AngioDynamics Inc (ANGO) 2014 Q4 法說會逐字稿

Good day and welcome to the AngioDynamics fiscal 2014 fourth-quarter and full-year financial results conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Doug Sherk. Please go ahead, sir.

Thank you, operator. Welcome, everyone, and thank you for joining us for AngioDynamics conference call this afternoon to review the financial results of the fiscal 2014 fourth-quarter and full-year results which ended on May 31, 2014. The news release that crossed the wire this afternoon is available on the Company's website at www.AngioDynamics.com. A replay of this call will be archived on the Company's website.

Before we get started, during the course of this conference call the Company will make projections and forward-looking statements regarding future events including statements about revenue and earnings for the fiscal 2015 first quarter ending August 31, 2014, and the full year ending May 31, 2015. 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 the actual results or events to differ materially from those described in the forward-looking statements.

Today Joe DeVivo, AngioDynamics' CEO, will be using a slide presentation to accompany his opening remarks. To access the presentation please go to the AngioDynamics website, click on the investor link, then click on the events and presentations link, and then click on the link, listen to the webcast. Again, that's if you go to the website www.AngioDynamics.com, click on the investor link, click on the events and presentation link, and then click on the link, listen to the webcast. You will access the slides that Joe will be using during his remarks.

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 requeue to ask additional questions. We appreciate everyone's cooperation with this procedure.

With that, I'd like to turn the call over to Joe DeVivo, Chief Executive Officer.

Thank you, Doug. Welcome, ladies and gentlemen, to the fourth quarter and fiscal year-end 2014 conference call. With me is Mark Frost, our Chief Financial Officer, who will review the financials in a moment.

Fiscal year 2014 was an extremely successful year in my view for AngioDynamics. After clearly communicating our vision for our business and laying out how we will grow through the delivery of our growth drivers, for us 2014 needed to be the year that we put it all together, to execute to plan, and to make revenue again -- revenue growth again part of the AngioDynamics story. Our goal was to exit the year a mid-single-digit growth company and I believe we've delivered on that key objective.

Looking at our underlying sales growth, ex our supply agreement, we grew 7% ADS worldwide and finished the year at 4% with overall growth. Our team has always believed that restoring our Company's revenue momentum would be the most challenging piece of our plan. And so far, we are making progress. As you can see on this slide we have started to see revenue growth return to the business. What's even more impressive for the fourth-quarter performance is that we followed up a strong third quarter with a strong fourth quarter. It's an indication that we can deliver quality sales growth over quarter.

Each of our three franchises grew. The vascular access business grew 5% year-over-year this quarter, demonstrating accelerating growth after a negative 5% first quarter, negative 4% second-quarter, a 3% third-quarter, and a 5% fourth-quarter in growth rates respectively. That's a 10-point swing from the beginning of the year. Personally I believe in the next two to three quarters, the vascular access business may be the fastest growing business in our Company. Today we have BioFlo in PICCs, ports, and dialysis across the entire franchise. And several weeks ago we launched Celerity, and the momentum is building.

As you all read on Monday, we delivered on one of our core commitments that we would begin to win key GPO agreements with the novelty and breadth of our vascular access portfolio. GPO and IDN wins are essential to our vascular access strategy. I've spoken to you many times about the importance for the future our Company to position ourselves in this changing landscape of healthcare.

First for contracted products it is essential that there is a complete product offering as customers focus their efforts on few key partners in any segment. Second, the key technology you are selling must have differentiation that translates into clinical and economic value. You must prove this differentiation as well as prove that their membership, even off contract wants you as a vendor and will move the business off contract.

For us to succeed in a non-contracted GPO the hospital would have to buy by exception off contract. On many occasions a non-contracted win gets reversed out months later when the contracted vendor pressures the GPO or IDN and the hospital with compliance. It's a slippery slope to be off contract and especially if you don't have a compelling technology. If you can succeed and grow your business despite this, it helps build credibility in the vendor to become more valuable contracting partner.

So for example in this slide it shows the actual result of one of the GPOs we are working with where our month-to-month growth rate off contract and their membership resulted in a 15% growth in BioFlo sales, month over month. This was key evidence improving our acceptance and to my second point regarding differentiation when you have compelling clinical evidence as well as great service, both of which that we provide, our overall value as a vendor increases. As you can see now, we can reference multiple experiences that our customers are having, all independently realizing very similar results.

We are very pleased to see these similar experiences with BioFlo independently occurring over and over again at different institutions.

