AngioDynamics Inc (ANGO) 2018 Q4 法說會逐字稿

Good morning, and welcome to the AngioDynamics Fourth Quarter and Fiscal Year 2018 Earnings Call. (Operator Instructions) As a reminder, this conference call is being recorded.

The news release detailing the fourth quarter and fiscal year 2018 results crossed the wire earlier this morning and is available on the company's website. This conference call is also being broadcast live over the Internet at the Investors section of the company's website at www.angiodynamics.com, and the webcast replay of the call will be available at the same site approximately 1 hour after the end of today's call.

Before we begin, I would like to caution listeners that during the course of this conference call, the company will make projections or forward-looking statements regarding future events, including statements about expected revenue, adjusted earnings and free cash flow for fiscal year 2019. Management encourages you to review the company's past and future filings with the SEC, including, without limitation, the company's Form 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 into the company's financial results is also available on the Investors section of the company's website under Presentations. This presentation should be read in conjunction with the press release discussing the company's operating results and financial performance during this morning's conference call.

I'd now like to turn the call over to Jim Clemmer, AngioDynamics' President and Chief Executive Officer. Mr. Clemmer?

Good morning, everyone. And thank you for joining us today for AngioDynamics' Fourth Quarter and Fiscal Year 2018 Earnings Call. With me on the call is Michael Greiner, our Executive Vice President and Chief Financial Officer.

Today, I will provide a brief overview of the operating highlights for the quarter. Michael will then provide a detailed analysis of our financial performance and our fiscal 2019 financial guidance. After that, we'll open the call to your questions.

We are generally pleased with both our quarterly and our full year results as we further solidify our operational foundation while also focusing on portfolio optimization. As we enter fiscal year 2019, we will experience operating leverage from the foundation that we have built over the past 2 years. We believe that developing a stronger portfolio on top of that foundation will create significant runway to achieve sustainable long-term growth.

Our net sales for the fourth quarter of fiscal 2018 increased 1.6% year-over-year to $88.3 million. During the quarter, we continued to experience solid growth in our Fluid Management, angiographic catheter and our AngioVac product lines. Additionally, our oncology ablation products, Solero and NanoKnife, also experienced growth. This growth was partially offset by continued headwinds in our Venous Insufficiency business and our PICC product lines. While our revenue growth was moderate in the fourth quarter, we are very pleased with the year-over-year gross margin expansion and solid profitability combined with strong free cash flow generation.

Focusing on the performance of each of our businesses. Our Peripheral Vascular business was down 2.4% year-over-year as the previously mentioned growth in Fluid Management, angiographic catheter and AngioVac product lines was more than offset by declines in our Venous Insufficiency business.

AngioVac procedural volumes remained strong and were up 14% year-over-year in the fourth quarter. We continue to make targeted R&D investments in our thrombus management portfolio while also identifying external growth opportunities as we seek to build out a franchise around our AngioVac offering.

The Venous Insufficiency business continued to underperform primarily due to our largest customer discontinuing their exclusive use of our EVLT products. We continued to examine various options to return this business to positive growth. For example, we just received 510(k) clearance for an expanded indication for our 400-micron laser vein ablation kit for the treatment of incompetent perforator veins. This clearance was supported by the positive results of our clinical trial that we completed earlier this calendar year. We believe that this perforator vein indication demonstrates the comprehensive value that our EVLT product line can offer to the venous insufficiency market.

Our Oncology/Surgery business grew 37.5% year-over-year as strong growth from our Solero ablation system and a robust increase in sales of NanoKnife were partially offset by lower sales of our RFA products. In the fourth quarter of the prior year, we withdrew Acculis from the market in favor of our newly approved Solero products, and as a result, we recorded a $2.6 million reserve for returns of Acculis probes. Normalizing for this reserve, our Oncology/Surgery business grew 6% in the fourth quarter.

Vascular Access revenue declined 2.5% during the fourth quarter as growth in ports and dialysis products was more than offset by declines in PICCs. During the quarter, we saw customers continued to gravitate to our BioFlo products, again, providing evidence of the value that this one-of-a-kind technology is delivering.

As we have discussed in recent quarters, one of our top strategic priorities has been portfolio optimization, both internally and through value-creating M&A. Our portfolio optimization will focus on the continuum of care within oncology as well as disruptive and patient-focused technologies that are differentiated and truly changing how care is delivered. We will continue to seek out acquisitions focused on products and technologies that fulfill unmet needs in large addressable markets and generally have high-margin profiles. NanoKnife and AngioVac are 2 examples within our current portfolio, and we're enthusiastic about continuing to build platforms and franchises around these exciting technologies.

In an effort to support how we think about our business platforms, we have renamed our Peripheral Vascular business to Vascular Interventions and Therapies, and we've renamed our Oncology/Surgery business to simply Oncology. This renaming is effective as of June 1, and we will begin reporting using these new business names in the first quarter of FY 2019.

