AngioDynamics Inc (ANGO) 2017 Q4 法說會逐字稿

Good day, everyone, and welcome to the AngioDynamics 2017 Fiscal Year Fourth Quarter Earnings Call. Today's call is being recorded.

At this time, I would like to turn the conference over to Jim Polson. Please go ahead, sir.

Good morning, and thank you for joining our conference call as we provide an update on AngioDynamics' business as well as a review of financial results of the 2017 fiscal fourth quarter and full year, which ended on May 31, 2017. The news release detailing the fourth quarter and full year results crossed the wire earlier 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 revenues, earnings and free cash flow for the fiscal year 2018. 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.

A slide package offering insight to the company's financial results is available on the company's website under Presentations. This presentation will support remarks made by company executives and should be read in conjunction with the press release discussing the company's operating results and financial performance released prior to this morning's call.

This morning, we are joined by Jim Clemmer, Chief Executive Officer; and Michael Greiner, Chief Financial Officer of AngioDynamics.

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

Thanks, Jim. Good morning, everyone. We're pleased to be with you today to provide an update on our business, review of the strategic progress that we've made over the course of fiscal year 2017 and discuss how we intend to build upon that momentum going forward. We will also discuss our financial and operating results for the fourth quarter and the full year ended May 31, 2017.

At the beginning of the year, we anticipated that it was going to be a time of transition for AngioDynamics. We introduced several initiatives designed to improve operations, become more efficient and ultimately drive long-term value creation.

I want to look back at the 3 goals we've spoken about over the past 12 months: growing revenue, improving profitability and generating strong amounts of free cash flow. For profitability, we delivered a record $0.73 in adjusted EPS, up 22% year-over-year. In addition, our margins improved over last year as a result of net productivity improvements. That's despite a significant operational consolidation and a product recall and withdrawal.

For free cash flow, we finished the year at a record high of $52.7 million, up 23% from last year as a result of our efforts to improve our operations. And for revenue, we reported $349.6 million in sales, down 1% from last year and just outside of the bottom end of the revised guidance of $352 million to $355 million that we issued last quarter.

But as you can see, affecting that revenue was a $2.6 million reserve related to a recall and the voluntary market withdrawal of our Acculis Microwave Tissue Ablation System. Had that not occurred, our revenue would have come in at $352 million within the guidance that we provided.

We continue to strengthen the foundation of our business and are becoming the stronger operating company that we've spoken about for the past year. We are profitable and able to generate significant amounts of cash to invest in our business to drive sustainable growth going forward. We had a really good year even with a significant amount of transition. We worked hard, and we made progress against our strategy. And you can trust that we will become a growth company.

With that, I'd like to turn the call over to Michael for a review of our financial results and an overview of our expectations for fiscal 2018.

Thanks, Jim. Good morning, everyone. Before I begin, I would like to draw your attention to the slides, which we provided for today's call. We hope this type of information is helpful as we walk through various onetime significant or unusual items that occurred during a given quarter and fiscal year. We also are highlighting our financial -- our core financial drivers in these slides. We anticipate sharing similar materials with you in future quarters.

I'll start with our fourth quarter results and then discuss our full year performance in a minute. Sales during the fourth quarter were down year-over-year as a result of declines in each of our 3 businesses. The overall decrease in Vascular Access was partially offset by growth in BioFlo-related products, particularly with our Midline family.

Oncology/Surgery was down primarily due to the $2.6 million reserve related to the recall of market withdrawal that Jim mentioned, with our Acculis Microwave Tissue Ablation System. The reserve for Acculis also had a significant impact on our International sales versus our prior year results.

Our commitment to institutionalizing financial and operational improvements allowed us to drive year-over-year increases in adjusted EBITDA, gross margin and cash flow. Our gross margin of 48.7%, includes the impact of our Acculis recall and market withdrawal. Excluding the total impact of the Acculis reserves, which include both an inventory reserve and a reserve on revenue, our gross margin would have been 52.4%.

