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AngioDynamics, Inc. (NASDAQ:ANGO)

January 31, 2012 11:30 am ET

Executives

Unknown Executive -

Joseph M. DeVivo - Chief Executive Officer, President and Director

D. Joseph Gersuk - Chief Financial Officer, Chief Accounting Officer, Executive Vice President and Treasurer

Analysts

Jason R. Mills - Canaccord Genuity, Research Division

Thomas Kouchoukos - Stifel, Nicolaus & Co., Inc., Research Division

Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division

Jayson T. Bedford - Raymond James & Associates, Inc., Research Division

Charles Croson - Sidoti & Company, LLC

Larry Haimovitch - Haimovitch Medical Technology Consultants

Robert M. Goldman - CL King & Associates, Inc.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the AngioDynamics Conference Call. [Operator Instructions] I would now like to turn the conference over to Bob Jones [ph] from EVC Group. Please go ahead.

Unknown Executive

Thank you, operator, and good morning, everyone. Thank you for joining us today for the AngioDynamics conference call to review the company's proposed acquisition of Navilyst Medical. The news release announcing the transaction crossed earlier this morning is available on the AngioDynamics website. With me today are Joe DeVivo, President and Chief Executive Officer of AngioDynamics; and Joe Gersuk, Executive Vice President and Chief Financial Officer.

During today's call, a PowerPoint presentation will accompany management's remarks. The call and PowerPoint presentation are being webcast. To access, please go to www.angiodynamics.com, click on the Investor section and then click on Events & Presentations. If you are listening via telephone, to view the accompanying presentation slide, navigate to the live webcast as noted and choose the non-streaming option to view the slides in conjunction with the live conference call. A replay of the call with the PowerPoint will also be archived on the AngioDynamics website.

Before we get started, during the course of this conference call, the company will make projections or forward-looking statements regarding future events, including the statements about fiscal 2013 revenue, EBITDA and earnings per share, as well as expected future efficiencies expected to be realized through the integration of the Navilyst acquisition by AngioDynamics. Investors are cautioned that forward-looking statements are not guarantees of future performance or results, and involve risks and uncertainties that cannot be predicted or quantified. And consequently, the actual performance or results of AngioDynamics may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to, the factors described from time to time in AngioDynamics' reports filed with the SEC, including AngioDynamics' Form 10-K for the fiscal year ended May 31, 2011, and AngioDynamics' form 10-Q for the quarterly period ended November 30, 2011.

In addition, we encourage you to review the proxy statement that will be filed with the SEC regarding the proposed transaction by the end of February. Investors and stockholders are encouraged to read the proxy statement and other relevant materials when they become available. They will contain important information about AngioDynamics and the proposed transaction.

In addition, today's presentation includes certain financial measures used to better understand the benefits of the acquisition that have not been prepared in accordance with the generally accepted accounting principles, better known as GAAP. An explanation and reconciliation of these non-GAAP measures has been provided in today's news release issued by AngioDynamics, and is available on the website at www.angiodynamics.com.

AngioDynamics uses non-GAAP measures to establish operational goals and believes that non-GAAP measures may assist investors in analyzing the underlying trends of the company's business over time. Investors should consider these non-GAAP measures in addition to, not as a substitute for or superior to financial reporting measures prepared in accordance with GAAP. On today's call, the company will discuss non-GAAP EBITDA and non-GAAP earnings per share, and has used these measures as an internal analysis in review of operational performance.

Finally, we've allocated one hour for today's call. [Operator Instructions]

So now you should be on Slide #3. And with that, I'd like to turn the call over to Joe DeVivo, President and Chief Executive Officer of AngioDynamics.

Joseph M. DeVivo

All right, Bob. Well, thank you very much. As we get started, I appreciate everyone -- first of all, I have a cough. I apologize for that. So I'll try to keep that to a minimum.

We appreciate you joining midday. I know it's probably an unusual time to do a call and I apologize if that disrupted your day. But we got this transaction closed last night, and we felt that it was absolutely important, given the amount that we value our employees, to have the opportunity to speak to our employees first. I have had the opportunity to meet face-to-face with teams from both AngioDynamics and Navilyst, and also on the call with them this morning, to let them all know how excited Joe and I are about this transaction, how valuable we believe it is for the future foundation of our company. And I was thrilled to see how well this was received from both sides.

But before I get into the specifics of the transaction and of giving you my view and thoughts as to why we made this decision, I just want to reflect on a moment on my first 4 months here with Angio. As you all know, the company has been going through some changes, and we have been looking for opportunities to put our balance sheet to work. While we have a very strong balance sheet, we have not been providing the type of return for investors with that balance sheet. And so I've mentioned in the past that we were looking at small L&A [ph] deals, tuck-in acquisitions, ways to deploy the capital. And I'll say that Joe and I have looked at, and for that matter are continuing to actively look at all different types of ways where we can enhance the value for our shareholders.

We believe when we had the opportunity to look at Navilyst and understand its legacy with Boston Scientific, to understand the technology, the deeper we looked at this company, the more that we realized that this is a significant opportunity to build a truly special company. Many people would think of something like this as transformational for us to do such a deal like this. But I don't view it that way. I view it as foundational.

At every level, when you put the Navilyst organization together with AngioDynamics, it builds a better company, from the top to the bottom, from left to right. There's not a department in the combined organization that's not going to be better, not going to be stronger and not going to be more valuable for -- or the overall -- for our shareholders versus what we're ultimately working towards. So we believe this acquisition creates that foundation or that new platform for many things to come, for many things that we are excited about and as a first step in a long journey of building a world-class company.

So first of all, let me introduce you to Navilyst. Navilyst enjoys product leadership in several key markets and has a well-earned reputation for manufacturing and operational excellence. As I said, the company is formerly part of Boston Scientific, was acquired by Avista Capital in 2008. The company operates a "state of the art" manufacturing facility just 4 miles down the road. It's very easy for me today to go see them. And the company maintains an incredibly skilled R&D team and management team at Marlborough, Mass.; and a wonderful sales and marketing team that operates out of Marlborough and around the world. Both of these assets become now a very important and strategic part of AngioDynamics.

In calendar 2011, Navilyst generated $149 million in sales. There are many similarities between these businesses. We're both in the vascular access market. We both serve interventional radiologists, nurses and surgeons. Are similar in size of our vascular businesses. Again, manufacturing facilities being very close in the beautiful northern New York state. And we have very similar cultures, very similar aspirations and very similar challenges.

So what do the -- Joe will go through the numbers in a bit. But from an overall business standpoint, when we look at how many different areas this transaction improves and affects AngioDynamics, in my view, I can put it into 3 different buckets. When we look at other small L&A [ph] deals, we can bolt on things to the core business, but this had the opportunity of, across the company, fixing or dealing with issues that you've all been aware of for a long period of time, and I'll go through those.

First of all, scale. Let me go to Slide 5. So Slide 5 visually talks about scale in the Vascular Access portfolio. This is a broad portfolio of respected brands, enhances our competitor position and creates a clear #2 vascular access franchise with very competitive product lines when compared with the market leader. We believe that customers are looking for a comprehensive alternative, and that this vascular access resource, which is capable of meeting all of the needs that we've just created in one single offering. AngioDynamics will double its market presence in the vascular access market. And as you can see from this chart, we'll be very well positioned.

Next slide, please. So we are also thrilled by adding one of the most trusted brands in the interventional cardiology market. The NAMIC brand has been very highly regarded as the gold standard in fluid management for the last 40 years. Its dominant market position brings AngioDynamics leadership in an area that we think is important to grow for the company. We believe that this leadership in the cath lab helps AngioDynamics round out and build into the future a strong peripheral vascular channel that will call on the cath lab, will call on the vascular surgeons and radiologists.

Importantly, this critical mass will give new life to products in our portfolio where, historically, we've had a challenge in focus. The ability to create a sales channel in Vascular Access and then a sales channel specifically for Peripheral Vascular, we think is an enormous benefit of this transaction.

Next slide, please. We will also now have the patented pressure-activated safety valve. Not only will we be improving our scale in Vascular Access and our scale in Peripheral Vascular, we will be adding some very compelling technologies to the company, the first being that I'm mentioning here is our PASV valve. It has a significant sustainable competitive advantage. Valve catheters are an important part of the vascular access market. And to be quite honest, it's been a struggle at times for AngioDynamics to add value and compete with technologies as such. So this is a very important technology. And with over 10 years of performance, we're very excited to have it. It's also, combined with our Vortex port sometime down the road, we believe would prove to be a formidable in the marketplace.

Next slide, please. From a technology perspective, we are also very excited about a new product that Navilyst is bringing to market, and that is called BioFlo. BioFlo is a novel material that minimizes the accumulation of thrombus for PICCs, ports and dialysis catheters. It's approved currently in Canada and in Europe, and is pending clearance in the United States. I think the picture in the upper right provides an excellent illustration of the contrast that we can draw between BioFlo and many current technologies. This is a compelling and enabling technology that Navilyst brings to AngioDynamics.

With BioFlo, we believe that there can be a significant reduction in thrombus accumulation, which as you know has significant clinical benefits. Having BioFlo to improve our PICC line, our port line and our dialysis catheters, at some point in the future, we believe will create a market-sustainable competitive advantage in this segment.

Next slide, please. So now let's look at the third benefit, which is operational excellence. As I mentioned, Navilyst operates a world-class facility in Glens Falls, New York. Again, within close proximity of our Queensbury facility. They employ Lean and Six Sigma best practices and focus on and have a significant core competency in operational excellence.

The -- as you see on the chart, we believe that both companies have a significant benefit to each other, where AngioDynamics has core competencies in our catheter assembly, electromechanical assembly and extrusion, where Navilyst has a very powerful, vertically-integrated injection molding core competency, which will help us rationalize our vendor base and also be able to improve on our cost. Navilyst has very strong and robust ERP and document management system, barcoding through manufacturing. Something our sales force would be very excited about is in the custom kitting competencies. They're very well known for their Lean practices, Six Sigma operations and a wonderful quality management system.

We believe, together, that we would be able to build a very strong company, especially during a time when we've been dealing with some challenges. We most certainly -- we know that Navilyst and a part of Boston Scientific made significant investments years ago in this infrastructure, in these processes, in their IT. And it is something that -- a combination will save years of evolution for the core part of the AngioDynamics to get to where I believe it needs to be.

So in many senses, it will improve our scale, it will improve and create more technology in our offering, and it will also significantly and immediately add to our operating efficiency. As I mentioned, I view that as a foundational deal where we are investing in the core of the business to become a better company, and as a first step as we are evolving towards growth.

So with that, I will now turn it over to Joe Gersuk, who will walk you through the financials. Joe?

D. Joseph Gersuk

Thank you. As Joe said, we are very excited about this transaction and believe it will deliver both immediate and longer-term results for our shareholders, which we anticipate closing in the fiscal fourth quarter of our 2012. For analysis purposes, we assume a May 31 transaction closing date.

Slide 11 reviews the key elements of the transaction. We've indicated pro forma sales expectations of $360 million in fiscal year '13. This figure reflects no sale synergies, or for that matter, lost sales that could result from the combination of the companies. On balance, we think there could be some real leveraging of sales as we take advantage of the new sales call points, but it will take some time to fully assess the sales potential of the combined company.

We've indicated pro forma non-GAAP EBITDA of $60 million in fiscal '13. This includes the benefit of $5 million to $7 million of net cost savings that we see clearly at this time, but it excludes transaction-related and nonrecurring costs. The $5 million to $7 million in first year savings will double by fiscal 2015.

We will also benefit significantly from the tax assets we are acquiring, and they represent a significant portion of the purchase price, by our calculation about $80 million on a present value basis. These arise from the asset value of the acquired business, as well as NOLs that will be available. These tax benefits will save us approximately $11.5 million in cash tax savings every year for the next 12 years, for a cumulative tax savings of $130 million.

Note, however, the tax rate you will see on our P&L will reflect a tax rate of approximately 37%, as the tax benefits will run through the balance sheet. Importantly, we will be providing more detailed guidance when the transaction is finally closed, which as I said, we expect to occur in May.

Slide 11 reviews the key elements of the transaction. The total value of the acquisition is approximately $372 million. We're paying 63% of the purchase price in cash or a total of $238 million. And the remaining 37% of the acquisition price will be paid through the issuance of $9.5 million AngioDynamics common shares to Avista Capital Partners. At the closing, Avista's ownership position in AngioDynamics will be 27% and they will have 2 seats on our Board of Directors, which will increase the total size of the board to 10.

To finance the cash portion of the purchase price, as well as related transaction costs, we will use approximately $97 million of our current $138-million cash position. In addition, we have received a fully committed $150-million bank financing facility from JPMorgan, Bank of America and KeyBanc in the form of new debt issuance. The bank loan will have a 5-year term and a LIBOR-based variable interest rate that stands today at approximately 3.5%. The 3 banks have also extended a $50-million revolving credit facility on top of the $150 million term loan.

Both companies' Boards of Directors have approved unanimously the proposed transaction. And as I said, we expect to close it during our fiscal fourth quarter. And the acquisition will be subject to customary closing conditions, clearance under certain anti-trust guidelines and the approval of AngioDynamics shareholders. We currently expect to file the proxy statement with the SEC by the end of February.

Now I'd like to turn the call back to Joe for a quick summary, and then on to your questions. Joe?

Joseph M. DeVivo

Thanks, Joe. So over the past 5 months, I've shared with you our intention to use the strong balance sheet to fund acquisition opportunities that would be accretive to earnings and enhance our future growth prospects. We were very diligent in analyzing each of these opportunities. We believe we found an excellent partner in Navilyst Medical. And I'd like to be able to summarize again what we believe we're creating on this transaction.

Now first, we're bringing to AngioDynamics scale, technology and operational excellence that will result in short- and long-term accretive financial performance for our shareholders.

Second, we significantly enhanced our current business, while building a solid platform to pursue future growth opportunities.

Third, we continue to have a strong balance sheet and capital structure, flexible to pursue other acquisitions and licensing deals. Our business development efforts remain active and expansion of the number of oncology products that we offer remains a key goal of the organization.

Fourth, we've acquired a company that is a strong cultural fit with ours. The close proximity of these facilities will simplify the integration process. We're very excited about the potential of this acquisition and have assembled a team of experts to maximize the opportunity that lies ahead.

So now, operator, I would like to open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Jason Mills of Canaccord.

Jason R. Mills - Canaccord Genuity, Research Division

I'm wondering, at this point, if you could give us a bit better feel for the likelihood of sale synergies. And what areas are you focused most on to derive those synergies?

Joseph M. DeVivo

Thanks for the question. When we put our numbers together for this call, we wanted to be able to give everyone a perspective of what this looks like kind of day one. We've not yet given, really, 2013 guidance. But we did want to say, here is where, if we just put them together, the revenues would be. And here is the financial performance and also our first cut at the synergies. The -- it does not factor in yet the revenue synergies. And in my view, we have the opportunity to drive revenue synergies. First of all, by having a more complete Vascular Access portfolio, is going to improve our position in the marketplace, just clearly will. So the ability to drive penetration in existing accounts that may be using competitor products that were not in the other company's portfolio, is some low fruit. The ability to call on accounts, to be an alternative to the leader in the marketplace, to show the offering, I think has as good an opportunity as any to drive share. And that'll be a focus of the organization. Third, to be able to have a focused selling effort. One of the challenges and one thing that I know my sales force has told me time and time again is, we have too many different competing opportunities in the bag. We need focus. Well, you got it. And not only do we have focus, but we have focus with creating a very strong market position. So I have a tough time thinking that our -- that the quality of our combined organizations aren't going to be able to drive positive market share. And also, they, the Navilyst business, grew very nicely in vascular access last year. From a Peripheral Vascular standpoint, it's the same thing as I mentioned on focus. Instead of having a mixed bag, we now can have an organization focusing on vascular surgeons and interventional cardiologists. Many products that were in the bag, that were not getting enough attention, are now going to become more important to those sellers. And we're going to have the opportunity to build new relationships with interventional cardiologists. And also help interventional cardiologists, believe it or not, who are interested in venous ablation, build their venous ablation practices. So there -- we're not yet ready to give guidance. We have a lot of work to do between now and then. But there is no way we are not going to see a positive impact in the marketplace, due to the synergies of these products and the renewed focus in those organizations.

Jason R. Mills - Canaccord Genuity, Research Division

Okay. That's very helpful, Joe. I appreciate that. My follow-up is, as it relates to the potential cost synergies, what sort of EBITDA growth we could see going forward. It sounds like the $60 million that you've given us is at least the first cut today, as what you see, just putting in these 2 businesses together without any synergies or lack thereof. I'm wondering, is that a level from which you would grow more predicated on your ability to drive sales synergies? Or are there step functions as you get a year or so post-deal, where EBITDA will go to a level of equilibrium from which you would grow at a higher level than $60 million? I don't know if the question is clear or not. I'm just getting a sense -- I mean, clearly, you've taken -- the enterprise value of the combined business is much higher than the current business, so the multiple on the combined business is much higher. So I'm wanting to get a sense for, really, downstream a little bit, what sort of levels of EBITDA you're thinking about in terms of the potential for this deal.

D. Joseph Gersuk

Yes. So in terms of EBITDA margins, we're looking at starting at something in the range of 15%, and then growing that by double-digit dollar amounts. And then on a marginal basis as a percentage of sales, expanding that by at least a percentage point a year, each year going forward based on our current projections for the business.

Operator

And our next question comes from the line of Thomas Kouchoukos with Stifel, Nicolaus.

Thomas Kouchoukos - Stifel, Nicolaus & Co., Inc., Research Division

Maybe we can step back, bigger picture, just on the transaction itself. And, Joe, I was wondering if you could talk about the growth trajectory of the Navilyst business and some of the past challenges they've had. And then maybe discuss how you arrived at the deal valuation in general.

Joseph M. DeVivo

Sure. Well, first of all, the trajectory of the business, it's been kind of, over the last 3 years, a mixed bag. They've had some challenges in Fluid Management with implementation of an ERP system that I guess gave them a little bit of a challenge. And aside from that, the Fluid Management has been pacing at flat to growing slightly. The Vascular Access business has been growing nicely. And the -- there's a supply agreement between another company that has been declining over time. And so when you add the pieces up, it's been, over the last 3 years, a pretty flat business. But that doesn't concern me. I've looked at it. I've looked at it closely. And I think Navilyst has had the same type of focus issues that AngioDynamics has had. And I believe with the combination of their very successful Vascular Access business with ours. And as I mentioned, what we can do in Peripheral Vascular for ourselves and for them, I think we can change that trajectory. This -- when we look at the valuation, first of all, it's important to note that there's a significant tax asset that comes with the acquisition, where, on a cash basis, is worth $130 million. Or from a present value, we value it at $80 million. So you net that up to $372 million, and that's just about $290 million and change, is what we believe our purchase price is, which is less than 2x revenue. And given the synergy that we believe we can drive, given the overall improvement operationally, we actually think we've -- it's a very fair valuation for the business. And before we end on the topic, I know Joe also wants to make a couple of comments.

D. Joseph Gersuk

Yes. So I would just say, as Joe said, we look at it as about $292 million in a purchase price x the tax attributes. And so that would be a purchase price of about 2x their revenues. And then in terms of EBITDA, the business has reported on a GAAP EBITDA basis in the vicinity of $20 million a year. But those results included various charges and other arguably onetime items. And so if you strip all of that out, the business has produced about a "$30 million a year" adjusted EBITDA rate over the last 3 years. Again, unevenly over those 3 years, but that's what it has averaged. And on that basis, we're talking about a bit over 9x that EBITDA, adjusted EBITDA figure, in terms of valuation. And so we thought that was a fair price. It was the price that it took to get the deal done. We've had a number of conversations with the principals that own this -- the company over the years and finally got to a price that worked and that we thought was in the best interest of AngioDynamics shareholders. So very confident about the financial projections that we've put forward here. As Joe said, there could well be revenue opportunities above this $360-million figure. And we're highly confident in the savings projections that we've built into here and think there could be some upside to those, but need to get through the diligence -- further through the diligence process. And we'll offer the further guidance on all of this when we ultimately close the transaction.

Thomas Kouchoukos - Stifel, Nicolaus & Co., Inc., Research Division

Okay. That's helpful. And then just one quick follow-up, Joe Gersuk, if you could talk about the differing margin profiles of the company, maybe touch on gross margins for Navilyst and then maybe gross margins by Fluid Management versus their Vascular Access division.

D. Joseph Gersuk

Yes. I can speak to it in the aggregate for the whole company. And their gross margins have been in the low-40s. And that primarily reflects the nature and the competitiveness of the Fluid Management business. And their vascular business has margins that are not too far away from our own gross margins. But in the aggregate then, you're at a low-40% gross margin business. We do think that when we put the 2 businesses together, we'll begin to start to drive some improvements in the gross margin by virtue of sourcing parts and component parts to each other's facilities. There are things that we build ourselves that they don't have and they buy from other vendors and vice versa. And so we think we can start to drive the gross profit margins up at least a percentage point a year. And when you blend the 2 together, we start off at about a 53%-gross-margin combined enterprise. And then from that level, add at least a percentage point a year to those gross margin numbers, based on the immediate opportunities that we see to save some money. And the last point I would make is that there is a supply arrangement with Boston Scientific, which is an artifact of the acquisition of this business several years ago. And that, that is a low margin -- relatively low margin piece of business. It's a contract that will expire in February of 2013. And our planning assumptions are that, that would not be renewed and that there will be no revenue there. And the absence of that will also add a little bit to gross margins as well.

Operator

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

Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division

Two quick questions. First of all, on the BioFlo product, when was that application filed? Where does that fit from a timing perspective? I mean, is that something we can anticipate here before the end of your fiscal year?

Joseph M. DeVivo

Well, that's really something for -- I don't want to get too far ahead for Navilyst, but my understanding is, is that the 510(k) has been filed. As you know in this space, Matt, a lot of companies are trying to get this type of clearance. And so I don't see this as just a check-the-box type of clearance. So the degree of difficulty is pretty high in this area. We really like what we see and are encouraged by the initial international results. But I don't want to set an expectation for the team yet. But it is filed, there is dialogue and we hope for the best.

Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division

All right. Understood. Without -- given the size of the 2 vascular businesses, is there any risk from DOJ's standpoint or not really?

Joseph M. DeVivo

No. Well, we don't believe so. We're barred with 65% market share. Basically 2 10% share, plus or minus a few points, whoever is running the numbers, get into the low-20s, I don't think is going to scare the regulators.

Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division

All right. And then I guess one more. Looking at the sales force -- and you've done a good job I think of highlighting the opportunities. Once you've had a chance to integrate and kind of get things designed how you'd like, how many separate, like, sales forces will you have? I mean will it be each? Will it be 4? Or will you have 2 main call points with some overlap with different market segments?

Joseph M. DeVivo

Well, first of all, our oncology business will remain as it is, and being led by Rick Stark. There are a couple of products potentially in microcatheters that will come over into that business. The other business is being run by Alan Panzer, who has had a significant amount of experience in his days with Kendall, Tyco, Covidien, and who knows how to integrate businesses and integrate sales forces. He'll be doing a lot of work to optimize the best structure. I do think we will have a set of focused salespeople focusing on Vascular Access. And I do think we will have a set of salespeople focusing on Peripheral Vascular. And then Alan will decide how that rolls up into his organization. But the importance for today and the ability to drive revenue synergies, is to know that we're going to give the sales force what it's been asking for, and that's the focus and the ability to be successful.

Operator

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

Jayson T. Bedford - Raymond James & Associates, Inc., Research Division

I guess my first question is why now? Meaning, this is an asset that's been out there for a few years. What's changed? Why did the board decide to do it now versus 6 months ago, a year ago?

Joseph M. DeVivo

I don't know, Joe. I guess -- Joe's been around longer than I. I think he has been in discussions in the past. I think -- I don't know. Joe -- I can extrapolate on the past. But I think we, Joe and I, have been able to sit with the team at Avista. And in looking at what can -- the amount of value that can be created in this transaction, the amount of synergies, the ability to reaccelerate revenue growth, the complementary nature of how it's a game changer in the marketplace, I believe has persuaded Avista that being an owner of these shares has the greatest value creation for them than going it alone. And it took, on their part, some faith in our management team, some faith in the combination of the businesses. And we're excited to have them on our board. We're excited to have them as our partners going forward. So I think they saw the value creation. They saw a new management team with a lot of fire in our belly, and know that we can pull it off. And they placed a big bet on us. Joe, any other things you want to mention?

D. Joseph Gersuk

Yes. And certainly we've had a number of discussions with them in the past. And the issues, really, have not been about the strategic or industrial logic of putting the 2 companies together. It really has been about the price. And I think within about a week or 10 days of when Joe started in September, he called me up and said, "Have we ever had any conversations with the folks from Navilyst." And I said, "Well, sure, we have, and -- but the issue had been price." And so the following week, he and I went to New York City and met with the principals at Navilyst. And I think Joe was very persuasive and, I think, convinced them that he would indeed be a great leader for this business to take it forward. I think they came to understand Joe's vision for what he wanted to do with AngioDynamics and how that could be successful, and how combining the 2 companies really would make a great deal of sense. So the discussions have then taken place over the last several months. We did come to realize that there was significant tax attributes here that were quantifiable and valuable to us. And I would say there was just great chemistry, I think, with the principals at Avista and that we believe they'll be people that will be great and valuable shareholders to the company, excellent board members and add value at the board level as well. And so it all seemed to line up very well. And it all came together at about 1:00 in the morning last night.

Jayson T. Bedford - Raymond James & Associates, Inc., Research Division

Okay. And just as a follow-up, when I look at the 2 segments, vascular and Fluid Management, what do you think the end market growth rates are for those 2 business segments? Not so much for Navilyst, just the kind of market growth rate.

Joseph M. DeVivo

I actually don't have that third party in front of me. We'd have to follow up with you on that, Jason.

D. Joseph Gersuk

Yes. I mean our overall expectation is that the acquisition will enable us to accelerate the long-term growth rate of our revenues by about 100 basis points. And we have thought about it in terms of being, the growth rate before, in the mid-single digits, 5% to 7%, 8% range. And so we'd add about 100 basis points to that in the aggregate. But I don't have any more granularity than that at the moment, Jason.

Operator

And our next question comes from the line of Charles Croson with Sidoti & Company.

Charles Croson - Sidoti & Company, LLC

I just have a couple of quick questions here. A lot of mine have been asked. Joe, can you give me an idea -- I know you can't give guidance or anything, but can you give us directionally in terms of -- and I'm just trying to account for any sort of seasonal factors. I can imagine there really aren't too many, but in terms of projecting for revenue on a quarterly basis and then just expenses and everything, I mean, should it be in line with what -- relatively in line with how your income statement looks?

D. Joseph Gersuk

Well, a little early to have assessed that. I mean I don't know that their business would be any different than ours, seasonally. In particular, the summer months are typically slow in their business and in ours. And our fiscal years are different. We're a May 31 company. So based on our sales commissions plans, we typically have our best quarter of the year in our May fiscal quarter. Theirs would be similar but around the December 31 fiscal year end. But beyond that, we'll just have to see through the further process here. And in our future guidance, we'll give you some sorts of view on that, although I would not expect that we'll continue with the quarterly guidance next fiscal year. We did that this year as a onetime event based on the LC Beads contract going away, so we would expect to be offering full year guidance starting next fiscal year.

Charles Croson - Sidoti & Company, LLC

Okay. No, that's helpful, Joe. And then just a couple more quick items here. What was the interest rate on the debt?

D. Joseph Gersuk

We're talking about something on the order of 3.5% based on the current formula. It's a LIBOR plus margin above LIBOR. So something like 3.5% would be the range if we were borrowing today.

Charles Croson - Sidoti & Company, LLC

Okay. That's helpful. And then any inventory purchase accounting that might have not been accounted for in that $0.08? Or was that in there?

D. Joseph Gersuk

No, it's largely taken into account there. But I would have to caveat that by saying there will be a evaluation of all of the assets that we're acquiring here, the entire business. And out of that would come surely some changes in asset values and different levels of amortization and much accounting. But in any event, we think the figures that we gave you as the basic guidance here will stand the test of time.

Operator

And our next question comes from the line of Larry Haimovitch with HMTC.

Larry Haimovitch - Haimovitch Medical Technology Consultants

Joe Gersuk, what's the percentage of international sales for Navilyst?

D. Joseph Gersuk

Theirs is about 17%, which is a little bit higher than ours. Ours runs about 15%. And their -- that 17% of the revenue stream is dominated by the Fluid Management business. I think the other difference is the fact that our international business has been growing very rapidly. As you know, last quarter it grew 27% year-over-year. We've got a great team on the ground in Europe and in Asia as well. And Navilyst's international business has not been growing fast. So we see that as a gray area for some natural growth and accelerate the growth, as we fully integrate the international businesses together.

Larry Haimovitch - Haimovitch Medical Technology Consultants

Second question is on Fluid Management, Joe Gersuk. What percent roughly is that of the total worldwide sales of Navilyst?

D. Joseph Gersuk

Yes. It is on the order of about 60% of the total.

Larry Haimovitch - Haimovitch Medical Technology Consultants

60% of the total, okay.

D. Joseph Gersuk

Yes. Something like that. And you've got about -- close to 38% of the businesses would be in the venous access business, and call it 57% or so for Fluid Management, and the balance would be that supply agreement with Boston Scientific.

Larry Haimovitch - Haimovitch Medical Technology Consultants

And then, Joe DeVivo, I know you know the PICC business well in having acquired Horizon when you were at RITA. One of the things that I think that it seems to be important in PICC technology these days is technology that identifies the proper placement of the PICC itself. I don't think AngioDynamics has that in its own portfolio, and I'm not aware that Navilyst does. Is this a hole in the portfolio, Joe, that you need to fill?

Joseph M. DeVivo

Well, it's definitely been a hole for AngioDynamics for a while. There is a device called a Navigator, which they -- which Navilyst has with CORPAK, that focuses on tip location. We're going to do a good deep dive on that technology. We think there's some additional improvements that are out in the marketplace. But it's not the type of glaring hole that it was in the past.

Larry Haimovitch - Haimovitch Medical Technology Consultants

Yes. So that's something that you need to add onto to strengthen the PICC business.

Joseph M. DeVivo

I think it's something that we need to keep focusing on, yes. I think there's a product there. I think it's a good product. But I think there's also some new innovations that we need to -- especially now that we've doubled down the segment, that we need to make sure that we keep our eyes on.

Operator

[Operator Instructions] And our next question comes from the line of Robert Goldman with CL King.

Robert M. Goldman - CL King & Associates, Inc.

A couple of financial things, Joe. First, what will be the annual amount of intangible amortization expenses resulting from the acquisition?

D. Joseph Gersuk

Yes. Too early to tell. We've got to calculate all of that. Interestingly, historically, theirs has been similar to ours. But everything will be studied through a new valuation based on this purchase price and a new assessment of all of their assets.

Robert M. Goldman - CL King & Associates, Inc.

Okay. And then on the synergies of at least $0.08 per share, just so I'm clear, this is prior to those amortization expenses, prior to the incremental interest expense and includes the additional shares from the deal. Is that all correct?

D. Joseph Gersuk

Yes. Well, it includes the additional shares in the deal and would reflect the synergies and interest expense on the transaction and so forth, yes. And that's $0.08 accretive to earnings is what we're talking about, yes.

Robert M. Goldman - CL King & Associates, Inc.

Okay. And then finally on gross margin. At least in my analysis, that's where the synergies would likely be coming from. Do you view it that way? And I know you spoke about sort of conceptually what the opportunities are on improving gross margin. But for fiscal 2013, what will you be focused on to increase gross margin?

D. Joseph Gersuk

Yes. So really the synergies are not believed to be coming from gross margin. We would expect to continue to operate the facilities in Glens Falls and in Queensbury. And the only synergies there would be through sourcing, primarily through sourcing of products mutually to each other rather than from third-party vendors, would be the bulk of it. As well as the absence of the Boston Scientific supply agreement that is low margin. The R&D organization, we will continue to operate the facility in Marlborough and actually continue to invest in R&D there. And so we will be looking at the SG&A line for the bulk of the synergies that we would expect.

Operator

And at this time, I'm not showing any further questions. You may continue with any closing remarks.

Joseph M. DeVivo

Great. Well, obviously, as you can see, Joe and I are very excited about this next phase in AngioDynamics' future. We believe we have a transaction that fixes many of the legacy issues within Angio as far as driving scale, bringing new technology into the pipeline, helping and driving enhanced operational excellence. We believe this is the first of many things to come. We believe this is a new platform that will help us invigorate our growth. I think our team in the first half of fiscal 2012 has done an excellent job reinvigorating growth with our 6% and 9% growth rates that we've shown. Our people and our team are ready to go. We're excited about bringing Navilyst in and we are -- and while we believe there are some very material and low-fruit synergies for us to enhance shareholder value, make no question. We will grow. We will take share. And this will be successful. Thank you.

Operator

Thank you. And ladies and gentlemen, that does conclude our conference call for today. Thank you for your participation. You may now disconnect.

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Source: AngioDynamics Inc., Navilyst Medical Inc. - M&A Call
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