Angiodynamics Inc (ANGO) Q3 2023 Earnings Call Transcript

Good morning, and welcome to the AngioDynamics Fiscal Year 2023 Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference call is being recorded. The news release detailing our fiscal 2023 third quarter 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, 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 gross margins for fiscal year 2023 as well as trends that may continue. Management encourages 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. The company will also discuss certain non-GAAP financial measures during this call. Management uses these measures to establish operational goals and review operational performance and believes that these measures may assist investors in analyzing the underlying trends in the company's business over time. Investors should consider these non-GAAP measures in addition to, not as a substitute for, or as superior to financial reporting measures prepared in accordance with GAAP. A slide package offering insight into the company's financial results is also available on the Investors section of the company's website under Events and Presentations. The presentation should be read in conjunction with the press release discussed in 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?

Thank you, Darryl. Good morning, everyone, and thank you for joining us for AngioDynamics' fiscal 2023 third quarter earnings call. Joining me on today's call is Steve Trowbridge, AngioDynamics' Executive Vice President and Chief Financial Officer, who will provide a detailed analysis of our third quarter financial performance. Turning to our results, we ended the quarter with revenue of $80.7 million, representing growth of 9% year-over-year, led by growth of about 17% from our Med Tech segment over the third quarter of last year. We continue to make progress towards our strategic goals during the quarter, including solid growth from our Thrombectomy and NanoKnife platforms as well as our recently launched AlphaVac system. Year-to-date, our net sales have grown 8%, with our Med Tech segment growing 25% and our Med Device segment growing 2.5%. We are now 21 months into our 36-month plan that we launched in July 2021, and we are progressing at or ahead of our revenue targets. Our Med Tech segment drove growth in the quarter, led by Auryon, AlphaVac, and NanoKnife. AngioVac was a soft spot in the quarter, offsetting the strength we saw in the rest of the Med Tech portfolio. Auryon continued its impressive performance in the quarter, growing approximately 43% over the prior year and increasing sequentially over Q2. To date, we have treated more than 35,000 patients since launch, and we remain on track to achieve our full year target for Auryon. Our mechanical thrombectomy business, which includes AngioVac and AlphaVac, increased 4.5% during the quarter. AlphaVac revenue for the quarter was $2 million. Our launch is progressing according to plan, and we remain on track to meet our AlphaVac revenue expectations for the full year. However, our mechanical thrombectomy business growth fell short of our expectations during the quarter due to AngioVac performance. AngioVac sales declined 16% in the quarter and are down 8% year-to-date. As we noted last quarter, AngioVac is sensitive to hospital staffing challenges due to the complex nature of the procedure, which requires multiple support specialties, including perfusionists and typically necessitates an ICU bed. However, this is not the sole driver of AngioVac's underperformance, as our execution has also contributed. As discussed last quarter, our focus is on optimizing our commercial strategy and finding the most effective approach to sell AngioVac and AlphaVac together. Based on customer feedback and our observations, we are enhancing our sales process with improved messaging and targeting, as well as training for our sales force and customers, aimed at enhancing execution as we prepare for the fourth quarter of our fiscal year and the first quarter of fiscal 2024. These are the growing pains associated with launching and integrating any new platform, and I am confident we have the necessary tools to support our capable commercial team in addressing them. While we are reducing our fiscal 2023 revenue expectations due to this AngioVac softness, which also impacts our margin and EPS outlook, we remain very optimistic about the midterm and long-term prospects for our mechanical thrombectomy business. AngioVac is just one component of our mechanical thrombectomy platform, which is still in its early stages of development. We continue to work closely with our customers to generate additional data for use in future indications while also aiming for international expansion beyond our current U.S. market. Regarding our oncology segment, NanoKnife disposable sales grew approximately 22% during the quarter, with strong performance both domestically and internationally. We experienced a continued increase in prostate cases during the quarter, with over 100 cases completed using NanoKnife, an increase of more than 70 cases compared to Q3 of last year. We believe the continued robust performance of our NanoKnife platform demonstrates its ease of use alongside positive patient results. Physicians appreciate