The product families included in these business units will remain the same. However, we've realigned our sales teams to reflect our focus on portfolio optimization within both of these business units, and we continue to shape our international approach around specific products in defined regions that are well positioned to win.

With that, I'd like to turn the call over to Michael Greiner, our Executive Vice President and Chief Financial Officer.

Thanks, Jim, and good morning, everyone. Before I begin, I'd like to remind everyone that we have posted a presentation on our Investor Relations website summarizing the key items associated with our fourth quarter and fiscal year results as well as a list of key objectives supporting our 2019 outlook, including our financial guidance. This information is intended to complement these prepared remarks.

As Jim mentioned, our net sales for the fourth quarter of fiscal 2018 totaled $88.3 million, which represents a 1.6% year-over-year increase. For the 12 months ended May 31, 2018, net sales were $344.3 million, a decrease of 1.5% compared to the same period a year ago.

Foreign exchange had a positive impact on both our fourth quarter and full year revenue of roughly 50 basis points. We have not historically called out any foreign exchange impact on our revenue because it has generally been de minimis. However, due to the benefit it provided in the fourth quarter and fiscal year, we believe it was appropriate to identify in this instance. Going forward, we will discuss foreign exchange in certain quarters when the impact could be significant.

Our gross margin for the fourth quarter of fiscal 2018 expanded 500 basis points to 53.7% from 48.7% a year ago. This improvement was largely attributable to the prior year Acculis recall that was announced in the fourth quarter of 2017 and had a negative impact on last year's cost of goods sold. Additionally, gross margins were positively impacted by the ongoing operational improvements, the recently completed facility consolidation and the expiration of a royalty arrangement in the second quarter of fiscal 2018. Excluding the impact of the Acculis recall, gross margin for the fourth quarter still expanded 100 basis points.

For the 12 months ended May 31, 2018, our gross margin ended at 51.4%. While we did not achieve our full year gross margin target of 52%, we were very satisfied overall with our execution on closing 2 manufacturing facilities and improving net productivity throughout the year. As a result, we anticipate our fiscal year 2019 gross margin to be in the range of 54% to 56%. It is worth noting that this gross margin expectation for fiscal 2019 does not include any potential impacts related to our portfolio optimization objectives.

Our research and development expenses during the fourth quarter of fiscal 2018 were $6.5 million compared to $6.7 million a year ago. For the 12 months ended May 31, 2018, our research and development expenses were $25.5 million or 7.4% of total sales compared to $25.3 million or 7.2% of total sales a year ago. Although R&D was up modestly in absolute dollars, our spending in fiscal 2018 was more intensely focused on key investments that are supported by high ROI outcomes as a result of the more disciplined R&D processes that we've implemented in the past quarters. And we'll continue to focus on these key areas of organic investment and will likely see an uptick in R&D spend as a percentage of sales in the upcoming year, approaching approximately 8%.

Now moving to selling, general and administrative expenses. SG&A expense for the fourth quarter of fiscal 2018 was essentially flat at $28.8 million compared to last year. For the 12 months ended May 31, 2018, our SG&A expense decreased to $108.5 million compared to $110.2 million a year ago and was 31.5% of total sales in both years.

Our adjusted net income for the fourth quarter of fiscal 2018 was $7.7 million or $0.20 per share compared to adjusted net income of $6.8 million or $0.19 per share in the fourth quarter of last year. And for the 12 months ended May 31, 2018, our adjusted net income was $27.6 million or $0.74 per share compared to adjusted net income of $27 million or $0.73 per share a year ago.

The presentation posted on our Investor Relations website includes a slide that details 2 of our specific income statement captions that impact our U.S. GAAP net income results versus our adjusted net income results that I just discussed. We specifically identify these items in our income statement under the captions Change in fair value of contingent consideration and Acquisition, restructuring and other items, net. We utilize consistently applied non-GAAP measures in the establishment of operational goals, and we hope that these non-GAAP measures assist all external stakeholders in analyzing our underlying and continuing business trends over time.

Adjusted EBITDAS in the fourth quarter of fiscal 2018, excluding the items shown in the reconciliation table in our presentation, was $15.6 million compared to $14.3 million in the fourth quarter of fiscal 2017. For the 12 months ended May 31, 2018, our adjusted EBITDAS was $57 million compared to $58.7 million for the same period a year ago.

Now moving to the cash flow and balance sheet. In the fourth quarter of fiscal 2018, we generated $23.8 million in operating cash flow and $23 million in free cash flow, primarily due to our solid core earnings and our laser-focus on working capital management. With that, we ended May with $74.1 million in cash and cash equivalents and $92.5 million in debt, excluding the impact of deferred financing costs. As Jim mentioned earlier, we are pleased with our consistent free cash flow generation, which bolsters our strong balance sheet and provides us with the capital we will need to pursue targeted investments in R&D and strategic M&A opportunities.

