Q3 2021 Intricon Corp Earnings Call
Good day, and thank you for standing by and welcome to the Intercom Corporation third quarter 2021 earnings Conference call. At this time, all thank you chip and tie on listen only mode. After just because of the presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded.
You're required any further assistance please press star zero.
I'd now like to turn the call over to your Speaker Leigh Salvo. 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 the current estimates and assumptions <unk> 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.
That I would now like to turn the call over to Entercom CEO, Scott Longbow for a review of the company's third quarter performance.
Thank you Lee.
Good afternoon.
Appreciate everyone joining us today.
On the call with me is Emily looking the company's current treasurer and director of Finance.
Into the role of interim Chief Financial Officer effective October 29 2021.
I've worked along the side of Hannah Lee for nearly 12 years and have the utmost confidence in her ability to guide our finance department as we conduct a search for a permanent CFO.
Turning to our third quarter results Entercom delivered new record revenue quarter with total revenues, increasing approximately 14% year over year.
We also saw meaningful progress towards several very exciting catalysts on the horizon that we are tracking for accelerated growth across multiple market opportunities.
While we continue to experience the impact of pandemic related labor shortages and supply chain constraints on our manufacturing business. We've continued to be successful in navigating these challenges to identify and implement options in order to meet the increasing demands of our customers.
Plans for accelerated growth in the coming year.
As a reminder, our components and assemblies are integrated into advanced microwave technology in a number of device platforms for global customers in the diabetes surgical navigation interventional catheter and hearing health markets.
I'd like to take the next few minutes to cover the recent highlights.
And updates of our business in each of those markets and then I'll turn the call over to Italy to cover our financials in more detail.
Starting with the diabetes market sales to Medtronic diabetes group represented 58% of our total revenue in the third quarter with 24% growth over the third quarter 2020, and 18% sequentially.
Primarily attributable to the continued launch success of the Medtronic mini med, seven atg and certain intellectual markets and the Medtronic. Many met 770 G in the U S.
These launches have contributed to our strong results over the past several quarters and we have the same expectation for the forthcoming medtronic product launches, including contribution from the approval and launch of Medtronic Guardian for sensor.
We were especially encouraged by Medtronic <unk> recent announcement that the one year real world clinical data on over 3000, pediatric and adolescent patients achieved time in range results that well surpassed clinical consensus guidelines. So their glycemic control using its many meds.
700, Atg system with the Guardian sensor three.
Not only does this open up potential additional market opportunity for the system with further validates its benefits for patients of all ages.
We are proud to be their partner of choice and delivering advanced products like this to the global market.
Turning to our surgical navigation that interventional catheter business.
We further expanded our business with existing customers as well as progress on several new opportunities that we're confident will provide additional future growth.
More specifically surgical navigation, which includes our medical coil product line continued to build off the strength of the second quarter as we ramped up production capacity to meet customer demand.
<unk> of our planned commercial launch.
Medical coil revenue in the third quarter was $2 million up 31% year over year, and 18% sequentially from the second quarter of 2021.
Interventional catheters developed and manufactured through our Emerald medical services business <unk>.
Spirits, a lighter third quarter following a strong first half due in part to the Covid related flare up in Japan around the time of the Olympics, which partially limited operations.
This portion of our business also experienced some supply chain related constraints, but we are actively pursuing alternatives that will best enable us to continue to meet customer demand and timelines.
Revenue from E. M S. In the third quarter totaled $3 $4 million or 22% year over year improvement and an 18% decline over Q2 2021.
We expect the continued international adoption of interventional catheters manufactured by E. M. S N.
Further expansion opportunity with products pending FDA submission will lead to meaningful upside in 2022.
In summary, we believe there's a significant potential for growth in these markets, where our collaborative enterprise capabilities of complex catheters, and micro coils are well suited to drive innovation and differentiation.
Turning to hearing health.
In the third quarter revenues declined approximately 14% to the prior year.
Largely due to timing of orders as year to date revenues in this market were up 21%.
Supply chain impacts also contributed to the decline year over year, but we expect to recoup this revenue over the next few quarters.
Last month, the FDA published a highly anticipated proposal to establish a new regulatory.
Category for over the counter hearing AIDS intra.
<unk> has been a major supporter to open this market as we believe it offers much needed broader public access to hearing AIDS at a significantly lower cost for the estimated 30 million Americans suffering from age related hearing loss.