Now I'd like to elaborate on the Acculis recall and market withdrawal and what we are doing there as well as other onetime events, which impacted our fourth quarter results.

At the conclusion of the quarter, we withdrew Acculis from the market. This was prompted by a voluntary recall of Acculis probes, leaving us with 2 options to go forward: rather than fixing and replacing these probes, we decided to issue a voluntary market withdrawal of the Acculis systems. To account for the recall or market withdrawal, we recorded a $2.6 million revenue reserve related to probes that we anticipate being returned from our customers.

Separately, we have a $2.6 million reserve related to inventory, both for probes, which will be returned from customers as well as probes and generators we have on hand at the end of the year. As you can see on Slide 5 of the presentation, this had an overall negative impact on our earnings of $4.5 million.

However, as we look to maintain our microwave business, we are migrating our top Acculis customers over to Solero for an evaluation and replacement program, which we expect to be completed by the end of the first quarter. We believe that having more Solero units in the field sooner than previously anticipated will help drive greater probe usage than we had initially expected for fiscal year 2018.

Second in the quarter, we received a $1.8 million medical device tax refund for past payments made. We recorded a receivable at the end of the year, and we have already collected the refund with interest in early June.

Finally, we are working through resolving the previously disclosed legal matters with the DOJ related to our legacy LC Bead product as well as a separate matter for our VenaCure EVLT products. We are cooperating fully with these investigations and had constructive conversations with the DOJ towards resolving these matters.

We have reviewed a range of outcomes and concluded that it is now appropriate to record an accrual of $10.5 million for potential resolutions, representing the low end of a tight range of probable outcomes.

Now shifting to our full year results. Sales were down slightly compared to fiscal year 2016 due to declines in Vascular Access and oncology, partially offset by growth in our Peripheral Vascular business. PV sales were driven by growth in the core angiographic catheter business, offset by declines across most of the rest of the portfolio.

Declines across the VA portfolio were partially offset by significant growth in Midlines. And as it relates to oncology, sales reflect declines in both microwave and NanoKnife products, which is offset by growth in our radiofrequency ablation product.

We are up year-over-year in each of our core metrics, including, as Jim mentioned, a record adjusted EPS of $0.73 that is up 22% year-over-year and free cash flow which is up 23% to $52.7 million.

As you will see on Slide 5 of the accompanying presentation, there are several significant items that occurred during the fiscal year, which are worth noting. I mean, we already mentioned several of them in talking about the fourth quarter. These include the Acculis recall and market withdrawal we discussed earlier; the medical device tax refund I just mentioned; various asset and liability write-offs related to decisions we made during the second quarter as part of our ongoing strategic portfolio management process.

If you recall from our second quarter earnings, these write-offs resulted in a $10.9 million benefit, mostly related to the reversal of contingent liability payments we no longer expect to pay. Our operational consolidation continues, which will result in the closure of 2 of our manufacturing facilities and finally, the reserve related to previously disclosed legal matters of $10.5 million.

Even with the noise that these items created during the year, we are pleased with our full year ability to drive profitability and generate cash. Our cash position of $47 million plus our existing revolver give us access to nearly $200 million of capital as we enter fiscal year 2018.

This will provide us with flexibility in fiscal year 2018 and beyond to support our strategic capital allocation priorities, among those, investing in R&D, analyzing M&A opportunities and buying back shares at opportune prices.

And now, we'd like to take this opportunity to confirm the guidance we set forth at our Investor Day in April. We expect revenues for FY '18 to be in the range of $352 million to $359 million. Full year adjusted EPS to be in the range of $0.64 to $0.68 and just as a reminder, this includes the investments in R&D, clinical and sales and marketing that we outlined in our Investor Day in April.

And finally, we expect to generate more than $35 million in free cash flow. This excludes the potential resolutions related to previously disclosed legal matters.

