Intricon (IIN) 24 Feb 202019 Q4 Earnings call transcript

Good day, ladies and gentlemen, and welcome to the IntriCon Corp's Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host Leigh Salvo of Investor Relations. ma'am. ahead, go Please

Laurie. you, Thank

the we changes begin, with call preface remarks subject based like certain IntriCon's assumptions management and circumstances. I customary Safe would are on are the statements conference uncertainty statements. to estimates Harbor and forward-looking of and our to These Before current in statement. contains Today's

today's materially reliance statements. Actual forward-looking these you from expectations Given the these uncertainties, should on not call. contained in may place vary undue results

the most risks XX-Q please on of uncertainties and For associated Risk Exchange business, a description and respectively, list reports our and refer and Securities Factors Commission. with and Form quarterly the XX-K Form section recent the with to of our annual

Gorder, full review quarter CFO that With results company's open more fourth performance. for year will the financial in that, company's And questions. would CEO, detail. a then like I of COO and now Longval, to Scott the your at the introduce the call and for we'll cover Mark point, IntriCon's

you, that best opportunities competencies for importantly, our pursuing several accelerate customers business and partners, to us that volume partnerships our committed diversify team today. core base. In priorities XXXX, and Thank you meeting of revenue joining our thank new demands leverage key and the our and could included everyone to Leigh, growth

volumes. strong that inspired production and a our micro miniature adjustments We complex ultimately made with design meaningful we require progress and has enter throughout do specialized expertise many on strategic operations, what that to XXXX delivering IntriCon the and material sharp year, devices high decisions best, including enabled focus to dedication

organized we near-term to accordingly, emerging. the are especially necessary quickly steps optimally encouraged prudently. we of ensure growth we opportunities see by to and And I'm expanding an taking today are act pipeline

to and the affordable micro-miniature assemblies life commitment accessible quality leading assemblies for healthcare those for medical partner miniature microelectronics, in development a improve products, and complete that devices, remain steadfast enable including we joint serve. manufacturing our micromechanical be We and of

drug XX% delivery, regards Medtronic revenue of platform several Our represented currently and With addresses is technology navigation, diabetes, single surgical markets, including our customer, largest our total hearing diabetes, XXXX. in health. high-growth medical to

Undoubtedly, were Medtronic's to competitive their reasons. growth global timing have XX% domestically diabetes launch highlighted that of of X% ongoing and product commercial notably by in year XXXG XXXX of the the due the respectively, growth affected years pressures aforementioned Coming two commentary. and XXXX in in we robust of throughout the the XXXX and XX% they off slowed to recent

of positioned into well European greater domestic encouraged are we meet which the launch the select and remain the declines future. of XXXG to countries, offset by in recent diabetes Medtronic significantly the We sales partially well have market in volume

a our applying as XXXX. this continue and That growth superior business. in Medtronic's top important mission see we long-term diabetes customer our as to in in to due However, in impacted tremendous potential their and supplier recent headwinds ongoing a the integral products to XXXX, of outlook value diabetes with said, management, Medical part deliver tempered this commentary, for outlined we more are business that business in

sustained more priority we our diversify critical growth leverage. As pursuit revenue it's opportunities operating on corresponding the a base. core believe in I and revenue noted, top that predictable competencies our model, leverage a potential business XXXX that our and of toward driving efforts We development was focus with

and actively began expand markets. for and our to strategy order order In addressable simply, evolve year medical partnerships must that shareholders. seek our best accomplish this, customer we value create to last in most could opportunities new Said long-term diversify our to efficiently our base

in delivery opportunities significant XXXX business customers, and Medical long-standing delivery such the represents as Through with key relationships competency has the drug Smiths of mid-teens our market. assembly total business. drug XXXX provided now needle our Our within increased X% our in

assembly We XXXX. needle pursuing be opportunities, additive currently in other could which are

navigation where pulmonology previous meaningful and area highlighted electrophysiology. As on surgical interventional more we've we the specifically, is calls, and an of see areas upside near-term

delighted our microminiature leverage coil that and technology to identified that that we medical several have could high-growth into announce rates opportunities I'm have molding electronics, curves. quickly and precision steep technologies markets

of We current have in and demands future to engineering step customers important the taken our next and the additional assemblies the to to growth meet of support catheter coil capacity to support add medical development customers.

business. year and support, build to out to and with in infrastructure reallocating continue marketing existing this this expect sales We efficiencies our resources optimizing

opportunities. to is talk While premature these making forward progress, are to when appropriate. about more look specifically meaningful We we it updates providing