Under the proposal Americans 18 years or older with perceived mild to moderate hearing loss would have access to less expensive and significantly more accessible hearing aid alternatives, where previously they would be required to get a prescription from an audiologist. In addition to.
Several visits for fitting adjustments and maintenance.
There is a widespread bipartisan support for the approval of proposal and we are very optimistic for its approval.
Our long standing priority furniture kind of has been identifying securing partnerships with other participants in the market that can benefit from our hardware firmware software and back end support.
We have never been better positioned to partner with a wide range of participants in this emerging market.
As part of our preparation to support the OTC market earlier. This year, we commenced a clinical trial for our proprietary self fitting software and it.
In September we received notice that a summative usability validation had been completed.
Which allows the clinical trial of the software to progress with.
With this milestone we remain on track to complete ahead of the anticipated FDA final ruling.
Enabling us to further advance our positioning in the ecosystem of care to support customer experience and success with OTC hearing AIDS.
Our pilot program with <unk> continues to expand and has been met with widespread excitement.
As the market moves towards an anticipated OTC option encouragingly, we are seeing increased demand from here ex for our hardware firmware and software technology.
In parallel we are driving opportunities with additional partners that see the value of our ecosystem of care as they enter the space.
We have tremendous confidence in the potential of this new market and we have done a great deal of work to position Entercom cause the joint development and manufacturer of choice.
As we enter the final quarter of the year I believe we are better positioned than ever within the markets we serve.
Customer demand remains high across all of our core markets.
Our existing partnerships are secure.
And we have a significant number of catalyst emerging that I'm confident will drive our growth in 2022 and beyond.
In the short term, we do anticipate that the fractured supply chain and labor shortages, which created inefficiencies that impacted our margins in the third quarter.
We will persist at least through the remainder of the year and May continue to constrain margin expansion in the short term as we enter 2022.
That said, we are taking steps to minimize these challenges including dual sourcing.
Increasing inventory levels.
Customer price increases.
We also believe over time, we will reach greater direct labor efficiencies as newer employees are trained and game line experience.
In summary, I am confident that these challenges to our supply chain and staffing are transitory.
We are taking immediate action to mitigate the impact and over time as the macro environment stabilizes, we can achieve even greater operational efficiencies, resulting in margin improvement.
Importantly continued high level of execution and consistent growth throughout and undoubtedly challenging time perfectly exemplifies the resistant the resilience of our business and the team we have assembled.
With that I'll now turn it over to Italy.
Italy.
Thank you Scott now turning to our financial results recall in the first quarter, we adopted the use of non-GAAP reporting to provide a clearer picture of our growth and transformation.
Reconciliations to the most.
Comparable GAAP measures are provided in the tables accompanying the press release, we issued today.
For the third quarter of 2021.
That noted we reported net revenues of $31 $1 million, an increase of 13, 5% over the prior year period, primarily driven by increases in our diabetes, interventional catheter and surgical navigation market.
GAAP net income for the quarter was $300000.04 per diluted share.
Net income.
$100000 or seven cents per diluted share in the prior year period.
Non-GAAP adjusted net income was $1 $7 million or <unk> 17 cents per diluted share in the third quarter of 2021.
The net income of $2.4 million or 25 cents per diluted share in the prior year period.
Diabetes revenue increased 24% to $18 million compared to $14 $5 million in the prior year third quarter.
This was primarily attributable to the continued loss picks that.
Of the Medtronic mini led 700 atg in certain international markets.
And then many met 778 in the United States.
Intervention catheter revenue increased 22% to $3 $4 million from $2 $8 million in the comparable prior year period.
The year over year increase was driven primarily by the continued expansion of Medtronic chocolate balloon manufactured by Ian.
Surgical navigation revenue, but $2 million an increase of 31%.
Over the prior year period, and 18% sequentially from the second quarter of 2021.
This increase was driven by added production capacity as the company worked through specific labor challenges faced earlier in the year.
In our hearing health business total revenue in the third quarter was $4 $7 million, a 14% decline over the prior year third quarter. The primary driver in this market with supply chain constraints.
The strength, which we have mostly addressed and early Q4.
Others continue to remain strong we anticipate hearing help to rebound and the 2021 fourth quarter.
Third quarter gross margins were 23, 1% compared to 26, 3% in the prior year comparable period.
The lower margin was due in part to supply chain constraints higher labor costs and product mix.
Operating expenses were flat for the third quarter at $6 $7 million for both the current and prior year period.
