AngioDynamics [ANGO] Conference call transcript for 2021 q4
2022-01-06 13:24:06
Fiscal: 2022 q2
Operator: Good morning and welcome to the AngioDynamics Fiscal Year 2022 Second 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 the fiscal 2022 second 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 Investor 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 one hour after the end of today’s call. Before we begin, I’d 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 2022, 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 identifies 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 are 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 Investor section of the company’s website under Events and Presentations. This presentation should be read in conjunction with the press release discussing the company’s operational 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?
Jim Clemmer: Thank you, Rob. Good morning, everyone and thank you for joining us for AngioDynamics’ fiscal 2022 second 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 second quarter financial performance and our revised FY 2022 guidance. I am pleased with our second quarter performance, as we have continued to progress along our strategic transformation. And we have delivered strong revenue growth despite the ongoing challenges related to the COVID-19 global pandemic and other macro related headwinds. These results are a direct reflection of our team's commitment to and our execution of our long-term strategic plan to transform AngioDynamics into a high growth med tech company. We ended the quarter with revenue of $78.3 million, representing growth of 7.6% year-over-year. Net sales from our Med Tech business, which as a reminder includes Auryon, NanoKnife, and our Thrombectomy platform were $18.9 million, a 36% increase over the previous year. Our Med Device business, which includes the remainder of our portfolio, grew approximately 1% year-over-year, despite a $4 million backlog. The ongoing disruptions from the COVID pandemic and resulting supply chain headwinds lead to this backlog and naturally also had an impact on gross margin and earnings during the second quarter. We ended the quarter with adjusted EPS of negative $0.02, and gross margin of 51.8%. Before I go into the more specific results across our businesses, I'd like to talk through the current macro environment, the resulting disruptions and how we are addressing those in a little more detail. As we have discussed during previous quarters, we have been impacted by and we are working through supply chain disruptions stemming from COVID. Specifically, we have discussed the tight labor market, increasing labor costs, raw material inflation, and escalating freight costs. Like many other businesses, we are feeling the supply chain impacts. Two of our main challenges are staffing from our internal manufacturing and operations teams and increasing levels of production disruption caused by our employees being exposed to COVID. We are also facing similar dynamics with some of our supply partners who are struggling to service our needs due to similar factors within their production environments. These factors contributed to a more difficult environment in our second quarter, which accelerated in November. In order to address this disruption, we are focused on increasing manufacturing capacity, improving efficiencies, and making adjustments to pricing and shipping terms. All of us have been dealing with the ever changing impacts of COVID for nearly two years, but we have managed through it well, and will continue to drive our business with the same disciplined approach, while continuing to appropriately prioritize the investments intended to support the long-term growth of our business. Earlier this year, as we saw these macro pressures building, we began to identify and implement solutions to address them. In the second quarter, we initiated a plan to increase manufacturing capacity through a partner in Costa Rica. We are pleased with the pace of this project, and we will keep you updated on progress of this initiative, and others during subsequent quarters. To be clear, we are not moving all of our manufacturing offshore and have no plans to close our existing facilities. We are qualifying additional manufacturing capacity to not only address the short-term supply chain disruption, but also to enhance our ability to supply our customers as we grow our business over the medium and long-term in accordance with our strategic plan. In addition to increasing capacity in Costa Rica, we have continued to actively pursue programs to improve our supply chain. These initiatives include SKU rationalization, and other targeted projects to increase capacity and efficiency in our manufacturing process. As we discussed last quarter, we have recently implemented targeted revisions to our pricing and shipping terms in response to the increased costs of doing business. While the increases in operating costs have affected our business and we have taken actions to address these -- excuse me -- actions to address these challenges to minimize any potential long-term effects. The majority of the supply chain challenges and cost increases affect our Med Device portfolio and have a lesser impact on our Med Tech portfolio, as the investment and design processes for our Med Tech products integrated robust supply chain planning. We are continuing to pursue our strategic plan, including funding our core transformational investments, as we know they are vital to driving our growth and the value of our company over the long-term. Now turning back to our detailed results for the second quarter. Our Auryon business saw continued sequential growth during the second quarter with revenue of $6.3 million, up from $5.9 million in the first quarter of FY 2022, despite increased pressure on procedure volumes stemming from COVID and hospital staffing challenges. The continued highly positive feedback from the market confirms our belief that our Auryon platform offers differentiated technology through a broad suite of treatment options that drive positive patient outcomes. At the end of the second quarter, Auryon had been used over 13,000 procedures, and we estimate that Auryon now represents about 5% share of this market. As we've mentioned on previous calls, Auryon procedures have been fairly divided between above and below the knee. We think this demonstrates both the versatility of our technology and the unique breadth of our addressable market and opportunities