Now on to our financial guidance for fiscal 2019. We expect our fiscal year 2019 net sales to be in the range of $344 million to $349 million; and, as I mentioned earlier, gross margin in the range of 54% to 56%. We plan to generate between $38 million and $43 million in free cash flow. However, this does not account for the approximately $12.5 million cash payment to the Department of Justice related to previously disclosed legal matters. As you know, we expected this payment to occur in the fourth quarter but now anticipate that it will occur during our first quarter.

Our adjusted earnings per share will grow double-digit percentage to a range of $0.82 to $0.86. This is supported by the full year revenue guidance and our new gross margin run rate, partially offset by an increase in R&D spend, as I noted earlier, as well as increased accruals for variable incentive compensation throughout the year, which will likely drive SG&A slightly higher as a percentage of revenue.

Finally, to assist in your modeling, please note that we expect our sales for the first quarter of fiscal 2019 to be lower compared to the same period a year ago. In the first quarter of fiscal 2018, we recognized $1.6 million related to the reversal of the Acculis reserve due to product exchanges for our Solero product offering. Additionally, we are still annualizing the reduction in [VCA] volumes in our Venous Insufficiency businesses, which will result in at least a $2 million headwind in the first quarter of fiscal 2019. These 2 headwinds will be somewhat offset by growth in other areas of our business in the first quarter.

With that, I'd like to turn the call back to Jim.

Thanks, Michael. Before we open the call to your questions, I would like to update you on the progress of our NanoKnife program. As we've previously announced, the FDA has granted the Expedited Access Pathway designation to our NanoKnife system and a proposed indication for use for the treatment of Stage III pancreatic cancer. We firmly believe that our proprietary irreversible electroporation technology provides a unique platform upon which we can build a winning, differentiated oncology business.

We are currently focused on driving our strategy to obtain FDA claims, payment reimbursement and market adoption for pancreatic cancer but are also planning on the next phases of a platform approach that will address treatments of other cancers, including liver, prostate, lung and the brain. In June, we submitted our data development plan providing the details of our trial design to the FDA. As previously discussed, we are committed to executing our data development strategy by conducting a comprehensive clinical trial with 3 main goals: first, to provide meaningful clinical data to our customers; second, to lead a specific regulatory indication for the treatment of Stage III pancreatic cancer; and finally, to facilitate reimbursement to the hospitals and treating physicians.

To achieve these goals, we developed a next-generation registry. The trial is designed as a controlled all-comers observational registry. Each site that has a NanoKnife in the United States and certain OUS sites are eligible targets to enroll in this study, and all procedures done with the NanoKnife can be captured within the registry. Control sites will also be matched to allow for robust propensity score matching to NanoKnife subjects. We anticipate enrolling approximately 200 patients in each arm, with an interim analysis planned to verify sample size assumptions.

What makes the design next generation is that we have engaged a third-party CRO to tap directly into each enrolling site's electronic medical records, pulling data directly from the source, ensuring data integrity and avoiding selection bias. Our proposed design will facilitate robust and continuous enrollment and data collection, and we will avoid many of the most costly elements associated with running trials.

Finally, let me speak to our progress on the reimbursement front. As you are all aware, there are 3 pillars to medical device reimbursement: coding, payment and coverage. All 3 must be in place for a hospital and physician to receive reimbursement for the care they deliver.

We have exciting news to announce in respect to coding. In May, CMS released the new proposed ICD-10 codes that will become effective in October, with new IRE-specific codes for pancreatic and liver procedures; in both cases, for open, laparoscopic or percutaneous interventions. These new codec will make tracking information on the use of NanoKnife in our proposed trial even more efficient. Over the next several months, we expect CMS to publish the DRGs that these new codes will map to, clarifying the payment for these procedures.

With respect to coverage, we are engaged in discussions with the CMS' Coverage and Analysis Group and expect to seek coverage of procedures done under our IDE to cover IDE Category B devices, along with coverage for the routine cost of clinical trials. We are encouraged by the conversations we've had with this group, and we will give you an update on further developments. We are making great progress with our NanoKnife program, and we are targeting our second fiscal quarter of 2019 to begin enrolling patients, subject to the FDA's approval of our IDE, and we look forward to providing updates to you as we progress.

As we reflect on fiscal year 2018, we continue to work hard and execute against our operational goals, and we're very pleased with the gross margin expansion and the strong free cash flow that we are able to achieve. Our balance sheet is stronger than it was a year ago, with an overall net-debt-to-EBITDA leverage ratio of less than 0.5 turn. While overall sales growth has been below our expectations, we saw consistent growth over the past 3 quarters within some of our key product categories, including our oncology ablation product portfolio; AngioVac; and as well within our largest product category, Fluid Management.