During the 2021 third quarter, we reduced the <unk> earn.
Earn out liability by $460000, which was offset by increased business development and marketing investments.
As of September 31st 'twenty, 'twenty, one, we had $33 $1 million of cash and investments compared to $33 $5 million as of December 31, 2020 with positive operating cash flow from operations of $3 2 million.
Year to date, primarily attributable to higher cash earnings associated with our business growth and ease of COVID-19 restriction.
Turning to our outlook for the full year, given our strong year to date performance, we're confident in raising the lower end of our guidance and now anticipate our 2021 revenue to range from $123 million to $125 million.
Presenting year over year growth of 20% to 22%.
With that Scott and I would now like to open the call for questions operator.
Thank you and as a reminder to ask a question simply press star one on your telephone to withdraw your question press the pound or hash key again that is star one to get in the queue.
Yeah.
We have a question from the line of Jon Block with Stifel. Your line is open.
Hi, This is Tom Stefan on for John Thanks for the questions.
If I can start off with diabetes.
And as it relates to guidance results were.
Really strong in the quarter and it seems like Youre able to get to your guidance of $124 million at the midpoint.
For my thinking was the initial $121 million, despite the Medtronic U S diabetes pipeline potentially slipping into 2022, so Scott.
Scott maybe for you does that speak favorably to the trend line into 2022 and diabetes, maybe as those approvals.
It could potentially be one eight to 2022 events.
Yeah, we think that.
Obviously, the momentum that we've gained in the diabetes business coming into the third quarter was strong we continue to see strengthening from that business a lot of that's attributed to some of the <unk>.
Success that they've had with the subsidy would be internationally, obviously, we talked a little bit about what.
What they are seeing with the 780 in terms of from a clinical data compared to the real world data, which is very positive both on adults and then more recently the announcements within adolescence. So if we think about that momentum.
We look to gain approval here in the U S. We think there is some tailwind and then the Guardian for sensor. We also think brings a lot of customer delight.
As we look out into 2022 and beyond we think Theres a lot of good things happening with the diabetes business.
Great. Thanks, and then if I can pivot to hearing.
A couple here just on the.
The OTC hearing landscape and potential partnerships, how would you describe your discussions today with potential partners.
<unk> rules, we're we're obviously published to be accelerated or even entered more final stages.
Yeah. So we've been working as we've mentioned with a host of partners for the last several quarters and those continue those discussions continue to evolve we've talked in detail kind of the.
Pilots that we're doing with <unk> other potential partners that we are well down the path of putting business plans together as they look to enter this market probably in conjunction with the final OTC regulations, but.
But those discussions are pretty far down the path. We're very excited about those relationships. We think both of the groups that we're working with today.
The ability to effectively scale in this market and meet the the consumer.
Point of care, which which they think will.
We will be most advantageous so excited to be working with multiple partners and then I would say since the OTC regulation draft guidance.
Issued there has just been more and more activity there and so this is where it's kind of it's going to have to be disciplined to ensure that we're being thoughtful in terms of the partners that.
But we want to move forward and spend our time and effort supporting through.
Those partners again that had the ability to scale the financial wherewithal to scale have the expertise.
And directly engaging consumers.
The traits that we're looking for and it will based on what we've seen we think again. This this market continues to harbor tremendous opportunity for us.
Okay, Great that's great to hear and if I can squeeze in a follow up just.
To that question.
You know, what what Ken or.
Will you convey to the street as far as these OTC partnerships.
And wins go I think it would be helpful.
Just to get a sense for what types of updates or disclosures.
We may be getting as things can now move forward at a greater pace. Thanks.
Yes. Thank you.
Thats a difficult one for us as you know, we're working with a lot of our partners and we do it in a confidential manner as they are working to put their business plans together. So a lot of those relationships until we're actually out there with them and their marketing programs and we probably won't be able to talk.
Too much in terms of specifics.
That being said, we will continue to give kind of general comments in terms of how we think those relationships are progressing.
And hopefully hopefully be able to give insights.
In greater detail after the launches occur.
Got it that makes sense. Thanks again.
Yeah.
Thank you.
Thank you.
I'm not showing any further questions in the queue I would like to turn the call back to Scott for any final remarks.
Yes.
I just wanted to sorry, sorry, we just got one more that jump in the <unk> mine.
Oh absolutely.
<unk> with <unk> Securities. Your line is open.
Yeah.