Before I hand the call back to Jim, I'd like to take a moment to discuss the 8-K that we issued after the close of markets yesterday. As you may have seen, we filed an 8-K yesterday to describe a material weakness related to specific aspects of our annual goodwill impairment process for our fiscal year 2016.

The material weakness was specific to the controls around the goodwill impairment process and a documentation of that annual process. To be clear, this controlled weakness does not have any impact to the prior conclusion related to any impairment of goodwill. No impairment of goodwill. Although we will be filing an amended 10-K for the 2016 fiscal year, as well as amended 10-Qs for the 2017 fiscal year, there will be no changes or impacts to our financial statements or other disclosures included in these filings.

These amended filings will be made to pull our internal control opinions solely arising out of the 2016 fiscal year annual goodwill impairment review process.

As noted in the 8-K, we believe the material weakness has already been remediated and we anticipate filing a clean management internal control opinion when we file our 2017 annual report on Form 10-K in the coming weeks.

I look forward to fielding any questions to clarify in this during the Q&A. With that, I'll turn the call back over to Jim for some closing comments.

Thanks, Michael. And before we open to questions, I'd like to take a moment and look back on the past year. When I joined AngioDynamics, I realize that our company had high-quality products and we operated in strong markets but we were simply stretched too thin. We have done several things to simplify our business over the past 12 months, which have strengthened our foundation and positioned us for growth. First, at our Investor Day in April, we shared a new approach to portfolio management, which segments our product categories into those in which we will either invest or maintain based upon growth potential.

Going forward, our invest portfolio will be made up of our key growth drivers: NanoKnife in our oncology business, BioFlo in Vascular Access and venous insufficiency and thrombus management in our Peripheral Vascular business. We believe these areas provide us with a competitive advantage in the marketplace and offer long-term growth opportunities.

Second, we recently made the decision to reorganize our global structure into global business units. Previously, we had a senior executive who oversaw most of our International sales and marketing, while the franchise general managers had oversight in the U.S. Moving forward as GBUs, our general managers, we will be able to implement a truly global approach to their business. They can capitalize on significant international opportunities and make the necessary trade-offs to ensure we are accountable to our shareholders to drive growth.

Third, we announced the consolidation of our operations from 4 facilities to 2. This initiative will allow us to be more nimble as we look to grow in the future and will improve our margin profile as we continue to gain cost efficiencies. This is a project that is on track and will be completed during our third quarter of fiscal 2018.

And fourth, we have made significant changes to our culture throughout the year. We have flattened our organization to allow leadership to be closer to our markets and our customers. We welcome new members to our team across the organization, including some new senior executives who are running our businesses. And we revised our compensation structure to better align every employee with our company's plans for growth.

Finally, we have an overall clearer strategy for capital allocation and began to support that strategy during FY '17 by institutionalizing spending discipline across the organization, refinancing our debt to make capital more available and buying back $13.6 million of our common stock.

We will continue to deploy this strategy as we move into next year. These larger initiatives were complemented by activities that are significant in the way we run our business, including an SKU rationalization initiative that has eliminated more than 900 SKUs. Our new R&D process and continuous efforts to remove costs in our supply chain.

In addition to these efforts to simplify our business, we are prioritizing initiatives that we believe will support revenue generation. Over the past 12 months, we have accelerated our NanoKnife strategy with reimbursement and regulatory bodies.

In the past quarter, those efforts have resulted in NICE, showing their support towards a reimbursement pathway through additional clinical data, ongoing discussions with the FDA regarding an indication to include pancreas and the positive discussions with CMS on reimbursement.

In addition, during the fourth quarter, we announced a lawsuit alleging that one of our competitors in the Vascular Access space, C.R. Bard, has illegally tied the sale of its tip location systems to its line of PICCs, violating federal antitrust laws, preventing competition in the marketplace and limiting patient access to our superior technology. This lawsuit is designed to create a more competitive marketplace that allows caregivers to choose the best product for their patients.

