AngioDynamics Inc (ANGO) 2015 Q1 法說會逐字稿

Good day, and welcome to the AngioDynamics fiscal year 2015 first-quarter results conference call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Bob Jones, Investor Relations. Please go ahead, sir.

Thank you, Angela, and welcome, everyone. Thank you for joining us for AngioDynamics' conference call this afternoon to review the financial results of the fiscal 2015 first-quarter results, which ended on August 31, 2014. The news release that crossed the wires 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 or forward-looking statements regarding future events, including statements about revenue and earnings for the fiscal 2015 second quarter ending November 30, 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.

Finally, during the question-and-answer period today, we'd 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.

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

Thank you, Bob. Ladies and gentlemen, thank you for being with us. Before we go into the highlights for the first quarter of fiscal 2015, I'd like to turn it over to Mark Frost, our Chief Financial Officer, who will address an issue that we recently became aware of.

So I'd like to hand it over to Mark.

Thank you, Joe. As we indicated today in our first-quarter news release, we identified corrections to our fiscal year 2012 through 2014 results, which we believe are not material to any individual past period. However, we determined that if not corrected, if these errors had not been corrected, they would have been material to our first-quarter 2015 results. We do not expect these revisions to our financial statements will have a material impact on the Company's previously reported results of operations, financial condition, or liquidity.

While the need to adjust prior results is disappointing, we are in the process of assessing whether these corrections represent a material weakness within our internal control over financial reporting.

In this respect, after we identified an inter-company issue in the fourth quarter, we took action and installed a new Global Controller in July. Our new Global Controller undertook a painstaking assessment and review of our processes and reconciliations, which identified a number of adjustments pertaining to 2012 to 2014 results, leading to our decision that a revision was required to correct the situation. Otherwise, we would have unfairly penalized our quarter-one 2015 results.

We are not 100% complete in our assessment, but we are confident that our first quarter is fairly stated. In response to these challenges, we have also replaced most of our key accounting leadership and added further personnel to upgrade our organization for both a technical and resource standpoint. In addition, we have already begun revamping many of our accounting processes, and are bringing in both external accounting and IT resources to support our change management efforts to the process and system.

Now, as you can see from our disclosure, our estimated revision will be $0.01 to $0.03 downward in any given year, and $0.03 to $0.04 for all the prior years combined. On a quarterly basis for fiscal year 2014, we estimate up to a potential $0.01 adjustment for each quarter, both upward or downward. The estimated revisions are all non-cash, and pertain primarily to fixed assets and other asset liabilities. The fiscal year 2014 numbers being reported in our press release are preliminary, and are subject to revision which will be finalized when we expect to file our 10-Q by next Wednesday.

All comparisons that Joe and I will discuss relate to the preliminary income statement 2014 numbers. Balance sheet and cash flow statements do not reflect these revisions. However, any potential changes will likely impact only cost elements and not revenue. Our situation clearly is a disappointment but also unfortunate, because it distracts from a very strong start to the year. We are committed to permanently fixing these issues, and I will provide progress updates as we move forward within the year.

I will now turn the call back to Joe to discuss our performance. Joe?

Thanks, Mark. While I'm disappointed we're making revisions, albeit immaterial, to prior periods, the root cause is being addressed as vigorously as we have addressed other items in the past. The good news is, the issues Mark detailed pertain to past reconciliations and do not impact the financial results in 2014. So I will put that on hold for the moment, and focus now on our current period performance.

I'm very pleased with our Company's execution this quarter, as we continue to make progress on virtually all fronts. We have significantly improved our operations, successfully introduced new disruptive products to the market, and taken steps to lower our cost basis. As a result, both revenue and adjusted earnings for the quarter exceeded our expectations.

Our revenue growth story continued in the first quarter, as we achieved 4% growth to $87.3 million, or 5% net to supply agreement, delivering adjusted earnings per share to $0.16 and adjusted EBITDA to $15.3 million, a year-over-year improvement of 40% and 30%, respectively, as a result of improving revenues, gross margins, headcount reductions, and operating leverage.

In our business segments, vascular access continued to show positive growth, starting the year with 5% overall topline growth. This turnaround has been powered by BioFlo, which now represents 50% of our overall PICC revenues and a higher contribution to our port and dialysis lines, as well as had a meaningful impact on key international markets. The business has benefited from early implementation of a Premier LIDN port award; our HealthPRO contract in Canada; and the Novation new technology award, Creating Access, which is new to AngioDynamics.

We are now on-contract with PICCs with over 40% of the facilities in the US through Novation, creating more evaluations for the technology's unique features and a vibrant pipeline of new business opportunities. We believe these contract wins will provide us a long runway for future growth as we look to enhance our penetration in this area.