for continued growth. We continue to expect Auryon to generate robust revenue growth for the balance of FY 2022. And we believe we've appropriately considered the current headwinds as part of our revenue guidance. As a result, we are reiterating a revenue range of $24 million to $26 million for Auryon for fiscal 2022. We continued to see strong year-over-year growth within our Thrombectomy portfolio, which generated approximately 21% revenue growth over the second quarter of FY 2021 despite the challenging environment. This included 29% year-over-year growth from our Mechanical Thrombectomy portfolio comprising AngioVac and AlphaVac. We are also pleased that we recently completed the limited market release of our AlphaVac Mechanical Thrombectomy System. This highly effective LMR process generated valuable insights, including the highly positive responses from physicians regarding their clinical outcomes, which led us to commence our full market launch of AlphaVac in early December. While it has only been a few weeks, we've received excellent feedback from physicians and are very pleased with the pace of the launch. As a reminder, AlphaVac expands our thrombectomy opportunity by addressing a much larger segment of the DVT venous thromboembolism market. As we've discussed the DVT segment of this market represents an approximately $1.5 billion market opportunity. While the initial AlphaVac product, a 22 French cannula device increases our addressable market, it's still only on loss of portion of this $1.5 billion opportunity. We plan to unlock full access to the DVT VTE market through the upcoming launches of our 18 French device and subsequent smaller French AlphaVac devices as we've described in our Investor & Technology Day presentation. In addition, we plan to use the 18 French device for a pulmonary embolism IDE study that upon clearance would provide us access to an additional $1.5 billion market. We have filed the application for this IDE study and are in discussions with the FDA to support approval. NanoKnife probe sales for the second quarter increased 9% year-over-year. Year-to-date NanoKnife probe sales have increased by 20%. We're pleased with our sales of NanoKnife probes, despite the increased COVID related challenges we faced during the second quarter. One dynamic we've seen as a result of these challenges is an increase in case cancellations for pancreatic procedures due to disease progression. In certain instances, we've noticed that treatment delays throughout the pandemic have led to disease progression in many patients. Some physicians have reported that when they finally try to perform NanoKnife procedure, following a staffing or COVID related delay, they often discover metastasis in the operating room and canceled the ablation, which is a very difficult situation for patients, their families, and the physicians. Despite the challenges of the current market environment, we believe probe volume growth benefited from the tailwind to be larger capital base and increased data-driven awareness from our direct study. NanoKnife capital sales were down year-over-year against a difficult comp in the second quarter of FY 2021, following the trend of general quarter-to-quarter variability and capital placements. We remain excited and committed to investing in our NanoKnife platform as we continue to make progress with our clinical studies, which will support our planned expansion into new indications, such as prostate. And we also look forward to exploring new geographic opportunities as the OUS environment improves. Our Med Device business grew approximately 1% in the second quarter, which was in line with the long-term trajectory of the business that we laid out for you at our Investor & Technology Day. Our Medical Device performance was impacted by the challenging supply chain environment in Q2 that resulted in the backlog that I discussed earlier. Turning to internal R&D during the quarter. We continued to invest in our key strategic priorities, which are: first, to support our existing platforms to facilitate physician adoption and improve patient outcomes. And second, to continue the development of new products in order to expand into larger, faster growing addressable markets. These investment initiatives include clinical research, product development, and selling and marketing as we prepare to introduce these new products into the market. We also continue to look for opportunities externally, and strategic tuck-in M&A remains a component of our long-term growth strategy. We regularly monitor the landscape for the right opportunities, while also maintaining a disciplined approach to capital allocation and cost management as we do so. Turning to our clinical programs. We currently have 22 active sites in our DIRECT study and are encouraged by the overall execution of the study. We also note that the U.S. DIRECT study spawned interest in initiating similar research in other countries. For example, the multi-center DIRECT INSPIRE study in Australia recently enrolled its first patient. I'd like to take a moment to discuss the progress regarding our prostate initiative for the NanoKnife system. The NanoKnife's unique mechanism of action enables it to be used as a focal option for physicians and patients seeking alternatives to radical prostatectomy. Current focal treatment options have been limited in their ability to grow to no more than 5% of the addressable market. We believe the NanoKnife System has the potential to grow the focal treatment market due to its ease-of-use and unique mechanism of action to serve as a more favorable treatment for patients and physicians alike. In order to prove this belief, we have partnered with the Society of Urologic Oncology to launch the PRESERVE study. The PRESERVE study has designed to assess local cancer control in patients with intermediate risk disease, with a secondary endpoint measuring quality of life outcomes. This study will be led by our principal investigators, Dr. Jonathan Coleman from Memorial Sloan Kettering and Dr. Arvin George from the University of Michigan. We will keep you up to date on this important study, and we expect to begin patient enrollment in Q3. We believe that the PRESERVE study can provide valuable evidence, proving that NanoKnife System as a focal treatment option and expand the potential target market to greater than $500 million. With that I'd like to turn the call over to Steve Trowbridge, our Executive Vice President and Chief Financial Officer to review the quarter in more detail.
