Q2 2021 Intricon Corp Earnings Call
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Ladies and gentlemen that interest the operator in today's conference call will begin shortly until that time your lines will again be placed on hold thank you for your patience.
Again, ladies and gentlemen, this is the operator for this conference call will begin shortly until that time your lines will again be placed on hold thank you for your patience.
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Good afternoon. Thank you for standing by and welcome to the East you call on Corp, second quarter 2021earnings conference call. At this time all participants are in a listen only mode. After I guess speaker's presentation, and there will be a question and answer session.
I'll ask a question during the session you will need to press star 1 on your telephone keypad.
Be advised that this conference call is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today be salvo. Thank you. Please go ahead.
Thank you Cherry.
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 that bank accounts 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-Q and form 10-K.
With the SEC.
With that I would now like to introduce the Entercom CEO Scott long Paul for a review of the company's first quarter performance.
Allen skipped on the company's CFO will then cover the financial results in more detail and at that point, we will open the call for your questions.
Scott.
Yeah.
Thank you Lee.
Good afternoon, we appreciate everyone joining us on the call today and for.
<unk> delivered another solid quarter with results underscores the opportunity we have across multiple aspects of our vibrant and growing business.
Despite the rapidly changing operating environment over the last 18 months.
Executing against our operational growth.
Expanding our leadership team and advancing our market leading capabilities as it joined for bold with meaningful share in micro medical technology.
Turning to our second quarter results, we saw a solid financial performance and continued operational execution.
Total revenues increased approximately 28% year over year to $32 million.
This outperformance was largely due to strength we saw in each of our primary business lines, including diabetes hearing health interventional catheters from surgical navigation.
With each of these businesses posting double digit growth year over year.
As anticipated we saw 2 sequential decline due to the impact from COVID-19 related pent up demand recognized in the first quarter of 2021.
As well as challenges relating to staffing and supply chain constraints that persisted into the second quarter.
During the quarter, we made progress in hiring and retention of direct labor staff.
We're also successful in returning our constrained resin inputs back to normal inventory levels.
However in light of the current landscape, we continue to monitor our supply chain for any changes that could impact our business later in the year and into 2022.
Turning to a deeper dive on each of our business lines.
Starting with diabetes sales for Medtronic diabetes group represented 50% of our total revenue in the second quarter for.
Merely attributed to the continued launch success of Medtronic many of the 700 atg in certain international markets and in many of the 772 in the U S.
Sales in our diabetes business line grew 13% in the second quarter over the second quarter from 2020.
We expect sales from this business line to strengthen over the remainder of the year driven by these recently launched systems, coupled with growth from for coming Medtronic products.
Turning to the surgical navigation and interventional catheter business lines, we continue to see potential opportunities. We're collaborative enterprise capabilities of complex catheters, and micro coils are well suited to drive innovation and differentiation.
We expect these business lines to drive future growth over the long term, including on high growth markets, such as interventional Pulmonology and electrophysiology neurovascular and peripheral vascular.
Revenue from Emerald medical services or EMS in the second quarter totaled $4.2 million for 266% increase year over year, and a 10% improvement over Q1.2021.
Recall MFS was acquired in May of 2020.
During the second quarter, we saw continued international adoption of Medtronic chocolate balloon catheter manufactured by MFS.
Longer term, we intend to leverage <unk> strong reputation with Medtronic for cardiac and vascular group financial accounts core technologies and financial stability to secure other business opportunities in this mark.
In the second quarter on medical coil product line, which we include within our surgical navigation business rebounded significantly.
This increase was driven by added production capacity as we work through specific labor challenges faced earlier on the year.
Medical quarter revenue in the second quarter was $1.7 million up 54% year over year from 56% sequentially from the first quarter for 2021.
Turning to the hearing health business line in the second quarter, we delivered growth of approximately 43% compared to the prior year period and 13% over the first quarter of 2021.
In early July we were encouraged to see the legislative proposal that opens the door for hearing AIDS to be sold over the counter once again be brought to the forefront.
Through the new executive order for Department of Health and Human services was directed to consider issuing proposed rules for allowing here needs to be sold over the counter within 120 days.
Accordingly, we expect to see addressed FDA proposal during the fourth quarter with final regulation in place from the first quarter of 2022.
As you may recall, a year ago, and you kind of made the decision to restructure our hearing health direct to end consumer business, eliminating the majority of the operation, including the sales team support staff and advertising spend to focus our resources on the opportunities we saw emerging in the indirect to end consumer channel.
More specifically this restructuring enabled us to target partnerships with the incentive for partner will drive distribution marketing advertising and selling support of the OTC products.
Meanwhile, we will remain focused on our core competencies providing hardware for.
On where software and backend customer.