This quarter, we completed the market launch of our Celerity PICC confirmation system. Celerity's FDA approval has allowed evaluations in sites where tip location is used, but which do not require a replacement to chest x-ray claim, which has been a positive impact. However, the lack of a no-chest-x-ray claim does remain a barrier in the largest institutions. While we have seen increases in PICC sales due to BioFlo, we've also experienced some losses in our non-BioFlo lines due to the lack of the no-chest-x-ray claim, resulting in the overall PICC revenues this quarter being flat.

To that end, I'm happy to announce that last week we did file our 510(k) application with the FDA for our no-chest-x-ray claim. We feel very good about the quality of our submission. We anticipate a response and, hopefully, approval at the end of the calendar year. On the heels of that approval we will quickly follow up with a submission for approval of our ECG navigation system.

It's important to remember that our vascular access business is more than just PICCs. Our ports grew 12% this quarter, due to the GPO wins I mentioned; our BioFlo technology; and the expertise of our sales team. Contract wins and disruptive technology breathe new life in a category where we already have an excellent portfolio that includes the only proximal valve on the market.

Early data shows much of the BioFlo PICC clinical benefits are similar to what we are seeing with ports and our more recent dialysis offering. We are finding early experiences showing very good flow rates and significantly less tPA usage.

This is holding true for our BioFlo dialysis catheters, where early experiences are showing great results, as well as lower occlusions and minimal thrombus formation. We recently received CE approval to market our BioFlo DuraMax dialysis catheters in Europe, a positive development that opens us up for new opportunities for growth.

Shifting to the peripheral vascular business, we had another solid quarter, showing 4% growth following a very strong fiscal 2014. The highlight of the quarter was the continued growth in market acceptance of AngioVac. Our first-quarter performance of $2.5 million was an excellent start to the year, as we are driving our procedure growth quarter-over-quarter and year-over-year. We are up 60% in AngioVac revenues year-over-year from $1.5 million. What is more impressive is our procedures grew year-over-year 243%, from 48 procedures in the first quarter of 2014 to 165 procedures performed this past quarter, 1Q 2015.

On a sequential basis, our procedure growth was up 16% over the 142 procedures we performed last quarter, fourth quarter 2014. Today, we have 13 clinical specialists worldwide driving a rate of one procedure per week, each. We have a lot of room for growth, as our pipeline is rich and we train and onboard many new accounts; as well as prepare to launch the product now in Canada, where we have recently seen approval.

We expect a second-generation AngioVac product to launch at the beginning of the calendar year. And AngioVac will be a topic of discussions through several upcoming scientific presentations from key physician opinion leaders, including several presentations at the VEITH meeting in New York City at the end of November.

So turning to EVLT, at this time last year we were recording 20% growth in conjunction with our legal victories over biolitec in the US, enabling us to close new capital and open many new accounts. As we anniversary that bolus of business, our comparables are of course challenging. However, EVLT, while it was flat worldwide and had 5% growth in US procedures, was offset, of course, by the impact of lower capital sales in international sales. We believe EVLT will accelerate as the year goes on and are forecasting EVLT to finish in the high-single-digit growth area.

Our third business, oncology surgery, grew 11% this quarter, driven by procedural growth and international capital placements. Our microwave disposable revenue grew 43%, and our NanoKnife disposables grew 32%, while our RF disposable business declined 19% due to its expected and previously communicated cannibalization by both microwave and NanoKnife. As you know, we have moderated our expectations on NanoKnife to give the technology more time to develop and clinical data more time to mature.

Investors have been asking recently for a more detailed update on NanoKnife's progress, and I'll now just do that. So as I mentioned, NanoKnife disposable growth was 32%, and this illustrates that adoption is increasing. We're finding NanoKnife is gaining momentum among clinicians who treat unresectable tumors in the pancreas; for liver procedures, where a key vessel is invaded by a tumor; and for focal tumor prostate ablation. There are now over 100 centers around the world using NanoKnife in some way, including 11 of the 25 National Comprehensive Cancer Network health systems here in the US.

On a clinical front we've seen new, encouraging data. In our news release this afternoon, we highlight several papers which have been published in peer-reviewed journals that continue to build the safety and efficacy story of NanoKnife, including a study entitled Vessel Patency Post Irreversible Electroporation by Dr. Govindarajan Narayanan, which demonstrates safety of IRE for the treatment of tumors near the large blood vessels, and tumors already encasing the vessels.

The purpose of the study was to evaluate the effect of irreversible electroporation on vessel patency in close proximity to the ablation zones in 129 lesions in 101 patients who underwent percutaneous IRE procedures using the NanoKnife for primary and metastatic tumors in different organs, primarily liver, but also pancreas and kidney.