Hey, Scott Thanks for slipping me in sorry, I was I thought it was intended to absolutely absolutely.
Joe just a quick follow up.
So on the self fitting trial.
Great to see the update on being able to move forward.
And it's gonna Jive really nicely with.
Current public comment period.
The guidelines I began in January at some point.
Can you just kind of walk through what some of the next steps are so do you envision press, releasing any sort of data readout or would it be more of a situation where you just press release. The fact that you've submitted the application to the FDA just trying to understand the cadence of milestones.
For that trial.
Yes.
Thanks, Kyle so as we've talked about in the past in order to kind of satisfy this statistical goal, we need roughly 80 patients in the clinical we have over 116.
That are currently signed up our goal is to continue to push through the quarter Nicole.
At the point at which we submit to the FDA, obviously will have.
Some some communication.
Depending.
On what the data reads and how much we want to have public at that point. We'll include some of the details.
But I would say.
Don't expect too much in terms of that release other than the fact that we have submitted the application to the FDA.
Got it got it but it sounds like.
Even after the public comment period. It takes a couple of more months for the rules become final.
Sounds like that Youre.
Youre in a pretty good pace.
With the trial ahead of kind of a final ruling.
Is that fair, yeah, and that's what we've talked about.
Trying to make sure that we timed it correctly right. So if you look the draft guidance was released on October 20th we know the comment period for 90 days and we will.
Have our own formal comments to the FDA there'll be a period of time at which the final rule will be written and then they will go into effect.
30 days after so I think we're looking at most likely.
Towards the end of the second quarter maybe.
Maybe the early part of third quarter, but.
Regardless, if you look at what was included in that.
Draft guidance, there was a lot of benefits to enter kind of a lot of the topics that we have been focused on over the last several years that we think is key to increased penetration in the U S market, where encompass right. So having the self fitting devices have their own regulatory classifier was.
Critical being able to include mild to moderate and the moderate individuals' makeup in my estimation the largest pool of people.
C will be directed.
And that was kind of confirmed with some of the DB output limit that they put out there. So we know we're going to be able to meet those those needs of the moderate hearing loss.
The other thing in that OTC that help kind of build a moat around <unk> technology, both the hardware software and firmware is somebody electro acoustical performance requirements.
It was clear when the FDA puts this draft guidance out they were very thoughtful.
In terms of the types of devices that they would classify as an OTC hearing aid and also had to be ones that performed at a very high level, we think that puts us in a very strong.
Position.
As we've seen over the last several years, there's a number of.
I'll call them cheap personal sound amplifiers that are out on the market.
That's not going to cut the mustard for what the FDA is laid out in terms of their electric.
Electric audio Cusco performance requirements. So all of that I think puts us in a really strong position.
As we start to think about 2022.
And how we're going to be.
Really to support them to improve what's going to be a very exciting.
Health care market evolve in the U S over the next several years.
Got it that's helpful. I appreciate that.
And then maybe just lastly regarding the E. Ms business I mean from the trial.
Transaction perspective.
Probably one of the most accretive transactions we've seen in the last 12 months to 24 months.
Just curious how do you size that market, what's the medium term growth rate that would make sense just trying to understand how much runway we have there. Thank you.
Yeah. So as we've laid out we saw some hyper growth coming out of that business over the last several quarters slowed a little bit here in the third quarter and that was really driven by some flare ups of COVID-19 over in pockets in Asia, and we do have some supply constraints.
For raw materials for that business in the fourth quarter that were working through but longer term, we're very excited about where that business can go.
Not only with the current programs that we're working on that are in development with customers that we think can provide meaningful revenue contributions in the back half of 'twenty two.
But longer term, we see a convergence of that interventional catheter business with some of the work that we're doing on the medical coil side and the sensor side.
So putting sensors and.
And catheters that allow for biometric readings.
That can provide a greater and greater information too.
The doctors.
And the nurses and we think there's a lot of opportunities there.
We're kind of medicine is moving and where we're going to be in a good position to take advantage of that.
Excellent thanks for all the updates Scott.
Great.
Alright, Thank you and.
Turning the call back to you Scott I don't see any additional questions.
Excellent well I like just like to thank everybody for spending some time today I'll give you an update with <unk> and we're very excited about the business that we built the opportunities that we have in front of us and look forward to continuing to update the group Accordingly Stacy.
Stay safe and have a great evening.
And with that ladies and gentlemen, thank you for participating in today's program. You may now disconnect have a wonderful day.