Our aid aids, market. in ability the potential IntriCon hearing identifying made to we was over-the-counter partners seek and XXXX third with Throughout in hearing self-fitting that partnerships aligning emerging with our U.S. progress entrants superior the market. priority to year care high-profile and great to value deliver customer the best-in-class software

are make that and entities pursuing customer in hearing with initiatives discussions the to including partners market, specifically, continued for we've branding several progress retailers, the healthcare by our encouraged actively solutions and health pharmacies. end I'm commercial

hearing and the aid time market are regulation, to benefit a in the which forward us still that While positions identifying over-the-counter healthcare hearing associated is moving the path from line this believe to we sales. confidently landscape we opens pending change taking best shape, in

OTC consumers. excited of hearing recent cost for on hearing-impaired high the updates given tremendous today could have aids the aid change guidance by this the hearing potential the we regulation, no pending Despite of draft remain

entirely product most in Help to a we to near-term testing concentrate capture see best an through as towards we approach. platform indirect-to-end-consumer opportunities through effectively our resources, and decision ensure order made order leverage In have the our the that we development Hearing pivot initiatives supporting to benefits on Express direct-to-end-consumer

increase Help and profitability. business decrease repositioning, of while result the of this lower will allows a quarter As XXXX. the for and result in second revenue beginning de-risk marketing to pivot XXXX, Hearing related it advertising significantly to spend Express will in us Furthermore, our

hearing to today that of weaknesses gaining pursuing We gained have direct consumer consumer into And best we longer launching where no channel opportunity immediate for considerable traction. the healthcare towards and today, are a while solutions we made was acknowledge this available preferences, consumer and insight lies investment strengths market. end-to-end invaluable the approach

enabled stronger as entrants to It pursue this entities care provides service table. with the this emerge market the best candidate are into platform support insight a to market. teleaudiology, those a to also us and new bring us to seeking partner seeking can This attractive for customer that partner that very

the channel declined Express. Help the the more direct-to-end-consumer marketing and specifically, we investments advertising quarter In Hearing in as channel during direct-to-end-consumer reduce fourth began in to revenue in

product this business support development. As I noted earlier, we are repositioning to

while so losses were this with accordingly, business. was lower revenue associated lower – While

shift end As we to half a hi hearing year partnership as decline strategy of revenue a a experienced anticipated, with meaningful in brick-and-mortar of decision second to the result HealthInnovations and approach to approach healthcare traditional more no reaching consumer. towards our that longer the the align

In to enhance the final for of consumer-centric made the care fourth and our target quarter better ecosystem with hi we and opportunities subsequently, efforts other And HealthInnovations. to results. shipments reallocated we our resources have long-term potential

relationships on place. and Along once partners be as is take several hearing are Hearing technology, Regulation, software our the final these in customer we those technology expertise. care could branding that different believe Aid of in tested delivery lines several forms will aid We regulation the utilize potential models working self-fitting with OTC anticipation will

driven have also our hearing we in software, healthcare our we initiated with will process largely summary, long-term our to regulations. have indirect-to-end-consumer we by which market self-fitting success intend OTC for trial Additionally, in clinical the conjunction be final channel. complete our In believe the

that As our are care self-fitting U.S. more an value our partners clearly market. ecosystem ability to high-profile superior to deliver such, of platform, we includes care hearing on aids, to reprioritizing securing which and customer the investments software focus

XXXX, forward towards in of building done to look we opportunities. a XXXX of sustainable a we continuation growth see diversifying and pipeline As work

finally, year; priorities first, core Medtronic's phase demands platforms; of next the accelerate to established our continue by business; continue already revenue volume includes diabetes leveraging third, four of our The diversification technology technology meet that growth key the the second, an could non-diabetes our for aligns care to technology, driving hearing implement secure that software structure organizational pursue our and focus self-fitting customer of pipeline best sustainable partnerships expertise; and utilize a and opportunities. on aid with

over financials guidance more turn Scott and in detail. to like call our to I'd Now, to discuss the

Thank you, Mark.