So we are very pleased to have been awarded the new technology award for innovation. Starting August 1, their membership who is currently contracted with Bard and MedComp will now have contract access to BioFlo. AngioDynamics as a company has never been on contract with Novation for ports and PICCs, a buying group which covers almost 50% of the hospitals in the United States. When a contract begins, an AngioDynamics sales representative can market an on contract device -- not only on contract, but one which passed a very prestigious new technology process, validating BioFlo is improving value for its members and its patients. We are hoping this is the first of many opportunities to increase on-contract access for BioFlo to other IDNs and GPOs.

So as BioFlo becomes more valuable in the marketplace, its adoption and acceleration within the Company increases as well. We now have over 46% of our PICC business with BioFlo technology and the early ramp of our port business has about 10% penetrated with BioFlo. 619 accounts are now actively using BioFlo every day in the United States, and we are in evaluations with an additional 135 accounts today.

Now for an update on Celerity, we received FDA clearance for Celerity in June, which is a great win for the team, overcoming some pretty well chronicled earlier setbacks. We've completed all the education and launch activities, and a few weeks ago we released the product for sale to customers. We believe it will take a quarter or two to measure the impact of the launch, but are pleasantly surprised with the reception thus far. We are learning many hospitals still confirm the use of tip-located PICCs with an x-ray, not relying on tip location alone. So we will be quite busy with the segment of the market in advance of our no chest X-ray claim. Regarding our progress with the specific no chest X-ray claim for Celerity, we are in active dialogue with the FDA and have modified our view on clearance to now come closer to the end of the calendar year. The bar is certainly higher for this clearance and we will continue the excellent work of our clinical and regulatory team to achieve a successful outcome.

I think 2015 will be an even better year for the vascular access business. We have the products we need on top of a great sales, marketing, and clinical team. They are positioned to generate a great year full of new business wins.

So now I'm going to move to our next growth driver. We've highlighted AngioVac in many quarters prior. AngioVac had a remarkable quarter, delivering $3.3 million in worldwide revenues following subsequent quarters of $2.2 million, $2 million, and $1.5 million. We continue to drive procedure volume as well as open new accounts. Of note, the first few procedures were successfully completed in Europe this quarter, most notably in the UK, Germany, Switzerland, and even Turkey. I'm also pleased to announce that just last week our team won clearance for AngioVac in Canada. In the US we now have 236 customers and $9 million in revenues for fiscal 2014. In 2015, we look forward to launching the second-generation AngioVac device in the second half of the year and also launching an AngioVac registry to capture all the good work that's being done.

We also experienced high double-digit-teens growth for our EVLT business and product line for the year which powered our peripheral vascular franchise to 7% growth year on year.

Now moving to our microwave growth driver, microwave also had a terrific year. We placed 88 new systems worldwide and procedure volumes grew 82% year-over-year. Now as expected and as communicated in the past, some of that growth came at the expense of RF cannibalization. However, the net impact is very positive. NanoKnife, while weighted challenging capital sales for the year, did see procedure growth year on year of 31%.

And lastly, our international business really had a rough year. While our procedures were solid, the capital sales for oncology were a challenge. John Soto, our Chief Commercial Officer spent a lot of time with the team. I'm encouraged with his view and plans and we will continue to bolster the team through his strategy and continued emphasis on local acquisitions.

So from a revenue perspective our growth drivers are not only continuing to deliver, I believe they are just starting. We have a long runway of market share gains as well as new market development to continue this trajectory. We've always maintained that our mission as a management team is to attain double-digit top-line growth, regain a 60% gross margin, and deliver operating leverage to the bottom line in each year over the next five years. Over the next several years we will achieve half of the margin increase from improved mix as our growth drivers are margin accretive, and other half from operational excellence. The key tenets of this operational excellence will be the continued implementation of Oracle, gains on our supply chain efficiency, and facility consolidation.

We as a management team are completely committed to delivering on our operating leverage opportunities. We have a clear line of sight on cost savings and with reestablishing our revenue momentum our team's focus clearly on delivering that improved bottom line performance for our investors. It's the logical next step and we will make it happen.

That said, while we are on time with our facility consolidation schedule and have implemented Oracle, we encountered an isolated Oracle issued that affected our gross margins. While we are certainly not the first company to deal with system conversion issues, we identified the problem, fixed it, and have already moved on. But Mark will go into more detail. I would like to turn it over to Mark Frost, our Chief Financial Officer, to review our financial performance. Mark?

Thank you, Joe, and good afternoon, ladies and gentlemen. On the revenue front we continued to drive strong growth with net sales up 4% or a 5% increase without the supply agreement wind-down impact, and a 7% increase on a average daily sales basis as we had one less day in the fourth quarter. This positive top-line performance is similar to our results in the prior quarter and is indicative that our strategy is working.

