Q1 2021 IntriCon Corp Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the <unk> Corporation first quarter 2021 earnings conference call. At this time, all participants lines are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
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Thank you. 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 the current estimates and assumptions of inter cost 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 rest of 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 S.
The C with that I would now like to introduce the Entercom CEO Scott long ball for a review of the company's first quarter performance Alan.
Allen skipped the <unk> the company's CFO will then cover the financial results in more detail and at that point, we'll open the call for your questions.
Okay.
Thank you Lee.
Good afternoon, and thank you for joining our 2021 first quarter conference call today.
We entered the year strong building on the momentum from the second half of 2020 as.
As we reflect on unimpressive per score.
I'd like to take a moment to thank our employees per.
Our gross and suppliers for their unwavering support throughout the many challenges the past year has presented.
I continue to be encouraged by the significant opportunity we have to drive growth in our key markets, specifically diabetes surgical navigation.
Navigation, interventional catheters and hearing health.
Throughout the remainder of the year ahead, we are focused on securing opportunities to diversify our customer base, adding valuable partners and expanding into new high growth end markets. The can best leverage our core competencies in micro medical technology and drive both organic and inorganic growth.
Turning to our first quarter results, we saw strong financial performance and continued operational improvements.
Total revenues increased approximately 48% year over year to $31 $8 million and sequentially revenues increased 5%.
Although we experienced some headwinds pertaining to COVID-19 related labor challenges the results exceeded our initial expectations.
This outperformance was largely due to the strength, we saw net of diabetes and hearing health business lines.
With each business posting double digit growth year over here.
Drilling down to each of our end markets.
And with diabetes sales to Medtronic diabetes group represented 58% of our total revenue in the first quarter.
We saw renewed strength in this sector out of our business during the fourth quarter of 2020 stemming from Medtronic. Many meds 780, <unk> launch in certain international markets and then many med 770 <unk> launch in the U S.
That momentum carried into the first quarter, resulting in an impressive 36% growth over the first quarter of 2020 and 4% sequentially.
We are optimistic sales of these new systems and other forthcoming Medtronic products will deliver increasing growth in the second half of the year and beyond.
The surgical navigation in the interventional catheter markets have proven to be.
Important and exciting new growth drivers for us and we are bullish on the long term opportunity of these markets can provide in terms of both topline contribution to customer expansion.
Revenue from Emerald Medical services Vms in the first quarter totaled $3 $8 million and continued to exceed our expectations.
The only the $11 $2 million in revenues for the first 10 months since acquisition.
During the first quarter, we saw international adoption of Medtronic, Chuck of balloon catheter manufactured by MFS, delivering 14% quarter over quarter revenue.
We expect this catheter and the EMS business to continue to be primary growth drivers for this year and well into the future.
Longer term, we are confident that we can leverage <unk> strong reputation with medtronic cardiac and vascular group and ensure accounts core technologies and financial stability to secure other business opportunities in this market.
In the first quarter as expected from medical coil product line considered within our surgical navigation business experienced staffing constraints during the COVID-19 and our ability to hire skilled labor impacting the capacity.
We continue to work through these challenges in the second quarter.
The medical revenue in the first quarter was $1 $1 million sequentially flat with the 2024th quarter.
Turning to our hearing health market and the <unk>.
First quarter, we delivered growth of approximately 46% compared to the prior year period.
Growth was driven by our indirect the end consumer business related the volumes required the support an initial OTC pilot.
Additionally, our legacy hearing health business continued to benefit from increased access to Audiologist as COVID-19 restrictions were lifted.
As we noted on our last earnings call. We are commencing pilot programs. This year with select partners to leverage our comprehensive hearing aid technology platform, including hardware and firmware and software.
These pilots are not expected to drive material revenue this year, but rather aimed to gauge and market interest.
Required wholesale engagement and price considerations.
As expected in early April our first pilot with here ex launched.
This pilot offers entercom firmware and hardware with the and the <unk> OTC products available in Walgreens stores in select states and online.
We look forward to providing more insights on this pilot as it progresses throughout the year.
Additionally to support OTC and other hearing health products, we launched our self fitting software of clinical trial in April and expect completion of the trial by the end of the year slightly behind.
Behind our original schedule due to COVID-19 related slower than expected enrollment.
That said, we do not anticipate this the way to impact our business.
Turning to the pending OTC regulation.
The remains widespread bipartisan support for providing lower cost solutions to a growing number of hearing impaired individuals in the U S. However.
However, the time frame of draft guidance and eventually final regulation remains uncertain.
There will undoubtedly be many participants in this market with a variety of profiles and contribution of.
As such we continue to collaborate with potential partners as we await draft regulation.
While we worked through the lingering impacts of our business from COVID-19, most specifically staffing challenges coupled with supply.
Put the supply constraints, primarily associated with the February Texas storms, we continue to manage our business and the cost effective way.