Turning results. our financial to

million, primarily due was non-diabetes fourth in reported revenue XXXX revenue we the X.X% decrease our OEM net business. by Medical in in the Innovations to decline quarter, our of decrease growth over The $XX.X significant a health legacy of business, For to offset year period. prior Health partially hearing High the

to noted XX.X% our Hearing growth which this a for from was segment, business quarter from and revenue down $XX.X end brick-and-mortar shifted business were strategy revenue. core the they the total our Health to prior represented Once comments. segment, XX% total his as quarter. towards health decrease largely of the to million, with over strong million, that fourth in reaching X.X% hearing due was increase approach $X.X minimal no year traditional year. a for again medical the revenues the more prior to largely align In due grew By sales, longer our business XX.X% was Medical year-over-year partnership This Innovations High as earlier revenue consumer Mark coil Health in quarter

believe customer revenue not any in is this and do additional transition this We from XXXX. largely complete anticipate

$X.X $X.X Express through Within million. million, revenue was direct-to-end-consumer Health segment, was revenue indirect-to-end-consumer million legacy Hearing Health was revenue and $X.X our OEM Hearing business

requirements gross were to down to prior the constrained excess XX.X%, future margins fourth related customers. capacity to expansion quarter. were primarily higher meet year volume quarter Fourth margins existing due manufacturing the in Gross and XX.X% from anticipated our of recent

XXXX to in quarter to administrative stems of or diluted the substantial share decrease year the net share compared attributable The or profit fourth of to $X.X income Operating $XXX,XXX Help expense $XXX,XXX million in per a diluted quarter. versus for prior for and attributable fourth shareholders a posted Hearing reduction We advertising the expenses Express. $X.XX period. shareholders in $X.XX per were million from $X.X

XXXX XXXX. to to capacity down primarily For recent manufacturing IntriCon Again the flat the related XX, with December million from XX.X% was in decrease reported were XX.X% margins full relatively Gross the expansion. in year revenue of XXXX. ended, $XXX.X due excess margin

diluted Operating were or increase increase an charge per million million versus XXXX. in to prior share or $X.X $XX.X $XX year million $X.XX and compared administrative $X.X period. a Net in The the in expenses attributable of million share per loss from was expenses. $X.X non-cash $X.XX shareholders one-time million diluted to impairment stemmed

guidance. Turning to our

of million to We million. a year XXXX expect to full $XXX revenue range $XXX

the did not on of While providing we in $XX.X guidance, to we regular direction some anticipate for revenue the offer $XX.X range million. do expectations quarter quarter first want to million our

XX%. margin improvement gross between and revenue Full margin In XXXX growth general, we is to throughout gross year range XX% expected anticipate XXXX. linear and

could this However, be commercial largest timing launch from product customer. by impacted our

business in ongoing as domestic In due on diabetes our tempered More in earlier. any anticipate of more we XXXX to Regulation. Health Hearing specifically, Mark the commented not result anticipate business, a Hearing financial pressures XXXX Aid pending that OTC the do we a upside

Longer term are for I believe growth businesses. we our from core continued well-positioned

In infrastructure addition we current mid-XX% our to revenue leverage to that able into gross over our expand anticipate range. margins will the opportunities, time we growth be manufacturing and

I'd so turn the Mark back can and I to operator to Now, like the call over questions. take

question the have ask Block [Operator question. from of a from your Instructions] Stifel. Please Jon line We

you Thanks. just hearing guys. that first and more a a give the to the to three But tie color and/or DTC to try pivot on it you trying then follow-up Scott back perspective. to I'm bit Mark is Can keep laid offline. one revenue Good it maybe little also afternoon from and I'll strategy out? business. the

in you about In was think we other which $X sort customers only from of business XXXX? of exiting XXXX revenues rating does specific customers? not taking but mean that words, south to are What hearing existing DTC if a million orders run new

direct-to-consumer is reduce -- which emerging these existing and I are Jon we're that to platform. There's direct-to-consumer test database that be efficiently question? to we the bet trying the to is that marketing control channel still branding ongoing a revenue our partner characterize way we're trying could would we're to that but the trying from spend not become not spending try a your because make think answer to we sure retail to we're Does partners working with. that with best managed,

relates topline that this to than will of we it where I'll Clearly, expectations. maybe the finished lower of believe as interject XXXX. based on repositioning terms revenue we in revenue be business the XXXX notably Jon

Okay.

good that's question to a So, second my Scott. segue

numbers get and for throw to let look top too know So, of the me couple I at I want you respond. don't $XXX midpoint, the probably line. maybe if can out a it on the to call $XXX your million $XXX specific if year at million But million you

to million; $XX the some and south business this Professional where to $X to right $XX to due I million got is If possibly has Medical million; $XX of in a million $XX ZIP data Audio, were code we recent sort actually million; particular Hearing, mean $XX south Hearing of that points the million that business be that quarter? of

in Exactly. of right impacting we expectations. to I All alluded those our line terms XXXX numbers seem And the of and what again tried was of process just think in in out thought lay with ranges to. kind we captured terms you that our

Okay.