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Sure.
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Good day, and thank you for standing by and welcome to the Inter Con Corporation third quarter 2021 earnings Conference call.
At this time all participants are on listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone. Please be advised that today's conference is being recorded.
If you require any further assistance please press star zero.
I would now like to turn the call over to your Speaker Leigh Salvo. Please go ahead.
Thank you operator.
Before we begin I would like to preface all 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 <unk> 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 report on Form 10-K, and Form 10-Q, respectively with the SEC.
I would now like to turn the call over to <unk> CEO, Scott Longbow for a review of the company's third quarter performance.
Thank you Lee.
Good afternoon, we appreciate everyone joining us today.
On the call with me is heavily looking the company's current treasurer and director of finance.
Into the role of interim Chief Financial Officer effective October 29 2021.
I've worked along the side of Hannah Lee for nearly 12 years and have the utmost confidence in her ability to guide our finance department as we conduct a search for a permanent CFO.
Turning to our third quarter results <unk> delivered new record revenue quarter with total revenues, increasing approximately 14% year over year.
We also saw meaningful progress towards several very exciting catalysts on the horizon that we are tracking for accelerated growth across multiple market opportunities.
While we continue to experience the impact of pandemic related labor shortages and supply chain constraints on our manufacturing business. We have continued to be successful in navigating these challenges to identify and implement options in order to meet the increasing demands of our customers.
Plans for accelerated growth in the coming year.
As a reminder, our components and assemblies are integrated into advanced micro technology in a number of device platforms for global customers in the diabetes surgical navigation interventional catheter in hearing health markets.
I'd like to take the next few minutes to cover the recent highlights.
Updates of our business in each of those markets and then I'll turn the call over to Emily to cover our financials in more detail.
Starting with the diabetes market sales to Medtronic diabetes group represented 58% of our total revenue in the third quarter with 24% growth over the third quarter 2020, and 18% sequentially.
Primarily attributable to the continued launch success of the Medtronic Mini Med 700, atg in certain international markets and the Medtronic. Many met 770 gene in the U S.
These launches have contributed to our strong results over the past several quarters and we have the same expectation for the forthcoming medtronic product launches, including contribution from the approval and launch of Medtronic Guardian for sensor.
We are especially encouraged by Medtronic <unk> recent announcement that the one year real world clinical data on over 3000, pediatric and adolescent patients achieved time in range results that well surpassed clinical consensus guidelines. So their glycemic control using its many meds.
700, Atg system with the Guardian sensor three.
Not only does this open up potential additional market opportunity for the system and further validates its benefits for patients of all ages.
We are proud to be their partner of choice and delivering advanced products like this to the global market.
Turning to our surgical navigation and interventional catheter business.
We further expanded our business with existing customers as well as progress on several new opportunities that we're confident will provide additional future growth.
More specifically surgical navigation, which includes our medical coil product line continued to build off the strength of the second quarter as we ramped up production capacity to meet customer demand.
<unk> of our planned commercial launch.
Medical coil revenue in the third quarter was $2 million up 31% year over year, and 18% sequentially from the second quarter of 2021.
Interventional catheters developed and manufactured through our Emerald medical services business experienced a lighter third quarter. Following a strong first half due in part to the Covid related flare up in Japan around the time of the Olympics, which partially limited operations.
This portion of our business also experienced some supply chain related constraints, but we are actively pursuing alternatives that will best enable us to continue to meet customer demand and timelines.
Revenue from MFS in the third quarter totaled $3 $4 million or 22% year over year improvement and then 18% decline over Q2 2021.
We expect to continue to international adoption of interventional catheters manufactured by <unk> and.
And further expansion opportunity with products pending FDA submission will lead to meaningful upside in 2022.
In summary, we believe there is significant potential for growth in these markets, where our collaborative enterprise capabilities of complex catheters, and micro coils are well suited to drive innovation and differentiation.
Turning to hearing health.
In the third quarter revenues declined approximately 14% to the prior year largely due to timing of orders as year to date revenues in this market were up 21%.
Supply chain impacts also contributed to the decline year over year, but we expect to recoup this revenue over the next few quarters.
Last month, the FDA published the highly anticipated proposal to establish a new regulatory.
Category for over the counter hearing AIDS and.
<unk> has been a major supporter to open this market as we believe it offers much needed broader public access to hearing AIDS and a significantly lower cost for the estimated 30 million Americans suffering from age related hearing loss.