that a NanoKnife procedure takes about 45 minutes, compared to over 2 hours for other focal treatments, while being safe for patients and preserving their quality of life. NanoKnife is currently outperforming the 3-year plan we presented at our Investor Day in 2021, and I am excited about the progress our team has made with this platform. During the quarter, our Med Device segment grew 6% compared to the previous year's period, when the Med Device segment experienced declines due to challenges in the labor market and supply chain disruptions. Our teams have worked diligently to navigate this environment. While we have seen improvements in several macro areas, particularly concerning labor availability and freight costs, our teams continue to manage inflationary and supply chain pressures. In the third quarter, we faced delays in components that impacted approximately $3 million of revenue, which we expect to clear in the fourth quarter. International markets showed strong performance, growing 14% year-over-year, again driven by NanoKnife and solid contributions from our Med Device business. We anticipate that our international business will be a positive growth contributor in FY '23 as our team strengthens our sales network and expands our global presence. We are working hard to introduce our products to international markets, and we expect to obtain regulatory approvals to launch Auryon and AlphaVac internationally during fiscal year 2024. Generating clinical data plays a crucial role in effectively developing our Med Tech platform technologies and expanding into larger, faster-growing, higher-margin markets. Our teams continue to execute on our clinical trials, including three IDE studies: the PRESERVE study for treating prostate cancer with NanoKnife, the APEX study for treating pulmonary embolism with AlphaVac F18, and the DIRECT study for treating pancreatic cancer with NanoKnife. We are pleased with the enrollment pace in the PRESERVE study during the quarter. In collaboration with the Society of Urologic Oncology's Clinical Trial Consortium, this study aims to show that NanoKnife can serve as an effective focal treatment option for men with intermediate risk diseases and offer favorable quality of life outcomes. We expect to finish enrollment in this study by the end of June, with a 1-year follow-up. We estimate that the total potential market for the focal treatment of prostate cancer that can be addressed by NanoKnife may exceed $700 million in the U.S. alone. Concerning our APEX study, we are satisfied with the enrollment pace and are particularly encouraged by the positive feedback about our technology from treating physicians. We currently have 17 activated sites in the APEX study, which is partnered with the PERT Consortium and has a 30-day follow-up. At the current enrollment speed, we expect to close enrollment in early 2024. We believe that the APEX study will demonstrate that our unique AlphaVac products can effectively treat pulmonary embolism, offering ease of use while tapping into a large addressable market we estimate to be over $1.5 billion in the U.S. alone. These studies will enhance the scientific and clinical evidence that drives global adoption, regulatory approvals, and patient access. We are targeting regulatory approval for both the prostate tissue indication for NanoKnife and the pulmonary embolism indication for AlphaVac in the United States by the end of calendar 2024. We look forward to sharing more details in the upcoming quarters. I'd like to highlight a few recent publications discussing NanoKnife's use in men with prostate cancer. Professor de la Rosette conducted a multicenter, randomized, single-blind study published in the Journal of Urology that evaluates the safety and quality of life profile after irreversible electroporation for the ablation of localized low-to-intermediate risk prostate cancer. This publication, part of work from the Clinical Research Office of the Endourological Society, indicates a very favorable safety and quality of life profile in 106 men. The same data was also published in JAMA Surgery, highlighting oncological control after irreversible electroporation with more than 80% of patients being free from clinically significant cancer at 6 months. Additionally, senior author Professor Phillip Stricker published long-term results in the British Journal of Urology International, reporting on a median 5-year outcome of primary focal irreversible electroporation for localized prostate cancer in 229 patients. The study concludes that irreversible electroporation is a viable treatment option, avoiding radical treatment for 80% of patients at 5 years. We are proud to support this research and anticipate significant results from the clinical studies of our products. Before handing the call to Steve, I'd like to recognize our team at AngioDynamics for their continued hard work as we strive to become a high-growth, profitable Med Tech company. As I mentioned earlier, the team has made remarkable progress on our initiatives in building life-saving technology that enhances the existing standard of care. With that, let me turn the call over to Steve Trowbridge, our Executive Vice President and Chief Financial Officer, to provide a detailed review of the quarter.