wanting one the demand I from in a higher door bit potential I'm to something DTC maybe strategy a strategic you've in would increased level unless the little knocking do Mark guys last you you got your is this guessing more conviction So, for or standpoint. be maybe do and to pivot me think going on with don't that hearing, evolves on of partners how with strategic. market some

as So after -- feel on you and to us guys. just seen over services the the can What have demand the what out partner. if maybe a and DTC let's Thanks platform go really says, occur for this know talk which if you this to Maybe shutter nine what can that. you use there hey supplier months a key IDTEC. six give was thing to your you past

Good question Jon.

of what them deliver not them, of care. to looking ecosystem of them care And for we've different would we're -- most a have number Hearing a are all potential the I do is other can think I expertise Health. of seen partners devices, talking all in partner but say in that channel of they -- these words this hearing

some we think which for the that learned channels our that not looking they we developed we direction. the to feel we brings unfold convicted it's certain And that do that we're in that will to this we learned forward of we've believe in And think assets exactly value the expertise those things will they addition of HHE So, emerge developing ecosystem by – that have much that that to things our to IntriCon table. pretty how delivering partners will care. although, and value that at

All guys. right. Thanks follow-up offline. Appreciate will it. I

Please next Your your comes B. ask line Andrew Riley the of question. from question FBR. D'Silva from

question. my Good afternoon. Thanks for taking

maybe then cash and Just into look there then two non-adjunctive amortization XXXG? for the for the please aspect but know just pump the let taking was account that to pulling are me particularly the for start-off with taking of the existing while could depreciation transmitter you reorders re-ups operations what flow at And years you're years the info the CapEx quarter? transmitters. from customers a four And typically that if

going on guidance? into curious or going Just what's the on CGM

is This Scott. Andy. Thanks,

Some of the first. housekeeping items

$XXX,XXX. Your was Stock-based operations quarter. amortization flow $XXX,XXX depreciation for cash is so the negative quarter. from CapEx number of for the the $XXX,XXX $XXX,XXX comp was and

regards terms in they're meet in what's for had now the kind not and starting they've Medtronic marketplace of competitive Clearly, some at facing get going. in XXXX, obviously, of did on our recent question the calculus of your we business expectations. rollout in terms comments that domestically to to as XXXX the look our pressures guidance going international In in just

guidance XXXX, from very that in feel as in thinking the about position providing a that wanted we front of to we we us of in. come so And started saw confident we

year how approval about don't non-adjunctive that business did impacting more specifically will approval on additive and XXXX, then thought And because speaking that we account the timing our some come. as that our to not and the be business the that we so know CGM getting and impact that may of pieces for will this exactly guidance full we in

Got it.

you're of flat top just Okay. while at even on how CGM looking some growth did as kind Like, more the delving Medtronic's looking flat fairly side that your a a Medtronic's top the essentially the Are further actually Or basing And year-over-year. overall – putting it are of at diabetes as you of the well? it on as into CGM guidance. break But their they're showing? teens business. show far print down you out aspects looking growth goes line, are you when the it's the on line at you little CGM when they

that's the – disposable the CGM great puts there's that because related business. is And a Well, question, to there's of Andy. some part their one faster-growing and clearly of business there the takes of in diabetes parts

we obviously, than without comfortable would And definitive view their there. attention they back total. is into not on their guidance approach range for business as though, and forward did has to into then upside, what next felt the model them look platform very initial things but guidance we line that Medtronic number year an throughout with we little that obviously, there we we out to bit as that So their was grow track, anticipate be XXXX potential we track the on where believe Again that to take sensor to the into a talked about that again look the our top on wanted again back we're getting year to want giving. providing – greater that getting

related you that Okay. sort there accounted that in you've And impact generally of the just any on But any sort is of there -- for or just are CDM the is impact there? anything. not coronavirus,

was impact trying the for what Medtronic's on that call impact a business, think of coronavirus Well, start guess highlighted me irresponsible. something they I the would and that. have and little that to could And their clearly on bit to be

again…X So,

business overall sales? IntriCon any your account of coronavirus you for did did on sort you total just overall, mean, -- impact I have

business most of very is could put the what little because coronavirus be our from in impact domestic line. our of revenue of top our again, terms we Well,

in measures that being there's ability make have are our manufacturing disruption in that said, we extensive within operations sure and Now no and know facilities. you as to can Asian have those we everything we we Singapore specifically control taken in ensure to our Indonesia doing

Okay.

And just of a couple side ones enough. Fair relates hearing quick Okay. health that the business. of the to

at don't relates have that guidance, to already it asset of as and you've a the to business part business can that's target you are for obviously, end-consumer you going help in Is not and self-fitting codified me know takes? moving the I noted cadence they've draft if when that expectations are the eventual and as be any about the look year. looking other it change should in language some Hearing But robust Just final really When like of what up? to be gives what the what's Indirect guide we're just interim. at you thinking come And in to loss understand the that Health really there your the hearing as interpreting far FDA's moderate last a we milder holding means the as Or perceived perceived? key items rules it out?

