AngioDynamics Inc (ANGO) 2015 Q2 法說會逐字稿

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

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

Thank you, Amber. Welcome, everyone, and thank you for joining us for AngioDynamics' conference call this afternoon to review the financial results for the fiscal 2015 second quarter, which ended on November 30, 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 or forward-looking statements regarding future events, including statements about revenue and earnings for the fiscal 2015 third quarter ending February 28, 2015, 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, 10-K, and 8-K, and any amendments thereto 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 re-queue to ask additional questions. We appreciate everyone's cooperation with this procedure.

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

Thank you, Bob. Thank you, ladies and gentlemen, for joining the call today. So to start off, I'm pleased to report another solid quarter for the Company, as we continued to deliver on the objectives we've set for ourselves while executing both topline growth and improved bottom-line leverage. We accomplished some major milestones this quarter which will help us grow into the future, while delivering the revenue and earnings necessary today.

I was pleased to see us positively anniversary last year's improving sales performance as each of our growth drivers continued to contribute. Our gross margin improved 105 basis points this quarter due to our operational excellence program and positive mix from our growth drivers, bringing us to 51.7% gross margin, which is ahead of schedule.

I believe our performance signals that we've entered a period of sustaining operating leverage, where gross margins and earnings will continue to grow faster than revenues.

Within the quarter, AngioDynamics was added to the S&P SmallCap 600 Index and the GICS Life & Health Insurance sub-industry index, adding significant liquidity for investors. This event, coupled with a strong first-quarter performance, increased our trading volume from 100,000 shares traded per day to 300,000 shares during the second quarter.

This added liquidity has attracted a new [caliber] of investors, making it much easier to build positions, and, frankly, exit them. We believe this addition is a validation of the strength of our Company, our mission, and the significant value creation we believe is yet ahead of us.

This third-party validation stands on the shoulders of our management team's execution of effective revenue and profit growth plans which I believe are sustainable. I'm very proud of our team and for our progress. So now to business updates.

Our peripheral vascular business grew 1% in the quarter. Our largest business presented the biggest year-over-year challenge, as revenues last year grew 7% on significant market share gains in venous ablation. Frankly, I'm pleased to maintain those gains throughout the year.

AngioVac sales grew 46% year-over-year, while utilization year-over-year was up 146%, and consistent with last quarter. We just received FDA approval a few weeks ago for our second-generation AngioVac, which we believe will make it even easier to set up, and even more clinically applicable. We are preparing for a full market launch for this second-generation AngioVac device by the end of March. And we expect increased procedure penetration, as it helps us gain the next level of new customers.

Our larger PV businesses had moderate performances for different reasons. Venous ablation in the first half of last year grew 24% off a major market share win for EVLT. In those numbers were significant new account revenues above the normal run rates. So the first half of this year does not have that level of new account activity, but we believe procedure growth is in the upper single digits.

Our two-year CAGR for the business is 11%, so we're very happy with where we are. So now as we anniversary last year's second-half 14% growth rate, I expect that EVLT will return to the normal mid- to upper-single-digit growth rates, normalizing the big wins from prior year and finishing closer to the appropriate run rate of the business.

Fluid management continues to float between plus or minus percent, and it will be this way for the foreseeable future as this is a pretty mature business. While we have several R&D efforts ongoing, we don't believe they will contribute in the near future.

So now let's move to vascular access. We are seeing simply a stellar turnaround in this business, period, from negative growth last year to 9% worldwide growth this quarter. I mentioned to many investors I had hoped to see near double-digit growth rates in vascular access by the end of fiscal year 2015, and here it is, now two quarters before that prediction. We believe our growth rate in vascular access shows that we are taking share in this category, as BioFlo is now contributing 56% of all PICC business, and the other categories are penetrating with BioFlo as well.

Our focused strategy of launching a differentiated product which improves patient outcomes while reducing immediate healthcare costs is occurring across our vascular access portfolio. Thus far this fiscal year, we have benefited from prior contract wins for ports and PICCs reliant on our BioFlo technology. And as predicted, now we are seeing its impact in our numbers.

In December, we announced we added -- that we were added to the HealthTrust agreement for our entire product line in PICCs; opening up for us, for the first time in a very long time, over 1,400 hospitals that have never been on contract with AngioDynamics for the PICC category.