I am confident with our constant focus on execution, we will overcome the short term challenges and deliver solid year over year of growth.
I'm excited about the meaningful progress we are making in the expansion of our business in the existing markets we serve.
While at the same time, making headway and entering new markets that can further support our long term growth as well as diversify the customer base.
With that I'll now turn the call over to Ellen to provide more detail on our financial results for the first quarter of 2021.
Thank you Scott.
Now turning to our financial results you may notice in our release and on the call. We've adopted the use of non-GAAP reporting to provide a clearer picture of our growth and transformation reconciliations to the most directly comparable GAAP measure of provided in the tables accompanying the press release, we issued today.
For the first quarter of 2021, we reported net revenue of $31 $8 million, an increase of 48% over the current period.
The increase was primarily due to our medical and hearing health legacy OEM chronically.
GAAP net income for the quarter with $714000 or seven conversions.
COVID-19 share versus the net loss of $2 million or 22 per diluted share in the prior year period.
Non-GAAP adjusted net income of two $5 million or 26 cents per diluted share in the first quarter of 2021 versus the net loss of $682000 of our eight cents per diluted share for the prior year period.
Core business revenue that our medical market for the quarter were $25 million.
54% increase year over year and represented 79% of the total revenue, which is slightly more than the prior year due to our EMS acquisition.
<unk> contributed $3 $8 million to the first quarter growing 12% of 400000 hours of quarter over quarter.
In our hearing health business total revenue in the first quarter was $5 $7 million of 46% over the prior year first quarter and 11% quarter over quarter.
The upside due in part to renewed access the Audiologist and contributions from our initial OTC pilot with your accent.
First quarter gross margin were $25 eight per cent compared to 21, 3% in the prior year comparable period.
Our margin was primarily due to higher volume and price.
Operating expenses for the first quarter was $10 4 million compared to $6 6 million in the prior year period. The increase was due to the $900000 of expenses associated with higher wages salaries incentive and stock based compensation expense of.
$600000 in Dms operating expenses and $400000 of additional amortization expense of certain intangible assets.
The asset by $1 $1 million reduction in hearing help express operating expenses due to the Q2 2020 restructuring.
And the third quarter reclassified amortization of $198000 associated with our technology assets access agreements and sales and marketing and we'll continue to do so throughout 2021 for comparability purposes, the amortization the cracker by the R&D throughout 2020.
As of March 31, 2021 of the company had $38 $3 million of cash and investments compared to $35 $3 million as of December 31, 2020.
The increase in cash flow was driven by our strong Q1 results as well as the $3 $5 million quarter over quarter increase in our payable we are addressing the issue and expecting to return to normalized <unk> by the end of Q2.
Turning to our outlook for the full year, we want to reiterate that the COVID-19 pandemic staffing challenges in Europe near term interest supply constraints pose a risk of uncertainties on the operating with that we.
We expect 2021 revenue to range between $119 million and $123 million reps.
Representing year over year growth of 16% to 20%, we do not anticipate providing regular coronary guidance. However, before see our second quarter revenue slightly lag our first quarter results due to COVID-19 related pent up demand recognized in the first quarter of 2021 and present challenges regarding staffing and put the price.
Constraints and the mean.
Income we continued to manage our operations in line with the appropriate of pandemic guidelines and with non production support remaining off site and all of mandatory protocols in place onsite to protect our employees with that Scott and I would now like to open the call for your questions operator.
Thank you man of your first question is from Andrew Desilva of Bureau of the Securities. Andrew Your line is open.
Hey, good afternoon, thanks for taking my questions.
Just a couple of quick ones from me.
I was curious as it relates to the strength in the diabetes business.
Could you give a little bit color if that was coming out of the mini med $677 70, or 70 D. G.
I'm really just curious because I don't believe the sensors.
Approved yet so.
Want to understand the dynamics there and.
Maybe where growth is now and where it could be coming out of it later.
Yeah. Good question Hendi, thanks for calling in so the growth from the.
Diabetes business really the momentum that was carried forward that we saw in Q4, largely due to the 780 launched internationally in the adoption here of the 770 in the U S market and we talked about some of those growth catalyst for the back half of the year that we're eyeing more specifically the.
The 780 here in the U S. And then also the the juice platform. We think those can be two catalysts for growth in the back half of the year and well into 2022, we haven't seen those obviously come through and I can't comment on specific timing of of Medtronic I'll pick that up.
The them.
But again the strength of that first quarter was really momentum carried forward awful, but what we saw in the fourth quarter.
Okay, great. Thank you for that and then.
A little surprised of how strong the OEM hearing sales have been I mean, this quarter, obviously saw over 70% growth year over year I would've thought that the value based hearing.
Just from a market standpoint, we would have seen a lot faster adoption just given the pandemic and.
Elective procedure protocols and so on but can.