In general terms, tumors near blood vessels pose a challenge for surgeons and interventional radiologists when they use thermal ablative techniques, due to the heat sink effect. This is the largest study to date documenting the effects of IRE on vasculature in humans with long-term follow-up. The acceptable safety margin is a significant advantage over the thermal ablative modalities, where encasement or close proximity of vessels to the treatment zone is considered to be a relative contraindication.

A total of 158 vessels were examined for patency on follow-up on CT and MRI scans, and the overall mean follow-up was 10.3 months. And the abnormal vascular changes were noted in only 4.4% of the vessels. Incredible.

In prostate, another key study, entitled Initial Assessment of Safety, Clinical Feasibility of Irreversible Electroporation in the Focal Treatment of Prostate Cancer, led by Dr. Mark Emberton. The purpose of the study was to evaluate the safety and clinical feasibility of focal irreversible electroporation in the prostate. Both the toxicity profile and functional outcomes were assessed in 34 patients in two centers, one in London and the other in Sydney, Australia. After a median follow-up of six months, the investigators observed no major clinical complications, which is a score of 3 or above, according to the NCI common terminology criteria for adverse events.

From a functional point of view, 100% of the patients were continent, and potency was preserved in 95% of the patients, of the men, before treatment. The paper concluded, focal IRE has a local toxicity profile with encouraging genitourinary functional outcomes.

Continuing the prostate, as you know, we funded a study for the use of NanoKnife to treat focal tumors in the prostate with the Center of Endourological Society. The first safety study has now been completed, which is called CROES 1. A single-arm prospective study has been fully enrolled, including the 16 patients. The study was designed to confirm the safety in focal irreversible electroporation of the prostate, and confirm complete ablation of the targeted area; measured the side effects and quality of life.

This data has not yet been peer-reviewed and published, but the study is completed. When it is peer-reviewed, we will show the results. But we are very encouraged with this oblate and resect study. The common denominator in each of these experiences is NanoKnife is safe and provides a valuable tool for destroying tissue with vascular invasion near critical structures. We expect NanoKnife's clinical success to continue procedural acceleration.

So now I'd like to shift gears to our international business. In the past, AngioDynamics has generated positive growth outside the US. In early 2014, that growth had stalled. We felt a leadership change was necessary, and a new model needed to be implemented. I am pleased to report that our international team, under the new leadership of our Vice President of International, Pascal Roussel, had a significant impact in the first quarter, and, I believe, in the future. And we believe we will see these future benefits of these changes.

We changed our international model from a product-centric structure to a regional model designed to empower decision-making closer to the customer. We continue to invest in our direct organization, while we are still working on several key international business and distribution acquisitions. This leadership transition was necessary to be able to realize this goal, and we are pleased to now be seeing the positive effects of this change.

So now I would like to turn the call over to Mark Frost, who will review the financial performance for the quarter. Mark?

Thanks, Joe. As you can see from the first-quarter fiscal year 2015 results, we exceeded both top- and bottom-line expectations and delivered strong revenue and adjusted earnings per share growth. We're off to a good start for our fiscal year. We generated the operating leverage we committed to on our fiscal fourth-quarter call with 5% revenue growth, excluding the supply agreement, and 40% earnings improvement. In addition, our EBITDA increased by over 31% to $15.3 million.

The one additional area requiring improvement within the quarter related to our cash flow and inventory management. We made progress in receivable management, but had higher inventory levels than originally planned as a result of advanced build for our manufacturing facility consolidation, as well as earlier raw material procurement from MRP forecast communication issues. I will spend some time later on this topic when I discuss cash in more depth.

Total revenue grew 4% from the prior fiscal year, and 5% excluding the wind-down of our supply agreement. There are no quarterly day differences this fiscal year, so all prior-year comparisons will be consistent on an average daily sales basis.

Turning to product performance, peripheral vascular increased 4% to $47.3 million, reflecting the positive contribution of AngioVac, as Joe discussed earlier. Venous results were basically flat with last year's first quarter, caused by a more difficult quarterly comparison; some slowdown following our overachievement in quarter-four fiscal year 2014; lower laser capital; and a lower contribution from international. We expect venous to strengthen as we progress through the year.

Fluid management showed improved performance, and came in flat. And core products were up 2%, slightly better than anticipated. Vascular access continued its upward achievement with 5% growth to $26.5 million compared to last year's first quarter. The key growth driver via this quarter was our ports portfolio, which grew 12%. PICCs were flat, reflecting some loss of non-BioFlo PICC revenue, as Joe had discussed earlier.