On the earnings front, while we met our guidance, we came in at the low end of the range primarily due to two factors. Our gross margin expanded 140 basis points over last year's fourth quarter; however, the improvement was less than expected in the second. We again recorded higher US commission expenses as a result of overachievement on US sales without any offsetting international relief. We discovered an Oracle configuration issue related to relating to intercompany inventory eliminations which has caused a revision to our third-quarter fiscal 2014 gross margins. The correction of 80 basis points is immaterial from an accounting perspective; however, it provided a false positive on our third-quarter gross margin results, which led to an inflation of our fourth quarter gross margin expectations. This is the reason for why our results were at the lower end of our adjusted EPS forecast. This issue has no impact on our operations excellence program which I will speak to when I discuss fiscal year 2015 guidance.

I will now to turn to our revenue discussion. Total revenue was up 4% from the prior fiscal year, however excluding the impact of the planned wind-down of our supply agreement net sales increased 5% over fiscal year 2013. The loss of a day contributed 2%, bringing us to 7% mentioned earlier. The sales quarterly trend line has demonstrated progressive improvement from negative 1% in quarter four to 1% growth in quarter one, 3% in quarter two, and 7% for the last two quarters on an ADS basis.

Now looking at product performance, our peripheral vascular business grew 6% to $50.9 million, reflecting a larger contribution from AngioVac of $3.3 million as well as 9% EVLT growth. EVLT performance moderated, reflecting the anniversary of a significant customer competitive conversion as well as lower international results. Our vascular access business continued to improve with 5% growth to $28.3 million versus the prior quarter's 3% increase. All three products -- PICCs, ports, and dialysis -- grew, with ports at 8%. BioFlo technology continues to be the key driver behind both PICCs and port sales increases.

Now, in the oncology surgery business, sales growth flattened to 1% as anticipated, reflecting a difficult US comparable on NanoKnife capital equipment sales. Thermal ablations slowed to 8% growth in the quarter as our international business saw higher RF erosion.

From a geography perspective US revenue increased 6% while the international markets grew 2%. The US growth continues to be encouraging and demonstrates the success of our growth drivers. As we commented on the last call, our international business is still a work in progress but offers strong growth potential and we are in the process of implementing a growth plan and expect to see improved performance in fiscal 2015.

Now continuing down the quarter's income statement, gross profit totaled $47.5 million, or 50.5%, a 140 basis points improvement over the same quarter in the prior year. Our gross [margin] improvement was lower than expected because of the intercompany error and we sold less NanoKnife generators. For the fiscal year 2014 our adjusted gross margin ended at 50.8%, essentially flat but a 30 basis point improvement over fiscal year 2013 if we include the additional quality cuts. This was a disappointment as we had hoped to improve by 75 to 100 basis points within the year. The shortfall was caused by a number of factors which we have discussed throughout the year including rebate admin fees which was about 45% of the delta, negative mix contributing 35%, and then higher royalties from EVLT sales which contributed to be remaining 20%.

Now if we turn to expenses, operating expenses totaled $43.8 million, including $3.1 million of acquisition integration restructuring items of which $1.3 million is associated with the Navilyst acquisition, $1.1 million was related to IP litigation, and $0.5 million was for the operational excellence program. G&A costs increased by $0.6 million versus prior year, reflecting the full turn on of ERP costs, including depreciation and maintenance.

Now sales and marketing expenses increased $1.1 million from prior year, primarily from the need to accrue for overachievement on the US sales side. An important issue in relation to our sales marketing costs which we discussed last quarter was the impact of our geographic revenue mix where we have overachieved on the US front, but underachieved on the international side. The variable compensation components for international is limited, but high on the US side. As a result we do not gain any cost leverage for the international business, but we have negative leverage on the US business. Our 2015 plan is now appropriately hedged for this potential imbalance if it does occur this year.

So our GAAP results were a loss of $0.03 per share versus a loss of $0.02 per share in the fiscal 2013 fourth quarter. During the fourth quarter New York State tax legislation was enacted which reduced the tax rate for New York manufacturers to 0%. As a result, our anticipated future tax benefits no longer have value and we had to write down our tax attributes by $1.2 million, or $0.03 per share which was a non-cash charge. Pro forma adjusted EPS excluding amortization was $0.18 per share, 20% higher than the 15% -- $0.15 per share from the prior year, fiscal 2013 third quarter. The GAAP to non-GAAP reconciliation items are detailed in the earnings tables in the fourth quarter year-end news release issued this afternoon.