Thanks, Jim. Good morning, everyone. Before I begin, I'd like to direct everyone to the presentation on our Investor Relations website summarizing the key items from our quarterly results. And while we had a softer quarter than we would have liked, there were a number of strong points during the quarter. Revenue in the quarter increased 9.1% year-over-year to $80.7 million, driven by growth in Auryon and NanoKnife as well as a strong performance from our Med Device business. Med Tech revenue was $22.9 million, a 16.6% year-over-year increase, while Med Device revenue was $57.8 million, an increase of 6.4% year-over-year. For the quarter, our Med Tech segment comprised 28% of our total revenue compared to 27% of total revenue a year ago. Year-to-date, FY '23 revenue increased 8.1% year-over-year, driven by Med Tech segment revenue growth of 25.1% and Med Device segment growth of 2.5%. Our Auryon platform contributed $10.4 million in revenue during the third quarter, a 42.8% increase compared to last year. We continue to be pleased with the growth of the platform and remain confident in our ability to achieve full year Auryon revenue in the range of $40 million to $45 million. As we head into fiscal 2024 and beyond, there are a number of positive indicators supporting the continued performance of this business. First, we're seeing an accelerated shift towards hospitals from OBLs. Second, we're seeing consistent strength in below-the-knee procedures, which are now outpacing above-the-knee procedures for Auryon. Third, we have completed supply chain enhancements for our disposables, which will drive improved margins over time. And finally, we expect regulatory clearance to enter international markets during our fiscal 2024. Mechanical thrombectomy revenue, which includes AngioVac and AlphaVac sales, increased 4.5% over the third quarter of FY '22. AlphaVac revenue for the third quarter was $2 million. We remain very pleased with the performance of our AlphaVac products, including the F22 and F18 versions. Physician feedback continues to be very positive with respect to usability, features, and outcomes. Year-to-date revenue for AlphaVac is $5.4 million, and we remain on track to generate AlphaVac revenue for the full fiscal year of $7 million to $9 million. AngioVac revenue was $5.5 million in the quarter, representing a decline of 15.7% over the prior year. As Jim discussed, AngioVac faced challenges during the quarter, and we've taken action to address it. Year-to-date, AngioVac revenue is $18.4 million, a decline of 8.2%. We now anticipate our mechanical thrombectomy platform led by growth in AlphaVac to grow 10% to 20% in fiscal 2023, below our prior expectation of 25% to 30%. Despite this change, we remain confident that mechanical thrombectomy will be a significant contributor to our growth strategy over the medium and long term, and we'll continue to prioritize investments in this platform. NanoKnife disposable revenue increased 22.2% year-over-year. Year-to-date, sales of NanoKnife disposables grew 26.7%. As Jim mentioned, we're very pleased with the pace of sales growth as well as clinical enrollment of our NanoKnife platform. Our Med Device segment grew 6.4% year-over-year, with strength in our angiographic products, ports, dialysis and microwave, offsetting a decline in our EVLT business during the quarter. The growth in the third quarter was positively impacted by a less challenging comparison due to the headwinds we faced stemming from the tight labor market and supply chain disruptions during last year's third quarter. Nonetheless, we are pleased with our team's continued progress in driving operational capacity and supply chain strategies. As of the end of our third quarter, our backlog stood at $5.4 million. Year-to-date, our Med Device segment has grown 2.5%. Moving down the income statement, our gross margin for the third quarter of FY '23 was 50.2%, a decrease of 200 basis points compared to the year-ago period. As a reminder, gross margin in the third quarter of fiscal 2022 included a roughly 115 basis point benefit from the CARES Act. Gross margins for the third quarter of fiscal '23 were positively impacted by increased production and sales mix of roughly 225 basis points. However, this benefit was offset by roughly 210 basis points of inflationary pressures, including 110 basis points of raw material inflation, 90 basis points of labor inflation, and 10 basis points of increased freight costs and depreciation from hardware placements. In addition, the benefit from mix was offset by lower AngioVac sales. Gross margin for our Med Tech segment was 64.6%, a decrease of 150 basis points compared to the year-ago period. The year-over-year decrease was driven by lower sales of AngioVac and depreciation costs from the growing Auryon installed base. Gross margin for our Med Device segment was 54.5%, a 260 basis point decrease compared to the year-ago period. And the drivers for Med Device were those that I had mentioned previously. Our research and development expense during the third quarter of FY '23 was $6.9 million or 8.5% of sales compared to $7.3 million or 9.8% of sales a year ago. We'll continue our disciplined investment in R&D, focused on driving our key technology platforms, including the clinical and product development spend for our Med Tech portfolio. For FY '23, we anticipate R&D spend to target 8% to 10% of sales. SG&A expense for the third quarter of FY '23 was $34.2 million, representing 42.4% of sales compared to $29.1 million or 39.4% of sales a year ago. The year-over-year increase in SG&A spending was primarily driven by the annualization of investments in our sales team, particularly Auryon. For FY '23, we continue to anticipate SG&A spend to target 40% to 45% of revenue. Our adjusted net loss for the third quarter of FY '23 was $1 million or adjusted loss per share of $0.03 compared to an adjusted net income of $1.3 million or adjusted earnings per share of $0.03 in the third quarter of last year. Our adjusted earnings this quarter were directly impacted by the AngioVac revenue shortfall as well as roughly $900,000 of inflation in excess of our expectations. In addition, as a reminder, our adjusted earnings per share in the third quarter of last year included a $4.2 million or $0.08 per share benefit related to the reimbursement of certain expenses under the employee retention credit as part of the CARES Act. Adjusted EBITDA in the third quarter of FY '23 was $4.3 million compared to $6.7 million in the third quarter of FY '22, which included the $4.2 million from the CARES Act. During the third quarter, we generated $1.4 million of cash from operations, increasing net cash by $250,000. Turning to our FY '23 outlook, we are revising our full year revenue guidance to a range of $338 million to $342 million from our prior guidance of $342 million to $348 million. We're revising our FY '23 adjusted earnings guidance to a range of a loss of $0.06 to a loss of $0.01 per share from our prior guidance of earnings of $0.01 to $0.06 per share. This reduction in our guidance is fueled primarily by the weaker-than-anticipated AngioVac performance and secondarily by higher inflationary pressure than previously anticipated. Year-to-date, we've absorbed over $7 million of inflation, roughly half of which was contemplated in our original guidance for the year. As a result of this, we expect fiscal year 2023 gross margin to be in the range of 51% to 52%, down from 52.5% to 54.5%. In July of 2021, we said we're building a very different company, and we're doing just that. Year-to-date, our revenue has grown 8.1% or $18.5 million over last year. We did expect that this would drive additional EBITDA and profitability. However, inflation has taken a significant amount of costs right off the top. Through three quarters, total inflation has exceeded $7 million, leading to excess inflationary costs of approximately $0.07 of adjusted EPS. In spite of this, our EBITDA and adjusted EPS are up year-over-year when accounting for last year's CARES Act impact. We'll continue to manage costs in the external environment while prioritizing investments to drive the growth depicted in our three-year plan. I'll wrap up my comments by highlighting the entire AngioDynamics team for their ongoing persistence and dedication to achieving our goals as we pursue our transformation towards becoming a platform-focused medical technology company. With that, I'll turn it back to Jim.