While it is a multi-source agreement, HealthTrust is a very compliant group, and is extremely difficult to work off contract with their members. We believe this will create a real opportunity for share growth throughout the three-year term of this agreement, which started just a few weeks ago at the beginning of calendar 2015.

The next major milestone will be the approval of a no-chest-x-ray claim for our Celerity tip location system, which we believe we should receive any day now. With that clearance, most of the large institutions who have converted to bedside PICC placement will now be fair game, again further opening up the market opportunity for our PICC products.

While in vascular access, we spent a lot of time talking about PICCs. Our ports and dialysis catheters are higher-ticket and a higher gross margin items and have less barriers to entry and are really powering our near-term performance, with growth rates of 13% and 8%, respectively.

While no data has been presented yet, we are seeing early anecdotal data showing improved flow rates, meaningful reductions in tPA usage, as well as reductions in infections. Yes, I said reductions in infections.

While BioFlo is not an anti-infectant as a device, it is believed by some clinicians that the reduction of chronic thrombus reduces the chance for infections to form in the areas of stasis in the clots themselves. If this continues to hold true in the clinical setting, BioFlo's upside opportunities are even more powerful than earlier anticipated.

So now let's shift gears to oncology. Our second-quarter oncology/surgery sales grew 9% to $13.6 million, driven by strong international sales. Thermal ablation sales were $8.1 million, which was a 7% increase to the $7.6 million in the previous year. NanoKnife sales continues to grow, and in the second quarter we posted 13% growth compared to the prior year's quarter, driven by 16% growth in NanoKnife disposable sales.

We're excited to report the reimbursement outlook for NanoKnife continues to gain momentum. In Germany we obtained OPS codes which we announced earlier, which is the first step in achieving full reimbursement for NanoKnife procedure, not only in Germany but hopefully throughout the rest of Europe.

We expect the ZE and DRG codes in early January, and anticipate the full Germany reimbursement early in the summer. We also, interestingly, received positive reimbursement news from the Danish healthcare system for the NanoKnife procedure in pancreas. Reimbursement for the procedure has now approved at $7,000 per procedure.

On the publication front, there were two noteworthy publications in the second quarter: Freeman Hospital UK systematic review article, and Johns Hopkins' IRE Stage 3 pancreatic cancer paper, both published in September. In the systematic review paper, the author concluded the initial evidence suggests IRE incurs a prognostic benefit with minimal morbidity. In the Hopkins Stage 3 pancreatic cancer paper, it was shown the adaptation of IRE for pancreas tumor therapy is safe. These two publications add to the growing evidence, which shows IRE is safe and effective.

We've mentioned a couple of the new published papers in our press release. For you NanoKnife geeks out there, I encourage you to read these papers.

All right, so now moving to international. Our international business had another very positive quarter, growing 9% year-over-year. Our new leadership team and regional sales models continue to deliver, returning to the role of being revenue accretive for the whole Company. I'm very pleased with the entire progress of our international team, and look forward to their continued success.

Finally, probably the last remnant of the challenging Oracle implementation has been to build an inventory which stems from new system implementation, as well as planned inventory build for the operational excellence program's ramp in advance of product transfers from one facility to the next.

In the quarter, our inventory level spiked to $75 million, which is not a normal level for us. We've taken steps, last quarter and this quarter, to reduce inventories as it takes a while to turn the ship. We're not concerned about this. And we will see it meaningfully reduce, and cash levels increase, by the end of this fiscal year.

So with that, I will now turn it over to Mark Frost, Chief Financial Officer. Mark?

Thank you, Joe. As you can see from our second-quarter fiscal year 2015 results, we slightly exceeded our topline expectation and hit the high end of our guidance range for the bottom line. We continued the strong start to our fiscal year and delivered operating leverage with 5% revenue growth, excluding the supply agreement, and 21% earnings improvement. In addition, our adjusted EBITDA increased by over 18% to $15.9 million. We believe this performance is sustainable, which is reflected in our increase in our earnings guidance once again.