As you can see, we were deliberate in our decision-making to move the company forward and to better support our customers, employees and shareholders.

We, at AngioDynamics, play a vital role as partners in the delivery of health care and we love our role. We have worked hard to gain traction in our markets and credibility with our investors. We have delivered on 2 of our 3 financial goals, and we understand the need to grow revenues at a faster pace. We intend to do so by improving our performance, launching new products at a pace much faster than our historic average and by utilizing our financial strengths to acquire external assets of strategic and financial value.

We are confident in the strength of our business moving forward and the financial guidance that we have set forth. None of this could happen without the strength and the commitment of our employees.

We are fortunate to have a talented and dedicated team. We'll continue to foster a culture that will allow them to thrive and increase the overall performance of our company.

Now I'd like to take this opportunity to thank everyone on the call for your continued support of AngioDynamics. With that, Jennifer, we'll turn the call over for questions.

(Operator Instructions) Our first question will come from Matthew Mishan with KeyBanc.

Jim, could you first contrast for us maybe some of the differences between Solero and Acculis? And then what, as far as the installed base of Acculis, what sales, especially on the probes and the recurring revenue are at risk of losing as you do this recall? And then in the past, when you've had a recall, it has taken a lot of your sales force time to deal with the customers and move the customers from one product to another, and it's cost you sales in other areas. Should we expect some weakness in the remainder of oncology sales as a result of this over the next several quarters?

Okay. Good questions, Matt. A bunch of stuff. Let me try to jump in and tackle that for you and Michael may chime in as well. First of all, with Acculis, the product itself was, I would say, end of life cycle. The product was scheduled to be replaced, as you know, with our Solero product. Now unfortunately, the Solero product is late to market, as identified with all of you on the phone, the need was here very apparently to me when I arrive last year to redo our R&D process, put more rigor and milestones in it. If I believe we have the process then that we have now, Solero would have been launched on time. We could have done a smooth and seamless transition, out of Acculis into Solero. Unfortunately, that didn't occur. So here's kind of the strange part. Acculis was -- we were losing faith with our customers in Acculis. It was not performing the way it should, so we had some softness in that business. We were able -- you see our numbers, it was okay, not dynamic, but that's an area that should be growing, so we are very pleased with how Solero has been received initially in the marketplace. It uses the base technology of our microwave system that Acculis had, which has proven to be highly effective. What Solero does differently, because we use physicians to help design it. Our GUI, the graphic user interface has changed completely, much more physician-friendly and it offers more opportunities for them to treat patients in a better manner. So Matt, we're trying to do a simple transition from one system to another. There's always turbulence when you do that. We have built into our 2018 expectations some of that turbulence that occurs. Because our salespeople are focused right now in taking care of those customers and making sure that our customers can provide the product to do the cases necessary for the patients in need. We feel good about where we are now. Of course, we would have rather have this problem be avoided, but here it is. I can tell you today, the way Angio is dealing with it, we're probably a little more prepared than we have in the past. The sales and marketing team did a really good job. Our operations team globally, doing a really good job because we've decided to make much more of the hardware available for our customers. And initially in our supply chain projections, they weren't that deep but we've responded to make sure we can get to the market as fast as we can. That's a lot of stuff, Matt, but hopefully I've answered some of your questions.

And Jim, I'll just add to that. The $2.6 million reserve, Matt, for revenue -- our hope, right, is that we would be able to turn all of that into revenue in 2018. So it's basically just moving revenue that we would have recorded in '17 and putting into '18. I think we recognize that there are some customers that may walk away from the product, so we won't get all of that $2.6 million. But we also believe by replacing the generators quicker than was previously anticipated and having a manufacturing build-out that we are doing that we will have more usage and therefore more probe sales. So we have a bunch of puts and takes throughout the year. I think one thing to point to is we did not come off of our Investor Day revenue guidance. And if you guided to the map, which you will, we ended $349 million but our guidance is $352 million to $359 million. So we basically are taking that $2.6 million and we're moving it into our baseline for 2018. So that provides you a little comfort of the puts and takes. We definitely have some headwinds, and you identified some of them, but we also feel like there's some tailwinds that will continue to put us in the range that we anticipated being back in April.