Under the proposal Americans 18 years or older with perceived mild to moderate hearing loss would have access to less expensive and significantly more accessible hearing aid alternatives, where previously they would be required to get a prescription from an audiologist. In addition to.
Several visits for fitting adjustments and maintenance.
There is a widespread bipartisan support for the approval of proposal and we are very optimistic for its approval.
Our long standing priority furniture kind of has been identifying securing partnerships with other participants in the market that can benefit from our hardware firmware software and back end support.
We have never been better positioned to partner with a wide range of participants in this emerging market.
As part of our preparation to support the OTC market earlier. This year, we commenced a clinical trial for our proprietary self fitting software and then September received notice that a summative usability validation had been completed.
Which allows a clinical trial of the software to progress with.
With this milestone we remain on track to complete ahead of the anticipated FDA final ruling.
Enabling us to further advance our positioning in the ecosystem of care to support customer experience and success with OTC hearing AIDS.
Our pilot program with <unk> continues to expand and has been met with widespread excitement.
So as the market moves towards an anticipated OTC option encouragingly, we are seeing increased demand from here ex for our hardware firmware and software technology.
In parallel we are driving opportunities with additional partners that see the value of our ecosystem of care as they enter the space.
We have tremendous confidence in the potential of this new market and we have done a great deal of work to position <unk> as the joint development and manufacturer of choice.
As we enter the final quarter of the year I believe we are better positioned than ever within the markets we serve.
Customer demand remains high across all of our core markets.
Our existing partnerships are secure.
And we have a significant number of catalyst emerging that I'm confident will drive our growth in 2022 and beyond.
In the short term, we do anticipate that the fractured supply chain and labor shortages, which created inefficiencies that impacted our margins in the third quarter.
We will persist at least through the remainder of the year and May continue to constrain margin expansion in the short term as we entered 2022.
That said, we are taking steps to minimize these challenges including dual sourcing.
Increasing inventory levels.
Customer price increases.
We also believe over time, we will reach greater direct labor efficiencies as newer employees are trained and game line experience.
In summary, I am confident that these challenges to our supply chain and staffing are transitory.
We are taking immediate action to mitigate the impact and overtime as the macro environment stabilizes, we can achieve even greater operational efficiencies, resulting in margin improvement.
Importantly continued high level of execution and consistent growth throughout and undoubtedly challenging time perfectly exemplifies the resistant the resilience of our business and the team we have assembled.
With that I'll now turn it over to Italy.
Italy.
Thank you Scott now turning to our financial results recall in the first quarter, we adopted the use of non-GAAP reporting to provide a clearer picture of our growth and transformation.
Reconciliations to the most.
Comparable GAAP measures are provided in the tables accompanying the press release, we issued today.
For the third quarter of 2021 as Scott noted, we recorded net revenues of $31 $1 million, an increase of 13, 5% over the prior year period, primarily driven by increases in our diabetes, interventional catheter and surgical navigation market.
GAAP net income for the quarter was $300000.04 per diluted share versus net income of $600000 or seven cents per diluted share in the prior year period.
Non-GAAP adjusted net income was $1 $7 million or 17 cents per diluted share in the.
Third quarter of 2021 versus net income of $2 $4 million or 25 cents per diluted share in the prior year period.
Diabetes revenue increased 24% to $18 million compared to $14 $5 million in the prior year third quarter the.
The growth was primarily attributable to the continued launch success.
The Medtronic mini Med 700, atg in certain international markets.
And then many met 778 in the United States.
Interventional catheter revenue increased 22% to $3 $4 million from $2 $8 million in the comparable prior year period.
The year over year increase was driven primarily by the continued expansion of Medtronic chocolate balloon manufactured by EMA.
Surgical navigation revenue, but $2 million an increase of 31%.
Over the prior year period, and 18% sequentially from the second quarter of 2021.
This increase was driven by added production capacity as the company worked through specific labor challenges faced earlier in the year.
In our hearing health business total revenue in the third quarter was $4 $7 million, a 14% decline over the prior year third quarter. The primary driver in this market was supply chain constraint, which we have mostly addressed in early Q4 and.
Others continue to remain strong we anticipate hearing help to rebound and the 2021 of fourth quarter.
Third quarter gross margins were 23, 1% compared to 26, 3% in the prior year comparable period.
The lower margin was due in part to supply chain constraints higher labor costs and product mix.
Operating expenses were flat for the third quarter at $6 $7 million for both the current and prior year period.