EBITDA was $9.9 million, or $0.28 a share, versus $7.9 million, or $0.22 a share, in the prior year's quarter. Adjusted EBITDA was $14.7 million, or $0.41 a share, versus $13.7 million, or $0.39 a share. Again, a detailed reconciliation is provided in our news release.

Now our operating cash flow improved from a negative $0.6 million last quarter to a healthier $10.1 million and free cash flow of $7.3 million. Accounts receivable was higher because of the ERP implementation impact as discussed last quarter as well as from our revenue growth in the quarter. Inventory rose as we built safety inventory associated with our manufacturing consolidation. Our cash balance increased to $17.9 million and we ended the quarter with $142.7 million of debt outstanding.

I'm now going to turn to a discussion of our guidance for fiscal year 2015. Building on our progressive improved quarterly sales performance during fiscal year 2014 we are guided to a full fiscal year range of $362 million to $368 million in revenue, reflecting 3% to 5% growth excluding the impact of the planned wind-down of our supply agreement. We expect our supply agreement revenue to decline by 65%, or $4 million during fiscal year 2015. Overall revenue growth is being driven from our main growth drivers as Joe has already discussed.

Now upsides to our revenue plan include strong performance from existing GPO/IDN contracts, success in pending new contracts, as well as clearance of a no chest X-ray claim and navigation application for the Celerity tip-location product.

On the earnings side we anticipate delivering stronger operating leverage in fiscal year 2015 and are guiding the adjusted earnings per share EPS excluding amortization of $0.64 to $0.70, representing a 10% to 21% increase over fiscal year 2014. We are providing a wider range because of product mix variability and the timing of our cost initiatives.

Now the critical factor enabling our leverage is the operational excellence program. We expect to deliver 100 basis points of gross margin improvement in fiscal year 2015. Key components of the improvements are supply chain savings, both direct and indirect; best practice implementation, including is Kaizen and engineering activities; and then some small manufacturing consolidation efficiencies in the second half. But most of this will be in 2016 when we finished transitioning the product lines. Operational excellence activities comprise two-thirds of the gross margin improvement with the remaining coming from positive sales mix.

Our goal remains to deliver 400 to 500 basis points of gross margin improvement from operational excellence by fiscal year 2018, with 15% coming in fiscal year 2015. Benefits from favorable changes to our product portfolio will bring us to the 60% gross margin goal, as Joe mentioned earlier.

Now on the expense side, we are anticipating a 60 to 80 basis point increase in G&A costs. R&D is expected to remain consistent with fiscal year 2014, at 7% to 8% of revenue. We are building modest leverage into our sales and marketing cost structure which we anticipate will generate a 20 to 40 basis point improvement from fiscal year 2014.

One-off costs are estimated to [decline] significantly by close to 50% with the major items remaining related to operational excellence and IP litigation. Now from a balance sheet and cash flow perspective we are not providing a specific cash range but we do expect to return accounts receivable DSO to more normal levels, as well as we have targeted actions to reduce inventory. But this will be offset to a degree by inventory we need to five through our MedComp deal as well as the timing of the facility consolidation implementation which could swing between the end of fiscal year 2015 and early fiscal year 2016. Adjusted EBITDA is expected to improve based on earnings improvement range.

Now turning to fiscal year 2015 first-quarter guidance, we are guiding to a revenue range of $83 million to $86 million, representing a 4% increase at the top end of the range when excluding the wind-down impact. We believe we are being cautious in our guidance; however, in the past we have experienced some sequential softness in the first fiscal quarter due to be traditional sales ramp towards the end of the fourth quarter. Adjusted EPS excluding amortization is expected to be in the range of $0.08 to $0.12.

With that, I will turn to call back to Joe for his final comments. Joe?

Thank you, Mark. So as I said earlier, I'm very pleased with the performance of the team. I expect each of our businesses to grow throughout 2014, and international to again be a strong contributor. Now as we continue to improve our top line in the face of tougher comparables, we will deliver on improving our earnings faster than our top-line growth in each of the quarters this year. I'm confident in our team, and I believe the Company is on the right path to creating increased value for investors. I thank you for your support and we look forward to an exciting fiscal 2015 with you. Operator, let's now open the line for questions.

(Operator Instructions)

Thom Gunderson, Piper Jaffray.

I'm sorry, Mark, I missed this. The annual 2015 guidance does or does not assume FDA clearance of Navilyst and Celerity with no chest X-ray?

It does not include us obtaining a no chest X-ray claim. So that would be an upside based on the timing when we get it.