The one financial metric requiring improvement within the quarter related to our cash flow and inventory management. We made further progress in receivable management but experienced higher inventory levels than planned. We also experienced a drop in accounts payable, primarily because of the timing of the inventory build at the start of the segment quarter. I will discuss cash in more depth later in my comments.

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

Now I will be more limited in my product performance comments, as Joe has covered this in some depth within his own comments.

Peripheral vascular increased 1% to $49.4 million, reflecting strong contribution of AngioVac at $2.9 million. However, this was offset by flat results within venous and a 2% decline in fluid management, primarily because of international award timing, while US was essentially flat. Vascular access revenue continued to accelerate with 9% growth to $28 million compared to last year's second quarter. All three product lines within VA grew this quarter, with our ports portfolio growing at a very strong 13% level. PICCs were up 4%, and dialysis grew 8%.

Oncology/surgery had another good quarter with 9% overall growth. The key catalysts for our strong results was international NanoKnife. Our installed base increased by eight sites to 116 units in the field. Within ablation, microwave continued to perform well with 27% growth. The microwave results were offset somewhat by expected RF erosion. So we ended the quarter at the 7% ablation growth, which was a better result than the previous quarters.

From a geography perspective, US revenue improved to 4%, while the international markets grew 9%. As communicated last quarter, we were expecting international growth to moderate.

Now moving down the income statement, gross profit totaled $47.7 million or 51.7% of sales. This was a 105 basis point improvement from last year's second quarter. Key drivers for the improvement was our operational excellence program, which contributed about 70% of the year-on-year improvement, including absorbing approximately 30 basis points of provisions we needed to record for aging inventory. Stronger mix contributed the remaining 30% improvement.

Our strategy to add developed products with stronger profitability potential is working as the contributions from AngioVac, NanoKnife, and BioFlo -- particularly from ports in dialysis -- are driving the gross margin expansion. The GM percent returns dropped about 75 basis points from quarter one, reflecting royalty and warranty costs from higher US volume; as well as distributor sales contributed more of the international revenue, which diluted our gross margin return versus our quarter-one results.

Now turning to expenses, operating expenses totaled $43.1 million. Sales and marketing expenses remained flat, reflecting leverage from rebasing our global commission plans, as we discussed in the past.

G&A increased $1.6 million, with $700,000 from the ERP implementation, $600,000 from higher incentive in stock-based compensation, with the balance being timing. We think a run rate increase for G&A should be around $1.2 million per quarter above the prior year for the second half.

R&D declined by about $900,000, reflecting restructuring savings from organizational actions taken in the quarter one, as well as timing benefits primarily related to clinical and IP activities. R&D should return to the low 7% range as a percent of revenue in the second half.

Now included in the OpEx was $2.3 million of acquisition, integration, and restructuring items, of which $800,000 pertained to litigation. $800,000 also came from our restructuring initiatives, primarily related to our operational excellence program. The remaining $600,000 was from accounting organization process activities and some other miscellaneous items.

GAAP income results were $0.04 income per share versus a $0.01 loss per share in 2014. Adjusted EPS was $0.17 per share versus $0.14 in 2014. We saw leverage in both our gross margin and our operating expense lines contributing to the 21% improvement in earnings.

Turning to EBITDA, EBITDA grew to $11.9 million or $0.33 a share versus $8.6 million or $0.24 a share in the prior year. Adjusted EBITDA was $15.9 million or $0.44 a share versus $13.5 million or $0.38 a share.

Now as we indicated on our last conference call, we did not expect to generate significant cash within quarter two. In the quarter, we utilized $2.1 million of operating cash and $4.6 million of free cash, compared to $4.2 million free cash generation in the prior-year quarter. This was lower than our expectations, caused primarily by a $14.4 million working capital build, with $5.9 million from an AP reduction, $4.9 million in inventory build, and $2.7 million in AR from higher revenue volume.

Now on a year-to-date basis, working capital has increased by $20.9 million, with $14.1 million in inventory, $6.1 million from a payables reduction, offset in part by a $3.2 million decrease in AR. We believe the AP impact is primarily timing, while the major impact in the quarter, and year to date, was the inventory increase.

Now as I indicated last quarterly conference call, a significant portion of the increase relates to a delivered build of inventory in advance of our manufacturing transition from our Queensbury to our Glens Falls site.