During the 2021 third quarter, we reduced the earn out liability by $460000, which was offset by increased business development and marketing investments.
As of September 31st 2021, we had $33 $1 million of cash and investments compared to $33 $5 million as of December 31, 2020 with positive operating cash flow from operations of $3 2 million.
Year to date, primarily attributable to higher cash earnings associated with our business growth and ease of COVID-19 restriction.
Turning to our outlook for the full year, given our strong year to date performance, we're confident in raising the lower end of our guidance and now anticipate our 2021 revenue to range from $123 million to $125 million.
Presenting year over year growth of 20% to 22%.
With that Scott and I would now like to open the call for questions operator.
Thank you and as a reminder to ask a question simply press star one on your telephone to withdraw your question press the pound or hash key again that is star one to get in the queue.
Yeah.
We have a question from the line of Jon Block with Stifel. Your line is open.
Hi, This is Tom Stefan on for John Thanks for the questions.
If I can start off with diabetes.
And as it relates to guidance results were.
Really strong in the quarter and it seemed like you were able to get to your guidance of $124 million at the midpoint up from I think it was the initial $121 million. Despite the Medtronic USD <unk> pipeline potentially slipping into 2022, so Scott.
Scott maybe for you does that speak favorably to the trend line into 2022 and diabetes, maybe as those approvals.
It could potentially be one eight to 2022 events.
Yeah, we think that.
Obviously, the momentum that we've gained in the diabetes business coming into the third quarter was strong we continue to see strengthening from that business a lot of that's attributed to some of the success that they've had with the subsidy internationally, obviously, we talked a little bit about what.
What they are seeing with the 780 in terms of some of the critical data compared to the real world data, which is very positive both on adults and then more recently the announcements within adolescence. So if we think about that momentum.
As they look to gain approval here in the U S. We think there is some tailwind.
Then regarding the <unk> sensor. We also think brings a lot of customer to whites.
We look out into 2022 and beyond.
We think theres a lot of good things happening with the diabetes business.
Great. Thanks, and then if I can pivot to hearing maybe.
Maybe a couple here just on the <unk>.
OTC hearing landscape and potential partnerships, how would you describe your discussions today with potential partners with the proposed rules were we're obviously published have they accelerated.
Even entered more final stages.
Yeah. So we've been working as we've mentioned with a host of partners for the last several quarters and those continue those discussions continue to evolve.
We talked in detail kind of the.
Pilots that we're doing with <unk> other potential partners that we are well down the path of putting business plans together as they look to enter this market probably in conjunction with the final OTC regulations.
But those discussions are pretty far down the path. We're very excited about those relationships. We think both of the groups that we're working with today.
The ability to effectively scale in this market and meet the consumer at.
The point of care, which which they think.
It will be most advantageous so excited to be working with multiple partners and then I would say since the OTC regulation draft guidance was issued.
It's been more and more activity there and so this is where it's kind of it's going to have to be disciplined to ensure that we're being thoughtful in terms of the partners that.
But we want to move forward and spend our time and effort supporting so those partners again that had the ability to scale the financial wherewithal to scale have the expertise.
And directly engaging consumers.
Are the traits that we're looking for and it will.
Based on what we've seen.
We think again that this market continues to harbor tremendous opportunity for us.
Okay, Great that's great to hear and if I can squeeze in a follow up just a.
To that question.
You know what what can or.
Will you convey to the street as far as these OTC partnerships.
And wins go I think it would be helpful.
Just to get a sense for what types of updates or disclosures.
We may be getting as things can now move forward.
Later pace. Thanks.
Yes. Thank you.
That's a difficult one for us as you know, we're working with a lot of our partners and we do it in a confidential manner as they are working to put their business plans together. So a lot of those relationships until we're actually out there with them and their marketing programs and we probably won't be able to talk.
Too much in terms of specifics.
That being said, we will continue to give kind of general comments in terms of how we think those relationships are progressing and hopefully be able to give insights.
And in greater detail after the launches occur.
Got it that makes sense. Thanks again.
Thank you.
Thank you and I'm not showing any further questions in the queue I would like to turn the call back to Scott for any final remarks.
Oh, we have wanted sorry, sorry, we just got one more that jumping the COVID-19 or mine.
Oh absolutely.
Bowser with Colliers Securities. Your line is open.
Hey, Scott Thanks for slipping me in.
I thought it was intended to absolutely absolutely.