We appreciate your attention this morning. As you've seen, we've spent a lot of time and effort building a strong operating foundation upon which to drive results. I want to also reiterate that a pillar of our strong foundation is our commitment to quality and compliance. As a medical device company, we make products that are inserted into patients' bodies to provide care. We understand that profound responsibility and adhere to the highest standards of quality and compliance in everything that we do.

Going forward into fiscal 2019, we continue to believe that we have the right strategy and resources in place to successfully pursue internal and external growth opportunities, and we remain focused on reshaping our product portfolio, driving innovation and positioning AngioDynamics as a leader in the markets that we serve.

Thanks for your time today. We look forward to speaking to you again soon. And now I'll turn the call back to the operator for your questions.

(Operator Instructions) Our first question today comes from the line of Matthew Mishan with KeyBanc.

I just want to follow up first on the NanoKnife progress you guys have made. Could you give a little more clarity on what it means for you guys to have a new ICD code that's IRE specific?

So Matt, we're joined here by Stephen Trowbridge as well. And Matt, I would like to ask Steve to answer that question for you in more detail.

Thanks, Matt. Appreciate the question. It means a lot, and it also means that there's still more to go. So as Jim mentioned on his call, there's 3 pillars to reimbursement. You need to have coding, coverage and then payment. The step to get the code is the first step, but it's also a very important step. So whereas, in the past, when physicians were doing IRE procedures, there was some confusion and there wasn't real good clarity around how they should code for the procedures that they were doing, which also meant that, down the road, it was harder to collect the data and then go back and assess a lot of the work that was being done unless they were doing it under some of the IITs that we've talked about in the past that led to publications. So now that we have a code, every physician who does the procedure will now have a very clear pathway to code that procedure and keep information around the procedures that they're doing. And what's great about the current code that we have is that it is specific to IRE, so no other ablation modalities. So it differentiates IRE in any procedure that they're doing. It also differentiates whether they're doing the procedure in the pancreas or the liver and then even further, percutaneous, laparoscopic or open procedures. So this will provide great clarity going forward in terms of data collection, but it provides great clarity now to our physicians when they're doing these procedures. Those codes will eventually map into a DRG, which will probably be published by CMS sometime between now and when those codes become effective in October. That would set the payment piece. Now you still need the coverage, which is what Jim talked about. We're engaged actively in conversations with CMS about providing that coverage piece specifically pursuant to our IDE around pancreatic cancer. But it gives us -- the codes also give us the platform to then have additional discussions down the road for coverage for some of those other procedures in the liver as well. So it's a great first step. It can provide a lot of clarity to our current physicians. It's going to provide us great efficiency in terms of collecting data as we move forward. And it provides us an opportunity to have those second step conversations around coverage; some of which we've already had and have really moved down the road on with respect to our pancreas IDE, others that will come as we get into more specific indications later on.

Steve, is this more of a collaborative event between CMS and the FDA and Angio that helps enable you to do a better clinical trial? Or was this done in separate conversations?

Look, it absolutely does what you suggested, which provides us an opportunity to run a more efficient, better clinical trial once we're approved by the FDA. Each of these divisions are separate divisions within the government. I think there's probably some communication that goes on. It's not as much as industry would like some of the time. But these are very different paths that you have to go forward, and you have to touch into these bases before you can get to the final outcome. So there is some element of communication, but this is a lot of work that's being done by the broader Angio team to bring all these elements together.

Okay. And then could you walk us through the process, Jim, by which you decided what is core and what's noncore as part of the portfolio optimization process? And what's changed since the Analyst Day last year?

Yes. So Matt, the Analyst Day kind of set forth what I shared with you after my 1 year in the role, kind of where I saw our 11 product categories. Remember, under our 3 GBUs, we really have 11 product categories. In the past, I think, maybe one of the areas that Angio could have done better was really differentiating between those categories. We treated all 11, more or less, equally as far as resourcing, time and energy, and that won't work in a company our size. So at the Investor Day, we identified 4 of the 11 that we thought would get continuous investments at higher rates than the others. And now Matt, really a year after that, as we've learned more, looked at more things and even from that Investor Days -- remember then, Bob Simpson had just joined our company right before that. He went to our largest GBU. And since then too, Brent Boucher has joined us, that runs our Oncology GBU. So we've got new eyes and ears on this business. They have new people on their teams. So we've crystallized what we're doing there. The work that Chad and the VA team have done had been very clearly specific. The growth in our BioFlo portfolio within the VA business has been strong. So really, the 3 different GBUs getting better market knowledge. We've eliminated a layer, I think, as you know, internationally and globally so we could pull our decision-makers closer to the external markets as well. So we're just a little tighter on, Matt, how we make decisions.