Okay. And that would be the same, it does not assume that you get an automated fluid management system?

No, we have pulled any API revenue out of our numbers. That would be another upside in 2015.

Okay. And part three of my first question is what's your assumption on O-US growth for 2015?

We are assuming a return to mid-single-digit type of growth in international.

Thanks. And then Joe could you talk a little bit about -- I know it's just one product but it's one of those ones that's intriguing and that would be I think you call that the DuraMax, the dialysis catheter with BioFlo?

Well, we received our clearance at the end of the last fiscal year. We had our national sales meeting with the product in June and launched it to the full salesforce and we are in full commercial release. We have prioritized our commercial release with the first set of clinical experience hospitals and have been doing cases at those hospitals, and we expect that to be a very positive contributor.

When we look at dialysis and ports and PICCs, the three products have different dwell times in the body, have different times when complications present themselves. PICCs, can, depending on how long they are in the body, will typically have a certain acute reaction and then will have some type of response later in the sequela. Dialysis is something that we will not see the type of results -- like-for-like, like we saw in PICCs until probably 90 days after implantation in the body. So because of the larger diameter and the longer time to present with the type of complications that we believe BioFlo can offset, we think that probably by the end of this calendar year is the time that we are going to start seeing percolating in the marketplace the same type of enthusiasm that we saw almost much quicker on the PICC side.

That said, some of the early indicators of clinical success of a dialysis catheter is, of course, how well it enters into the patient. And then in an acute perspective how good are the flow rates? And flow rates has always been a key attribute of the DuraMax catheter and is designed specifically. But the ability of BioFlo, coupled with DuraMax, up front to show the type of flow rate that we are seeing -- our team is telling us that that's a very positive early indicator of long-term clinical success. So, I would expect that in the clinical sites where we are having the early clinical experience that the type of excitement and enthusiasm, the type of positive response will clinically start to percolate by the end of this calendar year.

Great. Exactly what I wanted. Thanks for the color.

Jason Mills, Canaccord Genuity.

Hi, Joe. Can you hear me okay?

I can hear you great, Jason. How are you doing?

Great. Good. Thank you. Also wanted to touch on just a few individual product lines, as it relates to 2015 what are your expectations. AngioVac is a product that you took a lot of heat in paying what you paid for it. It is ramping quite well. I know you talked in the past about the opportunity -- the target addressable opportunity. What sort of the penetration level into that opportunity do you think you can achieve here in the second full year of launch? Can you put actual numbers to where you see that business going in 2015?

Thanks for that, Jason. You know, we kind of agonize over that, about giving a specific number. We had put out there originally that we would do $50 million in five years. At the fifth year -- and I think that's something that we will obtain. You know we went from virtually zero to $9 million in 12 months. I think there's a portion of that that goes towards opening of new accounts and then a portion of that obviously towards consumption. Do I think it's going to double year on year? No. But I think we are going to have a successful year with the product. It is certainly not going to be flat.

And I know you want a number, and I'm unfortunately not prepared to give you one. I believe that we are probably not going to replicate $3.3 million in the first kind of a slow quarter that we have in the summer months. But I do think we are going to see after that first quarter some very nice and strong growth. But is it $18 million? No. Is it $9 million? No. Is it somewhere in between at on a lower basis? Maybe, probably. But I really -- the business is still very new and I'm trying to not peg it to a specific number. So I apologize if that does not satisfy.

Okay. Well that's helpful at least a little bit. On the vascular access side I guess just as (technical difficulty) revenue question, a follow-up just on the P&L from Mark. The vascular access business you said you thought it could be your fastest growth division for fiscal 2015. We obviously have your total guidance. So, how do you see the division breaking out from the standpoint of growth by division next year?

Well you know we've kept the expectation on international low. I'm hoping -- there's a little bit of a dichotomy between our guidance and what I'm hoping is going to happen. I think our guidance is representative of a very appropriate way to guide investors. But when I look at the business, we are obviously tasking ourselves to bigger and greater things and have bigger and more exciting areas that we are trying to get to. I think our international business -- I'm hoping to see that do a little bit better. I think -- we haven't broken it out to our guidance in numbers per division, but obviously I'd like to see the trajectory on vascular access continue. You know peripheral vascular we had, especially in the US, a hell of a year. And I think it's going to be tough to, as we anniversary those comps, to see that accelerate past those numbers. So I'm trying to be a little bit conservative with our US PV.