Now, oncology surgery returned to double-digit results, with 11% growth. The key catalyst for our strong results was NanoKnife, with over 30% improvement coming both from disposables at 32%, and capital up almost the same amount at 30%. Our installed base increased by eight sites to 108 sites in the field. Now, within ablation, microwave continued to perform well, with 43% growth. However, as we have communicated in the past, the microwave growth was offset by RF erosion, so we ended the quarter slightly down on overall ablation. We believe some of the RF results may relate to a natural pause in orders because of fourth-quarter performance.

Now from a geography perspective, US revenue increased 2%, while the international markets returned to strong double-digit growth of 19%. Our organization changes are starting to pay off, as all product areas demonstrated double-digit growth for international; and, in particular, oncology saw strong procedural usage in both nano and microwave.

Now moving down the income statement, gross profit totaled $46.1 million or 52.8% of sales. This was a 190 basis point improvement from last year's first quarter, and 230 basis points from the prior quarter. Key drivers for the improvement was our operational excellence program, which contributed about 45% of the year-on-year improvement. 35% was from better mix, primarily oncology; and the remaining 20% was from margin leakage actions we have undertaken on improving the quality of our revenue.

Now turning to expenses, operating expenses totaled $42.6 million, including $2.6 million of acquisition, integration, and restructuring items, of which $1.1 million is associated with restructuring initiatives we implemented within international and R&D in the first quarter, where we reduced headcount layer within these organizations. $0.9 million was from our operational excellence activities, and the remaining amounts pertained to litigation and miscellaneous other items.

Sales and marketing expenses remained flat, reflecting leverage from rebasing our global commissions plans, as we discussed last quarter. G&A increased $0.6 million, primarily from turning on all the ERP costs, including depreciation, maintenance, and reduced capitalized labor. In addition, higher stock-based and bonus compensation contributed to the G&A increase.

GAAP income results were $0.02 income per share versus a $0.01 loss per share in 2014. Pro forma adjusted EPS was $0.16 per share versus $0.11 in 2014. We saw leverage in both our gross margin and operating expense lines, contributing to the 40% improvement in earnings results. The GAAP to non-GAAP reconciliation items are detailed in the schedules included in the release.

EBITDA was $10.8 million or $0.30 a share versus $7.8 million or $0.22 a share in the prior year. Adjusted EBITDA was $15.3 million or $0.43 a share versus $11.7 million or $0.33 a share. Effective of this quarter, we are now reflecting depreciation and amortization on certain hardware assets and deferred financing charges, which are included in other long-term assets on our balance sheet. This in change increased both current and prior-year quarter depreciation and amortization by about $0.6 million. A detailed reconciliation of EBITDA is provided as well in our news release.

We generated $2.7 million of operating cash, and $0.3 million of free cash flow in the first quarter, compared to $7.3 million of operating cash in the prior-year quarter. This was lower than our expectations and caused primarily by a working capital build on the inventory front. The major factors for the inventory increase were a safety build associated with our manufacturing consolidation transition; the MRP supply chain forecast communication issues, which I referenced earlier; and our MedComp inventory commitment which was acquired with our contract.

The good news is, most of this is timing, and it's within our control. We have already initiated a plan to reduce raw purchases. And the safety build will start reversing once we initiate the consolidation process, which will start in the third quarter. Our expectation is we will be able to reduce our inventory close to fiscal year 2014 levels for the end of our fiscal year.

During the quarter, we utilized $2.1 million of cash for a Microsulis contingent obligation, and $1.3 million for repaying term debt. We ended the quarter with $15.5 million in cash and investments, and $141.4 million of debt outstanding.

So now I'm going to turn to a discussion of our guidance for fiscal year 2015 and the second quarter. For fiscal year 2015, we are maintaining our revenue guidance in the range of $362 million to $368 million, representing 5% growth at the top end of the range, when you exclude the impact of the planned wind-down of our supply agreement. Our confidence in our ability to reach the top end was strengthened, but we want to see another quarter of actual results before we feel comfortable that we can adjust this range.

On the earnings side, we are raising both the lower and upper end of our adjusted EPS range, and are now guiding to $0.65 to $0.71. Our confidence improved after seeing both gross margin and operating leverage improve within the quarter. We will further reassess the upper end, once we see the revenue results for the second quarter.

Now turning to our cash outlook, we now have more clarity on the manufacturing consolidation transition. In looking at the timing, we expect limited operating free cash flow in the first half, but significant improvement in the second half as we consume our safety inventory. Our expectations now are to generate full-year operating cash in the low- to mid-$30 million range, and free cash flow in the low- to mid-$20 million range, but it will be quite different cash generation between the halves.