Stephen Trowbridge: 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. Our revenue for the second quarter of fiscal year 2022 increased 7.6% year-over-year to $78.3 million driven by continued strength in our Med Tech businesses, including Auryon, NanoKnife and AngioVac. Med Tech revenue was $18.9 million, a 36.4% year-over-year increase. Our Med Device revenue was $59.4 million, growing approximately 1% over the second quarter of fiscal year 2021. For the first six months of the year, Med Tech grew 50%. Med Device was flat compared to the prior year period, but grew roughly 5% year-over-year when excluding last year's NHS order. Year-to-date through the end of the second quarter, our Med Tech platform comprised 24% of our total revenue compared to 17% at this time last year. Revenue in our endovascular therapies business increased 17% year-over-year to $39.7 million, benefiting from the continued adoption of Auryon in our thrombectomy portfolio. Auryon contributed $6.3 million in revenue during the second quarter, continuing the momentum that we've been building since last year's launch. We did see some impact from the ongoing COVID pandemic on Auryon hospital procedure volume during the quarter. Despite this challenging market environment, we continued to place new lasers during the quarter. And as of today, our installed base is 242 lasers with 35 lasers placed during the second quarter. We view Auryon as a key growth driver going forward, and we continue to invest in the platform, building out our commercial infrastructure and generating clinical evidence to drive further adoption. As Jim stated earlier, we continue to expect Auryon to generate revenue in the range of $24 million to $26 million for the year. Mechanical Thrombectomy revenue, which includes AngioVac and AlphaVac LMR sales grew 29% over the second quarter of FY 2021, as related procedure volumes improve sequentially with robust demand for the platform. When including unit used , thrombectomy revenue grew 21% year-over-year. While in the current environment, we have seen some softening in procedure volumes in the month of December, we're very excited about thrombectomy as a key growth platform. Vascular Access revenue increased 4.8% versus the prior year period, continuing the solid performance of this business even in the face of hospital staffing shortages and manufacturing delays, which have resulted in a portion of the backlog that Jim discussed previously. Revenue from our oncology business declined 9.3% during the quarter as compared to prior year, primarily driven by fewer capital sales in the quarter, as well as general procedural pressures related to COVID and hospitals staffing disruptions. In addition, sales of microwave remain challenged, declining 3%. NanoKnife disposable revenue increased 9% driven by increased awareness from our DIRECT study and a growing installed base. Year-to-date, NanoKnife disposable sales are up 20%. Moving down to the income statement. Our gross margin for the second quarter of fiscal year 2022 was 51.8%, a decrease of 340 basis points compared to a year ago. Accelerating increases in labor and manufacturing costs continue to negatively impact our gross margin, resulting in an approximately 170 basis point headwind versus the prior year. Inflationary pressures on raw material prices resulted in an approximately 60 basis point negative impact to gross margin, and higher freight costs had an approximately 10 basis point impact versus the prior year. As we anticipated at the beginning of the year, Auryon and AlphaVac startup costs accounted for approximately 100 basis points impact versus the prior year. We expect these dynamics to continue to pressure our margins near term. Given these ongoing headwinds, we now expect fiscal year 2022 gross margins to be in the range of 52% to 54%, a decrease from our prior guidance of approximately 55%. Over the long-term, we expect our gross margin to expand as growth in our higher margin Med Tech platforms accelerates and the manufacturing initiatives, Jim mentioned earlier, have an increasing impact. Our operations team remains focused on driving labor and service efficiencies and seeking material pricing opportunities. We've also implemented modifications to our pricing and shipping terms in an effort to offset some of these ongoing headwinds. We'll continue to monitor the dynamic environment closely and provide updates. Our research and development expense during the second quarter of fiscal year 2022 was $8.2 million or 10% of sales compared to $9.7 million or 13% of sales a year ago. We continue our disciplined investment in R&D focused on driving our key technology platforms, including the clinical spend for AlphaVac PE and NanoKnife prostate. For fiscal year 2022, we