AngioDynamics Inc (ANGO) 2017 Q2 法說會逐字稿

Good day and welcome to the AngioDynamics 2017 fiscal year second-quarter earnings call. Today's conference call is being recorded. At this time I would like to turn the conference over to Evan Smith. Please go ahead, sir.

Thank you. Good morning and thank you for joining up conference call as we provide an update on AngioDynamics business as well as a review of our financial results of our fiscal 2017 second quarter, which ended on November 30, 2016. The news release detailing the second-quarter results crossed the wire early this morning and is available on the Company's website. A replay of this call will also be archived on the Company's website.

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 year 2017 second quarter. 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. This morning we are joined with Jim Clemmer, chief executive officer, and Michael Greiner, chief financial officer of AngioDynamics.

With that, I will turn the call to Jim, who will offer his insights on the quarter. Jim?

Thanks, Evan. Good morning everyone welcome to our second-quarter earnings call. Our second-quarter results reflect another quarter of solid execution against our fiscal 2017 plan. Our efforts to enhance our operations have resulted in what we believe to be sustainable positive momentum. Over the past nine months, I have said that we would drive revenue, improve our operational efficiency, and be more profitable. We have achieved two of these objectives in the current quarter, higher earnings and cash flow.

We believe that we are making the right moves on these fronts and as you saw, we increased our guidance on both of these measures. We are making slower progress on the revenue front. As I have mentioned in the past, the operational changes that we are making could have an impact on revenues. However we believe this balanced approach will create a stronger and more dependable foundation that is capable of more sustainable, long-term growth and financial performance in fiscal 2018 and beyond.

Michael will walk you through the drivers of our performance, but I did want to touch on a couple of things that happened during the quarter that will enable AngioDynamics' next phase of growth. First, we added two new members to our Board of Directors. Eileen Auen and Jan Reed.

Eileen Auen most recently served as executive chairman of Helios, a $1 billion healthcare services firm, while Jan Reed most recently was senior vice president, general counsel, and corporate secretary at Walgreens Boots Alliance. Our new board members will contribute immediately to the strategic direction of AngioDynamics and their experience will provide insight in a value-driven marketplace.

Second, we announced a new credit facility and a share buyback program which will help to further strengthen our capital structure and give more flexibility to capitalize on future growth initiatives. Michael will soon speak to both in more detail.

Finally, I want to reiterate that our senior management team continues to work diligently to develop and refine a growth strategy to improve our operational performance, unlock strategic organic and inorganic opportunities for profitable growth, and create long-term value for each of our stakeholders.

With that, I will pass the call on to Michael.

Thanks, Jim, and good morning everyone. From a topline perspective, total revenue for the quarter was $89 million, down 0.3% year over year. Overall revenue for the second quarter was driven by our Peripheral Vascular franchise's core business. Additionally we saw growth in BioFlo Midlines and dialysis as well as NanoKnife disposables.

Gross margin for the second quarter was 50.6%, slightly below the prior-year quarter. Net income for the second quarter was $13.7 million, compared to a net loss of a little over $300,000 in the same quarter last year.

Earnings per share was $0.37 in the second quarter of fiscal 2017, up from negative $0.01 during the same period last year. Adjusted net income was $7 million and adjusted EPS was $0.19. This is compared to adjusted net income of $5.1 million and adjusted EPS of $0.14 in the same quarter last year. Finally, adjusted EBITDA was $16.1 million compared to $13.5 million a year ago, an increase of 19%.

Our strong cash flow performance during the second quarter was ahead of our expectations. We generated $14.9 million in operating cash flow and $13.6 million in free cash flow. Primarily this was a result of solid working capital management during the quarter. Additionally, we ended the quarter with $35.7 million in cash and cash equivalents and had outstanding debt of $116.5 million.

Now I will give an overview of the second-quarter results for each franchise. Our Peripheral Vascular franchise delivered a solid quarter with $52.9 million in revenue, up 4% year over year. We continue to capitalize on demand in our core business, enhanced by the Cook Medical recall, which included $3.6 million in revenue during this quarter. We are now focusing on maintaining this business over the long-term.