Thanks, Steve. In closing, I'd like to say, while I'm pleased with many of the things that we're doing in AngioDynamics and our progress that we're making to become a long-term, high-growth profitable company, we have also identified and put plans in place for areas that we can do better. So our focus will turn to those areas. We want to bring value to our customers, our employees, and our investors. We know that we have a great plan. We'll work hard to do that for each of those three constituencies over time. Thank you for listening today. Darryl, I'll turn the call back to you.

Our first questions come from the line of Matthew Mishan with KeyBanc Capital Markets. Please proceed with your questions.

This is Brett Fishbin on today for Matt. Just wanted to start off a little bit on some of the broader macro trends. Just given a lot of the moving pieces discussed today like staffing constraints and then inflation, supply chain and freight costs, have kind of been themes for several quarters. Just wondering a little bit like what changed incrementally versus January around some of those dynamics and how you're looking at them moving forward?

Brett, it's Jim. So a couple of things. We actually think that the macro environment from our customer angle, from the hospital side is getting better. We think that their staffing challenges are getting better. It's regional in approach when we speak to our customers. We think it's in a better spot than it was 3 or 6 months ago. So we've seen some of the dynamics from that. The AngioVac challenge we mentioned, again, part of that is due to that, but we don't want to put all the attention there. We also know we can do better, and we will in how we execute there. Also, Brett, we talked about it, we have more stabilization in our internal supply chain from the employee side. And we've seen freight costs abate a bit, which is terrific. But we're still seeing some disruptions from our supply chain partners. Sometimes we're not getting all the parts we order, or the raw materials we order. And we're also seeing still inflation hit there. So things are better, but they're still not back to what we call normal.