In addition, we have a contractual inventory commitment of about $1.2 million per quarter relating to the Medcomp deal. The unexpected factor has been in the raw WIP area, where ERP learning curve issues led to excess ordering and built. In this regard, we think we have solved these issues. And the month of November realized our first reductions of inventory levels for both of these components. Now on the finished goods front, we have begun the line transitions, and expect to see a steady decline in the second half of fiscal year 2015.

Now during the quarter we utilized $10.4 million of cash primarily for the Vortex guaranteed contingent $8 million obligation, $1.3 million for repaying term debt, and $1.1 million relating to a clinical device revenue earn-out. In addition, we acquired $2.4 million of fixed assets, bringing the total investment year to date to $7.5 million. This reflects primarily the buildout of costs of the Glens Falls facility for the manufacturing consolidation, as well as some ERP costs which had been pushed into fiscal year 2015.

Now as a result of the contingent obligations and the working capital build, we borrowed $15 million from the revolver. We ended the quarter with $16.6 million in cash and investments, and $155.2 million of debt outstanding. We intend to repay the revolver drawdowns during the second half of this fiscal year. As I also indicated on the last call, we expect cash flow to improve in the second half as the working capital concerns are well within our control. We continue to anticipate generating low- to mid-$30 million operating cash flow, and free cash flow in the low- to mid-$20 million range for the fiscal year.

So now I'm going to turn to a discussion of our guidance for fiscal year 2015 and the third 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 excluding the impact of the planned wind-down of our supply agreement.

On the earnings side, we are raising again both the lower and upper end of our adjusted EPS range, and are now guiding to $0.66 to $0.72. This represents a potential improvement of 18% to 30%. Our visibility and confidence level have increased after seeing both gross margin and operating expense leverage continue to improve within the first half of our fiscal year, supporting our belief in the sustainability of this performance.

Now turning to fiscal year third-quarter guidance, we are guiding to a revenue range of $88 million to $91 million, 5% growth at the top end, excluding the supply agreement impact. The range is being driven in part by capital timing and international order patterns. We are lower than second quarter in absolute dollars, as there is one less day in quarter three, versus quarter two.

Given our topline 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.

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

Thanks, Mark. So as you can see in the numbers, we're continuing to make great progress on all levels. Our team continues to execute in the growth driver's top line and bottom line of the Company, and our operational excellence program is beginning to deliver meaningful operating leverage to the business.

We've set a goal for ourselves to get to 60% gross margin as a company within the next five years. If our progress continues, we have every chance on beating that goal and getting there sooner.

As you can all see in our latest IR presentation as well, there are meaningful research and development programs launching at the end of 2015 and then throughout 2016 and 2017. These programs range of from well needed line extensions to new novel technologies that will increase our presence, and then value up the categories we currently serve.

Over the past couple of years, we have benefited from products we've acquired for our topline growth. And as they continue to grow, our top line will be powered by key new product launches, driving our performance to our stated top- and bottom-line aspirations.

For now, our success is in our hands. And continued implementation of our strategy and disciplined execution from an excellent management team will get us there. So thank you very much for your attention.

And, operator, now please open the line for questions.

(Operator Instructions). Tom Gunderson, Piper Jaffray.

Two questions. One, the first one will be in the area of AngioVac. I think I heard $2.9 million. In the previous calls, Joe, you've talked about number of procedures. Did you say that was about the same as last quarter?

Yes, it was about the same as last quarter. It was up like 140% year-over-year, and consistent with the prior quarter.

And how do you feel about that? That's one of those ones where it's just a dynamite presentation, and the videos are incredible. Do you expect to see procedure growth like we saw in the last few quarters, as we go into second half?

Yes. I definitely believe procedures are going to grow. It is still a new technology and we are -- the best comparables are year-over-year comparables. Quarter-to-quarter comparables, they can show trajectory, but they don't match in timing and logistics and seasonality and whatnot. So I'm not concerned about it. We've had quarters where -- each quarter has not been a consistent level of growth.

It kind of ebbs and flows, and I think last quarter were very strong procedures. We didn't do virtually anything on new accounts. We were 500,000 up over last quarter. And it could just be salesforce attention and stuff ebbing and flowing. So no, I have no concern. I think the business is going to continue to grow nicely. And we're very excited, especially about this new product launch.