Can you give us a little bit of color on some of the dynamics there or is this the kind of short term bullish thats taking place in the quarter.
Or is it more durable and should we expect the.
OEM hearing aid sales to be a significant contributor for the year.
We look at the OEM legacy, where we've seen the pop over the last couple of quarters. It was more pent up demand.
When we took the paused in the late first quarter second quarter third quarter, when COVID-19 hit in 2020 of really shut down the.
The legacy business and access to the Audiologist has that's opened up a little bit sort of there's been some some pent up demand and that's really flow through and you've seen that in our legacy business.
So longer term I.
I think that business will more normalized to levels, where we were.
Back in late 2019, and the growth drivers is where we've talked about from the last several calls which is in the value hearing health space and the indirect to end consumer we're starting to see.
The business begin to.
The make some from strides with the pilot.
We've conducted here.
And the low part of the first quarter into the second quarter, and then we'll see even greater momentum as we get draft guidance out there in the Andean and eventually when we get the final regulation in place.
Okay great.
And the last question from me just related to the guidance.
We kind of expect the first quarter I mean, just looking at.
If you take your guidance and you kind of separated in the four quarters.
It would appear that the first quarter, we might be the high watermark relative to any other quarter is that a fair assessment of it or should we have a little bit more seasonality in the second and third quarter in and figure of very strong fourth quarter.
Thanks for taking my questions.
Yes, Thanks, Andy as we talked about we're anticipating seeing maybe a slight pullback from the second quarter from where we are in the in the first quarter and then the progression of growth through the remainder of the year with Q4.
In all likelihood will be above what we saw in the first in the first quarter. So I think that nice natural progression.
For the rest of the year beginning in the second quarter.
Okay perfect. Thank you very much best of luck going forward.
Thank you Ed.
Your next question is from Jon Block of Stifel. John Your line is open.
Thanks, and good afternoon.
Got it was the start on sort of the revenue gross margin dynamics of another very nice revenue beat relative to our estimates and ahead of all of us on gross margins, but a lot more modestly so.
You can just comment sort of that.
If the mix shift is still weighing on gross margins a bit and when we think out longer term is it still really that <unk>.
Revenue and revenue increased driving the gross margins longer term and even if you're willing to maybe put on a out of.
<unk> gross margin number for us to think about.
Yeah. Thanks, John So thinking about the gross margin some of the challenges that we've outlined.
Clearly direct labor has been a challenge in this environment, that's driven some inefficiencies from the cost of sales one of the amount of overtime that we ran in the first quarter was significant because of the demands up and frankly some of the churn that we've had within our direct labor.
As increased really towards the end of 2020 and into 2020. One so that we're putting in and taking measures to to remedy that and early indications would suggest that we'll be able to resolve the in the back half of the year, but that has caused.
Some of some constraint on the gross margin line will continue to see that John in the second quarter some of those challenges.
But as we kind of get a handle a handle around.
Some of the the reducing the over time and getting more people on board and was churn.
I think youll begin to be able to correlate our revenue growth of more substantially with the growth of the sea on the gross margin loans.
Okay very helpful and sort of a follow up to that as on previous calls you gave some detail Scott around additional responsibilities of if you would with one of your biggest partners of the medical side and that's specific to the packaging and labeling that you were going to bring on I thought that was the two H 'twenty. One event is it still a two H 'twenty one event.
And what about some of these labor supply constraints that you're talking about do we have to think about that as you take on more responsibilities as an organization sorry, one more just as an offshoot to that same question. What is the like for like ASP increase in other words. If you were doing similar volumes for that same said partner.
With the packaging and labeling what does the deal from sort of an ASP perspective. Thanks.
Yeah.
So within the packaging labeling on those products.
Not all products at certain products go into certain geographies. So we will see asps increase roughly 10% to 12%.
On those pilots going into certain geographies, we've started to recognize some of that revenue here early in 2021, we think that's kind of ramp.
More quickly in the back half of the year of some of these new products get.
The potentially and hopefully approved.
But in terms of labor look. This is this is one of the things that we're focused on is making sure that we can get the qualified labor in place to meet that demand.
So that's one of the challenges that we've outlined and I can tell you. The since one of the highest priorities that we have going on and this is not a problem unique to entercom.
But I think with some of the measures, we're taking and ways to.
Attract and retain employees and then as we move into the back half of the year, we will be in a strong position in the playbook constraints I wont have the type of impact that we're seeing now.
Okay and last one or two from me.
Just first of all of the IDP.
<unk>.
Any additional color youre willing to share maybe just when we think about the model longer term how does the the margin structural work out in that regard in other words DTC was always a much higher gross margin relative to corporate with what you were experiencing from these pilots and the way that the structures working out and the support.
Giving do we think about the <unk>.