And oncology is a interesting thing because if you look at the slides and if you listen to Mark's numbers you know the underlying growth in oncology on the disposable side is very strong. What makes it really lumpy is you sell one NanoKnife for $0.25 million and then you don't do it the next year or you don't keep that trajectory on the capital side. It makes the business look less vibrant. But the truth is, the business at a consumable basis is doing very well. And I know we haven't talked a lot about NanoKnife recently because I have just wanted to take the heat off the product line and let the product line flourish on its own.

We are seeing major centers develop programs around pancreas ablation. We are seeing a continued drumbeat of new major centers around the world doing pancreas procedures, and that's a good part of our business and an accelerating part as the data continues to show strength. And these patients who don't have clinical options or many of them or many good ones are really discovering the technology. Now in US is only 45,000 procedures a year -- or God forbid, I wish it was zero -- but it is something that is real. And we are going to start seeing NanoKnife start to mature and start catching its legs a bit. And for us from a pure revenue perspective the more that we depend upon the consumables and the less on the big pops and the live and die by the capital, I think the pulsing of the strength of the business will continue.

But right now we do get whiplash with those large capital deals as we did this year. It's not a business that's a single-digit business -- I mean we're at 20%, 30% growth consumable business in procedures. If we didn't have the capital we would be jumping up and down with that, but boy, we love those orders when they come in because it really does make a difference. But when we anniversary them and it doesn't happen, then that's a challenge. And you've seen that, Jason, in other businesses.

So I think you've kind of giving you a perspective of each of the franchises. I think we have very good commercial leaders in place today. Very good sales leaders, very good marketing teams, clinical teams. I think they have a handle on -- each of our franchises have a handle on the business. We're going through some changes in international but my confidence is growing. And I think from a revenue perspective there's going to be a pretty good drumbeat. So where we guide is where we want to point investors. We are driving ourselves to bigger and better things.

Thanks for all that detail, Joe. That's a much more satisfying answer. The detail was fantastic. Just lastly, quickly for you, Mark, what is the expectation for amortization of intangibles next year? So, what's embedded or what is backed out of the guidance that you have given? If I happened to look at it -- was that embedded in there?

It will be probably $1 million above our 2014 run rate.

$1 million above the 2014 run rate. Perfect. Thanks, guys.

Jayson Bedford, Raymond James.

Good evening and thank you for taking the questions. Just a couple -- maybe Mark, on gross margin I think you mentioned hundred basis point improvement in 2015. There is a lot of noise in your 2014 numbers. So just so we are all on the same page, what's the baseline you are using for fiscal 2014?

On an adjusted basis an improvement from 50.8%.

Okay. And then I guess a bit of a critical question, Joe you mentioned earlier a clear line of sight on expenses. But earnings estimates kind of trended down in fiscal 2014. You had higher revenue over the last couple of quarters, but the earnings have come in a little weaker. And I realize there's always some unforeseen cost. But can you maybe just walk us through why you have better visibility into earnings today than you did, say, a year ago? Is a just a function of you being more confident in your forecasting or have you simply just left a little more cushion?

No, Jayson, it's actually a little bit more complicated than that. We don't have a spending issue at the Company. If you look at our OpEx, aside from us being whipsawed a little bit with the US sales commissions and the US sales over performance that was not effectively offset with gains in international, we had a mix issue on commissions, and we talked about it last quarter and Mark just brought it up now a bit. But aside from that, you look at our R&D spend and our core sales and marketing spend and G&A, we don't have a spending issue here at the company and we've been taking cost out and I think in general on OpEx, doing a pretty good job. The greatest area of opportunity is becoming more efficient on our gross margin line in our cost of goods, in our ability to take our supplier costs, in our ability to consolidate our operations, in our ability to lean out our manufacturing facilities and our ability to benefit from having systemwide visibility from a single ERP system that allows us to target and see things that we've never seen before.

The core truth, Jayson, in 2014 fiscal is aside from really focusing like a laser with our commercial team on driving our top-line revenue the balance of our team was consumed with this ERP implementation, period. Our core finance team, our core operations team -- we went from an old Oracle platform with Navilyst, an old SAP platform from Angio, and the entire organization went to a brand-new system. And pushing that over the edge, getting that implemented, getting the processes in place and then turning it on -- I mean we probably couldn't have turned it on at a worse time, Jayson, because in retrospect I wish we had turned it on June 1 so we would have at least been consistent through the year and then not have the amount of energy it took to literally birth this system. So what's different now is that's over.

