IIN - Earnings call transcript Q4 2018

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Operator

Good day, and welcome to the IntriCon Fourth Quarter 2018 Results Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Scott Longval, Chief Financial Officer. Please go ahead, sir.

Scott Longval

Thank you, operator.

call Gorder, today's CEO. on me is IntriCon's Mark Joining

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

headings today's that materially Given statements. Actual forward-looking cause and for these a on at IntriCon's from and the Condition expectation and to With Risk include, those reliance filing December strategic the Results these among uncertainties, look factors you the set ended like Factors undue should for call. XXXX. XXst, contained Management's Analysis differences of such Mark year. forth in may year XX-K XXXX could that, Discussion in not vary our Important I'd place Financial others, introduce results under

Mark Gorder

everyone, I call. welcome us And confident in Scott. joining our strongest I'm today. our for XXXX you, pleased toward am are and I shareholders we XXXX our start, To progress entering our initiatives, team our the advancing expanding with thank we Thank medical bolstering growth that meaningful technology. to made to like to position you key in would leadership the date.

capital your two segments, primarily was entered medical same of fourth MiniMed XX.X% questions. revenue remain our like accessible are The healthcare many as the indirect-to-end-consumer and diabetes value of driven due very release sensor take year-over-year continuous is at monitoring, prior highlights to to glucose systems. press discuss customer recent hearing-impaired serving the we early systems, the value as needs health. space solutions the in quarter I'd value-based the long-term million Americans. healthcare and monitoring $XX.X period. I XXXX hearing over and the wireless component forefront announced within of the hearing markets. a we few year related today, in issued revenue from unserved to our our In strong specifically, and our next diabetics. medical growth or to the well well minutes market to underserved from provide the to And record increase open continuous positioned prior gains business. for tremendous initiatives ongoing experiencing positioned year. Scott We was $XX.X providing financial a financial on XX.X% results. glucose quarter with have pursue We'll affordable strategic emerges, XXXX. in and with Starting support providing in a million, believe We assemblies we annual Medtronic's sustained growth And key hearing primarily by in to including with well our and growth largest then businesses. developed core at to of infrastructure turn with efforts guidance quarter revenue the to the the core stages then are of performance core more another up XXXX, our that in system our market components The the based review in detail business increased Medtronic, our CGM at for our More to critical in looking we'll call the business close production medical accessories. call gain The we over the

circuit presses Minnesota, board room XX,XXX assembly in and from and manufacturing the assembly in future development. to an growth XX During new space medical square anticipated molding printed increased current in square expanded line. a additional included support medical leased from infrastructure in medical facility our XX,XXX year, XXXX Expansion customers Singapore, efforts clean we business newly high-speed a growth foot foot

In these our our within invested dollars tooling facilities. automation several million addition and current to investments, customers in

While begun To medical as Vice XX he new certain our sales drive customers Doug pleased development of and with President industry. has years initiatives, the welcome medical into products, product Development our market. on Executive team, Business and business of and to the leadership still lines. current responsible we Medical platforms Doug complete several Management new working In more we Development. are for of this limited qualification production of Business are Device production we Pletcher key to have required in to biotelemetry marketing experience role, than Medical is validation

prior drill Hearing down I'd each the year to XX.X% additional revenue to fourth this to health segment. we've increased business. second revenue Turning throughout streams of as detail three that some the core quarter, over done XXXX, contribute our business to like in

nearly largest revenue from customers value-based growth revenue which non-traditional stem established formidable further growth in customer. Within revenue segment, our most our indirect focused hearing space. user sell this consumer other the First, can health partners, comes end are the to from with of models, of key unpenetrated who through insurance our vast lead we with year-over-year quarter a partnering XX%. our that on Growth notable from stream, improvement end accelerate companies during this

directly XXXX. consumer revenue was $X.X fourth or the sells in value our of to quarter direct-to-end from Hearing the end Help Second, Express, million based business products which consumer

marketing success. and course of tested levels various we to advertising the various campaigns of Over have the year,

We research in process now advertising are into and integrating strategy. of our the ethnographic marketing our

the further sold revenue health drive begun we've direct sales which to reflecting XXXX, product our fourth in growth effort anticipated $X.X traditional Legacy model will efforts million the these quarter throughout revenue expand We the hearing revenue accelerate decline. addition, believe continued XXXX. OEM was to being growth. into In is

resulting half quality to productivity both Hearing health designed customer in satisfaction. Last prices, the Soundperience, October The increased on Progress market. which Act, Sentibo made capitalize on software regulations on the software Brain guidance Aid Shifting professional to of XXXX lower our access being portfolio technology continue to hearing source loss enables self-fitting build various is US value code and Smart XXXX. wireless self-fitting including in is greater channel final technology Based and hearing access from without fittings, designed the Aid of the first of to with interested effective moderate aid establishes in we to release anticipate access self-fitting is regulation. a XXXX, closed Hearing reduce positioning front, to improve we comments to Warren, and from healthcare parties, hearing be the our which public being hearing Grassley - OTC on Senators Act policy. OTC air pending Brain time hearing second aids On we first technologies. Sentibo Smart business the adults mild and half acquisition in of the XXXX. from better by with and hearing in the draft increase of of the cost seen the month, to