Joe just a quick follow up so.
So on the self fitting trial.
Great to see the update on being able to move forward.
And it's been a jive really nicely with.
Current public comment period.
Guardian efficacy guidelines I think and in January at some point.
Can you just kind of walk through what some of the next steps are so do you envision press, releasing any sort of data readout or would it be more of a situation where you just press release. The fact that you've submitted the application to the FDA just trying to understand the cadence of milestones.
For that trial.
Yes.
Thanks, Kyle so as we've talked about in the past in order to kind of satisfy our statistical goal, we need roughly 80 page.
Patients in the clinical we have over 116.
Those that are currently signed up our goal is to continue to push through the quarter Nicole.
At the point at which we submitted the FDA, obviously will have.
Some communication.
<unk>.
<unk>.
On what the data reads and how much we want to have public at that point. We'll include some of the details.
But I would say.
Don't expect too much in terms of that release other than the fact that we have submitted the application to the FDA.
Got it got it but it sounds like.
Even after the public comment period. It takes a couple of more months for the rules become final.
Sounds like that.
Youre in a pretty good pace.
With the trial ahead of kind of a final ruling.
Is that fair, yeah, and that's what we've talked about.
Trying to make sure that we timed it correctly right. So if you look the draft guidance was released on October 20th we know the comment period for 90 days and we will.
Our own formal comments to the FDA there'll be a period of time at which the final rule will be written and then they will go into effect.
30 days after so I think we're looking at most likely.
Towards the end of the second quarter maybe.
Maybe the early part of third quarter, but.
Regardless, but if you look at what was included in that.
Draft guidance, there was a lot of benefits to enter kind of a lot of the topics that we have been focused on over the last several years that we think is key to increase penetration in the U S market, where encompass right. So having the self fitting devices have their own regulatory classifier was.
Critical being able to include mild to moderate and the moderate individuals' makeup in my estimation the largest pool of people that what's the OTC will be directed.
And that was kind of confirmed with some of the DB output limits that they put out there. So we know we're going to be able to meet those those needs of the moderate hearing loss and I think the other thing in that OTC that help kind of build a moat around intercom technology, both the heart.
<unk> software and firmware is somebody electro acoustical performance requirements.
It's clear when the FDA puts this draft guidance out they were very thoughtful.
In terms of the types of devices that they would classify as an OTC hearing aid and also had to be ones that performed at a very high level, we think that puts us in a very strong.
Position.
As we've seen over the last several years, there's a number of.
Ill call them cheap personal sound amplifiers that are out on the market.
It's not going to cut the mustard for what the FDA is laid out in terms of their electric audio Cusco performance requirements. All of that I think puts us in a really strong position.
As we start to think about 2022, and how we're going to be.
Really the support engine for what's going to be a very exciting.
Hearing health care market evolving in the U S over the next several years.
Got it that's helpful. I appreciate that.
And then maybe just lastly regarding the E. Ms business I mean from <unk>.
Transactional perspective.
Probably one of the most accretive transactions we've seen in the last 12 months to 24 months.
Just curious how do you size that market, what the medium term growth rate that would make sense just trying to understand how much runway do we have there. Thank you.
Yeah. So as we've laid out we saw some hyper growth coming out of that business over the last several quarters slowed a little bit here in the third quarter and that was really driven by some flare ups of COVID-19 over in pockets in Asia, and we do have some supply constraints.
For raw materials for that business in the fourth quarter that we were working through but longer term, we're very excited about where that business can go.
Not only with the current programs that we're working on that are in development with customers that we think can provide meaningful revenue contributions in the back half of 'twenty two.
Longer term, we see a convergence of that interventional catheter business with some of the work that we're doing on the medical coil side and the sensor side, so putting sensors and.
Catheters that allow for biometric readings.
That can provide a greater greater information.
To the doctors.
And the nurses and we think there's a lot of opportunities. There. We're kind of medicine is moving and where we're going to be in a good position to take advantage of that.
Excellent thanks for all the updates Scott.
Okay great.
Alright, Thank you and.
Turning the call back to you Scott I don't see any additional questions.
Excellent well I like just like to thank everybody for spending some time today I'll give you an update with <unk>, but we're very excited about the business that we built the opportunities that we have in front of us and look forward to continuing to update the group Accordingly Stacy.
Stay safe and have a great evening.
And with that ladies and gentlemen, thank you for participating in today's program. You may now disconnect have a wonderful day.