Matt, I would just add. The 1 product category that we have in our investor vein -- on Investor Day, Venous Insufficiency is the only category that has not executed the way we had hoped for. We're still investing behind that. We still believe we have the best laser in the market in that space. But as you know, with the reimbursement headwinds with the RF competition, we've had a tough year this year. So as Jim mentioned, we just had a 510(k) approved for vein perforation, and we're looking at other opportunities to get that particular product family back to growth.

Okay. And then last question, and I'll jump out. What's your ability to carve out or divest pieces of the portfolio without significant disruption or dis-synergies?

Matt, in any company, if a company were to make a decision to carve out a business or divest something, there's always disruption. And you know my background. I was in a company that did a lot of M&A, internal and external. Here at AngioDynamics, if we've decided to make a portfolio move that would carve something out, as you mentioned, or divest something, the good news is the operational aspect of our company is much higher than it was 2 years ago. We've got plans in place that if we were to do that, how we would execute. We've also got the right people in place now who have done that before. So anytime you do something -- whether you're carving something out or bringing something in, there is always disruption. But here at Angio, we've prepared for that. We're ready for it. We think we'd execute well on either aspect of M&A.

Our next question comes from the line of Jayson Bedford with Raymond James.

So I guess, maybe just a follow-on, on the last line of questioning. When should we realistically expect to hear something on the optimization of the portfolio?

So Jayson, this is Jim. Jayson, we've talked about it now for a couple of quarters, that we're in that phase. As you know, the first, I'll call, 4 to 6 quarters of my tenure here at Angio was more shoring up the business that we talked about, getting gross margins right and the operational aspects. For the last 6 months or so, we've shifted a little bit because we know the markets better than we did before. So we're really in that phase, Jayson, where we're doing deep analysis around potential opportunities to either bring into our portfolio or maybe to shift out. So it is hard to gauge exact timing, but we're actively engaged in the process, utilizing the discipline, I think, we've shown to you over time. Maybe soon we'll have some announcements, but we're actively engaged in that process.

And can you just walk us through the renaming of the 2 segments there? And more specifically, how does that improve the business?

Renaming the segments does not improve the business, Jayson. We think it helps describe the focus of the business change. AngioDynamics has been tied for a while to our legacy and our history, which is strong. We've served the interventional radiologists at a very high level in all 3 of our business GBUs, and we'll continue to serve the IR doctors. But over time -- I'll give you a couple of examples. You see this double-digit growth we've had in procedure volume in AngioVac. It's been tremendous. What that's done -- we know what that unique tool can do when it's in a physician's hand. So what Bob and his team have done this year, we've also carved out our sales force a bit differently, allowing people to focus on just representing that product to our surgeon partners. So Bob and his team thought they'd also had to rename the business to focus on where they're going within our Peripheral Vascular franchise because it has 4 segments. But the future of the business have been better defined by what they've named it. On the Oncology/Surgery side, the same thing. Brent and his team are focused on developing an Oncology business. Today, we are the leader in ablation technology, but we want to be a full oncology provider. We've always had a small surgical tool in our bag, but it's not what we're focused on. So tomorrow, we want to know the medical oncologists, the radiation oncologists at much deeper levels than we do today. So we want to let people know we are an oncology company, and we're focused upon it. Other than that, Jayson, our strategy and our execution will drive results, not the names.

Okay, okay. Maybe for Michael, a couple of financial questions. One, it appeared that the tax rate was pretty high in the fourth quarter. I guess the question is, why? And what's the assumed tax rate in fiscal '19?

So the effective tax rate in fiscal '19 will approach around 50%. But remember, again, given our NOL situation, we only have about $2 million of that -- of the $6 million tax expense that is cash based. The other $4 million relates to a variety of deferred tax items that we're working through. And then when you look at the full year for fiscal '18, we had a significant tax benefit related to the revaluation of the deferred taxes due to the Tax Reform Act as of January 1, 2018.

I guess what I'm getting at is the $0.82 to $0.86, what's the tax rate tied to that adjusted EPS level?

Well, fair question. Sorry about that. I missed that, Jayson. So 23%, so that's the 21% plus 2% for state and local. So full year of 23% next year versus we had the blended rate this year given our fiscal year versus the January 1 effective date for the Tax Reform Act.

And just to be clear, the $0.20 in adjusted EPS you reported for the fourth quarter here, what was the tax rate tied to that?

That was 20 -- that was 30.62%, which is the blended rate for the full year.

Okay, okay. And then when we look at fiscal '19, if gross margin is 54% to 56% -- and I realize there's a little step up in R&D, but it seems like there's a big step up in OpEx. So where are you spending all of these additional dollars that weigh on margins?

So the -- so you're right. So we're going to have some additional gross margin drop to the bottom line, offset -- partially offset by increased R&D. And then, as I mentioned in the prepared remarks, we'll have, at least at the beginning part of the year, an accrual for variable compensation, for commissions and bonus tracking at 100% going into the year, which is a headwind versus where we ended up this year with the lower revenue outcomes that we had. So we didn't pay out full commissions or full bonuses in FY '18 because we didn't achieve the intended results. But obviously, as we accrued going into the year for FY '19, we're assuming we're going to achieve the results that we laid out today. So a big portion of that headwind is that.