In Vascular Access revenue was $23.6 million, down 6% year over year. Declines were across the VA franchise, but they were partially offset by growth in BioFlo Midlines and dialysis.

The Oncology/Surgery franchise generated revenue of $11.8 million during the quarter. This was also down 6% year over year and was driven by lower sales in ablation products and NanoKnife capital, which is partially offset by an increase in NanoKnife utilization.

Internationally, revenue was $17.4 million, down 2% year over year. One item that had a significant impact for both Oncology/Surgery and International is related to VOLTA, our RF product for the Japanese market. As we announced during our last call, we received regulatory clearance in Japan for VOLTA just as we closed the first quarter. We had at that time anticipated revenue would be recorded in the second quarter related to this clearance.

However, we had some ongoing discussions with the Japanese distributor and that has delayed placement of those devices in hospitals. As a result, revenue of approximately $1.7 million that we anticipate it being recognized in our second quarter will now be recognized in the third quarter.

I will now turn the call back over to Jim, who will make a few comments regarding the second-quarter revenue.

Sure. As I mentioned earlier, our growth for the quarter is in line with our near-term forecast for fiscal 2017. I remain bullish on our Company, our employees, and our long-term opportunities.

Over the past six months we been basically fixing the plane while flying it and we are doing things differently than we were before. Let me give a few examples. For instance, we began an SKU rationalization project to eliminate products that had low margins. We revised our salesforce compensation to normalize our sales and align our compensation to industry standards.

We have introduced a new product development process and a new project management function to guide that process. We are taken a more disciplined approach to controlling SG&A costs. We are continuously optimizing our supply chain to be more efficient, take out costs, and still maintain our high quality standards and while we have stopped investing in some projects that as a management team we believe are not going to turn into positive cash flow outcomes.

All of these things are being done to improve the executional discipline at AngioDynamics. They are likely also to be causing some noise on the revenue side with current performance. Michael?

Great, thanks, Jim. Separately we executed on a few fronts to strengthen our balance sheet during the quarter and create opportunities to take a more strategic approach to capital allocation in particular. This is going to be critical for our long-term growth aspirations.

We also continue to be prudent and thoughtful in our approach to short-term financial management, leading to strong cash flow generation that we have already discussed. First, we entered into a new credit agreement, as Jim already mentioned. This includes a five-year $100 million term loan as well as a $150 million revolving credit facility.

This facility which provides us with access to an additional $50 million in capital, which along with our existing strong cash position and our ability to generate cash will be used for internal investments, strategic M&A, or as it presents itself opportunistically repurchase shares. Under the terms of the new credit facility, we retired all existing loans and terminated all existing commitments related to our previous credit facilities.

Second, we announced that our Board of Directors authorized us to repurchase up to $25 million of the Company's common stock. We will opportunistically use this authorization whether through a formalized 10b5-1 program or with open market purchases, as we chose to do in December when we acquired 500,000 shares at an attractive discount.

Third, during and after the second quarter we made required as well as voluntary debt payments, which currently leave us with approximately $5 million outstanding on the revolver as of today. Based on current cash projections, we currently anticipate making an additional voluntary payment during the third quarter to pay down the remaining revolver amount outstanding. Given our EBITDA projections for the year, this will position us to exit fiscal 2017 with a debt covenant ratio of approximately 1.5.

Finally as you saw in the press release, our net income was positively impact by adjustments to our contingent consideration as well as other operational improvements. As Jim has mentioned, we've been taking a very thoughtful approach to our business and strategically analyzing our existing product portfolio, the markets where we believe we can win, as well as our past and future capital allocation options.

Based on that assessment, we determined that AngioVac and an R&D project related to tip location will no longer hit the required milestones that would require us to make cash payments against these outstanding liabilities. As a result, we recorded a gain of $16.5 million in contingent consideration. That game was partially offset by a related $3.6 million write-off of the intangible asset that was acquired for the tip location project as well as a separate $2 million write-off of the Company's investment in EmboMedics. Each of these decisions was taken with a lens towards the future and allow us to focus on key initiatives which will drive long-term growth.

Finally, turning to guidance, as we discussed in the first-quarter call, we will not be giving specifically quarterly revenue and EPS guidance. The volatility that we have seen in the past two quarters underscores that decision. However we will continue to provide and assess annual financial guidance on a quarterly basis.