All right. Perfect. That's very helpful. And then switching over to the NICE recommendation. Congratulations on the progress that you're making there. But what exactly does that do for you? Did it remove the investigational or experimental label? Does it help with private payers? Does it help you maybe in some of the other European countries? How does that progress with NICE really translate to real world sales?

Yes, it's a fair question, Matt. Matt, we're joined here today by Stephen Trowbridge, our General Counsel and head of our clinical affairs group. I'd rather have Steve answer that for you, give you more detail.

Thanks, Jim. Hi, Matt, thanks for the question. You can think of the NICE progress that we made as the next positive step towards getting full coverage decision in the U.K. What they've done is they removed it from purely experimental. We've taken the next incremental step to allow us to continue to gain clinical evidence. But then to your point, exactly, go to the private payers in the U.K. and they've got the green light to give a positive decision, provided that we can have positive discussions with them. We do expect that, that will have a positive impact throughout the rest of Europe, as we continue to gather this evidence and prove out this technology. So I think a lot of the items that you raised are exactly the ones that we see as positives coming out of this. We are able to go to private payers in the U.K., we're able to negotiate payment for them, provided that we're continuing to evidence through a registry, and we do expect that to then have a halo effect as we move out into discussions with other European countries.

And next we will hear from Matt Taylor with Barclays.

I wanted to follow up on your commentary about in the U.S. You said you have some positive discussions with CMS. Can you flush that out a little bit more for us? You said in May that you're going to get some color on exactly what the pathway could be to get additional indications and I was just curious what that might look like.

Steve?

Sure. So there's 2 paths that we're going down in the U.S. One is the indication pathway with the FDA and then the second path is regarding reimbursement with CMS. Although those 2 items are linked, they are 2 separate paths. So we're continuing to have discussions with the FDA. We feel that there's enough evidence out there to support expanding the current indication to include pancreas in one form or another. We're going to continue those discussions. We've had the separate path conversations with CMS, and we're continuing to go down that path of moving towards some coverage decisions through CMS and that may take a variety of forms. We're still working through our conversations to determine that, exactly what form we're going to take, but there has been positive discussions in the sense that they have acknowledged that there is a very large base of evidence that's out there now in the published literature that supports the use of this technology. So we're going to be looking to leverage that clinical data that's out there to continue to move the ball with the conversations with CMS. It may take a variety of forms, but they -- there's been positive indications that the level of evidence out there does support this technology and that's what we're going to continue to talk about.

Okay. And I wanted to have a follow-up question on guidance, if I could, and I don't know how much specificity you can give, but I guess I was just curious if you think about the different divisions, could you help us understand what the differential outlook is for them for fiscal '18 and how much has changed since May? I mean that sounds like with the issues in microwave, maybe that growth will be a little bit lower, but any other color you can provide directionally or if you can give us kind of a numeric range that would be helpful.

Yes, so we don't specifically, Matt, talk about revenue dollars associated with our business units when it comes to our guidance. Obviously, for an actual standpoint in our 10-Qs, we do. I think when we look at oncology as an example, given the Acculis withdrawal, we will see some mix in there. We also -- the back half of the year is dependent on NanoKnife, particularly to the discussions around panc that Steve just referenced. And then what our RF device can be doing possibly in Japan, although we are looking at that market, and what we want to do there. So there's a mix of things on oncology. And then when you look at PV and Access, we expect Midline continue to drive growth there along our Access business. And then on the PV business, we do have the comparison points on [corp] or angiographic catheters. So we had in the fourth quarter last year, the first quarter of this year -- last year, we had a fair amount of inventory channel for the products once Cook had their recall and then we've gotten to a more normalized run rate. We expect to maintain most of that business as we go forward, the normalized run rate. Actually there's a mix of things, but ultimately, we believe that each of the views in addition to what we can see internationally will provide a little bit of incremental growth in each of our pockets and obviously, the pancreatic outcomes will be the big determinant in the back half of the year.

