has to be the commitment on the part of the hospital to train people on the machine, and then they'll sign a short-term loan arrangement at the end of the six months. Either they give us a purchase order or they return the machine is the way we're doing business now.

So it's more of an evaluation?

Yes.

Okay. And then last question on the pancreas trial, that is currently in Europe correct?

Yes.

And you think you need to run a similar trial in the US? Did I hear that correctly?

Yes.

So the European data won't translate over to the FDA here?

Our hope would be that, with the quality that we've run that trial, we will most certainly make that data available to the FDA whether or not they chose to use it as powering the submission is really up to the FDA. Our intent is that the protocols would be very similar, hence, we can pool and power the data, but until we get the US trial approved and running, we don't know how different the protocols will be. If that makes sense.

Okay, got you. So something that could possibly be resolved in discussion with the FDA, but you're not planning on it?

We're hoping, but it's a function of what protocol gets approved and how similar that protocol is to the one that we're currently conducting. And the way we are conducting the trial -- the way we've conducted this trial is it's just a very, very high quality trial that we had originally hoped would be very similar to the IDE submissions, but until the IDE submission is approved, we won't know exactly how similar the endpoints will be and how well they can be pulled together.

Got you.

Is that okay?

Yes.

Chris, let me clarify one thing. I just pulled out the data on the NanoKnife systems. So we had eight customers enter the program of whom five purchased generators in the quarter. The other three would have been the loaner type that we talked about. And then within those five purchases, three of them were in the US, and two of them were in the international markets in Poland and Russia as we indicated in the release. So, five purchases, three loaners, total of eight entered the program in Q2.

Okay. Got you. All right. Thanks a lot for squeezing me in. I appreciate it.

No problem, Chris. So operator, with that, just thank everyone for being on the call, and look forward to giving an update next quarter. Thanks everybody.

Ladies and gentlemen, this does conclude the conference call. You may now disconnect, and thank you for your participation.