With that, our fiscal 2017 revenue guidance remains unchanged keeping our sales expectations to be in the range of $355 million to $360 million. However, due to a strong underlying operational performance and cash generation this quarter, we have updated both our adjusted EPS and free cash flow guidance for fiscal 2017. We now expect adjusted EPS to be in the range of $0.65 to $0.67 and free cash flow to be in excess of $35 million. Jim?

Great, thanks, Michael. And to summarize, we had a quarter that fell in line with our expectations. Our cash position and profitability were solid, but we had softness in revenue. However we are confident that our continued efforts to improve operationally in the near-term and develop and refine a long-term growth strategy will create value for our stakeholders.

We recognize that there is room for improvement in revenue and we will strive to get there. We have technologies that are helping patients every day and our products continue to receive validation in the marketplace. One recent example is in Germany, where percutaneous treatment of the liver by NanoKnife recently received a new DRG code that more than doubled the reimbursement level.

We are pleased with adjusted EPS performance and we believe that we are headed in the right direction and can maintain the positive direction we have begun to see. We have put in initiatives to streamline our reporting structure, to benchmark our performance and to optimize R&D processes and increase our gross margins.

You heard Michael talk about steps we've already taken to enhance our capital structure. Coming out of fiscal 2017, we will have the appropriate levels of capital to invest in areas that will generate growth in 2018, 2019 and beyond.

As a reminder, our strategic growth plans remain as follows: prioritize areas where we have a clear competitive advantage; improve operationally and lessen the burden on caregivers and our healthcare system.

As alluded to earlier, we are planning an Investor Day in the spring. Our plan is to close and report our third quarter at the end of March and possibly hold our Investor Day the first week in April. We look forward to providing further details on these strategic plans at that time.

Thanks for listening today and now we will open the floor to questions.

(Operator Instructions). Bryan Brokmeier, Cantor Fitzgerald.

Hi, good morning. So have you -- you commented on the NanoKnife consumables being nice but I was wondering if you could talk a little bit more about the FDA pathway. Have you had a discussion with the FDA and any update that you can provide on whether you may have to do an additional study or if you can use the data that's already been published?

Bryan, good morning. Thanks for joining us. This is Jim here. So a couple of things. Thanks for pointing on NanoKnife. We thought it was important also to point out the reimbursement, the DRG changes in Germany. We are seeing again more evidence being published by physicians that have used the product.

So our goal is, as we've stated in the past, take the compelling evidence that's being produced by physicians globally that are using NanoKnife for very different procedures and then we would like to take that evidence and speak with the folks at the FDA and CMS over time and to see what we can do to expand our indications and reimbursement levels.

Bryan, we are joined here today by Steve Trowbridge, our General Counsel who heads up some of those activities for us. I will ask Steve to comment as well.

Thanks, Jim. Hi, Bryan. Thanks for the question.

As Jim said, there has been a proliferation of data regarding NanoKnife that has come out. We've seen it with Dr. Raj's paper out of Miami. We've seen it with the previous papers that have been published. We think there is a lot of compelling evidence.

As Jim said, our strategy is to take that evidence that we have, engage in the conversations with FDA. We are not going to be able to predict or make any early assumptions on how the conversations are going to go, but we feel that we've got a lot of compelling data. We've got a very good technology and we are going to keep driving it forward.

Okay, thanks. And secondly in terms of EVLT, I know that's an area where because of the Cook recall your salesforce has been much more focused on driving that business and less on the EVLT. So the EVLT was an area where you were going to try to get the salesforce to start driving improved growth. Have you started to work with the salesforce on that and are you seeing any benefits or is that something that we will see later this year?

Yes, good question, Bryan. So as we spoke before, we think the shift is occurring now. The salesforce in our PV division has done a really great job this year. Faced with the challenges of the Cook recall, we had a customer demand situation that was really, really hard to predict earlier in the year and they did a great job balancing these new customers while still serving our current customers.

So you are right, some of that focus was taken off our EVLT business. They have now turned that attention back towards that. I've had some recent conversations with the sales team and we've seen some pickups here. We have got a lot of interest in our hardware orders, which then lead to what we love is our disposables and consumables that grow that.