continue to anticipate R&D spend to target 10% to 13% of sales. SG&A expense for the second quarter of fiscal 2022 was $33.3 million, representing 43% of sales compared to $29.4 million representing 40% of sales a year ago. The increase in SG&A year-over-year reflects the strategic investments we discussed during our Investor & Technology Day, including headcount investments in areas such as Auryon. We continue to anticipate fiscal year 2022 SG&A spending to approximately 40% to 45% of revenue. Our adjusted net loss for the second quarter of fiscal 2022 was $0.9 million or a loss of $0.02 per share compared to adjusted net income of $0.6 million or earnings per share of $0.01 in the second quarter of last year. The COVID related headwinds with respect to gross margin that I previously discussed equated to approximately a $0.03 impact on second quarter results. Adjusted EBITDA in the second quarter of fiscal year 2022 was $4.4 million compared to $5.2 million in the second quarter of fiscal 2021. In the second quarter of fiscal 2022, we generated $1.9 million in operating cash, had capital expenditures of $1.1 million and additions to Auryon placement and evaluation units of $2.7 million. As of November 30th, 2021, we had $34.3 million in cash and cash equivalents compared to $35.5 million in cash and cash equivalents on August 31st, 2021. Our debt outstanding remained consistent at $25 million. And we do expect to see a higher than normal cash utilization during the third quarter as a result of both the backlog and funding the initiatives that Jim and I have discussed today. Turning now to guidance. We continue to anticipate that fiscal year 2022 net sales will be in the range of $310 million to $315 million. We now expect that full year adjusted earnings per share will be in the range of a loss of $0.02 to a gain of $0.02 compared to our prior guidance of zero to $0.05, as we continue to invest in driving sustainable growth in our key Med Tech platforms, while also managing the continued headwinds that we discussed today. In a current and evolving environment, we expect potential headwinds to persist during the third quarter with a subsequent recovery as our internal initiatives take hold and the external environments improve. We plan to manage through these headwinds in a consistent fashion. Through two quarters of our fiscal 2022, we're pleased with our progression along our strategic transformation. We continue to balance prioritizing top line growth with managing profitability, delivering 8.6% growth year-to-date and continuing to make investments that support our future growth initiatives. With that, I'll turn it back to Jim.
Jim Clemmer: Thanks Steve. This is an incredibly exciting time at AngioDynamics. Despite all of the challenges in today's operating environment, we are dedicated to transforming AngioDynamics into an innovative medical technology company, with solutions that address some of the most dynamic opportunities in healthcare. We can improve patient outcomes and drive high physician satisfaction. Our second quarter results are evidence of our progress towards that goal. And we've planned to continue to deliver on our strategic plan initiatives in the coming quarters. I want to thank everyone here to AngioDynamics for their dedication and commitment to serving our customers during these challenging times. Our employees face the same challenges that the world faces with COVID. Many of them have family members who have contracted COVID and they work through this with a commitment to our customers and supporting their work to help patients in need. With that, I'd like the turn the call back to you, Rob, for questions.
Operator: Thank you. We now will be conducting a question-and-answer session. Thank you. And our first question today comes from the line of Bill Plovanic with Canaccord. Please proceed with your question.
William Plovanic: Great. Thanks. Good morning. Can you hear me okay?
Jim Clemmer: Hi, Bill. Good morning.
William Plovanic: Hey, good morning. So, the first question is, the current wave of COVID is feels like it's very different from anything else. And you have the dubious honor of being the first company to really present some numbers. Maybe your last quarter didn't really get hit as much by Omicron, but as we sit here in the middle, as we're getting into January, and this is hitting into full swing, might be helpful if you could maybe compare and contrast how this wave of COVID is different versus the prior and impact on your business? And then, that you've seen thus far. And then secondly, you talk about the $4 million backlog, kind of was that any specific product line and what product lines what is did that relate to and then have you fulfilled and shipped those products? Thank you.