Now turning to fiscal year second-quarter guidance, we are guiding to a revenue range of $89 million to $92 million; 5% growth at the top end, excluding the supply agreement impact. The range is being driven in part by capital timing. Given the range of our revenue expectations, adjusted EPS is expected to be in the range of $0.14 to $0.17, up to a 21% improvement at the high end, over the prior-year fiscal quarter.

Now, with that, I will turn the call back to Joe for his final comments. Joe?

Thanks, Mark. So, again, revising our prior-year financial performance is a disappointment, whether it's immaterial or not. It will be fixed, like we have fixed other items in the past. That said, I'm very pleased with our first-quarter operating and financial performance and the continued progress we're making. We have a very diverse business that is delivering a consistent overall performance, similar to a well-balanced investment portfolio.

Each of our business units are delivering on their commercial goals, and our operations teams are starting to deliver that very valuable leverage we're all looking for to improve our profitability. On 5% year-over-year growth, net to supply agreement, we grew profitability 40% year-over-year. Increasing revenues and management focus on operational efficiencies, powered by our new ERP system, positions us for the next phase of accelerating earnings improvement.

We have raised the bottom and top numbers of our earnings guidance for this year, and have a higher level of comfort and visibility that we will meet our financial goals. As our efforts continue, we will successfully execute our plan. I believe there will be some upside as we move through the year.

So remember, in 2012 we closed three acquisitions simultaneously, and integrated two like-sized businesses. In 2013, we fixed operational quality and commercial issues. In 2014, we built revenue momentum. In 2015, we will build and benefit from all of that work and now add profit acceleration to the resume.

With that, operator, I'd like to open the call for questions.

(Operator Instructions). Tom Gunderson, Piper Jaffray.

So, it's nice to see the beat on both sides of this, and particularly the increase on gross margin. What I want to focus on, though, is -- on my two questions -- is, Joe, is one on international and one on Novation, or GPOs in general.

If we look at international, how -- can you give us a little bit more granularity on the sales reorg and how long that's been in place? And how much of the improvement do you attribute to that, and how much to adding new countries or adding new products?

Well, it's a good question. I'll answer some of it, and then maybe I'll ask Mark to help give some color as well. First of all, the new leader of international, Pascal Roussel, has actually been in place for probably since January, or just before. But he took over the oncology business, and his leadership there has been very palpable, and his performance and success earned him the role for the entire position.

We saw very strong oncology sales in the first quarter. We saw some very good capital sales, but we also saw very good procedural growth. It was a performance across the board that was very positive. Fortunately, the vascular business did well, as well.

The structure that we put in place took a layer of management out and empowered people regionally, where we now have one leader per predetermined geographic region. That leader now runs all the businesses, all the distribution relationships, and the direct sales organization, if they have one in their area, which gives them much more leverage on cost and also much more leverage to squeeze synergies out of that channel.

The prior structure had a vascular person, an oncology person, and certain product specialists going in all into one geography, which was very confusing and didn't leverage the business. I'd say probably half of the improvement, probably most of the improvement in the upcoming quarter, is due to Pascal's leadership on oncology, and also some good work that the team had on vascular.

I can't say that the reorg was a one-to-one reason for the improvement, because the reorg was done through the quarter. But it's his leadership and my confidence in the team as it sits today that -- I won't say we're going to be growing 20% in international this year, but we are going to have a better performance this year than last year.

Yes, I guess I'll just add to it, Tom, that I think most of the benefit was from Pascal, which started, as Joe said, at the beginning of the year, and a better line of sight in all our markets. We really have not yet benefited from -- we did have a little bit of benefit of selling AngioVac for the first time in Europe, and that was part of the results. But most of the results were not from going into new markets or products; it was more organizational. So that gets us excited, because that means we have a bigger opportunity as we run through the year to drive further performance internationally.

Thanks. And then on Novation, if I remember right, that started August 1, and so wasn't a big part of the quarter. Is this something where there's evaluations being done? And this, also, will ramp through the year, Joe?

Yes, Tom. This is -- there's a lot of smaller things we're doing, that I'm not talking about, that are positive. This one is, we believe, is significant. It gives us access to PICC customers that we've never had a contract with in the history of our Company. And that, coupled with BioFlo, gives us the ability to open up our market opportunity. So, yes, there are already double-digit amount of evaluations that are ongoing today.

And just as BioFlo did in the past, it takes several months to get evaluations going, and that is true here. And it's also true for Celerity. But the ability to gain those evaluations were relatively immediate. We got them right away. I think there was a little bit of pent-up demand waiting for us to get on contract. But I think the revenue impact will be more evident through the balance of the fiscal year.

Okay. Thanks. Thanks for the color on both, and that's my two questions.