So exactly right. We are in the middle of that shift as we see it and I know the team. I have full confidence in what they are doing now. As they are shifting not just the focus back on EVLT but as we mentioned earlier, now that the dust has settled a bit on the angiographic catheters, we are now in a maintenance mode to see what we can do to maintain the revenue we have gained there.

If and when Cook returns or whomever is going to compete in that marketplace, we like how we sit there with the quality of our products and our positioning. So Bryan, we will give you a more detail over time but that group will do a really good job maintaining and growing that business in both categories.

Great, thanks a lot.

Brooks West, Piper Jaffray.

Good morning, Jim, thanks for taking the questions. I wanted to start macro actually if I could. You quarter ended on 30 November. I would love to get your take on where we are with volumes, with hospital distributor purchasing. Any sense you can give us are things trending above, below expectations would be really helpful.

It's a great question, Brooks. On a macro scale, this business is different than the one that I spent much of my past life at. We had more interaction there with the distribution network mainly in the US but also globally. Here we utilize more of a direct-to-customer channel at Angio. So I have a little bit less knowledge of the distributor network but what we are finding is really just more or less a flatness I would give you in volume if -- unscientific evidence, but we are seeing volumes about flat utilization.

We are continually monitoring our own utilization versus past. We have a good measurement tool. But much of that we are seeing it we are gaining some share or losing some share or gaining physicians utilizing our products, those are wins.

I couldn't really tell you, Brooks, if I see a massive shift in care utilization on a larger macro scale. I don't think I've seen enough to support that.

Okay. Are you sensing anything on capital equipment purchases? I know you don't have a huge offering there but are you seeing hospitals back down into the end of the year?

No, I didn't. In a smaller way again in the current quarter we are looking at them, just looking at how December is closing. We think there was some solid activity actually on capital. Some of that is you know is calendar year considerations the way people do -- customers sometimes have leasing or tax treatments.

So I think we did okay there. We haven't seen any numbers come through but I know there was a high level of activity and then sometimes that goes with the way our customers close out their calendar years.

And then wanted to come back to statement you made, Jim, basically operational changes having an impact on revenues. You guys have done a great job of showing some leverage and I know it's hard to put a finger on it, but when do you think you should be through this period of operational changes and we should start to see the top line start to move again?

Good question. So number one, the operational changes that we have laid out and in my brief tenure here I've got a long list. In working with our supply chain team we've got a long list we are putting together. And we will share more of that when we are ready to share details on our three-year plan this spring.

So we are going to have a longer-term approach towards streamlining our operations in gaining efficiencies. So the good news is that going to be continuous process here and it won't be it won't disable us from growing the revenue line. It actually enhances it.

For instance, we talk about SKU reduction. We have too many SKUs for a Company our size. So we've already reduced 700 this fiscal year, which is a lot. It takes strain out of our supply chain operations group that enables us sales reps to focus on SKUs with more value to customers.

Over then time then we will report you more of those activities, which will streamline our backend and allow us to grow when we add new products in weather organically or in organically here. I want to make sure our foundation is solid but again this is really setting the base for our growth platform going forward. Going forward, Brooks, our plan is to grow revenue as well as continuous improvement on the operations and supply chain.

That's helpful, guys. Thanks for taking the questions.

Matthew Mishan, KeyBanc.

Good morning Jim, Michael. Thanks for taking my questions. Could you talk a little bit about the headwinds from the SKU rationalization and the timing of that? How should we be thinking about that in terms of your revenue guidance?

It's a great point, Matt. Again, early this year when we planned this year and we gave revenue guidance for the year. We talked early on about some of the things we do, so this is not the first time I've talked to this group about SKU rationalization. It's one of the things I talked about early on.

So I wouldn't look at guidance any differently. We put that forward knowing when you do something like this, you take a lot of SKUs out of your system, you put some revenue at risk. We were okay with that. That was well planned for in the revenue guidance we gave coming into this year.

If we saw a reason that it wasn't going according to our plan either positively or negatively, we would have probably made an adjustment in our revenue guidance. As you see, we didn't. So I think we are actually doing a really good job getting SKUs out of our system.