And as we've mentioned previously entered kind of ongoing discussions with many potential partners, who are seeking a relevant share of the OTC hearing aid market.
Our indirect to end consumer channel continues to benefit from increasing volumes required to support the pilot with helix.
This pilot offers entercom firmware and hardware with the new <unk> OTC hearing AIDS available on Walgreens stores influx states and online for a $799.1 time payment per payor or $49 per month per per subscription service.
This compares to an average of $4800 per payout through the traditional audiology channel.
This pilot is now.
This pilot has now been given the green light to expand in several additional markets. Beginning this month, thus far the pilot has been successful providing meaningful learnings with respect to both the partnership model as well as the execution of our strategy from the hearing test device fitting and setup and customer support.
Sure.
Additionally to support both the OTC and other hearing health products. We are focused on our self fitting software clinical trial that we launched in April of this year.
During the quarter, we completed patient enrollment and still expect completion of the trial by the end of the year.
Lastly, our legacy hearing health businesses levels following the post COVID-19 backlog spike.
As our partnership model is defined in refining we expect to see these legacy sales become a smaller overall portion of our hearing health business.
I'm excited by the meaningful progress we are making in both the transformation and the expansion of our business from the markets we serve.
While at the same time, taking steps to build our pipeline and enter new markets that can further support for long term growth and diversify our revenue base.
Earlier today, we announced that we welcome Dave lethal to the Entercom team as Vice President of research and development David.
<unk> brings an exceptionally diverse background with experience in technology business and product development regulatory affairs from M&A most.
Most recently he was president of biometric west.
West operations with responsibility for the growth of the company's laser processing technologies for.
For intervention and medical device market.
These are all highlights the great progress we've made in building our leadership team over the past 18 months.
With the leadership team coming together combined with continued solid execution of our operational plan and further advancements of our capabilities I am confident we are on the best position today to pursue new opportunities in our target markets.
With that I will now turn the call over to Ellen to provide more detail on our financial results for the first quarter for the second quarter of 2021, Ella. Thank you Scott now turning to our financial results.
Last quarter, we adopted the use of non-GAAP reporting to provide a clearer picture of our growth and transformation reconciliations to most directly comparable GAAP measures are provided in the tables accompanying the press release, we issued today, including comparable data for the entire financial year of 2020.
For the second quarter on 2021, as Scott noted, we reported net revenue of $30.2 million, an increase of 28% over the prior year period with increases in each of our key business lines, including diabetes surgical navigation, interventional catheters and value hearing health GAAP.
GAAP net loss for the quarter was $1.2 million or <unk> 13 per diluted share versus a net loss of $2.3 million or 26 cents per diluted share in the prior year period.
Non-GAAP adjusted net income was $2.1 million or 23 per diluted share from the second quarter on 2021 versus a net income of $2.1 million or 23 per.
Diluted share in the prior year period.
Diabetes revenue increased 13% to $15.2 million compared to $13.5 million in the prior year second quarter net growth was primarily attributed to continued launch success as a net.
Chronic mini med 700, ADT and certain international markets and the <unk> 770 ski and May use.
Mark.
And eventual catheter revenue increased 266 per cent to $4.2 million from $1.1 million on the comparable prior year period. The year over year increase was driven primarily by the expansion of Medtronic chocolate balloon manufactured by EMS and the full quarter impact of <unk>, which was a company acquired in May of 2020.
Surgical navigation revenue was $1.7 million, an increase of 54% over the prior period and 56% sequentially for the first quarter of 2021 from the first quarter.
This increase was driven by added production capacity as a company we're through specific labor challenges faced earlier on the year.
In our hearing health business total revenue in the second quarter was $6.4 million, 43% over the prior year second quarter and 13% sequentially. The primary growth driver in this market, but the indirect to end consumer business related to volume required to support for OTC pilot program.
Do note our hearing health revenue year to date included a recast of legacy OEM business revenue through our indirect to end consumer business. This has resulted in a move of $682000 to IPC in Q1 as noted in our 10-Q.
Second quarter gross margin were $26, 1 compared to 28% on the prior year comparable period for lower margin was due to an increase in direct labor costs and temporary Q2.2020 cost reductions as part of the company's Covid response.
Operating expenses for the second quarter were $8.8 million compared with $9.2 million from the prior period, a decrease of $400000 was primarily due to overall lower cost structure post for 2020 restructuring of hearing health direct to consumer operations and timing of certain onetime events impacted both the current Empire.
<unk>.
In the current period, the company recognized a $1.4 million charge in relation to the 1 time litigation settlement and attorney fees to resolve a 2019 T CPA losses associated with our hearing help express business Ed was disclosed within an 8-K issued on August 5.2021.