Well, requires on legislation line Andy, I know the that this. XXXX. fixed of The we a by one time do thing think the there's FDA August act

in even about November for correspondence something their it So on delay from would own and to didn't they're relatively last deadlines. what it's December speculate late time fixed order we out themselves heard against they're line in said based happen. -- on was we get make And got -- to to the to going when going soon done than hate up early but I against time I longer so that we that come thought I here And the them been has that though guidance and because be have I've they're up to FDA fixed it a still up, going the come some deadline. anticipated, to

be right Right. partnering are guidance as just be. the -- holding things what's versus category asked whatever looking that kind what might up. elaborate you're we out, just But to the or aspects might perceived of as one that falls you questions really come opportunities or mild further now? And particular are And if are stopping in into of what…? as they I'm you could curious far perceived for the was waiting limbo moderate -- at

that to Bose so criteria thinking Andy that output that they've that requirement given lays Then October think already for out power the category. in they of that device specifically approve year. their some would to pretty de the novo don't I off they're some when of And of of forth mild a and back for moderate. going indication into last move go

So on back will think that. they I don't off

we care trial going think time I making ahead things that in are it enacted IntriCon more of investments in frame. in we're the holding be August-September to it's be though our prepared. ecosystem at as moving are up. our it's procedural But clinical And our to

make get branding go as thing discussions ecosystem sure So that the only aligned control the channels XXXX be to we with to we're one our that traction. ready platform of one some -- partners the and as can we that's of in make is is to -- many in assure some in going care to start to can

Okay. from where and maybe a you back looks away marketing sales were from Hearing your you one-third look it marketing about of years was of Express, sales to more acquiring of Last we you When than little you're was DTP. Help where go kind standpoint. a back? and should question bit moving expect? was Should it before where What the one-third a that of It few kind now. we back

as we Andy about pivoting think this a is of Scott. Thanks There's Clearly, a couple been. decline our that where advertising we've be from selling pieces. the expense question. dropping and notable business for

seeing on back comments in support marketing to million a on But and We sales said, the though being add the growth we will our looking opportunities of medical marketing sub-$XX in his mentioned are the side see the on XXXX. that to of side down and resources marketing for sales Mark sales business. side and the some expense we're to decline as

for XXXX. very you taking questions and much Thank Great. good right. luck for All the

Thank you, Appreciate time. Andy. you

ask from question Jon Block question. a follow-up from Please have we your Stifel. And

I it I'm I'm quick going follow-up. question But to think quite get one frequently. keep that guys a to Hey here's going to thanks.

for certainly we so So revenue got $XX annual, it back-end to weighted. Scott, trying midpoint to sort of $XX take get be expected think guidance you've just the of take the XQ implies million I I is the $XX it year Yet saying conservative doesn't doesn't the XXX guidance you're year part on million from for in, because reflect the the pickup believe. balance in it of from hearing. I a to let's anything Medtronic But and if or reflect coming million back the of the the

why drives guidance the couple Or is light step up? a then all Street the with So missing So up? respect -- what to conservative you of a of XXXX, that in comfortable step in this due truly guide. a got your get times

can XQ an $XX doesn't million be incrementals specific on average $XX to as driving much. those as up if that is each it you side possible business. as what of reflect very So Thanks the million of

Sure. Jon for the question. Thanks,

And being the largest in with we to first guidance that significant customer second the first on step-up understanding And really where side Medical our that we first we're of couple factors a flow from order both managed like the are year, looks approach. linear there's Medtronic. see that quarter. what impacting a the are for the half by think there certain quarter the the that ledger levels the the inventory of are quarter are of I in giving

the Medtronic understanding comments of publicly. the and preliminary business of that of that's to has made the our and And discussions into ties overall some trajectory baked pretty much

again medical of quite Medical to in and business. fashion non-Diabetes anticipate for initiatives we've to been piece Jon that continuous continue of on growth XXXX. seen And some linear other these The business are of throughout kind We've other a some our we time. see grow in that working that that

Scott. Thanks,

Thanks, Jon.

We have will the further call Mark his I closing over . at Gorder remarks. this for questions time. to no now turn

you for all our for joining progress call forward. forward much continue updating look the we Thank very of make call. to today we and thank as going our to Want investors you to joining

your you conference and wonderful today's concludes a for participation this gentlemen, and have call. Thank day. Ladies

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