And is there any way to quantify that?

It's about 150 basis points in total as a percentage of revenue across SG&A, selling and marketing and general and administrative.

Okay. And then last question, and I'll let someone else jump in queue. When do you anniversary the customer loss in the Venous Insufficiency business?

So towards the back half of the second quarter, so October, November time frame was when we saw some acceleration. And then as we get into the third quarter, we'll start to see some leveling off of that. But it's not going to happen to fully anniversary until the fourth quarter.

Our next question comes from the line of Jason Mills with Canaccord Genuity.

Can you hear me okay?

We can.

So 2 questions: one on portfolio management and the other one on NanoKnife. Starting with portfolio management, Jim. Sort of trying to give us guidance on the cadence of how things play out is clearly very difficult. There's only so much you can say about what you're going to do from a divestiture standpoint, if anything, and acquisitions. But as you think about the next couple of years, are you looking to add more than subtract or add before subtracting? Or is there any sort of strategy you have in place? Or as you look at what you're looking -- as you can talk about what you're looking at now from those standpoints, can you give us any sense for what looks like may reach the bottom of the funnel first?

Yes. Jason, fair question. As you know and you identified, it's really hard to time these things exactly. We're looking to add things around a couple of our businesses that we see where we have deep platforms. We talked about a couple of those this morning with NanoKnife, AngioVac and some other things we have. So we're going to add around those. And so those may be smaller in scope out of the gate, but adding a few small things to an already established base, we think, makes some sense in those areas. And they're also very specialized areas. There's not a lot of large things there. So we're not trying to time one over the other. There may be mutual activities occurring simultaneously. We think we can execute on them. As I mentioned earlier, we planned for this, so we're ready to execute now our portfolio objectives. I can't tell you today what may happen first. Obviously, if something does, we'll talk to you about it, giving the rationale as to why. But assume we'll be active in both ways. True effective portfolio management is usually a combination of in and out, and both of those we expect to practice during this fiscal year.

Fair enough. Just a follow-up on that, Jim. Maybe you could give us a sense for -- you mentioned smaller -- sort of smaller assets in some of those growing areas. A lot of those assets aren't big. Are we talking about assets that are generating revenue today? Or will there be clinical trial time periods and costs associated with the assets that you mentioned? And then, maybe more from a 20,000-foot level, as you're looking at valuations, both those that you are -- may have -- valuations you may have to buy and valuations you may get for your businesses, med tech, at least in my 20-year career, has never traded at multiples this high, so it's a good time to be in med tech. So perhaps you could comment about what you're seeing within the marketplace both from an acquisition and a divestiture standpoint in terms of what folks are willing to pay and maybe what they're wanting to get paid.

So good series of questions. Let me try to jump on kind of your theme here. So a couple of things. 2 years ago, as you know, our company was valued -- if you look at just revenue valuation, our company's valuation was about 1x our revenue, and today, we're a little over 2x our revenue. Okay, fine, we're still underneath the average that you just identified, med tech valuations. So we've climbed the curve. So you make the assumption that if we were to divest an asset, probably priced about 2x revenue. And as you just mentioned earlier, some of the valuations today are very high externally. So you know the discipline that Michael has financially. We have a really good set of strategic objectives that our 3 GBUs have driven about where they want to be. You've also got to match that then with financial sense that will work for us. So we'll probably pay, Jason, to your point, a little higher bringing an asset in-house than maybe the value of something that may exit our home. But we're going to try to find fair value of what we buy. We also believe that when we add that product, it'll drive our whole company's valuation higher. This will be an area that has higher growth and higher margin. And back to your question you asked earlier about, do we look at things that are probably not revenue generating initially? That's not our initial targets. We'd like to find something that has revenue streams initially that may benefit from our commercial execution capability or the alignment of that technology to current technology within the AngioDynamics family. We have on campus here already, Jason, a couple of things that I'll call "science projects," and some of that we talked to you about today with NanoKnife, which is a proven effective ablation technology. But the work had not been done at Angio to a level that we expect as far as the regulatory and clinical pathways open it up, so we're doing our own "science projects" internally around NanoKnife, around AngioVac expansion and some other tools we have inside and we'll talk about later. So really looking externally, the things that are clearest focus are things that today already have the regulatory pathway clear and may already generate some level of revenue that we believe we can accelerate the curve by adding to our family.