As part of the 2020 restructuring mentioned by Scott earlier on this call the company no longer engages in any outbound consumer marketing for current period operating expenses were also impacted by a full quarter of Dms ownership totaling $700000. These expenses were offset within the prior year comparable periods by a $1.2 million.
Related to restructuring and $500000 in relation to 1 time acquisition costs for EMA.
As of June 32021, the company had $32.9 million of cash and investments compared to $33.5 million as of December 31, 2020 for these.
Based on cash flow was driven by the timing of receivable collections of our largest customer and is expected to rebound in the second half of the year.
Turning to our outlook for the full year, given our strong performance from the first half of 2021 and confidence we see on our end markets. We are raising our revenue guidance for $2000.21 million to $121 million to $125 million representing year over year growth of 18% to 22%. This guidance represents a strong <unk>.
For the second half of the year, while managing ongoing direct labor challenges.
Recall, despite the impact of the pandemic, we have maintained for manufacturing operations throughout the past 15 months, we continue to monitor the CDC guidance on Delta variant as we finalize our return to site plan, while the timing remains fluid. We are excited to reunite on site boosting enterprise collaboration and further cultivating our organizational culture, we're confident that.
Maintaining a level of flexibility will allow us to continue to execute the best practices identified from remote work.
In closing we remain committed to our strategy that will enable us to further diversify our customer base add valuable partners and expand into additional high growth end markets that will best leverage our core capacity and micro medical technology to drive both organic and inorganic growth with that Scott and I would now like to open the call for questions Kerry.
As a reminder to ask a question you will need to press star 1 on your telephone keypad Covid.
For your question you May press the pound key please standby will compile the Q&A roster.
Your first question comes from the line of Jon Block from Stifel. Your line is now open.
Hi, This is Tom Stefan on for John Thanks for the questions.
Scott.
Along with hearing the ITC number was.
Especially above our estimate has <unk> been tracking above your expectations and then.
The expansion on the pilot program, maybe ahead of schedule due to the success.
And then maybe.
For ITC is the $2.6 million, maybe a good baseline to work off of moving forward.
Excellent I'll take the I'll take the first question maybe on the second question offline.
As we started for this pilot as we can do for us really a test.
This market, we do not consider to be a major revenue contributor.
Primarily because there was no blueprint for taking devices into retail outlets like <unk> is doing that said, we are pleasantly surprised with that.
Not only the feedback we're getting from the pilots, but the volumes that <unk> been able to drive through that retail outlets and I think that's highlighted by the green light to expand this pilot here in the second half of the year. So overall, we're very pleased with how that pilots.
Kicked off and remain very optimistic.
This being the blueprint of what could be for the future of OTC.
And in terms of.
Looking for a baseline at that level to put together that's a fair baseline as we look to add additional pilots into the later half of the second half for year and into 2022, clearly, we anticipate that the bill and ultimately ITC to be a major revenue generator for entercom.
In the years to come.
Got it that's helpful.
And then.
Shifting to.
To revenue guidance, Scott last quarter, you talked about <unk> revenue being <unk>.
Likely above <unk>, which was I think a little under $32 million does that expectation stands.
As we think about the cadence of revenue in the back half.
So that might imply.
Step down from <unk> to <unk>, but maybe.
Maybe.
How should we think about the 3 Q4 Q progression and then sticking with guidance Scott in your prepared remarks, I think you said you expect diabetes sales to strengthen in 2021 due to new products does that mean 700 atg and Zeus are.
In the U S baked in.
Sure I'll take the first part of other questions. So I think when you think about Q3, and I think a little flat and that will ramp into Q4 and based on some of the expectations, we have of that diabetes growth and the pilot growth debt.
In the back from <unk>.
As we think about those products for for 780, <unk>, whose platform consistent with Medtronic comments.
In both of those for later in the year based on the most recent comments and we're following suit so based on that.
Communications, we feel like we're going to see the strengthening.
We wound up per year within our diabetes business.
Okay, Great. That's helpful. And then last 1 from me just on MFS.
Adjusted for $2 million on revenue.
Above our estimates and other run rate question, but.
Should we think about that kind of for the remainder of the year around that $4 million plus range and then.
What's kind of a normalized growth rate for that business that that we can think about thanks guys.
Yes, I think that's for us.
We've clearly had some some demand there driven by the international launch for the.
Chocolate catheter home suspect that to be relatively flat.
In the second half of the year, maybe even slightly down.
We're working on a number of different programs there.
We think will provide big lift as we enter into 2022.
But for the back half of the year I would say on it.
On the.
Our baseline there potentially been slight rebound in the second half of the year.
Got it thanks again.
Okay.
Your next question comes from the line of Andrew <unk> from B Riley Securities. Your line is now open.