Charles Haff, Craig-Hallum.

A couple here regarding the beat this quarter on EPS, was well above your previous guidance for the first quarter, but you're only raising the full year by $0.01. Could you explain the reasons for your cautiousness there?

Sure, Charles. This is Mark. So, about half of the benefit came from revenue and mix in the quarter. So when we're comfortable to raise those numbers, we would be then comfortable to raise the guidance. On the leverage, clearly we had nice leverage. We'd like to see another quarter before we're comfortable to look at a larger increase to our range. So I think it's a question of just -- it's just one quarter, Charles, and we'd like to see another quarter before we really make any moves with our guidance.

And, Mark, when you look at (multiple speakers). I'm sorry.

Now, certainly if the revenue continues at its rate, then there's an implication for us; a positive one.

Okay. And the other question I have was on AngioVac. Is $15 million for fiscal 2015 still a valid number to use, or would you like to have us have a different number?

Well, we haven't guided a specific number, so I don't know how to answer that question. Mark, do you have any answer you want to --?

Yes, we would expect a growth rate in the range; we have parameters 10% either side of how we've done in the first quarter. But to Joe's point, we have not provided an exact number. But as we said on the last call, we do expect a significant improvement, and that number probably gets us close.

Yes, I will say, Charles, our first quarter was where we thought it would be. And if you just look at the way our first, second, and third quarters pace, we have a pretty strong close to the fourth quarter on a lot of our focus products. And we then close our first quarter in an August timeframe, which is not a very transactional month. So usually it's weaker in capital, or usually it's weaker in a lot of those types of products. And it's very consumption-based, and that's why focusing on procedure volume growth is a way to look at it. So the business is progressing well. And we think as you looked at it last year that that's not just a -- not going to straightline it out at $2.5 million a quarter.

Okay. Nice quarter, guys. I'll requeue for my additional questions.

Jayson Bedford, Raymond James.

On the gross margin strength, the contribution from the operational excellence program had a bigger impact than we expected. So I'm just wondering, did you accelerate this program at all? And is this the type of benefit that you expect going forward?

Yes, let me just make some comments, and then I'll -- we're both jumping out of our chairs for this one. So, first of all, we are starting -- there's a lot of different ways to improve your gross margin. We have our operational excellence program, which is a function of a facility consolidation, plus a bunch of other efforts.

But the new visibility in Oracle, and some of the other things that we are doing with our operations team, has the ability to maybe even pull in some of the benefits that we are looking for. And it has to do with everything from any type of supplier work or any type of leaning out in manufacturing; it's not just a plant closure side.

So we've been working really hard. We didn't like where we finished earnings-wise at the end of the fourth quarter, and we were pretty aggressive. And also we took some steps on some headcount, and I think that that made a little bit of an impact.

Yes, and I guess I'll just build on it. We've made a change, as well, to our leader of operations, and she has a very strong capability in best practice, kaizen. And we did -- she did accelerate some of those activities where we've seen an earlier benefit than we were hoping for. And our hope is -- and we got to see how that's going to play out, but our hope is that's going to play out through the rest of the year, that we may do a little better, Jayson, on the operating excellence.

I don't know the degree yet, because we got to fully understand some of these activities; but yes, we're very encouraged of how this is going.

And, Mark, what's your expectation for gross margin for the year?

I don't think we are prepared, Jayson, to provide a number. We said, on the last call, 100 basis points of improvement. We should be able to do better than that. I'm not prepared, at this point, to give an exact range. But could we improve that by 10%, 20%? Yes, definite potential to do that in the rest of the year.

Yes, Jayson, after the first quarter, we just don't want to get over our skis.

Right.

We're very encouraged. The performance is real; the revenue is strong; gross margin was real. We don't see any massive false positives on any one of these lines, so we're encouraged. But I don't think, after the first quarter, it implicates us to just jump up. So, I think we are very pleased with where we are. And I do think that with a continuation of these trends, which we think are positive, after the second quarter we can maybe make a little --.

Right.

Okay. And just as my second question -- I won't count the last one as a real question -- but you created momentum in ports. I'm a little surprised that PICCs were flat. You mentioned Celerity evaluations are continuing. Do you think folks are waiting for that expanded label? I'm just wondering how you see your PICC market share going forward. Are you a share gainer this year in PICCs?

Yes, no, we're a share gainer. I think, if you look under the covers, it just -- the numbers as you see them right there don't tell the story. If you look under the covers, you actually see some really impressive new account wins that we're getting from BioFlo, and some of those are coupled with some Celerity evaluations. But on our non-BioFlo business, where they really want to go to a no-chest-x-ray, it's tough to hold them until we get that no-chest-x-ray claim.