If I go back a year earlier, Jayson, all throughout 2013 we were dealing with quality remediation, spending all kinds of money to make sure that everything was in place and we succeeded. And we've spent now 2014, aside from getting our revenue up, we spent the time getting our back office systems, because when you have power of a single ERP system you have visibility where all your costs are worldwide. We have that today. And all that bandwidth that was dedicated to that is now freed up. So we exhale on that side. We have momentum now in revenue, and our team is going to go attack gross margins. So we haven't had the bandwidth and we haven't had the ability through 2014 with as much degrees of freedom to go out and get it. But now we feel like we do.

So we've always known where the costs are. And our operational excellence program on consolidating of facilities and taking those costs out is well in play. But I'll tell you, we see where there is more cost and we are just going to go get it. And now that a lot of those major products are projects are off our plate and revenues running, I'm telling you as CEO of this Company, I'm dedicating our team to generating the operating leverage that our investors deserve and we are going to get at it. So that's what gives me the confidence is that we've earned our way past some challenges that -- I don't think we get the type of costs without the ERP system. So they do go hand in glove and we are going to get it in 2015.

Just to build on Joe's point, if you look at our P&L, G&A and R&D were pretty much consistent with prior year. We said we would invest in AngioVac, we said we would put more reps. The only surprise really on the OpEx side was what we have talked about -- was the US overachievement. So when you back that out we were pretty much spot on our expenses. So I agree with Joe that all of our focus now is how we get further leverage in the gross margin line. And that's where we are spending all our time now.

One other thing, Jayson, that I just want you -- to make clear and understand -- Mark identified the fact that at the end of the year we realized that there was an intercompany transfer set up in SAP from an international sub that didn't transfer stuff over properly. What it did was it inflated gross margin. So we went into the second half of the year thinking our gross margin would be higher. And for all intents and purposes for -- at the time after the close we thought felt we met all of the objectives that we told you and everybody else, and it was on the close that we realized that one set up in Oracle was inaccurate. So, there was it just a big disappointment for us because we felt we would have lived our commitments and we had to reverse that out. So that's angered us and that's made us more virile on going out and grabbing costs and getting our gross margins. But I feel today that the project mind drain that has occurred over the last, literally 24 months, this Company has been alleviated. We are feeling good, and the commercial team is delivering. And my internal team is intently focused on improving that situation and we will. Like we've got revenue, we are going to go get gross margin.

Okay. Maybe as a bit of a follow-up, ERP sounds like it's behind you. Mark, is the expectation that AR trends down here because there's been two quarters now of pretty steep step up here?

Yes. Part of it going up in the fourth quarter is because we grew revenue. Probably half of the issue is still residuals from the AR from ERP. As Joe said, from a timing standpoint was not great. But, yes, we already saw big improvements in June where we had very significant collections and the receivables have started to go down significantly. So I feel pretty good -- and I said that in my comments that by the end of the year we should get back to our normal DSO levels around 50, 52 days. And we are above 60 right now.

Okay. Thanks. I'll get back in queue.

Charles Haff, Craig-Hallum.

So a question for you on NanoKnife placements -- I apologize if I missed this -- but did you give that number? Or would you be willing to give it?

We did. It was on one of our slides where we placed 22 Nanos during the year.

Okay. During the year. Great. Thanks. And you mentioned, Joe, the next gen AngioVac in the second half. Were you talking about fiscal year or calendar year?

Fiscal.

Fiscal. Okay. Thank you. Since the Novation win closed last Friday, I assume that you haven't put that in your fiscal 2015 guidance. Is that correct?

I guess we had hoped for a little, but we believe there's definitely upside throughout the year. We did not contemplate the impact in our --

Fully in our numbers.

Okay. And if you think about Novation, since you really didn't do much business because of the counter detailing from Bard was pretty heavy. When you think about the opportunity there, what's kind of the right way you would frame that for investor expectations? How should we be thinking about how material that may be going forward?

I think our goal right now of this call is to set expectations based on our guidance. And we'd be very happy to provide sentiment and enthusiasm, but I don't want our investors to get ahead because especially on even a GPO contract, as we have learned with PICCs, the timeline for revenue ramp takes a while. There's a valuation and all different types of things. Now the barriers that we have had in the past and the value analysis committees and what not are going to be easier to be on contract -- especially as a new technology. So maybe the cycle will be quicker.

But personally I think we are going to see this be a growing business well above what we've seen in the fourth quarter. But I'm just unwilling to set the number yet because the timing is so sensitive. If it happens in the second quarter or the third or the fourth, I don't want to mislead you because I don't have a clear line of sight on the exact inflection point. But everything is going -- we are finally firing on all the cylinders and we have what we need. I'd like to give you a number, Charles, but I think it's our intention to guide investors to the guidance we have provided.

Okay. Great. Thanks a lot, guys.