Jim Clemmer: Okay. Thanks for the questions, Bill. It’s Jim. A couple of things, Bill, back to the Omicron variant or the variant we're all facing, we've seen increased activity, obviously with the variant -- I'll talk externally and then internally. So externally, our customers are under increasing pressure, similar to what it was like early on in the pandemic. Now the benefit is that our customers and the healthcare networks have gotten better and learnt how to deal with this, but they are facing staffing challenges probably at a higher level today than they were then as many of their employees are faced with COVID restrictions. So, we've seen higher levels of breakout with a lot of our customers. So consequently, a lot of the large healthcare delivery networks are asking us again and probably other companies to stand down a little bit, slow down as some cases of them canceling elective procedures are occurring. Even this week we got word from a couple of the large delivery networks that they're going to put a hold on elective “procedures” which was done as you know last year. So, we're watching this very closely. As you know, our people are very close to our customers. We're watching it globally as well. Our teams around the globe are finding similar spots. Now the good news is there's some spots around the globe that are kind of bent the curve already, are getting a little bit better, but here in the U.S. the acuity is still high as far as the customer disruption factor. That being said, I think you saw we still have strong demand for our products through the cycle. So, we've had less of a COVID impact on our demand. Now, flipping to the internal side, as you saw earlier, back to your question on the backlog and the back order, that's affected us here. I mentioned earlier, the pieces we're dealing with are number one; first of all, recruiting employees to come to work, to fill open jobs we have in our operations quality and logistics teams. That's been a challenge for us and as you know, many other companies and during this environment. And number two, also dealing with the disruption when our employees are exposed to COVID giving them the space they need to clear and recover from any COVID effects that impacts our operations and our plans to make products. So, Bill, you asked about one product over another, we identified in the call earlier Bill, it's mostly effected our device products less than the Med Tech products. We have -- we've done different levels of supply chain planning as we've launched those new tech products that have kept us a little more immune to these. So, I'll go back to the device products. That's where it's affected us more. And Bill, the move that we announced this morning, moving some operations to Costa Rica that takes some pressure off our internal capabilities. It'll free up new opportunities for us to reassign people within our operations teams when we have the Costa Rica operation up and running and that was playing for a long time ago. Our operations team, we always have had a labor challenge. So our teams have had this plan and others kind of teed up in their pocket for awhile. We decided to implement the plan and move into action recently, as we saw the effects of COVID and labor environment increase. But I don't think we're going to call out any one category over the other, Bill. There's a little bit of pressure in each of the categories and device.
Stephen Trowbridge: And Bill, just to follow up on the last piece you'd asked about that $4 million backlog and has it cleared. So, it was $4 million at the end of our second quarter. It's actually gotten a little higher and talked about. We expect it to plateau this quarter and then start to get better through the year, as we continue to also focus the consistent, kind of run rate demand that we're seeing.
William Plovanic: And then, if I could, just as we think about the impact of Omicron in the quarter and you've reiterated the revenue guidance of $310 million to $315 million. But should we think that this is going to have a pretty significant impact on the February ended quarter? And maybe we'll see -- I think historically you're down maybe one to two percentage points sequentially at least last fiscal year. I mean, could we see in more pronounced effect this year, given Omicron as we think about just the February quarter?
Stephen Trowbridge: Yeah. It's a good question, Bill. It's something that we're obviously focused and we're very keenly keeping an eye on. I think the seasonality that you mentioned is fair and we expect to see -- continue to see that same pattern. Really the issue that we're seeing most is not as much as on the demand side that Jim announced -- Jim was discussing, but more on our ability to kind of clear the backlog and get the labor into our plant. So, as we continue to execute and finalize these plans, we do expect that our third quarter may be a little bit choppy. I don't think it's going to be tremendously different than some of the seasonality that you had mentioned before when you think about sequential quarter-over-quarter, that's what we're seeing now that that's kind of our expectation as we move through this. There's no doubt, it'll be a little bit choppier. We're seeing some of those Omicron effects. But as we're working through this and finalizing and then getting into the running -- running up those plans, you'll start to see that recovery come out as you head into the end of our Q3 and into Q4.
William Plovanic: Thank you.
Operator: Our next question is from the line of Matthew Mishan with KeyBanc. Please proceed with your question.
Matthew Mishan: Hey, good morning guys. So, just on Auryon, I think you mentioned that you are at 5% share at this point. I'm just trying to understand like what your installed base, kind of what percentage penetration of the office-based labs or the hospital systems that are actually performing these procedures you're at, are you -- have you -- are you at more than 5% penetration of the people, majority of people that have that are performing these procedures, or do you still have a lot of room to go as far as placements go?
Stephen Trowbridge: Hey, Matt. No. So, it's interesting. We feel that we've got about 5% of the stated market as we've talked about it when we launched this product and what our goal was to get to that 10% by the end of year three. What's really driving that is the versatility of the technology. And as Jim mentioned, and we've been very pleased to see the breakdown of procedures with roughly half being above and roughly half being below the knee, which is something that the other technologies really can't do. So, that's what's driving our estimation of the share gain there. We still have plenty of room we think in terms of getting to the share of the market that's out there. We are, of course, as we said much more heavily weighted in our product in OBLs than hospitals, given the dynamics that would have been in the macro environment from when we launched the product. So, we're heavier in the OBL, started to see some nice momentum in the hospitals. I think you're going to see that be a little bit challenged given the current environment, just as they're dealing with the Omicron uptake over the last month or two, and then maybe the next couple months. But we still think there's runway in terms of getting into new customers. And that's going to go along with the plans that we have to continue to place lasers. You saw that we placed 35 this quarter and we placed 52 last quarter. We said we probably weren't going to be at that pace is that we saw some opportunities to get into some of those accounts earlier, but we want to continue to support those accounts and drive utilization. And we'll continue to place new lasers as we go through our Q3 and Q4, as we continue to add those new customers in moving into market share that way. So, we've liked the flexibility that this product has shown to really drive that market share through the first eight months or so of our launch.