And then just shifting over a bit to Mechanical Thrombectomy. Just wondering if you could also expand a bit on some of the new selling processes. You mentioned for AngioVac. And would it be challenging to do some of this in the current environment, given like all the staffing that's involved in the procedure, which is limiting current procedural dynamics? And then also just how are you thinking about AngioVac from here? Could we see some sequential growth into Q4 and early thoughts on maybe FY '24 as well?

Sure. Good questions. So a couple of things. So we've taken a look at how we've integrated the sales bag going back to last June 1, our fiscal year, putting the new AlphaVac products in the bag with AngioVac. Remember, we're also running our APEX study aligned with this because we'd love to get that PE indication for AlphaVac F18. But we're being very cautious as we enter this market. We're learning from our customers, learning how great our devices are, but also how to sell them combined in a bag. And again, we only have limited indications at this point. We don't have the full bag we'd like to have, as we've identified, Brett. Over time, we're looking to launch our Auryon for thrombectomy for small vessel over time. So we're in the kind of the middle innings of our whole mechanical thrombectomy program. What we can do better is our internal messaging to our customers, making sure we're clearly identifying what we do and what we don't do and how we can do that better. We also believe we can train our own people and our customers better. We have a great team of clinical resources in the field to work with our customers. We'll make sure that we get our sales force and our customers trained properly. And we'll watch AlphaVac and AngioVac together grow sequentially. We're actually off to a good start this quarter. So it's a good sign that our program we put in place is working as we're seeing already a positive sign and the uptick back to where we expect performance to be as we look at the current quarter we sit in today.

And then last question from me. Just you mentioned some possible international approvals in the coming quarters for Auryon and AlphaVac. Are there any particular markets that you think investors should be focusing on as bigger opportunities or ones that could come earlier in the timeline?

Thanks, Brett. Good questions. We actually think we have a great team now in Western Europe. Today, we're actually holding right as we speak in Rome our third scientific clinical symposium that AngioDynamics is hosting with over 200 world-renowned key opinion leaders and clinicians and professors who are attending our symposium today to be trained in our products and speak to some of the outcomes that they've foreseen when they use our products. So we're going to focus on our Western European growth first, where we have a lot of opportunity for these products that are unique and there's a lot of need that we're going to align to. We'll see, Brett, indications next calendar year, starting with Auryon, then AlphaVac as the first two products that will get launched, which are important because we think they can be global growth drivers for a company for years to come. We'll also then make sure we have the right indications in Canada, Latin America, Asia-Pacific, and the Middle East as well.

Our next questions come to the line of Steven Lichtman with Oppenheimer.

I wanted to ask a little bit about NanoKnife. We've had strong disposable sales profile and effect from the ongoing studies. How much of a runway do you guys see for that continuing after trial enrollment is complete and before you get indication expansion?

So good question. If you look back at last fiscal year, we guided about 20% disposable growth, and we overachieved that. This year, again, we guided about 20% disposable growth, and we're overachieving that as well. We think it's due to some of the halo effect from the DIRECT study on the pancreatic cancer patients and now our PRESERVE study. People are just getting more awareness about how NanoKnife works, why it's so special and can treat very delicate organs in a unique manner. I think that when there's more awareness generated, I think there's more interest generated, we're seeing more inbound interest from physicians, and we're able to train them properly, letting them choose how they want to treat and where they treat while we're committed to getting the data published to prove these sources can be areas. We also know, as we identified, when we complete enrollment and complete the final study 12 months later on preserve, we believe that we'll open up about a $700 million market in the U.S. for those intermediate risk patients, giving them a chance for a good focal treatment. It's going to be a combination of a few factors. We think we'll continue to grow the business at about this rate up until we get that indication end of next year, and we'll give you more guidance there is what we can do. We're trying to align the indication of regulatory approvals with reimbursement and then patient and customer awareness. When we do those together, we really think we have a special product that can grow in this market.

And then my other question was about Auryon. You guys have said that you got feedback from docs that they want it, and you're pursuing that opportunity. But this is pretty new in the field. Can you let us know a little bit about how that development process is unfolding? Have you reached a point where you can say this is receivable and definitely going to be followed through?