When you do that too you are telling a customer, hey, we don't want to sell you this product anymore and we are going to sell you this other one or maybe you can buy from another vendor or your price may change drastically. When you do that you are putting revenue at risk.

What I've actually seen the results here have been very good. We are maintaining probably a good amount and it gives me the encouragement to go forward, make sure our operations are streamlined.

Okay, great. And then do you have this ability to how much longer Cook will be out of the market? What confidence do you have that those volumes are sticky for you guys? Are you starting like long-term contracts or what are you thinking there?

It's a really good question. So here's how we look at it. Number one, we seen and heard very little from Cook so I don't want to predict or speak for Cook. They have chosen I think to be quiet and private, which is their choice. So we've got to rely on really what we can do at Angio internally to service these customers and maintain them with high-quality products.

What we are thinking of doing, Matt, because right now we saw in our Q4 2016, which was the first quarter that the Cook recall had an effect, we talked to you about roughly $2.5 million impact of revenue then. At that point, it was a lot of almost panicked buying from customers who needed products. They probably ordered from us and maybe Merit at the same time, trying to get some product on their shelf. So there was a high level of chaos as we were trying to service these customers.

We reported to you $4.1 million in revenue in Q1 and $3.6 million in this quarter we just reported today. So we expect those rates to slow down a bit and normalize. Our plan, Matt, is early in the spring when we lap this one-year field here we will give you clear guidance going forward of what we expect to maintain or what we expect the run rate to be.

But hopefully you will bear with us a bit because we've gotten very little external guidance. We want to be clear and transparent with you guys, which I think we have bee, but we also want to give you really good information to base on going forward when we have a more solid set of numbers. And we plan on having that this spring.

And just also to add to that, Matt, given that we have serviced these customers now approaching nine months in many cases, we are going to fight for that revenue and for that relationship. So even as Cook -- if they choose to come back online, we are going to fight very strongly to keep what we believe is our fair share at this point given the time period that we have serviced these customers.

Okay, got it. But I'm going to push you a little bit on the regulatory framework for NanoKnife. What's different that you are doing today that you weren't doing a year or two ago? You've had compelling evidence on this and you have spoken to the FDA and CMS. So what guidance did they present you before? What specifically are you doing different now?

So you are going to hear from two of us, Matt. It's Jim it right now and I've going to ask Steve to follow in. So here is what I will say the difference is. Since I have shown up here, Matt, I can tell you the way I look at it and people can debate this with me, I've seen we've had ideas. I don't think they were plans the way I look at plans.

So I'm trying to bring a different set of discipline to what I call a plan that we can execute and march on, then give guidance and plan it internally for whatever the impacts could be on revenue, then give you guys guidance and transparency externally. So in my mind I can't speak for what was done in the past at the Company, but I'm trying to ratchet up a little bit more around how we are going to go there, how we are going to report it, and how we do it with a little more discipline.

I will ask Steve to jump in as he has a bit more history.

I think that's fair. I think the other main difference is just the amount of data that we have now. Utilization as we talked about over the past few quarters has continued to pace very well, at times picking up. That leads to additional data that leads to additional experience out in the field. We think that clinical experience both in the US as well as OUS is reaching a critical stage now that allows you to have very meaningful conversations.

Three years ago we didn't have the same level of data that we have today. There aren't the same number of users that have the same level of clinical experience that they have today. That together with what Jim said, which is discipline around putting together all of our information and how we approach not only to regulators but also the payors as well as potential customers.

Okay, perfect. And if I could just squeeze one more in, can you talk about what you are thinking around the embolic beads moving forward? Is that something we should just write off and say it's the previous management team?

Yes, so we mentioned the write off today on the embolics going forward. Really if you look back, since I've been here I haven't talked about that product area very much or at all with you guys. So for now I wouldn't put a lot of stuff -- if we go a direction there we will communicate it to you, but right now that's not on my radar.

All right. Thank you very much.

Jason Mills, Canaccord Genuity.

Thanks for taking the questions. Good morning. I have a few questions. Let's start at the top of the P&L and work our way down.

Jim, could talk about what others referred to as your vitality index this year, some of the growth that is coming from new products? Where do you see that going over the next to a couple of years?