Matthew Mishan: Excellent. And then on AlphaVac, just your thoughts on how Omicron and this surge had could impact the commercial release, the full commercial release of the products.
Jim Clemmer: Sure. And Matt, we did mention that -- Steve mentioned that we saw a little softness in December in our AngioVac cases and some of the procedures a little softer there. So -- but I don't think it's going to affect AlphaVac much Matt, because we're just launching it. And if you look back on the information we put out in our public guidance in our Investor Day, remember this first version of the 22 French AlphaVac is still limited in the DVT potential market that it serves. So, right now, I don't think the Omicron push now will affect that a whole lot. Like anything, it may affect a little. There are value analysis committees that may be postponed or canceled. It may drag us out from getting approvals a little bit, and it may hold back on some of the conversations that we'd like to have with physicians, but over time, what will open up for us the larger markets are later in this calendar year when we launched the 18 French, and then work towards our PE indication work and then launching another smaller device. So, Matt, sure, it's going to affect that. I don't know if it's a whole lot right now, because we have so much work on our plate independent of the Omicron variant.
Stephen Trowbridge: Yeah. And then I would add a little bit more color to that. I think Jim hit on the value analysis committee -- value analysis committees, which I think is an important point. So, we don't see Omicron as being something that's derailing to our plans for AlphaVac. As Jim mentioned, we've got a lot of activity going and we're very pleased with the feedback we're getting from our physicians and the results that they're getting when they're using AlphaVac in the LMR. You may see a little bit of an extended period of that ramp, because there might be some slight delays in those value analysis committees, given the hospital activity, but it's not derailing at all to our current plans. We've been really pleased with the way the process has been moving.
Matthew Mishan: All right. Excellent. And then last question, just then -- just give me an update on the timeline around the DIRECT study where you're at with that. And thanks very much.
Stephen Trowbridge: Thanks. Sure, Matt. So with DIRECT, this is clearly a challenging environment with hospitals and how they're handling clinical trials and getting patients in there. With that said on the registry side, which is the side that we've talked about, we've been very pleased with the current environment with the pace that we've seen. And so, we're continuing to treat and enroll patients in that registry side. There's no doubt that it's a little bit challenged given the current environment and the hospital staffing challenges that Jim mentioned, which is what really is different this time versus maybe earlier on in the pandemic. It's hitting the hospital workers. And the second challenges that hospitals have is they're trying to treat their patients. But we're still pretty pleased with the clip that we're seeing a patients being enrolled. Now that being said, as we mentioned, the RCT, we expect this to be more challenged. That's absolutely been the case. And I think that's even been more the case in the current environment with COVID. So, we're continuing to focus on what we're seeing we can get through, which is enrolling patients in that registry side. We'll continue to post -- keep you updated on conversations as we address the fact that we always knew the RCT was going to be a bit harder.
Matthew Mishan: Okay. Thank you.
Operator: Thank you. The next question is from the line of Jayson Bedford with Raymond James. Please proceed with your question.
Jayson Bedford: Good morning and happy New Year. So, I have a few questions here. Just on the backlog, the $4 million. What is a normal backlog at quarter-end? I'm just curious if the $4 million mentioned is, can be viewed as excess backlog beyond the amount that you typically carry into a new quarter.
Jim Clemmer: Hi, Jayson. It’s Jim. It is, Jayson. We target -- kind of a soft target of about half day sales. What's so, you go, that would be look at our average run rate, so call it 600,000 to 700,000 in that range across -- we think that's -- where are we going to have a back order with this many SKU is in a complex business. So, Jayson, this is significantly higher. That's why we wanted to call it out, because it is significantly higher than what we try to target for a workable run rate with our customers. So, this built during the quarter, and that's why we implemented those plans. And I mentioned really the -- some of the reasons why. It's mostly labor related, and in some cases -- as I mentioned, some of our material suppliers are having challenges, getting us some of the materials, but our operations quality of logistics teams are working through. I gave one or two examples earlier, but they have many other planes they're working on to bring this down by the end of our fiscal year.
Stephen Trowbridge: Yeah. Jayson, Jim is exactly right. That -- typically we target that that's 600,000 to 700,000 backlog, getting to the $4 million. And we really saw that accelerate in November. As Jim mentioned, we saw this quarter a bigger impact for our employees being impacted by COVID. A great example of that is we had an entire line of products in our facility that we couldn't make for over a week in November, because everybody that was on that line ended up coming down with COVID. Tough scenario. As Jim has mentioned through the beginning of this pandemic, we're doing everything we can to support the health and safety of our employees. But that's a good example and a good kind of anecdote of how some of these things can accelerate and hit. And that's what we saw in November, which led to that increase in the backlog.