Where we get a BioFlo account and we sell them on the -- and we show them the benefits, it's very sticky, and we don't lose BioFlo accounts normally. But when we have accounts that have the standard catheters, and the nurses want to move over to no-chest-x-ray, Jayson, it's just hard to say, well, wait a minute; don't have your nurses do the procedure, because we have BioFlo. When they -- sometimes the no-chest-x-ray claim forces us to lose a couple of those accounts. It's just reality.

And I'll tell you, if we didn't have BioFlo, we'd be losing PICC business hand over fist, if you just looked at where it was on the raw side. So it's really a tale of two stories. If we didn't have a core business with standard PICCs, and you were just looking at BioFlo growth, you'd be looking at growth like any of the other new growth drivers: in the mid-double-digits. So it's really -- from that baseline, it's really impressive. But the business is churning, and so the net growth doesn't occur.

So we put a lot of effort and a lot of energy in the clinical program to get that no-chest-x-ray claim. We've worked very hard to put a first-class submission into the FDA. Probably took us a few months longer, but we felt it necessary to ensure that, with the prior experience that we learned from our partner, that we were going to do it right by this particular claim. So, I think we're close. I think we're close. But if we weren't taking on some water with the core non-BioFlo product, you'd be seeing a beautiful growth.

And it's frustrating, because you'll see some of our territories with some great growth and great conversions. And then you'll see some other people impaired by losing a core account because the nurses just wanted a no-chest-x-ray PICC location. It's the same thing we've been dealing with. And, again, if we didn't have BioFlo -- and it's catching momentum. So, it's not like we're sitting here and nothing is happening. There's a lot of activity, but there's pluses and minuses on the PICC side.

Got you. All right, thank you.

Larry Haimovitch, HMTC.

Congrats on the progress.

Thanks, Larry.

Could you elaborate a little bit on AngioVac? I thought I heard Mark say the sales were down a little bit from the fourth quarter. Could you repeat what the numbers were? And then I have a follow-on question after you give me that information.

Yes, so from a -- it's really kind of -- you've got to, again, look at the numbers or get under the hood of that one, too, Larry. We never expected to build, in the first quarter, off of the fourth-quarter numbers. It was just never in our consciousness, because it's just not a strong quarter for us historically; and, hence, the overall guidance reflects that.

We did, I think, $3.3 million in the fourth quarter, and $2.5 million in the first. But there's also a lot of people -- there is a lot of new account activity in the fourth quarter, and there was not a lot of new account activity in the first quarter. Which if you go back historically to any of our new products or a real procedure, elective procedure products, it's a pretty typical phenomenon.

But that said, we did 142 procedures -- were performed in the fourth quarter. And 165 procedures were performed in the first quarter, which we were very pleased to see the beat rate not skip a beat, from a procedure standpoint. So, the new account openings weren't as active in the first quarter as they were in the fourth, but the clinical progress and consumption of the product was up 16% quarter-over-quarter.

Yes, that's what I was curious about. So if you look at this year's first quarter, $2.5 million, I'm assuming that's up pretty nicely from last year's first quarter, although down from the fourth quarter.

It's up 243% procedure-wise, and 60% revenue-wise.

So, Joe, is that the metric you'd think we should best watch for AngioVac's progress is the procedure growth? That would seem to me to be the one that we should follow the most; but curious about your thoughts on that.

Well, yes, Larry, I made the decision this quarter to start reporting those numbers, because what's really reflective of the success of the business is the ability to have the consumption. And the thing is, is that it's a high-ticket item. And if someone opens up an account and they go through a training program, they will get an initial order for maybe two devices. And that's a pretty big pop. And then you have to go and get them trained and then use it, and you'll see that there's a cycle of time that it takes for that revenue to turn over.

So I think what we are going to do from now on is we're going to show you the procedures we did in the quarter, how it compared to the prior year, and also prior quarter. And that will give you good progress. And normally, Larry, in the third or especially in the fourth quarters are quarters where salespeople are creating new accounts and are really driving to an end-of-year milestone. And at times, it doesn't reflect the consumption base. We see that in EVLT. Sometimes we see that in oncology.

So I think, given the importance of this product line, I think what people need to know is the clinical progress and acceptance. And by giving those three metrics every quarter, I think we'll be very well educating investors on where it's going.

No, that's great. I appreciate that. I'm sure we all appreciate, that way we can monitor the growth. Just on a personal note, I have a friend here in Northern California who has prostate cancer. And it strikes me that focal therapy might be very, very useful for him. But could one of you get back to me after the call is over, maybe let me know if there are any centers out here that I could refer him to? Because I think it might be just what he should do.

We will do whatever we can for you and your friend.