And we will now hear from Jason Mills with Canaccord Genuity.

Jim and Mike, I want to follow up on Matt's question just with respect to business unit segmentation. I'm guessing with 100% confidence that you build that up to give your guidance. And I'm wondering, Jim, on a go-forward basis, do you plan on organizing your business, your revenue rationale to The Street around these 3 business units or not? And I'm just -- I'm curious because it seems to me like it would make a lot of sense to give us your thought process around revenue expectations per these 3 businesses on a go-forward basis and talk to them with respect to your growth expectations as opposed to us modeling them and then -- but not getting any color on them. I guess, I mean, it as a bit of constructive criticism, but also just curious as to how you would think about building up your revenue profile, revenue expectations on a go-forward basis.

Yes. It's a fair question, Jason. When you go back to the April guidance that we gave at our Investor Day, if you look at -- we basically have 10 product categories here within our 3 divisions. And in the April meeting and even today, we reaffirmed the 4 that we are going to invest more of our business in and we expect growth from. In April, we showed that the other 6 categories, our 3-year CAGR we're expecting is around flat and the other 4 that we're going to invest in will have a much higher CAGR. So we'll focus, Jason, definitely more of our conversations around how and why. We expect those 4 to outperform due to investments in market dynamics, but your question is good. Maybe we'll spend a little more time going through each of the 3 divisions during the course of this year and have a little more specificity around the growth in each one. I can tell you this year in the VA franchise, obviously, we trust and believe what BioFlo does, and we see repeatedly feedback from the marketplace why it's so strong. So that team there is focused on really better execution and performance, backed buy the data supporting the product use. So they're going to get -- they should be positive this year in growth. That's a turnaround for their VA business. The PV business, again, the story as we identified, will grow. And even the fluid management business, which is our largest single category that we're not expecting high growth over the years, it's being run really well. And taking out almost 900 SKUs from that business has actually allowed them to streamline things and be more reactive to our customers. And I wouldn't be surprise if they outperform our expectations with that business. And finally, on oncology, Jason, the bulk of our growth over the coming 3 years we identified in April will come from oncology. And we believe that as messy it is right now with the microwave transition from Acculis to Solero, at some point, we'll have at least gotten new Solero units into the hands of customers at a faster pace and allow them to test our technology against competitors. We think we'll stack up really well there. And as you've seen now with 3 different prongs to the stool on our regulatory process to get Nano reimbursement or indication expansion, it's going down the path we expected. So we'll expect that business to outperform the others from a revenue perspective. And when it does, the margin profile adds to a healthy mix as well.

Okay. That's helpful. And going back to your point about your 4 key products for future investment: BioFlo, VenaCure, AngioVac and NanoKnife. Will you give us performance to certain numeric performance results and guidance on a go-forward basis in either all 4 of those areas or that group as a combined entity?

Yes, it's a good point, we haven't thought of that in '18, Jason, but maybe we should. Let's take a look and think about it. You guys are looking for more clarity there. We don't call out guidance by categories, but we will help you get clarity around those areas.

And Jim, the only reason I mentioned it is that at the analyst meeting, I think you did give an expectation for growth from that cumulative group of products. And so as we think about your performance related to that guidance, or sort of loose guidance that you've given in the Analyst Day, that would be helpful. I'm sensitive to the fact that I ask too many questions, so let me just get to a couple of other ones and get off and let others jump in. But as we moved down the P&L, you gave a good amount of guidance on 2020 -- through 2020 basis at your analyst meeting, so I'm just wondering, as we think about building up specific to your (inaudible) 2018, what we'll see in terms of gross margins in 2018? And I know that you expect 2018 to be an investment year especially on the R&D side, if you could give us a range as well in the middle of the P&L in terms of maybe as a percentage of sales basis, what you expect SG&A and pro forma specifically SG&A and R&D to look like maybe in terms of ranges for those 3 areas, gross margins, R&D and SG&A in so far as you'd be willing to give us some additional guidance.