We're still selling the first-generation AngioVac, which is made by a startup company and is not as refined. And from the ability to set up the room to reduce procedure times to make it easier on the team to be able to make their procedures more predictable, it's an order of magnitude a better product from the ability to drive consumption. And we think we will be able to get to the next level of clinicians. So no, Tom, I'm not concerned about it. If I was, I would say it.

Okay, thanks. And then the second question would be on BioFlo, but really it's more of a general question, Joe. You and I have talked in the past about your rule for R&D projects, that they have to be cost effective for the hospital within the first 12 months. I would think lowering infection rate would qualify for that.

What do you have to do from here, beyond just a little bit bigger trial? Is it a publication? Is it going back to the FDA for labeling? What you think you have to do to push that forward?

Well, I think it's the former. The first step is simply the product has to prove itself out clinically. And with ports and dialysis catheters that I was referring to, which have very long [dwell] times in the patients, chronic thrombosis is a challenge. And when it infects, it's a really bad thing for the patient. It's different than the type of infection you talk about for PICCs, where it's probably more placement and site-related.

Some clinicians -- and they've mentioned it in papers -- believe that if there is stasis of thrombus that resides in a catheter over a long period of time, whenever you -- it's like a swamp -- whenever you don't have flow and you don't have movement, it's an area that can cause problems.

If BioFlo can reduce that chronic thrombus and that stasis, then, net-net, it reduces that cesspool that create and improves that. But I think this is -- it's just very early. It's things that we are seeing at individual sites that are opening our eyes and we're excited about.

I think it's going to take some time before the data presents itself, but it's an exciting early indication that while we spend so much time talking about PICCs, but our ports and dialysis catheters, I think, are real winners.

Got it. That's it for me. Thanks, guys.

Charles Haff, Craig-Hallum.

Congratulations on a great quarter.

Thanks, Charles.

Couple of questions here. On the AngioVac side of the product, the second-gen product, is that the one that's better designed for PEs that you've been talking about, or is that something different?

Well, the product, Charles, is indicated for thrombus. It's not indicated for any specific application, but it's a general device for thrombus removal. In order to get to more difficult areas, if it is more nimble and it has curvature to it, it can get through more torturous anatomy. And this device is the one that can do that.

Okay, thank you. And then for the NanoKnife registrations internationally, that's very encouraging. I know that you were having some challenges with that when you were going through your Queensbury issues. Would you expect more NanoKnife international registrations in the near future, or is there going to be a pause here, based on the ones that you've got now?

No. We're working pretty hard to catch up for some lost time. We're working hard on not only getting those registrations, but working on reimbursement. We think it's time, and there's enough data out there for countries to reimburse, and you've seen the successes that we've had.

And probably the next big -- the next couple big milestones for NanoKnife will be around China and Japan, and those are things that we are actively working on. I don't have any timing to share with you today. But we think China and Japan are both very big ablation markets, very high level of primary cancers. And if we get those approvals, I think it would be a next level of positive news for Nano.

Okay. And just as a follow-up to that, Joe, after you get those product registrations, do you have a little bit of pent-up demand that gets released, and you get a little flurry of orders shortly after those registrations? Or is the business more even than that?

Well, it takes time to develop those markets. Obviously, not having a product on the market, we're not developing in the market. So, these are capital equipment sales with long life cycles; so, no. If something drops because someone is going through an international meeting, it will be a one-off. It takes time to develop those markets.

Okay, great. I'll get back in and re-queue.

Jason Mills, Canaccord Genuity.

This is actually Jeff Chu filling in for Jason. Congratulations on a great quarter.

Thanks.

Thanks, Jeff.

Just a quick couple questions. Number one, on the gross margin side, you're making great progress on the operational excellence program. And so I'm just wondering, how should we think about gross margin expansion from here? I appreciate your commentary on getting to 60% margins over the next several years, but perhaps how we should think about it in the near term.

Sure. Joe, you want me to take a shot at that?

Yes, please.

Okay. So, we've communicated in our investor presentations, now, the four-year plan where we'll make roughly between a 400 and 500 basis point improvement. We said at the beginning of the year that we would be up 100 basis points on our gross margin. We're running a little ahead of that.