Jayson Bedford: Okay. And you mentioned, I think, increasing capacity, improving efficiency and an adjustment to pricing and shipping as initiatives to help the supply chain dynamic. I am a little unclear, what's the specific factor that allows the supply constraints to ease in this $4 million to get a shift?
Jim Clemmer: Yeah. Good question, Jayson. I'll give you a few. One is, first, the additional capacity that we're bringing online with our new Costa Rica partner just gives us more capacity, gives us really access to more labor. So, we can reassign some of the labor in our internal operations that are making those processes to other things. That's number one. Number two, we're talking about efficiencies, increase efficiencies, quote unquote, that's a few -- that's a bucket to count a few things. And one of those that we decided to also to reduce SKUs. We have a lot of SKS here and we reduced a bunch of SKUs. When you do that, that makes our operations team complexity a little easier, so less changeovers. Every time we build products, we're building less, less for you. So, we build more of the same products hopefully. Now, there's always a little customer disruption when that occurs, but it streamlines our operations. And Jayson, we've also seen in some of our products in the device area, some of the old geographic catheters and areas we've seen some of our competitors have severe back order problems and customers have turned to us. They used to buy other companies products, and it's almost led to this. That's why we've had really strong demand across our board, not just from that, it's a small piece, but the demand has stayed high. So, things like those, Jayson, that we're doing internally to streamline our operations increased capacity to deal with this back order in different ways. Again, some of the labor component, we hadn't seen it come to this level before and then hit again with the COVID effect. And as Steve mentioned, we have many of our employees affected by it. We have to follow the protocols internally, which led to a decrease of our ability to produce.
Jayson Bedford: Okay. In answering one of the earlier questions, you talked about your IDN asking you to kind of hold down on electric procedures. Just how would you characterize your portfolio as a kind of percent of your portfolio that's exposed to quote unquote elective procedures?
Jim Clemmer: Yeah. I mean, the good news, bad news with that, Jayson, it's a smaller percent. If you look at really -- as we're growing our Med Tech portfolio as you see become a larger portion of our business, that's really strong and that's our future, but those are the ones we're seeing that could be more effective. And the example that Steve gave earlier was we saw softness in our AngioVac business a little bit in December. We saw some physicians treat patients in different means. And we're seeing that a little bit now as well. So, as far as our portfolio goes, it's only a percentage of what we do. You look at our Vascular Access business where treating patients still on a routine basis who need access to getting medication in their bodies. So that hasn't really slowed. Anything that pick up in some cases and offset some of the other slowness. So, it's a challenge. I think, Jayson, we have great intel from our customers through our salespeople that talk to them every day and our clinical teams, they're in the field globally. And we balance that and that's why we've also reiterated the revenue guidance we gave today with a lot of thought on the pro and con that we're all facing these challenges, but the demand remains strong overall for our products.
Jayson Bedford: Okay. And then a couple of AlphaVac questions. The timing on the 18 French launch, I think you said later this calendar year, is that still -- is that the right interpretation?
Jim Clemmer: It is. I guess, there's a little unfair being it's only January 6th to say later in the calendar here. So, I'll tell you that up, it'll be in the first half of this calendar year. It would be fair.
Jayson Bedford: Okay.
Jim Clemmer: Yeah.
Jayson Bedford: Okay. And then, is there any way to kind of frame the scope of the LMR versus a full market release?
Jim Clemmer: There's a couple of ways, Jayson. A couple of simple ways to frame it, we only give access to a limited portion of our sales team, that's specially trained to kind of be an advanced team to get out in front of this, because our initial goal isn't to sell as many as we can, is to gain as much info as we can, and to engage with our customers to get their feedback. We want to confirm our assumptions on the product design and development and our launch and training procedures. So, that's what we did. We only gave it to a limited piece of the Salesforce, and they can only take it to pre-approved customers that we knew would give us the feedback that we were seeking. So, that process went very well. We've enabled this process. Now, this is the fourth product we've launched at AngioDynamics in last couple of years with this process, we put in place and it worked very well. And that gave us the confidence in early December to go to the full launch now. So all of our sales reps now can engage with customers of their choice.
Jayson Bedford: Okay. Thank you.
Jim Clemmer: Yeah. Thank you.
Operator: The next question comes from the line of Steven Lichtman with Oppenheimer. Please proceed with your question.