Good question, Jason. So I think we've talked about we just began to measure our vitality this fiscal year and the rate I'd like to measure it and I will just reiterate for those -- we are going to measure it on a rolling 36-month basis of revenue derived from products that were launched in a 36-month rolling window. That's how we will measure it.

So our first analysis, Jason, came out of a number less than 6% as we start the year, which is okay. We have set a baseline. Going forward we have some aggressive internal goals that we are setting. We have not yet come out with an external guidance there, but we believe internally that a 6% number is not where we should be.

When we speak to you guys this spring and more detail about our future growth rates, we will give more guidance there. But understand that our 6% or 5.8% baseline we see as improvement. I am not ready to throw a number at you yet, Jason, if that's okay.

Michael, do you want to chime in?

I will just add to that though Jason obviously in order to have a healthy vitality index, you have to have a healthy internal process around new product development. We kicked off in the November timeframe and into early December a new process.

We've had several meetings since and there are some encouraging projects in that timeline. Obviously that's going to take some time for those things to come to fruition, but we have kicked off the process of R&D being much higher in ROI from new projects that are being developed.

I will give you one good one here that the Company did a great job on last year when it launched our BioFlo Midline product in our VA business. The Company did a nice job launching a really great product last year.

This year we keep raising our forecast. The sales team is doing a great job executing. The product itself is being really widely received by our customers, really, really strong. That is helping our growth grow from that baseline. You will see it even grow during the course of this year, a lot of it based upon the great success they've had with the BioFlo Midlines.

Thanks guys. That's helpful. So I guess a bit more of a macro question, taking a step back here. As we think about the new administration coming in, there is a lot of concern about what's going to happen with ACA.

There's been some discussion about how that flows through from the medtech, the medtech manufacturers on whether or not as hospitals get squeezed, they will consolidate the vendors that they are working with, the companies they are working with maybe going from three to two or two to one in certain areas of medtech. Are you seeing any of that now? Are you having those discussions? Just curious what the -- as you take the temperature of your customers what it is.

Yes, Jason, as you know 2009, 2010 when this first wave hit I was at a much, much larger organization and I got to see it from a perspective there, which gives me a really good foundation to now gauge that perspective here at Angio, which is a much different company. No, I've really not seen anything on a macro scale.

But we speak consistently, constantly with our sales teams to gain field knowledge. I'm not seeing any movement there, Jason, even near the way we did see it in 2009, 2010. Our industry really reacted to our customers shaking out how they dealt with vendors and suppliers. So just so you know, we are planning for and looking forward to how we will deal with things but I have really had seen not that much at a macro scale.

My guess is people are just so uncertain as to what to expect, there has not been any moves. But good question you are asking. Thanks for asking. Just so you know, being the fact that I've gone through this in one cycle, yes, we are planning and thinking about it.

That's helpful. So just a few more if you don't mind. As we move down, gross margin is something Jim I know that you have been focused on since you got there and it takes a while to reinvigorate that line. But where do you see that going over the next 12 months, two years?

I suppose it has something to do with your vitality index and the new products that you are planning through R&D and what the gross margin infrastructure looks like for those products. But can you give us some confidence that gross margins are going to lift off of this 50% level at some point in the next couple of years?

Yes, I can give you that confidence and let me speak in a macro scale for a second, because we are attacking it from both ends. On our supply chain, we are doing a lot of things here working with our supply chain team to enhance our efficiencies in our supply chain. That's on the backend.

Now on the commercial side too, as we mentioned, the commitments we have two hour R&D process to get more products out, each of the products in our pipeline out will be at accretive levels to the current base gross margin levels. So we are going to get it from both ends. On the backend we are going to raise it by being more efficient. From the frontend, our new product sales will be at accretive margin levels.

I will ask Michael to comment briefly too, Jason, if that helps.

I think that's right and I think as we come out in spring at our Investor Day and you see what our profile looks like going forward, the mix of products. To Jim's point, we'll have a higher margin profile combined with what we are already doing under the covers just in the day-to-day things, whether it be supply chain or just even how we set up our footprints in our plants. So we have high confidence that we will have high sustained gross margins north of where we are right now.