It's accretive to corporate gross margin and sorry last one to walk back the 10% to 12% higher ASP that you mentioned because of the packaging of labeling how do we put that in the construct of the overall guidance. This year, right, which might imply I don't know around $60 million and one Asia $60 million to wage give or take.
But yet the higher ASP.
Do we just view that as maybe a touch of conservatism. Thanks Scott.
Yes.
<unk>.
Very good question so on that last point.
In terms of how we think about the back half of the first half remember it's just on select products that are that are going to this to this customer and because.
Because we are positive or assured of the timing of when some of these launches will be hybrid.
One of baked much into the back half of the year.
On that from them.
Yeah.
Okay, Thanks, and Im sorry, I rambled for a while but just at the margin structure of the IDT <unk> long term total yes.
Yes. Thank you so John within the guidance.
DTC and we think about the OTC market.
I envision theres going to be several channels in several ways. The entercom participates.
But I will say within the pilots that we have and the opportunities that we have in front of us we're going to see the margin structure of.
The financial makeup similar to that of our corporate averages were gross margin should be in the the low thirty's operating expenses in the twenties of ultimately, giving us the profitability and the.
From the 10 per cent range now obviously.
There's a lot of work that needs to be done to get the both the volumes that will support gross margins.
But long term, that's how I see we'll be participating.
Participate in the OTC market, what's your point was a departure from the DTC effort that we're doing bounded entergy.
Mark Thanks for the type of guys.
Thanks, Sean.
Your next question is from Kyle Boser of call of your Securities. Kyle Your line is open.
Great. Thanks, Good evening and thanks for all of the updates here.
So maybe I'll start with <unk>, just come in well above expectations.
You already anticipated.
At the time of the acquisition of it being very accretive.
Can you talk again about the growth profile I think you mentioned, a 15% quarter over quarter growth, but I am not sure of that if that apply just to the E. M. S flying or if that was more of Medtronic related staff, but just kind of trying to understand how we might have.
The model this over the coming quarters, so any sort of growth.
The growth profile of expectation to be great.
Yes, so within MFS the quarter over quarter growth there.
For the total business was 12% and again doing a fantastic job as the remaining demand coming in.
From from Medtronic, but also other customers alike. Our goal there is to continue obviously to serve.
Medtronic and be the best partner, we can be but.
But as I highlighted it's important for us to figure out how do we take the Emerald technology the AMOLED.
Abilities and confidence they built with Medtronic and be able to take <unk> financial stability and go out and sell the competencies.
In other with other customers whenever and other regions of the world and so that's one of the things that we're focusing in right now is building those partnerships.
Over in Asia that can leverage some of the capabilities that we have at Emerald and I think those will be important growth drivers for us as.
As we look out of year two three years.
Yeah.
Got it thanks and.
And maybe switching to <unk>.
OTC guidelines and us continuing to wait for the FDA.
<unk>.
Just kind of curious how have you how would you characterize the willingness of potential partners in the space to.
To move forward with at least maybe discussions.
Given the ongoing pilot programs.
And your success today, just kind of wondering if if those conversations have continued to develop or if we're still kind of in a in a holding pattern here.
Yes.
I'll answer that.
Two fronts, so I think with the OTC, what we saw in 2020.
We sold the conversations.
The similar a little bit and I think most of the large <unk>.
Entrance of the people that we're working with the market.
It took a deep breath and sort of looking internally in the business that they were they were already engaged in now.
Now that we're starting to see the COVID-19 cloud lift we are seeing more potential partners engage of.
Obviously, we announced the the.
The pilot with <unk> here.
Here in the first half of the year and Theres others.
We're in collaboration with the discussion with so I would say today, there's more activity Kyle than I've seen over the last couple of years in terms of discussion and collaboration.
Great I appreciate that and just lastly, so you talked a little bit about the hiring constraints supply constraints, what and just curious what is the latest head count and how many positions do you have open or would you ideally Phil over the next call it three to six months.
Yes so.
A pretty broad question, we have roughly 850 employees now of a number of those of our international employees and where we're seeing the greatest constraint is here in the U S market and specifically our three manufacturing facilities in Minnesota.
So we have Oh.
Over 200 direct labor here in Minnesota, the closer to about 280, and we would like to add anywhere from 10% to 20%.
Over the course of the next quarter.
That's quite a bit in terms of feet in terms of trying to find.
Skilled labor, but again, we've adopted some some new.
Techniques and what we're seeing from.
Early returns I think we'll be in a good position of the back half of the year.
That's great.
Thanks, so much I'll jump back in queue.
Great.
Thanks, Kyle heavily the.
At this time I would like the turn conference back to you.
Oh.
Okay.
I would like to turn conference back to Mr. Scott long long ball for any further comments.
Great.
Thank you everybody for joining on the call today I. Appreciate your time, we look forward to giving you updates as we move throughout the year.
The healthy have a good night.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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