Yes. Let me take a swing at it. If I get your question wrong, please stop me or chime in again. We're hearing a lot of great feedback. Again, we launched Auryon in September of 2020 when the pandemic hit, and we are rolling out this product. There are good competitors in the field, effective systems out there. But we knew ours is different. The physician feedback we've received from that date has been really tremendous. We also told our physicians this is a platform technology. We're going to grow what we do first in peripheral artery disease and atherectomy. We've done that already with the hydrophilic coating catheters we launched this year. Later this calendar year, we're looking to launch radio products, giving our physicians a new access point, a new way to use our atherectomy tools, and a new way to use Auryon in the anatomy. So we'll continue to develop not just the products but also the science behind it. You've seen and we'll see during the course of this year more publications driven by some of our physicians who believe in the science and have seen unique elements of how it treats the anatomy. We're also committed, as you know, we believe that Auryon will complement a mechanical thrombectomy platform with an Auryon version, a mechanical thrombectomy, coming to the end of calendar year 2024 for small vessel deep vein thrombosis, utilizing the power and energy that Auryon delivers and the safety and efficacy within the vessel wall in a manner that we believe will give physicians a new way to treat thrombosis.

Our next questions come from the line of Jayson Bedford with Raymond James. Please proceed with your question.

I guess just a few questions. Maybe to start on gross margin. I understand some of the headwinds, but I'm a bit surprised at the acute nature of some of the inflationary dynamics, meaning Med Device gross margin kind of down quarter-on-quarter, down year-over-year. Is there anything that was new that popped up more on the Med Device gross margin side in the quarter?

Jayson, this is Steve. Jim noted in his remarks the disruptions we're experiencing from some of our supply chain partners and component suppliers, which have contributed to the situation. We anticipated receiving about $1.5 million worth of components that would have generated approximately $3 million in revenue for the quarter. These were supposed to arrive earlier in the quarter but have been delayed. We expect to receive them in Q4, which has impacted our work in progress due to the supply chain issues. Additionally, raw material inflation has also been a significant factor. As we've mentioned, particularly in the device business, we manage a wide range of SKUs across various products. However, we aren’t the largest buyer for most of our suppliers. Given the current macro environment, we find ourselves somewhat in the middle, lacking enough leverage to gain substantial volume benefits. We're not positioned at the bottom of the supply chain, but we are facing some persistent price increases, which have proven more challenging than we anticipated this summer and will likely continue into next year. As we look ahead, we expect to see these raw material issues persist, along with the timing and mix of converting products into finished goods and getting them out the door.

And the $3 million that was lost here or pushed out here loss is probably not the right word, but the $3 million that you mentioned, that will all benefit the fourth quarter. Is that the expectation?

We definitely expect to clear the fourth quarter. Now, there may be – we don't expect it to be at that same level. But as we said, it's not like the component supplier issues are going to completely vanish. We're going to be dealing with component supplier issues for a while. Our team is managing that on a day-to-day basis. But yes, we do expect those to clear into the fourth quarter.

And just on the backlog, I think you talked about a little over $5 million in total. Is the math here into it with a reduction of $3 million from the last quarter, but you added another $3 million. Is that kind of the math on it?

The timing that you're talking about is the right way to think of it. So if you think about where the backorder stood at the end of the quarter, although the numbers were relatively consistent from the end of Q2 to Q3, the mix of that was very different. The way you described it is exactly right. We were eating into it, clearing it kind of at the same pace that we had been over the past few quarters. Some of the timing on the component supply means that you end up with a different mix at the end of the quarter.

Maybe just switching gears to the other dynamic here in the quarter. AngioVac I guess, the question for me is, do you have fewer users in the technology? Or do you have the same number of users just using it for fewer cases? If that question makes sense.