Yes. So the gross margins, we still anticipate gross margins to be 52%, plus the 2 seasonal headwinds, obviously, with the Solero transition, just the way the accounting is going to work as we get the units out. But we think there's other things that we're seeing some tailwinds on. So we're sticking with that 52% plus on gross margins. R&D, gross dollars are going to be up significantly from this year, but we will always be in that kind of 7.5% to 8.5% range as a percentage of revenue. And it's a little over 8% for next fiscal year or this fiscal year that we're currently in '18 and then SG&A is going to be around 32%.

Okay, great. And those are pro forma guidance ranges, right, Mike?

Yes, they are. Well, I just want to make sure I'm understanding the pro forma portion of that. That's all in for everything that we're including. We're not excluding anything there.

And we'll now hear from Charles Haff with Craig-Hallum.

A couple of quick ones here. On the Cook angiographic catheter impact in the fourth quarter, was there much impact there?

So Charles, it's Jim. We think there was about $2 million related to the Cook impact in Q4. So as we saw kind of with the [first] initial supply chain builds stabilize, and we're at a more clear run rate.

And then on venous insufficiency, can you tell us what the revenue was this quarter? And what's the current plan right now for AngioVac and EVLT? Where do those 2 product category stand right now commercially?

Oh, so AngioVac, again, these are split. So AngioVac is in the thrombus management category.

So split?

Yes, it's okay. So -- but commercially, again, I think we identified, Charles, back in April, we really love what AngioVac does. We continue to see tremendous results when our physician partners used it in severe cases and situations. And then on the other side, we have our Uni-Fuse product at the lower end, less levels of acuity. Again, the gap we see is in between those 2 products and that's where we have ongoing R&D efforts to fill that gap in between. So again, we liked our 2 products in that spectrum. We've identified a gap. That's why we are so bullish on this category because we think we can give more tools to physicians' hands in the very near future to grow this business. Michael?

Is it fair to say that AngioVac revenues were about $2 million in the quarter?

It was north of that, Charles. It was a bit -- both AngioVac and venous insufficiency were about flat versus prior year.

Okay, great. And then, lastly on the elimination of the 900 SKUs, I think that's mostly in PV kits. Just wanted to get your confirmation on that, Jim. And then what sort of revenue range would you kind of bracket those 900 SKUs that were eliminated, either in fiscal '16 revenues or some other base year? Just to give us a sense for what the headwind was this year and going into next year.

Yes, Charles, I wouldn't focus on what the headwind is around those SKUs because we built it into our '18 modeling. In many cases, the revenues were small, and that's why they were products that we looked at to discontinue. In many of these cases, too, you're dead right, they were our custom products in our fluid management group. What it enabled our sales reps to do is to have conversations with our clinicians and move them into a different product or a different kit that maybe is more of a standard product or to better serve their needs. So it was really historic and don't worry about the revenue. Again, we've modeled it into '18, and it was small. But it's one other addition. It's a move we need to make to streamline our operations moving from 4 planks to 2 could not be accomplished without things like this. From here, Charles, you'd be surprised if we do more because, again, we want to set a foundation for growth going forward, organic and maybe external growth. And we got to make sure our foundation can support that.

Okay. I guess, I have one more quick one based on Matt's question he had earlier. On NanoKnife pancreas label expansion or CMS update, you talked about second half fiscal '18 and expecting some strength there in NanoKnife. Is the -- either the label expansion of the CMS update built into your second half fiscal '18 NanoKnife guidance? Or would that be pure upside to what you're thinking about there?

So it wouldn't be pure upside. We have built in some expectations, but we hope that these conversations go well, that we could have some upside. So we did build in some. But we think if we do this right, there could be more to that.