Okay. Thanks, Joe. Congrats again.

(Operator Instructions). Charles Haff, Craig-Hallum.

So, on the revenue side, your peripheral vascular and your access business were in line with my estimates, but oncology was about $1 million better. And you kind of spiked out the capital equipment piece as being very strong this quarter. And I know, last quarter, you said capital equipment in oncology, we should expect lumpiness.

Is that still the case, that we should expect lumpiness going forward? And where there any factors or anything that you saw in the business, on the capital equipment side, that would change your view versus what you were telling us last quarter?

Well, I think it's safe to bet that oncology will always be lumpy. One or two nanos really kind of changed the complexity of the quarter -- or not complexity, but the perspective of the quarter. I think we benefited in the first quarter on oncology, quite frankly, by a new international leader really doing a great job with his team. And that we saw a significant growth internationally and a lot of great progress.

Pascal used to be an executive with RITA Medical, and had done a wonderful job with the oncology business in past years. And we brought him back; he had a lot of good contacts; and he had earned a lot of respect from the team. And the team just did a great job. And I would expect, actually, that great job continuing, or I wouldn't talk so much about it. But I always hedge myself because there have been times when the procedures are up, but you don't close a few NanoKnife deals or a few other pieces of capital and it feels like everything is going backwards.

So that's probably the thing that we wouldn't have expected, is how strong the momentum that he's been building since he's come back. And it's good business, and real business, and we're pretty pleased by it.

Also, we had a couple bluebirds, a couple accounts that our Rick Stark and our US team have been working on that came in. And we have a large pipeline, but it's very unpredictable. So, I think the number I care about most is my NanoKnife consumption number. That's what I care about. I want to see that number growing, and I want to see those procedures growing. I want to see it growing on microwave, and I want to see it growing on NanoKnife. And when I see a 30% growth on NanoKnife, I know that things are strong. And I typically don't get exercised one way or another by a couple deals that come in or don't.

Okay. Thanks for the additional color. And my last question is regarding the restatement. You mentioned that all of the restatement would be affecting the cost line items, and you do not expect any revenue line items to be affected by the restatement.

I'm wondering what kind of comfort makes you -- or gives you the confidence to make that statement, that there will be no other revenue items that are restated? Thank you.

Yes. And, Charles, it's not a restatement. It's potentially a revision to our prior-year results.

Okay.

And what gives us comfort is, we spent the last 60 days, as I said earlier in my comments, really in-depth going through every account. And that's where we identified items that we felt we needed to revise the prior periods, because it would have unfairly fallen in our quarter-one numbers. And so we have a pretty good box of those. Where we don't have the box is just making sure how those corrections fall. And that's why we delayed -- are delaying our 10-Q filing tomorrow, to make sure we get them in the right periods where those adjustments should be.

And that's more the work -- you still have a chance, obviously, of finding something else. But we're pretty confident, and have spent a lot of work that our quarter one is fairly stated. And it's more just doing the work to make sure where they fall, and we know the character of the items, Charles. We've looked at every single one. And we know they don't pertain to our revenue or revenue recognition cycles. It's more on the fixed asset, other asset, liability accruals, and balances, where we found the issues.

And just to add a little color to that. We were not pleased with the surprise we had at the end of the year when we saw the Oracle issue. We put a new Global Controller in place who has gone through, with Mark, to go through every single -- and comb through a good part of the accounting. So we feel like this is something that we have bracketed. And I'm very encouraged by the overall changes, improvements, and the improved strength of our finance organization.

I'm also very encouraged by the benefit of now having this ERP system. We've been flogging this thing for 18 months, of how hard it has been, and how tough it has been to put in place. I'll tell you, the quality of the data we're getting, the breadth, the immediacy, the ability to see all kinds of -- the entire business after the integration and acquisition -- is very powerful. It gives us line of sights on gross margin that we didn't have before. It gives us immediate line of sights on operating expenses, and it allows us to lean out the organization more; make quicker, better decisions. And I think it's probably the main contributor as to why we're going to be able to deliver faster and stronger earnings growth.

Great. Thanks, Joe.

And it appears there are no further questions at this time.

Mr. DeVivo, I'd like to turn the conference over to you for any additional or closing remarks.

So, everyone, thank you very much for taking the time to be with us today. We feel we have this issue that we'll address. And as I said before, we've addressed a lot of other things; remediated them; and get past them. That said, the core fundamentals of the business are strong. Our commercial organization is performing. We have new products in the marketplace. Our growth drivers are improving. Our bottom line is improving. We will modify our inventory and get the cash flow flowing. So I think the organization is moving in the right direction.

And we all appreciate your attention and your support. So, thank you so much.

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation.