Q4 2020 IntriCon Corp Earnings Call
Ladies and gentlemen, welcome to day into Corn Corp, fourth quarter 2020 earnings conference call. At this time all participants lines are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
If anyone should be glad assistance during the conference. Please press Star then zero on your Touchtone telephone as a reminder, this conference is being recorded I would now like to turn the conference over to your host today Ms. Leigh Salvo Ma'am. Please go ahead.
Thank you operator before we begin I would like to preface our remarks with the customary safe Harbor statement.
Today's conference call contains certain forward looking statements. These statements are based on current estimates and assumptions that venture cons management and are subject to uncertainty and changes in circumstances.
Given these uncertainties you should not place undue reliance on these forward looking statements actual results may vary materially from the expectations contained in todays call.
For a list and description of the risks and uncertainties associated with our business. Please refer to the risk factors section of our most recent annual and quarterly reports on form 10-K, and form 10-Q, respectively with the SEC.
I would now like to turn the call over to CEO, Scott long ball.
Thank you Lee.
Good afternoon, I'd like to start by thanking our employees partners and suppliers, who have stuck through us through very difficult pump.
Despite the many challenges of 2020, our teams rallied together to support our mission to improve extend and save lives by advancing innovative micro medical technologies through joint development and manufacturing partnerships I'm confident this unwavering commitment will continue.
I would also like to welcome <unk>, New CFO Allen skipped up.
Who joins me on today's call.
Ellen brings a unique skill set that once engineering with extensive financial experience.
We are sure she will be a strong financial steward to our team as we continue to expand and advance our global footprint and micro medical technology.
On the call today I'd like to start by briefly highlighting our financial and operational progress in each of the primary medical markets as well as our priorities for 2021.
Alan will then cover our financial results in more detail and then we'll open it up for questions.
In many ways 2020 was transformational for Entercom.
We kept our focus on the priorities we established earlier in the year.
Priorities that we believe would best enable us to leverage our core strength into diversified high growth medical markets.
And we see 2021 is Europe ongoing progress and execution.
Key accomplishments in 2020 included the acquisition of Emerald medical services, or EMS, which expanded our market opportunity and surgical navigation and provided us with immediate access to a technology platform, serving new high growth medical end markets with complex.
Interventional catheters.
We also bolstered and diversified our leadership team with the addition of a new board member in several key executive with rich spec sector specific experience in their respective fields.
With advancements in our business also came organizational changes that will enable us to better and more quickly pursue attractive development opportunities and key partnerships.
We also kept a keen eye on our expenses and balance sheet in order to navigate through the unprecedented landscape of 2020 in order to maintain our solid financial footing.
We also closely manage the resources needed to ensure we could emerge in a position of strength in the current and new medical markets.
As a sign of our evolution as well as our renewed commitment to our vision. We recently completed an extensive rebranding effort that incorporated an enhanced web site for the publication of our environmental social and governance policies that are critical to demonstrating the corporate responsibility to our employees.
For our shareholders.
These policies are included in our new corporate responsibility section of our website.
Turning to our fourth quarter financial performance as we noted on our last call. We were encouraged by the momentum we saw as we exited the third quarter and that remained relatively consistent throughout the remainder of the year.
Total revenues increased approximately 9% year over year to $33 million and sequentially revenues grew 11% exceeding our initial expectations.
We also continued to outperform and our medical market, which included the contribution of MFS and a strong quarter on quarter growth in our diabetes business. Despite the ongoing impact of Covid.
Generally in line with our expectations, we recognize business wide improvement combined with further financial strength.
We've continued to emphasize our cost control efforts, coupled with the significant restructuring actions taken over the first half of the year and as a result, we have delivered approximately $1 $1 million in profit during the quarter.
From $644000 of profit in the third quarter.
I'd like to take a few minutes to dive into some detail on our progress in several of the key medical markets. We're currently focused.
Beginning with our diabetes business sales to Medtronic diabetes group represented 59% of total revenue in the fourth quarter.
In the fourth quarter, we saw an impressive 22% quarter over quarter improvement as new patient momentum continuing to increase due to the launch of the mini Med 700, Atg system in international markets and the mini Med 770, <unk> system launch in the U S.
Following FDA approval for the mini Med 770 G. This system has received positive feedback from patients because they utilize smartphone connectivity features.
The mini med seven 780, <unk> insulin pump system continuous geographic expansion and now launched across 26 countries.
In the U S for 700 Atg system has been submitted to the FDA for approval.
While this market continues to experience some COVID-19 headwinds we remain optimistic about the contributions of these insulin pump systems to the growth of our business in 2021.
Next turning to surgical navigation and the interventional catheter market, which in very short period of time has already proven to be key growth drivers for entercom.
The integration of MFS continued at a faster pace than we originally expected.
Contributing $3 $4 million in the fourth quarter and $7 $4 million since the acquisition.
This better than anticipated revenue contribution in 2020 was driven by Medtronic launch of the chocolate balloon catheter in Japan, which is manufactured by EMS.
Accordingly, the greater revenue level required us to take a $400000 charge in the fourth quarter related to an earn out provision from the EMA.
POS purchase agreement.
We anticipate further approvals of the chocolate and other global regions during 2021 and believe it will be.
And believe it will continue to be one of our primary growth drivers this year.
Going forward, we are confident that we can leverage <unk> strong reputation with Medtronic cardio.
Cardiac and vascular group in Entre counts core technologies and financial stability to secure other business opportunities in this market.
Lastly, our medical coil business demand continued to be strong however, due to capacity constraints revenue for the fourth quarter was $1 $1 million. We are working through these constraints and anticipate improved capacity in 2021 first quarter.
Turning to the hearing health market in the fourth quarter, we delivered growth of approximately 5% compared to the prior year period.
Primary driver for this market was our legacy OEM business.
On the third quarter call, we noted that access to the Audiologist increased as the quarter progressed and this trend continued throughout the fourth quarter.
On the topic of the pending OTC regulation.
Our discussions with potential partners continue to progress well, we remain optimistic about the opportunity and are closely tracking our investments as we await official draft guidance.
To that end, we are preparing to move forward with a few select pilots over the next couple of quarters with partners to leverage our hearing health technology platform <unk>.
Including hardware firmware and software.
It's early in the process, but the pilots aimed to gauge and market interest required post sales engagement and price considerations.
We look forward to provide an updates on future calls.
As previously disclosed last year, we elected to postpone our self fitting software clinical trial until such time, we can ensure the health and safety of trial patients. We have begun working on safety measures and depth of our clinical protocol to be Covid safe. While there are a number of moving parts we may.
Our goal of completing the trial in the third quarter of 2021.
As we look out into the coming year I'd like to highlight some of our key operational goals and activities.
First and foremost we view.
<unk> 2021 is Europe continued execution.
We have a significant opportunity to drive growth in key markets specifically diabetes.
Surgical navigation and interventional.
In 2021, we plan to continue to seek opportunities to diversify our customer base add valuable partners and pursue new high end growth end markets that can best leverage our core competencies in micro medical technology.
In addition to organic growth, we plan to selectively explore new inorganic opportunities and are putting the team in place the best identify and pursue those initiatives.
With that I will now turn the call over to Ellen to provide more detail on our financial results for the fourth quarter and the full year 2020 Ellen.
Ellen.
Thank you.
Project from joins from a great company with incredible people and a history of innovation and excellence.
Mentioned in his prepared remarks, we have a number of growth opportunities ahead of us.
Very much look for it to delivering finance partners that will allow us to exceed those comp.
Now turning to our financial results.
For the 2024th quarter, we reported net revenue of $33 million, an increase of nine 4% over the prior year period. This increase was primarily due to our medical and hearing health legacy OEM product line.
For a business revenue in our medical market for the corner were $23 $9 million or 12, 2% increase year over year and represented 79% of the total revenue, which is slightly more than the prior year due to our E&S acquisition.
Net increase was largely driven by the $3 4 million revenue contribution from <unk>.
Which the company acquired from May of 2020.
Our hearing health business. The total revenue in the fourth quarter was $5 $1 million up four 8% over the prior year fourth quarter, we did see upside due in part to renewed access to Audiologist and solid orders from our.
Indirect to end consumer customer Mark.
Specifically within hearing health indirect to end consumer revenue was $1 $5 million direct to end consumer revenue through our hearing help express business was approximately $900000 and legacy OEM revenue was $2 $6 million.
Fourth quarter gross margin for 25, 7% compared with $26 nine in the prior year comparable period, the lower margin was primarily due to product mix.
Operating expenses for the fourth quarter, Chris $6 8 million compared to $6 7 million in the prior period.
The increase was due to approximately $500000 in your net operating expenses and a 400000 dollar expenses related to an increase from fair value of the EMS earn out liability.
For the asset by cost reduction initiatives implemented in 2022nd quarter.
We posted a net income attributable to shareholders of $1 1 million or 12 per.
Diluted share versus a net loss attributable to shareholders of $768000 or eight cents per diluted share for the 2019 fourth quarter for the.
For full year ended December 31, 2020, <unk> reported a revenue of $102 8 million a decrease of $9 four per ton compared to $113 million for the year ended December 31 2019.
Gross margins were 25, 5% compared with 27, 3% in 2019. The decrease was primarily due to the pandemic driven volume reduction and shift in product mix, partially offset by cost reduction initiatives I noted earlier.
Operating expenses were $29 $3 million compared to $33 million in the prior year. The change in operating expenses year over year was due to cost reduction initiatives, partially offset by $1 $5 million and net operating expenses $660000 of expense really.
The net increases in the fair value of the E&S earn out liability and approximately 800000 items and costs associated with the CEO transition agreement signed in June of 2020.
Net loss attributable to shareholders was $2 $5 million or 28 cents per diluted share versus $3 8 million or <unk> 43 cents per diluted share in 2019.
Lastly, our combined cash and investment balance as of December 31st, Let's 2020 was approximately $33 5 million.
$3 $2 million from the prior quarter.
We entered 2021 focus on our underlying mission to be the leading joint developed manufacturer and micro medical technology. We are very encouraged by the momentum exiting Q4. This confidence stems from our overall outperformance in nearly every business category, our progress identifying and securing new partnerships and early contributions we are seeing.
As a result of the EMS acquisition. However, due to the continued uncertainties with new Covid variances and continuing high number of Covid cases, we will not be it from full year 'twenty one financial guidance at this time.
We are maintaining a cautiously optimistic outlook, but we want to reiterate that the COVID-19 pandemic poses a risk of uncertainty to our operating results.
We expect steady growth throughout the year with the first quarter revenue slightly lower than Q4 2020 as Covid Varian has provided some degree of headwind.
So expect some acceleration in the second half of 2021 is COVID-19 related impacts potentially diminish and as our customers see a return to normal operations and gain commercial traction.
We are confident that once the vaccine becomes more widely distributed and employment protocols can resume normal operation and youre kind of poised to benefit from the true commercial potential of the products we support.
Anticipate second half upside in our diabetes market stemming from broader expansion of Medtronic mini med for 770 day and further growth in our intervention on market from additional approval of Medtronic chocolate balloon catheter.
Tony we are optimistically preparing for the opportunity that still exists from the hearing health market as regulation moves forward and consumers are offered an over the counter option.
In the meantime, we will continue to manage our operations in line with the appropriate guidelines with non production support off site and all mandatory protocols in place onsite to protect our employees with that Scott and I would now like to open the call for questions operator.
Thank you as a reminder to ask a question you will need to press Star then the number one on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the hash piece.
Your first question comes from the line of Mr. John Block from Stifel. Your line is now open you may ask your question.
Thanks, Good afternoon, Hello, Welcome Scott Hope all is well.
I've got a small handful maybe three or four and then I'll get back in queue, but you know the reservoir up a good amount <unk> gross margins were down just a bit sequentially and I know, you're not giving guidance, but is there a high level discussion on the revenue and gross margin relationship in the past. It was thought that gross margin expansion if you would.
Directly tied to the revenue growth I know, there's moving parts and mix shift, especially now with the EMS, but can you talk to if one is going to lead to the other if theres an update on that dynamic. Thanks.
Yes, John Thank you for the question and good to talk to you. So we've long talked about the fact that as we drive revenue, we will see that fall through on the margin and I don't think this quarter.
There's a little bit of a disconnect there changes that overall thought process from from our level. We've made a couple of additional investments in the fourth quarter, we had a little bit of a mixed shift.
In the fourth quarter, but overall, we're very confident as we drive the top line, we will see margin improvement so nothing changes for them from that perspective.
Okay great.
Scott just your thoughts on Medtronic from Baas pipeline, you're into your partner's robust pipeline and let me talk a little bit about some expectations just directionally on revenues throughout 2021 does that assume any approvals from your partner assume U S 700 engineers use being a contributor there or.
No and Thats more thought of as a 2022 event and then I've got wanted to ask for questions.
Yeah. Good questions look I'm sure you get a chance to look at Medtronic for results from the other day and they were very optimistic about the both the 780 and the 770 internationally and posting insulin pump starts with the.
Market share gains, which is fantastic clearly for us.
Look at the feedback that we're getting on the 770 I think that speaks volumes to where they believe that business can go in addition to those those pump systems.
So taking hold in addressing some of the consumer delights.
It does also help that they can get out and begin to engage patients in ways that they couldnt.
Over the last couple of quarters due to Covid. So I think just the kind of that natural COVID-19 cloud lift along with the additional.
Functionality and technology in these new systems bode well for us in 2021, and then as we look towards kind of the back half of the year, we will be doing some additional steps.
As part of the manufacturing process more focused on <unk>.
Packaging labeling that will provide.
Small lift for us on this business as well.
Great Great I'll sort of bundle my last question so the.
The quick one is the oil commentary on capacity constraints are those critical loss revenues or more just a portion to maybe <unk> 21, and then the bigger question is it's great to hear about some of the pilot Scott that you mentioned on the hearing side of the business.
Are there any more details you can provide you know the size of these pilot the pilots the types of partners are they leveraging your back office. If you want on the on the DTC support side and will these be revenue generating events for your DTC division. Thanks, guys.
Yep great.
I'll start with the first question from the capacity constraints, we had on the coil side. This is more push revenue that youll see us pick up in the first and most likely more in the second quarter of 2021, we worked through some of those in terms of the pilots. Although this is a progression John of what we've been talking.
We've been preparing ourselves for this this OTC market.
Had a lot of discussions with a number of different potential partners. So we're now getting to the point, where we're preparing for it for pilots.
These pilots, though I will tell you or more to garner information on the market than they will be notable revenue drivers in 2021.
We mentioned.
We want to testing and market, we want to understand what that post sale engagement is going to require and our partners are trying to identify the right price points.
So I think if you look at the pilots in 2021, I would think of more of them in terms of development channel development.
That will lead us to two.
Gather information so when we look to scale when the OTC.
Regulation is finally past we're in a position to do that.
In terms of what we're going to offer.
It depends on the pilot frankly, so clearly our hardware and software.
Somewhere will be in each of the pilots, but in a few of them I anticipate we will have our back office supporting.
These pilots as well and.
And primarily because it's really the only way you can do it in a pre OTC market.
That's great color thanks, guys.
Thanks, Sean.
Thank you.
But then if anyone would like to ask a question for you mean for you.
The press Star then the number one a day touchtone telephone next.
Our next question comes from the line of Adam Silver from B Riley Securities. Your line is now open you may ask a question.
Yeah. Good afternoon, thanks for taking my questions and Alan pleasure to meet you.
Just to get started I just have a couple of quick book keeping questions. If somebody could just let me know stock based comp depreciation amortization cash flow from operations and Capex were for full year.
And while that's getting pulled for the for the period.
I'm just curious for the first quarter of 2021 should we model in any one time expenses either related recruiter fees or other.
Other unusual earn outs or one time events like that.
Nothing significant or material that I would.
Factor into your first quarter model.
In terms of some of the housekeeping items depreciation and amortization for the quarter was $1 3 million.
Stock based comp three.
$338000.
Cash flow from operations was $4 4 million.
And fixed asset purchases $771000.
Okay perfect. Thank you for that.
And then I just have a few diabetes related questions here in a couple of hearing aid ones as well.
Just as it relates to the manufacturing facility.
Effectively finished but we're waiting for.
Quality and certification process for finished could you give it up for an update on where that stands and are you.
Now, having the automated sensory assembly.
Operating yet.
Yes, we do have the per system up and running.
We're still working through.
Some of the efficiencies on that system, but it is up and running and producing parts.
Okay, Okay, Great and then it was good to see the uptake in the diabetes sales.
Obviously, you highlighted the 770 780 launches with Medtronic I'm curious as you think about the Zeus.
CGM sensor.
It's still not approval process, how do you see Zeus changing dynamics.
As it relates to seven AG, specifically related to two year basis.
Yeah, I think that's a very good question and while we're very excited about the 700, AVG and the 770 <unk> functionality with Bluetooth.
Handhelds one of the areas.
It continues to be.
Great is the number of calibrations, it's required on the current systems and the Zeus platform addresses that.
So moving away from.
Multiple calibrations, a day and pushing the finger to a solution that requires a one time at the beginning of use calibration and I think that customer delight is something that's going to go a long way.
Medtronic, earning back the.
Market share that's eroded over the last couple of years, and clearly being the sole provider and manufacturer a record of that.
Continuous glucose transmitter for that puts us in a very strong position.
As they work through the approval process.
Okay, that's great to hear and since you just referenced the transmitter you stimulated one other thought for the diabetes side as it relates to just 60 70 G business are you seeing.
Transmitter a renewal that basically they they went past the two year point in.
Patients are starting to order at least the second transmitter at this point.
Is that how does that have any sort of benefit for you during the quarter. It was just.
Somewhat materially above what we were looking for.
Andy it's hard for us to get down to that level of detail.
Really all of that information resides with the customer we're in a position to meet the demands.
The volume demands that they require.
So it's hard for me to comment specifically on what those were.
Replacement GST volumes look like.
Okay, Okay and just last question for me is on the hearing health side.
You were referencing some of your pilots utilizing the back office for.
For for the DTC capabilities before the OTC regulations are in place.
Could you just.
Talk about how that all works in your view once the OTC regulations are in place is that something we should expect to be curtailed away.
And you know you're going to go back to kind of your core focus where you're not really providing any of that back end support.
Or is that going to be part of the business going forward and really why im interested in that.
Obviously, because youre going to pursue the softening a software stack that seem very applicable if you were going to maintain the back office for a significant period of time.
Yeah, absolutely and clearly that self fitting software is a critical element to provide an ecosystem of care that's going to be required for this channel.
As it relates to the back office.
It's going to be an important part of our business going forward and it's going to be an important part of our business I think it's going to take on a number of different forms our ability to ship and equals one.
It is very important and there is a number of partners, they're going to want us to have that capability to be able to send product and a box directly to an end consumer but also going to want us to be able in some instances to provide support.
If necessary and so I think it's important that we continue to be able to offer that to our customers, especially as we're going through this period of time of.
Letting the market really define what it's ultimately going to look like.
So I think we're in a really good position those are our skill sets.
As part of the hearing health acquisition.
And we've been able to do that and run it at a very low cost basis.
Okay perfect. Thank you very much for the time.
That's on the progress in the fourth quarter and good luck going forward.
Thanks, Andy you have a good day.
Thank you I am showing no further question at this time I would now like to turn the call from claims back to Scott Sir.
Great. Thank you everybody for joining us on the call today, we look forward to continue updating on our progress throughout 2021 be safe and have a great evening.
Ladies and gentlemen. This concludes today's conference. Thank you for participation and have a wonderful day you may all disconnect.
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