It does make sense, it's Jim. A little bit of – it's a mix of everything. So we're always gaining new users. And sometimes you lose users, too. So it's just kind of a mix that happens all the time. The product is so unique and special that we're always getting new interest in new users. Sometimes we've been under-challenged to continue that usage to make sure that the physicians can use it. With other things happening, there's also a gray area between where AngioVac works, where AlphaVac can work or other competitive products can work. As we're learning that and getting our customers better aligned to the change in market as we better train, we'll see a little of choppiness there. We've learned a lot. We had a master class 2 weeks ago, where I sat in again over a weekend with some of the new users. Right afterwards, a couple of users used it the first week right after the master training class. We know that people see the value of it, how easy it is to use, although it's complex from a user standpoint. The benefits it drives and patient outcomes are dynamic. So Jayson, it's choppy. Yes, there's always some accounts leaving, some accounts are coming in. I'm trying to give you a straight answer, but it's a moving target.

And I don't think I heard you mention the left heart and where you are with AngioVac or the timeline of the regulatory process?

Yes. We're really excited by what we believe AngioVac can do in the left heart, the size of the market, we believe how we can treat. What we've gotten from the FDA is different guidance than they gave us initially. They've kind of rethought the approach that they want us to take and have given us different guidance. So it's changing our approach towards it. We have to look at the timeline again and how that will affect the new level of really they've raised the bar and what they want, what they initially communicated with us. So we've got to come back to Jayson and communicate to you what that means from a timeline perspective because it will push our timeline out. What they've asked us for is a little more comprehensive than the initial request was.

Our next questions come from the line of Bill Plovanic with Canaccord. Please proceed with your questions.

My first question is, as we look at guidance for the year, that will be a pretty big jump in the fourth quarter. I was just – help us just to get to the low end. So help us understand what you're contemplating in terms of getting to the low end, meeting the low end, or even getting to the high end of that updated guidance.

Yes, Bill, it's a good question. I mean, part of the things I understand is structurally the fourth quarter has about 4 more selling days in it than the third quarter. So it doesn't have the same holiday cadence that the Q3 had. We typically see a big jump going into Q4 from Q3 every year, given our typical seasonality. I think that's the first part of it. The second part is if you look at some of the products like Auryon and NanoKnife that are on their growth trajectory, we're very excited and they're going to continue their sequential growth, which is going to add to that increased selling days. We do expect we're going to see a pickup in AngioVac, as Jim mentioned. We have seen that here in the first month of March so far. We've been very pleased with the pace that we've seen with AngioVac coming from some of those changes that Jim had mentioned. When you build into that some of the dynamics we were talking about with Jayson on the previous call around the backlog, getting some of those components in, and clearing that, all those dynamics together give us confidence, certainly to what you were asking to is the bottom end of the range. But we're looking at that range and targeting the midpoint.

And then from a cash flow standpoint, I think – and correct me if I'm wrong, originally, you were targeting that you would end the year being cash flow neutral for the year. Given where you sit today, kind of how do you feel about that? Do you still think that's the case?

Look, we're still striving for that. I think given the revenue change that we talked about here, if you look at the midpoint to midpoint from our original guidance to where we're going, we do think that we may be a little bit off that, but we're still going to continue to strive for it. We do expect we're going to see significant cash generation and we'll continue to push towards that.

And then just with the AlphaVac and AngioVac, I mean as you look at the AlphaVac growth and the kind of decrease in the AngioVac, do you think this is just cannibalization of the same doctors and customers? Or is AlphaVac really drawing in a new customer and you're just kind of with the AngioVac just going down and kind of losing some of that share?

So Bill, a little bit of both. Back when we launched the AlphaVac last summer, we tracked every procedure we've done, tracking who did the procedure, which specialty, which physician had performed the procedure and what they would have used as an alternative. Early on, we saw some of that cannibalization. Now that was also when last summer and last fall, there was a little pressure in the hospitals as far as employee staffing and some challenges there. Lately, we've seen that shift change, and we're finding less and less cannibalization. We knew there'd be some cannibalization. It's gotten a lot less, so we're finding we're replacing a potential other products or other technology or other treatment protocol than we were 6 or 9 months ago. We like the way that shift is occurring. It has been a challenge for us during this year, and it will always remain there. We think the shift is working well as we educate our teams and our customers as to when to use which product and how.

I'd now like to turn the call back over to Mr. Clemmer for any closing remarks. Mr. Clemmer?

Thanks, Darryl, and thanks to the listeners today. We appreciate the feedback we've received. We'll work hard to continue to grow our company and show our investors we can become a growth and profitable company as we treat patients in need around the globe. Thank you for listening today.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.