And it will now hear from Dominick Leali with Raymond James.

This is Dominick in for Jayson. Sort of just a follow-up on that question first. Is the time line which you expect to hear back from the FDA and CMS, is that both the second half of fiscal year '18? And to be clear, is the CMS decision contingent on the FDA decision? And then I have one follow-up.

We'll let Steve reply to those, and I'll answer something.

Dominick, thanks for the question. So the time line that we have laid out, we still think is appropriate. Although what I would say is the final decision from CMS would not be within that same time frame. We'll get a lot more clarity on where we're going. They have a little bit more of a protractive process. And so I think the final decision comes later. We're looking at FDA as something that we think should -- is appropriate to think about before the end of the second half of fiscal '18. With respect to the question of are those 2 things inextricably linked, the answer is no. They are linked. They are somewhat connected, but a CMS decision is not predicated upon the FDA or vice versa. However, we think that the best way to put these things together is to follow through these parallel paths, expanding indication through the FDA and then continue the discussions with CMS. But they look at very different things. The FDA is concerned about substantial equivalence. They're concerned about data efficacy from their clearance perspective, whereas CMS is much more concerned about outcomes and costs. Though there's 2 different perspectives that they have, so they are somewhat connected, but not inextricably linked.

Okay, understood. And just one more. If we back out the Acculis recall, gross margin was very strong for the quarter. I was just wondering, why was this so strong and maybe what was the impact of pricing in the quarter?

So pricing was minimal in the quarter. Most of that gross margin impact was due to productivity improvements, so we had a really strong year. Unfortunately because the noise are around a variety of things, it didn't -- it wasn't fully obvious on the consolidated results. But we have a very strong year with regards to productivity improvements. Pricing headwinds throughout the year remained around 1%, 1.5%. That did not change from the fourth quarter. And then we are starting to do some builds in the fourth quarter. And that gross margin is inclusive of the build that we're doing for consolidating the 2 plants in Georgia and Denmead, U.K. into Upstate New York. So we had about $2.5 million of inventory on our balance sheet related specifically to that build and yet we're still able to have the gross margin profile when you think about labor efficiencies and other things. So really, really strong quarter from a manufacturing standpoint.

(Operator Instructions) Thank you. 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.

Thanks, Jennifer. And folks, thanks for listening, paying attention today. We feel, again, we accomplished a lot this year at AngioDynamics. The transition of myself and new executives joining, new strategic initiatives, we stopped a lot of things to make sure we can enable growth in the future. We believe we had a really good year. We could back up our words with actions and results and really great generation of free cash flow and operating profit growth. Really, really strong, we think, vision into our future. And we also know, as you know, we need to become a growth company, and we're going to do that in a few different ways. Number one, expecting higher performance from each of us here, and using our hemo performance angle to be more competitive in the field and to grow our markets that we compete in today. Number two, our product line pipeline enhanced by our new R&D process, we know will bear fruit for us over our 3-year process. Number 3, additional investments like the $5 million we called out in FY '18, to take our pipeline that currently exists and to bring it up a notch, so we'll have a more robust buy plan to support growth in '20 and beyond. And fourth, utilizing the strength of our balance sheet, our free cash generation as an offensive tool and tactic to make sure that we have opportunities externally, whether they're deals that we can use for licensing, whether they're acquisitions or other M&A opportunities. We are constantly looking now to align our strategic intent with financial opportunity.

So we'll work hard, rest assured, we set a pace of play here that's faster than we have done in the past. Our expectations are higher, and we hope you'll see our accountability levels are appropriate. We'll hold ourselves to high levels of expectations. We'll take into account some of the comments you made today. We want to continue to give you transparency into our operations, and you can measure us along our path.

Thanks again to all of our employees at AngioDynamics and thanks, again for participating today.

Thank you. That does conclude today's call. We do thank you all for your participation. You may now disconnect.