Operational excellence is coming in a little stronger than we expected for the year. So we have the chance potentially for upside in the second half. And then it would ramp over the next few years. I think we have an outline ramping to 125, 130 basis points each year out, all the way through 2018.

And then the wild card is our ability to drive success on the product mix, which you can also see we're doing a little better than we expected, as we drive our big growth drivers -- AngioVac, BioFlo, microwave, and so forth. So I'd say we're running slightly ahead of schedule, and that's one of the reasons why we've raised our guidance as well, Jeff.

Okay, great. Thanks for the color. And just a quick follow-up with regard to the HealthTrust contract. Wondering how we should think about the contribution to the balance of your fiscal year.

Well, it is something that is positive for us. As you know, in the PICC business there is a cycle of evaluation and time. It doesn't just flip and place orders. I think really the catalyst that will be the determining factor is we're waiting any day for the decision on Celerity. We were hoping to get it by now. I think the 90-day clock runs out in three or four or five days or something. So we are expecting and hoping that we get that. And I think if we do, that's where we have some pent-up demand that will help drop a lot sooner. But I think the HealthTrust, it's realistic to believe that it's really accretive to topline growth in fiscal 2016.

All right, great. Thanks for taking the questions.

Jayson Bedford, Raymond James.

So, just following the last question a little bit -- and I don't mean to be ungrateful with the growth in access, but PICC is up 4%. It seems like PICCs are the biggest beneficiary of a BioFlo, but it's also the slowest grower out of the three product categories there.

So I'm just wondering, is it just a more competitive market? Or are folks truly waiting for Celerity, and that will allow the growth to pick up in PICCs?

No, it's the same thing that we've mentioned over -- quarter over quarter over quarter, which is that the PICC market for us is a battlefield. We are winning and converting a lot of accounts, but also accounts -- our competitors who have tip location devices out there with no-chest-x-ray are converting non-BioFlo accounts over to (technical difficulty).

If they decide to go to bedside, that's the most frustrating thing in the world. We'll go and we'll convert an account, and then we'll turn around and lose an account because we don't have the no-chest-x-ray yet. It's just the same story that we've been dealing with. And that's why I believe when we get it, it will definitely allow a lot of those other conversations to shift from a method that's good and helps reduce hospital costs to a product and a procedure that reduces costs and improves patient outcome.

It's kind of frustrating that there are hospitals -- but we understand that the dynamic, when they decide to move PICCs from the IR suite into bedside nursing, that that's a major shift in cost and in policy for the hospital. And because the tip location device is enabling, they will choose that over antithrombogenic. And we've seen that. We've been losing share. That's why we had negative growth. The only reason why we're growing today in PICCs is because of BioFlo. But if you look under the sheets, there's a lot of churn in that business.

In the other businesses, we don't see it. We're not losing port and dialysis accounts. We've been losing dialysis price over the last several years as that market got more competitive. But what we're seeing now is a stable business; and whatever we grow, we keep, and that's why those growth rates get up so quickly.

So, I think when we receive an approval for a no-chest-x-ray, it's really going to open our bedside nursing opportunity, finally after years' worth of self-imposed drama of not having the system. And then that will be a great catalyst.

And then that will help within our Novation accounts that are looking to convert over to us. It will help with our HealthTrust accounts that are looking to convert over to us. And other legacy AngioDynamics accounts that maybe have been very loyal to AngioDynamics, but went over to a competitor because they had a system. So, it's really the same old story, Jayson, and it's just as simple as that.

Okay. And maybe for Mark, do you have -- within the guidance, do you assume a bump-up here when Celerity is approved?

No, we have not assumed much impact from that. That's a change we've made to our budgeting and forecast process, that we don't build it in until we have the regulatory approval. So that potentially would be upside to our numbers if that happens.

Okay. And then maybe last for me, Joe, on the PV side of the business, it's a slower-growth end market. It seems like from a product standpoint, outside of AngioVac, there's not a lot in the near-term. Just wondering what you can do to grow the business, perhaps broadening it out geographically. What can you do in the near-term until you get a few more products out there to grow that business a little faster than what we're seeing?