That's helpful. The last sort of winded question for me on NanoKnife. Could you sort of take us back a little bit to the 20,000-foot level? And as you're running through these clinical trials, which we've all been waiting with bated breath, I think, for years to see progress in, so kudos to you on that front, and reimbursement sounds like it's moving in the right direction. But as you're thinking about the patients you're studying in this trial and the patients that your clinicians are seeing or expect to see once you've, hopefully, post good results, what's your low-hanging fruit target initial market? What's the patient flow-through the clinician's offices today of patients that would be prime candidates for NanoKnife treatment? What does that market look like? And with good data, what kind of adoption rates would you expect? I guess the other part of that question would be, how many centers -- if we have good data here eventually, how many centers will have NanoKnife and really truly be developing the therapy continuum within their hospitals?

Okay. That's a lot of questions, but I understand where you're going. And Jason, what we want to do this morning was share with you where we're at right now. We hope to have other news in the very near future, and we'll share with you a more defined pathway. But let me take a quick swing at the genesis of your question, and I'll let Steve add a little bit of detailed color. What we've done in the last 1.5 years here is really develop clear pathway to what we believe in as the right way to get the regulatory and clinical pathway done, if you have access to -- our customers, physician partners to use NanoKnife in a proper way that we can train them properly, make them treat people properly. We have a good idea of how many people are diagnosed with Stage III pancreatic cancer on an annual basis. Talk about the U.S. for now. And today, very few of those people are able to receive coverage from our product, but we're (inaudible) to open these pathways up. When we do, just getting the pathway in the reimbursement coding isn't our only challenge. We also have to make sure that the medical oncologists and people that drive care within the medical centers are aware of the clinical efficacy of NanoKnife. So we have a lot of work to do, but we're very encouraged by the fact we've done a lot of work the past 12 to 18 months in the background, anticipating positive results in this trial. Steve?

Yes. So your question -- you invited us to kind of go up to the 20,000-foot level, and then you're asking a little specifically about what we think the markets are for some of the low-hanging fruit for the patients coming through. And I want to build on that theme because I think that's the right way to look at it. I want to harken back to what Jim said earlier in his prepared remarks where he talked about irreversible electroporation in our NanoKnife technology as a platform and then us trying to move that platform or jump off that platform to go to a variety of different cancers, including liver, lung, prostate and brain. And we see that the promise that our technology has is great in all of those areas, but we do think that the pancreatic cancer patient is the first place to go after. And that's one -- some of the things that we talked about when we discuss achieving our breakthrough designation, that there's a huge unmet need in pancreatic cancer now. Over 55,000 patients are diagnosed every year in the United States in that Stage III area, and there are very limited options. So that's why we're going after that first. But we really do see NanoKnife as a broad platform that has promise to patients throughout the spectrum of cancer care. This is the first step, but we anticipate going after all of those. So this pancreatic cancer patient population is the low-hanging fruit from our perspective because of the unmet need. There aren't a lot of other options. It's probably not the biggest market that we're going to go after as we start to build out on the promise of this technology.

Our next question is from the line of Matt Hewitt with Craig-Hallum.

Just to follow up on the NanoKnife line of questioning a little bit. How should we be thinking -- I realize it's not a short-term situation, but how should we be thinking about those other disease states? Are those markets that you will be going after simultaneously, the liver, the lung, brain? Or would they be -- would you knock one -- each one off separately in succession?

So it's a good question. We identified a few of those other disease states today on the call because we're aware of the efficacy, we've seen published results, as to what Nano has done when physicians have used our product. What we're going to do here though -- I think it is so important for our company, credibility-wise, number one and execution-wise, number two, to get our pancreatic cancer program done. NanoKnife has been in the market for a number of years, and it hasn't had the regulatory and clinical pathway that we desire. So we think it is very important around -- as Steve just mentioned, the largest unmet need and the patients who are going to benefit the most are those folks that are diagnosed with Stage III pancreatic cancer. So we're committed to try to get that program done as efficiently as possible to get those patients access to this treatment device that we have. When we do that, then we'll give you clearer view as to what our staging will be of the next disease states. We have the benefit here at Angio of having people like Steve and good people on the regulatory and clinical work group. We also have a blend of people who have run this business for many years, have very good and deep knowledge and good ties to the KOLs externally. And new people have come in to run this business. We have a lot of good history and a lot of good forward-looking view. So we'll share that soon, but right now, to us -- the largest hurdle for us is clearing our NanoKnife pancreatic pathway.

Sounds good. All right. And then maybe one question that's a little bit different here, though. During the prepared remarks, you had mentioned that you had recently completed the realignment of the sales teams and the couple of the groups. Maybe if you could provide a little bit more color on what the new targets are and whether or not you anticipate any near-term or short-term disruption because of that realignment.