(Operator Instructions)

Larry Haimovitch, HMTC.

Congrats on the strong in to the year. Joe, going back to AngioVac, AngioVac have a tremendous fourth-quarter. I'm sure you are just delighted with how well it did. It was way, way above previous quarters. Is there anything extraordinary in the quarter? Or is it just the progression of the acceptance in the marketplace?

I don't know about extraordinary, but one of the things that we expected when we did the deal was a CE marking, literally a year ago. I think a CE marking we expected and planned for I think was in December of last year. So we thought that we would have some time through the end of 2013 and into 2014 of building our international business and that kind of contributed to how we viewed that initial $10 million number. In the fourth quarter were the first set of revenues that we started to experience from international. So aside from the fact that we had very strong procedure growth and the procedures are continuing, what's wonderful is every week that goes by we get procedure numbers and it's higher than the prior week. So, we are very pleased with that. But probably the one thing that's unique in the third quarter is the contribution of European revenues.

How did the year breakdown, Joe, of the $9 million that you garnered in AngioVac between US and O-US? It sounds like mostly are almost all US, I guess.

O-US is negligible. It just started to contribute in the fourth quarter, so it probably propped up the fourth quarter a little bit more than if we pulled it out. But not to a huge magnitude. I mean we are talking hundreds of thousands of dollars. It's not millions. The trajectory in the US is -- the third quarter as we mentioned was a little bit of a blip. The trajectory is pretty healthy. Again, this will be our first anniversarying of our first quarter. And first quarters are usually pretty slow for us. So I really don't know how to predict where we will land. But I don't believe it will be above $3.3 million. I think we both kind of pull back and then accelerate through the year. So the biggest thing in the third quarter had to do with -- or fourth quarter had to do with, it's a fourth quarter and international revenues started. Now last week we were very pleased to receive our Canadian approval. So the team is now going to develop its strategy to get out -- thinking by the end of this quarter, beginning of the second. And that will start impacting and we have a strategy that gets us in all the markets around the world. And that should start building -- as you know, Larry, is every medical device company goes through a global launch.

Do the revenues kind of parallel the procedure growth, Joe? In other words if you grew from whatever you grew from to -- it was very small I guess in the last fiscal year, if anything. Is that all related to the very strong procedure growth?

Yes, I think it's proportionate. I think it's proportionate. You know but whenever you have a new product launch -- a new product -- especially a high ASP new product, you are going to -- every time you open up an account they are going to put two of them at minimum on the shelf and that's a $26,000 order. If they put three on, it's almost a $40,000 order. So you get that right up front when you create the new accounts you want to start to program, because they are not going to just put one on. So you do benefit from -- there's a proportion of opening accounts. You go through these ebb and flows with a new product launch. At some point you are focusing more on your procedure ramp than your new account ramp. The top-line might look like it's slowing a bit -- and that's kind of the ebbs and flows that we'll go through. And that's why it's so hard to predict and why I don't want to give a specific number for this next year. But, yes, I don't think, for example, that the progress in revenue is all of a sudden just going to hit some wall because it's all stocking orders. That's not the case.

And Joe, one final question -- I know I've asked several on AngioVac -- I'm assuming given the price point you are selling it at that this will definitely carry above corporate gross margins.

It's extremely accretive to gross margins.

That's what I thought. Okay. Thanks very much.

And it appears there are no further questions at this time. I'd like to turn the conference back over to our speakers for any additional or closing remarks.

Thank you. I would just like to close with the fact that I'm very, again, proud of the team for delivering the top line. Getting at our operating efficiencies -- they are all there and they are all going to be had. The projects that we have embarked on have been a big challenge. And as you have seen as over the last three years now, this management team has not been afraid of taking on big challenges but it doesn't always go perfectly. It's just more of a function of cadence. But we will execute. We are giving our revenue going. We feel like, as I said in my comments, there's so much more upside growth in driving market share in our vascular access business and continuing to grow on AngioVac. We haven't even scratched the surface as far as a percentage of the overall procedures that are applicable. The ability to penetrate our worldwide markets and then to continue the great progress on NanoKnife and our microwave. I think the guys have made a lot of the right moves and we are moving in the right direction.

With these projects off our plate, we are going to be intently focused on delivering leverage. Our investors deserve that, and I believe when we deliver that to you I think the stock will be handsomely rewarded. That's where our focus is now. So thank you so much for your interest and have a wonderful evening.

Thank you. And again, this does conclude today's AngioDynamics fiscal 2014 fourth-quarter and full-year financials results conference call. We thank you again for your participation.