That's helpful. Last one for me and I will get back in the queue and let others jump in.

Jim, you talked about your salesforce and compensation structure. You've made some changes there. Can you remind us how that changed and what you expect the impact to be as you work through all these changes to the bottom line specifically and over what time frame we would expect to see some impact? Or have we already?

Yes, sure. So the changes I made, Jason, entering this fiscal year were really to align what I expect our revenue flows to be and the incentives we want to have for our salesforce. I started my career in medical device sales about 26, 27 years ago, so I've walked in their shoes. We've got really good people that are very effective.

I think we had a misalignment with our past sales plan, which offered quarterly incentives and had too much short-term focus for people to make incentives and make their numbers, where I am trying to have a more normalized flow of revenue based upon us building customer demand. Our revenues should follow that flow if we do a great job building demand.

So what I've done is flatten our cycle out, tried to realign our corporate goals with the incentives we are putting in front of our salespeople. So when you do that, it's a bit choppy. Sometimes they want to know what the goals are in alignment.

So I was a bit concerned coming into this year that some of the changes I had made would have had a more disruptive approach to our salesforce and it's had a bit. But our people are really good and once they have figured out what we are looking for, they will be fine with it. We haven't seen a big disruptive effect, but any time you change something like that you've got to be careful.

Congrats on all the progress, Jim. Thanks. I will get back in queue.

Charles Haff, Craig-Hallum Capital.

Hey guys, it's actually Johnny Meeker in for Charles. Thank you for taking my questions. I just had one question for you around the VA business and how do you view that going forward? It was lower than we expected this quarter and I was just wondering what your thoughts are.

Johnny, good morning. It's probably slightly lower than what I expected, too, but the folks in that team are doing a really good job building that business. I have talked to you in the past. We have really expectations this year to be a round flat. I think we've talked to you about that before.

The business is being rebuilt a bit from the inside. What we'd like is the momentum with people shifting from standard products to BioFlo at a high rate. We are seeing the percentage of our revenue in the VA become more and more products that are bought with our BioFlo and Endexo technology.

That's one of the primary goals that that team has is to get that message out there. It's going to take a bit to do that. Again we've got some really good competitors in that space but when we look at a shift where people are shifting from using PICCs and looking at why Midlines should be utilized in hospital care setting for patients that maybe in the pastor going from a PIV to a PICC and skipping their need, the clinical need of the benefit of using a Midline.

We are reminding customers of that and we really like what's happening because we are winning a lot of those conversations and we've seen that with our tremendous growth in BioFlo Midline. So yes, to answer your question, I thought we would be a little bit ahead but I'm not worried at all. What they are doing is building a long-term growth profile there and they are doing a very good job.

Great, that's it. Thank you for your time.

Bryan Brokmeier, Cantor Fitzgerald.

Thanks for taking the follow-up. I don't know if I missed this but could you provide what percent of your PICC business is coming from BioFlo --? I think you talked about the percent of the VA revenues that are coming from BioFlo and then also that are the PICC Midline.

Hang on a second, Bryan.

Midline is a little less -- overall midline is a little less than 10% of the quarterly revenue. Then PICCs and Midline together are a little less than 50% of the quarterly revenue.

That's the BioFlo PICC?

Right. For VA, using $23.6 million as the quarterly revenue.

So all of our midline our BioFlo our PICCs are BioFlo and non-BioFlo.

Okay, thanks a lot.

It does appear we have no further questions at this time. I will now hand it back over to our speakers for any additional or closing remarks.

Okay, folks, thank you for joining us today. I think what you saw from AngioDynamics in this quarter is really what we told you we would see. We are able to utilize our ability to attract customers who need to give care utilizing our products.

We feel we can do so at an ever-increasing rate of higher performance. We are going to continue to drive our revenue growth rate, utilizing the products we have today, and our strategic intent to build out a faster R&D cycle and to utilize our great capital structure now to maybe take advantage of things externally.

Hopefully you saw also from our ability to generate profit from our revenue and generate free cash from our profit we have a really good operational base and a Company that can be counted on for consistent high performance going forward. I hope you stay tuned to our story and thanks for joining us today.

That concludes today's conference. Thank you for your participation. You may now disconnect.