It's a good question. So there's really not a whole lot of disruption, it was really positively. Look at our Peripheral Vascular business that we just renamed. So Bob and his leadership team on the commercial side has taken a look at how our businesses have performed. If you look at our Fluid Management business, that has been up over 5% this year and with a really strong competitor, but we just out-executed them. One of the gifts we have there is not only talented people that manage the business and sell those products, but we also have the gift of focus. We have a defined sales group that is responsible for those products in the U.S. They've outperformed the marketplace. So we've taken some of that gift now and aligned it to another category that is very important to us. Our AngioVac or our thrombus category now has a defined sales team. But also, a couple of things that happened. The folks on the venous side are now aligned and defined as well. We had a tough year last year on venous. Now the new team can not worry about one corporate customer that we lost. They can do what they do best, generate relationships and trust with smaller individual customers that understand the efficacy of our laser. So we've really just broken down our sales team to be closer to the customer, closer to the action where decisions are made and to make sure we clinically represent the technologies that we have in a better manner. We have really good people. Now they're aligned in a better manner.

(Operator Instructions) The next question is a follow-up from the line of Matthew Mishan with KeyBanc.

I just wanted to talk a little bit about the competitive landscape around IRE. Are there other players who are trying to enter this area? And how confident are you in the ability to protect like the patent portfolio?

Sure, Matt. I'll jump in on that. Yes, there are other people that are getting into this area more broadly. I do think that we haven't seen a lot of people getting into this specific irreversible electroporation or other parameters that we have proven out with NanoKnife, but we do know that there are other people that are looking at the delivery of energy as a way to treat cancer patients. We're continuing to build out our patent portfolio. We do feel very strongly that we have created the right picket fence around our technology and all of the history of patients that we've treated throughout the 8 years that Jim talked about NanoKnife being on the market. So we feel pretty confident in our IP position as well as the position that our technology currently has. We're currently -- we're always looking to see who else is looking to get into this game and make sure that we continue to stay on the leading edge of the development of this particular type of therapy. So look, yes, people are looking at it. We feel pretty strong about our current position, and we're going to continue to bolster that position.

Okay. And then in the EVLT business, in addition to the headwind from a customer contract loss, our -- we're also seeing Medtronic move in -- or a competitor move in with VenaSeal, with some good reimbursement for that product. What's the headwind -- the additional headwind you may see from a competitive entry like that entering the market?

Matt, I think we've seen more of an issue around the RF product from Medtronic than the VenaSeal. I think they're working hard probably in their end, I can't speak for them, to maybe balance their portfolio a bit. But really, we have not seen as much of maybe adoption or marketplace disruption from VenaSeal. I think that their issue is to get that aligned in their portfolio. But the RF reimbursement has been the bigger hurdle we've seen. And now we think we can face it well. We know the efficacy of our laser. It works really well. Physicians globally understand the value of what it does to help treat patients. So now part of the realignment we've done is allow our sales reps to communicate that message in a more clear fashion. Medtronic will always be a tough competitor, but we think we're better aligned now than we were in the past.

So Matt, I would just add. I think, just even broadly, the nonthermal, non-tumescent category, including ClariVein and VenaSeal, we've not seen a ton of disruption there. That doesn't mean that, that might not come later on in next-generation forms. But Jim is exactly right, the RF impact has been far more significant.

And then last question on AngioVac. It seems like the growth has been much more sustainable at these levels over like the last 3 or 4 quarters. What do you see has been the drivers of it? Previously, it's been more fits and starts there.

Yes. Well, if you look at it internally, first of all, we have a really good marketing team that understands that product; second, a good R&D team that's working with that marketing team adding value to the product; third, the product is really good. It does what nothing else can do in that space. Then finally, we're looking at this change in the shift -- or watching clinicians who have done cases shift what they're treating. We're seeing more cases being done in the right heart by our physicians who've treated things differently. So watching the shift in care, I think they're now seeing positive results in that area. So we're very, very careful into how we support that, and we're now looking at expanded regulatory and clinical pathways that we're interested in that we'll speak to you about in the very near future to help open up the way we can get AngioVac to market. So it's just a more -- Matt, maybe, hopefully, you'll see it -- maybe you look back at AngioDynamics and use the AngioVac example of what we're trying to do here, where we have something that we know is really differentiated. The technology is terrific. What we have not always had is maybe a really strong business plan around that technology that encompasses not just the go-to-market plan, but a clinical and regulatory pathway plan. So now we've built those, and we've got really good clinical and regulatory people, combined with good marketing people and great effective salespeople to carry the message to the street. So take AngioVac that you just identified as consistent success, and hopefully, you'll see that from us in a few more categories going forward.

At this time, I will turn the floor back to our CEO, Jim Clemmer, for closing remarks.

So folks, thank you for joining us this morning. Again, at AngioDynamics, we're a work in progress. We're proud of a lot of the results we could report this morning, and we also have identified areas that we can improve upon, areas that we know we can do to increase value to our 3 most important stakeholders: our customers who represent our patients, our employees and our shareholders. Each of those 3 stakeholders deserve value from AngioDynamics, and we'll deliver.

Thank you for being a part of our story. We look forward to sharing our growth in the future.

Thank you. This will conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.