Well, first of all, if you look at our EVLT business again, even though it showed negative 1% for the quarter, for a two-year period it's up 11%. We were 24% up last year, and PV grew entirely last year, 12%, our biggest business. So we need to have -- and I look at it, and for me at least, and you can look at it, or everyone can look at it for how they want -- but I look at it and put it in perspective that while we were down in vascular access and while international was kind of sucking wind, PV brought it home for the Company last year. And so now they are anniversarying some huge performance.

And I think the EVLT business will continue to be the type of revenue growth business and margin accretive business that it has always been for the Company. So let's put that to the side.

It's really fluid management. Fluid management is a big number for us. It's a low gross margin, and it's low grow. You pull fluid management out of the equation, and we're -- I don't know. I guess I haven't looked at it recently, but our gross margin probably goes up 3 or 4 or 5 points, and our growth rate goes up probably 3 or 4 points. We're probably closer to a 10% growth company and a 55%, 60% gross margin product line -- or a company, I mean. So it is an anchor, and it does weigh on the business, but it also funds the salesforce.

Our biggest challenge as a company, as we've mentioned always, is scale. And we like having that revenue in because we like having all the salespeople out there to sell all the other products. And without that revenue, we would probably have a smaller sales force. So that's really the balance of it.

Now, we have communicated a lot about the Duet program, about getting into automated. We hit some major roadblocks, and we were back to the drawing board. And that's just -- that's why they call it research and development. It's research and development. We went for it, and we've chosen that we have to retool that program. But we do have a desire to be in the automated segment. We will be in the automated segment. And when we get closer to how we're going to get there, we will communicate it to you.

And we also have some things in the pipeline on the fluid side that should return and improve its growth, but it's just not happening in the next several quarters. So it's something that's a little bit farther out.

So probably, if you really ring fence it, it's -- fluid would be the biggest issue. And we're focusing on it, but it's going to take some time. And it's a core part of our business, and it is what it is. And that's why we are -- as every day goes by, our growth driver numbers are becoming a higher percentage of the overall revenue.

And yes, okay, if you didn't have the anchor, we'd be higher in those levels. But also, it is helping us find the core business. So I don't know if that answers your question, but I think it's really just around fluids.

All right. That's helpful. I appreciate the time, guys.

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

On the no-chest-x-ray claim, it sounds like you're pretty confident that you're going to get the clearance there. Is that just a function of the 90-day clock expiring in the next 3 to 5 days, like you said, Joe? Or are there some other things that your clin reg people are telling you that are giving you some confidence? Without getting into specifics, of course.

(laughter) Yes, well, it's kind of hard to answer the question without getting into specifics. Our clin reg people think that we have gotten there. This is a -- if you go back in time, this product has been in front of them for almost 2 years now. And we think we've supplied everything. We think the questions they've asked have been answered and we expect a positive response. But we -- and it's at a risk for us to say that we expect that positive response. If it doesn't happen, then you guys will be disappointed. But we wouldn't say it if our team didn't feel confident.

Okay, that's great. And then one more follow-up for me, for Mark. On the cash flow side, Mark, I wasn't sure if I heard you correctly. But did you say that there's a $20.9 million increase in working capital that will not be reversing? Or is that -- did you say you're working on that number to get that down?

Yes. What I said is, it's increased at the first half by $20.9 million, and we will work that down considerably, we think, in the second half.

Okay. So with the sales increases that you've had, and would presume to have in the second half, should we expect maybe half of that to improve in the second half? Or any help you could give us on quantifying it?

Yes. You can get to the numbers. But we've said is we should be able to get to low mid-30s operating cash, low mid-20s free cash. So that will tell you that we're reversing significantly the impact of the first half working capital build.

Okay. That sounds great. Thanks, guys.

It appears there are no further questions at this time.

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

So in closing, peripheral vascular up 1%, or down 1% for the quarter. We have vascular access up 9%, oncology up 9%, international up 9%. Very strong topline numbers. Earnings improving in the 20% range. We think this is sustainable. We are excited about where we're at.

We've been through, over the last several years, a lot of change. And the team is now driving some very nice execution. So we're excited about our position and our team, and we very much appreciate your attention on the call. So thank you, everybody.

That does conclude our conference. Thank you for your participation.