Hey, good afternoon, Thanks for taking my questions and congrats on the progress.
Couple of quick ones for me and sorry, if you answered any of these I was jumping between calls.
Mark.
Syed.
What was the share count utilized for your 23 debt adjusted.
Adjusted EPS.
While that's being pulled out.
Curious as it relates to the diabetes business could you give a little bit of context around.
670, <unk> 770 gene.
700 atg dynamic.
Really curious I believe this new sensor was for.
Proving Europe recently.
I understand the dynamics, there and maybe where growth is now on where.
Could be coming out with debt.
U S approval.
Yes, great questions I'll take that and then on the.
Comment on the share count so.
Obviously, the 6 for the 780 and the.
700, <unk> are both getting great reviews for the 780 over in Europe.
Medtronic commented last quarter that Theyre actually clawing back market share and as we combine their as they combine the 780 <unk> platform with the <unk> sensor, which you know is a.
The big customer delight.
Eliminating the multiple daily calibrations and from your breaking down to a potentially just 1 time at the onset of use of the sensor.
Something that they believe it's going to.
Be able to drive a lot of excitement here in the U S market.
So with that we're anticipating to see a strengthening.
As those products launched in the U S market and also is the Zeus losses internationally. So I can tell you that based on the discussions that we're having there is a lot of excitement around both of those platforms.
Especially as they get integrated into the <unk> sensor.
Okay.
$9.6 million share.
Alright, thanks for that.
And how about with ancillary offerings Medtronic.
And I believe.
Has the CGM attachments possibility as well and then the Standalone CGM Guardian connect and the professional <unk> CGM to is there any sort of thought process there.
Or how should we think about that layering on.
Yes, all of those products are in the portfolio the suite of products that we provide for medtronic on the on the sensor side and so as we think about.
The entre into MDI on a multi daily injections.
The release of the income.
We believe that these opportunities.
For them to sell more transmitters for as part of that debt offering and as they move into the earlier disease States and similarly, we believe with again.
The <unk> technology, as we think about the Standalone products.
The customer satisfaction is going to be significantly higher because of the lack of daily calibration for required. Thanks Paul.
All of that <unk> can provide lift.
As we kind of exit 2021 and enter into 2022.
So you saw 1 more on the Medtronic side.
Where are you.
As far as getting the Minnesota manufacturing facility to where it needs to be in.
Are we nearing the automated sensor assembly being implemented also.
I believe there were a couple maybe ancillary services.
With the diabetes group too.
Where are we with all of that in general.
Yes, very good question. So as we think about the production of the automated vehicle Assembly, it's still a little bit of a hybrid where we are now running the automated needle assembly on.
We also have some manual.
Assembly.
<unk> is going to net really has to do with kind of geographic regions, and where things have been improved from where they haven't.
So that's kind of a.
Our hybrid right now, but definitely trend into the automated.
Assembly process and then in terms of ancillary services.
Services that we're providing for.
For a number of the products the number of the transmitters that we're doing for Medtronic today, we've started doing the.
Packaging and labeling.
Pat.
Package all the products on the sensor side that we do in some of those to Medtronic distribution site. So put them into all of the quality management systems and vision systems required to.
To do that has been a significant effort, but I think just illustrates the confidence that medtronic has nothing to supplier and further integrates.
As you come into the ecosystem. So we will start to see more and more of that activity again, as we exit 'twenty, 1 and move into 2020.
Thank you Lasse.
Question for me.
It's just really for the last months executive order have you seen any changes.
In our hearing Health Corp.
The dynamics.
Since that time.
Or how should we think about the indirect to end consumer opportunity cadence over the next couple of quarters.
Given everything that's going on in the market right now.
We haven't seen.
Significant movement on the regulatory side, and obviously, they're not from the lift behind the scenes.
Executive order really did was a couple of them.
Brought to light the importance of hearing healthcare in the market and.
Having the president talk about the need to find alternative distribution and bringing this into the mainstream I think was important and keeping it on on top of mind and the other thing of it is sort of the build confidence.
With some of the partners that we're talking to.
Getting them excited about the fact that.
There isn't an insight for this <unk>.
And we've started to have more and more discussions on the business development side and those discussions for further I would say over the course for the last several months.
And those comments on that executive order I think give.
People the result to begin to move forward.
Perfect. Thank you very much congrats on the progress on good luck on going forward.
Thanks, Andy you have a great day.
Sure.
I am showing no further questions at this time I would now like to turn the conference back to Scotts on call.
I'd like to thank everybody for joining us today.
Look forward to updating the group as we enter on the back half of 2021, because everybody stays safe and healthy and look forward into the next call heavily net.
This concludes today's conference call. Thank you all for joining you may now disconnect.
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