Unidentified Analyst: Hi. Good morning. This is actually David on for Steve. I had a few questions. Want to start off with the COVID impact on the AngioVac and the quarter since to have been less of headwinds sequentially with a pickup in growth. Could you just talk about what you're seeing on the ground now, as it relates to COVID impact on the AngioVac business?
Jim Clemmer: Yeah. Hi, David. Good morning. It’s Jim. As we said earlier, we're very close to our customers. And unfortunately this is kind of a gray area where it falls into an elective procedure, quote unquote, unfortunately it's not everybody looks at it that way, but it's definitely when -- the root cause is the staffing challenges in the healthcare centers I believe. So, when they have such stress on their systems, they have large swaths of nurses being out with COVID in their own hospitals, putting pressure on the ICU beds and their capacity to serve their patients in the ICUs, so when you do that, it kind of backtracks backwards to procedures that they don't want to do a procedure that may have a patient then go to an ICU that's under challenged. So, we're in that kind of care continuum piece where we watch that very closely. So when a doctor can say, well, I'd love to do an AngioVac pay on this patient, but I could treat them with the lytic maybe a little longer and watch it, then have my ICU free up. That's kind of the effect. So, it's really, really hard to measure that exactly. But I'm trying to give you a real world situation as to what's happening. So, we're very engaged with our customers. And we're also working as a partner with them we're -- during this process to be at their side when they're ready for us.
Stephen Trowbridge: Yeah. David -- and the little extra color on that one. So, as you mentioned, sequentially from Q1, we definitely saw an uptick in terms of the market demand for AngioVac. You'll recall in our Q1, we said that there were some softness that we saw in the summer, but that we saw procedure volumes pickup in September. We definitely saw that through most of our Q2. We're kind of highlighting again today. We're seeing a little bit of that softness in December. And as Jim mentioned, a lot of what's come -- what's driving this in our estimation is that those hospitals staffing pressures. And so when you've got the ICU nurses, as you know AngioVac has a very complicated procedure, you bringing in perfusionists, you have a number of different specialties that are working through that. And so, when there's these acute hits of staffing pressures, because the healthcare providers are sick, we start to see some of those blips, but then they tend to reverse. As you look at our cadence that we saw a little bit of softness in the summer, we expected that to pick up, it did. We saw that we're not seeing a little softness in December. We expect that to pick up through the rest of our fiscal year kind of in a very similar fashion.
Unidentified Analyst: Okay. Great. That's helpful. And then just looking at the Auryon, are you able to talk about how many reps you ended the quarter with and what are your expectations in terms of your year-end target?
Stephen Trowbridge: Yeah. So, we talked about before having about 40 based -- field-based salespeople, including our territory managers, regional managers, that's kind of where we ended the second quarter. To support that we also have clinical specialists and per diems, another 30 field-based reps that are supporting the -- are field-based people that are supporting our reps too. So, all in all, we've got about 74 field-based Auryon employees today. That'll probably be a little bit more as we head in the back half of the year, but I think we've done a good job preparing that team for the growth that we're expecting for this year.
Jim Clemmer: Yeah. David, it’s Jim. A question was asked earlier. I think Bill asked as well about Auryon, and how we'll grow it. Again, we'll grow it as we've shown you by increased demand, increased interest in our product that people would want us to place lasers. That's one way we'll grow. But really number two, we're watching. We measure -- every time we place a laser, we are measuring how many procedures they do on a monthly basis. We're watching that go up, as you see people get confidence when they see the outcomes of what our product delivers. So, we see a lot of upside potential in the current base of lasers we have, as our clients get more and more confidence in the product develop great outcomes. So, we're going to see demand come in again from new laser placements and also more use in current lasers. So -- and we'll have -- we'll make sure we have the field people to support that growth.
Unidentified Analyst: Got it. And just last one for me. Are you expecting the release of the PATHFINDER registry data near-term? Thanks.
Jim Clemmer: And we've started to see publications come out from PATHFINDER. You've already seen a handful of those over the last few trade shows and expect to see a few more coming. So, yeah, the data is coming out of PATHFINDER as we speak and we expect it to continue.
Unidentified Analyst: Okay. Thanks.
Operator: Thank you. I'd now like to turn the call back over to Mr. Clemmer for any closing remarks. Mr. Clemmer?
Jim Clemmer: Thanks, Rob and thanks for joining us on our call today. Again, AngioDynamics is a company in transformation to becoming a high growth innovation-driven med tech company. I think what we delivered today is really solid results. You can see the revenue growth that we exhibited. That's really driven by the demand of our customers. The demand that our customers are having our products and the interest they have in our technologies. So, we're working through these difficult headwinds and challenges like other companies are. And I want to, again, thank our people for the resilience and their commitment to our business. Thanks again for joining us today. Talk to you soon.
Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