We advancements are with and status. the the in month regulatory FDA next meet market FTC dynamics, scheduled to technology to discuss

to over Now, to the I'd Scott. call like turn

Scott Longval

you, by reviewing financial results more Mark. I'll Thank our in begin details.

quarter. advertising, increase year the were medical $XX.X Fourth year-over-year customer we quarter related XXXX net income our diluted margins quarter. related to million gains key initiatives For posted investments. excess in the to business. at $XXX,XXX Gross stemmed additional share, end attributable were prior per costs in to $X.XX Hearing value-based increase XX% the million, quarter, IntriCon growth of the $X.X hearing expenses share growth. in capacity XXXX the from $XXX,XXX diluted largest to our for drive by fourth or in the in million or net the million, $XX.X The consistent margins from revenue for of investments infrastructure shareholders primarily due was period, to health were with overall increased XX%, up XX% fourth from business year the Operating gross year Express period. $X.XX indirect the $X.X constrained versus quarter fourth reported consumer fourth support Help per and revenue compared prior prior

the of year the $XX.X $XX.X increase IntriCon XXXX. million, December XXXX, revenue XX.X% the primarily XXXX, margins XX.X% million, in throughout to margin from in increased in up again growth. For in were up XXXX. $XX Hearing Express to $X.XX in were XX.X% key support expenses million ended period, increased compared Help Gross per due volume $XXX.X overall and versus Operating costs from was to diluted full reported diluted the the stemmed share, Net initiatives income XXst, as share million from or business million or to was attributable per year prior advertising drive investments related $X.X $X.X XXXX. increase shareholders to $X.XX

medical priorities XXXX, to to revenue core diversify Medtronic. Pletcher, at four meet by of Doug we One, our and our competencies led to activities business Two, continue forward execute key our Medical for the on VP leverage development Development the have new base. demands volume Looking Business year.

and Third, lastly, expand their value-based at and hearing our HHE, with work supplier our related be advertising aids we And to sales direct refine health technology. efforts. hearing as formidable OTC effort market entrance marketing

of be the to margin to anticipates million. terms in between approximately anticipates XXXX. In XXXX XX% the are and expected margins revenue InterCon growth company In $XXX $XXX Gross range million year to full guidance, improvement XXXX XX.X%. general, for linear throughout

anticipate growth our be Longer-term, believe XXXX, shifts from pending between we large could well our excess and timing headwinds, despite launch to contract we be we this long-term customer impacted recent commercial for mix In gross However, and businesses. continuous additional including are consistent manufacturing dollars our from product core customers. of a million positioned relatively expansion, impact from of by capacity lines. depreciation product margin however,

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

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

Operator

open Block our questions. At first And this comes will Thank question Instructions] from Stifel. for you. the Jon [Operator floor we with time,

Jon Block

guys. hear me okay? on Great. road. Can I'm actually Thanks, just the Good afternoon. you

Scott Longval

hear can you. We Yes.

Mark Gorder

Pretty good. John. Hi,

Jon Block

talk, about I around NextGen-XXX, I'm can I'm guess, morning, occur maybe this off, kick to what Great. expected of guess quarters, I early if ask Okay. to believe TCL. the NextGen well as just designed means handful. next for you? the plans or both over Medtronic products several rollout, Guys, these to talked you're personalized long-term just in small which sure, Medtronic-XXX as I its a loop to calling things they're closed is going you what

Scott Longval

pipeline the platform the question, diabetes look will from their [ph] robust Yes. They the in business. about to anticipating can't currently business those made that a that as that over haven't it exciting you are public. was little the And their did is coming there fiscal about Jon. of we several strong It They tell more them feel talk the more and the are I about we of CGM get mention releasing what because to products. is our But into of years. kind CGM bit next-generation And group be A – can very they the with and importantly relates XXXX. position designed XXXX, specifics XXX their a firmly piece that some in. and growth XATG Medtronic talked they we great the in I growing fiscal next

Jon Block

second shift was me guidance I quarters to XQ growth. on the really model, to I'm when gotten XX% look I'm of back I you'll Okay, release the at mean a let And thinking helpful. of midpoint tough just comments, same the about XX% XX% sure the the more, maybe really around each up implies or it linear XXXX make year-over-year comp great. roughly come $XXX revenue When page, guidance and for want in XX% that That then just do the in on you to say million, so to you quarter. your your year-over-year

I've we're one the maybe sure make a just got you page, bit expand little then So same and more? on to can if

Scott Longval

question. great a it's Yes,

about looking we As throughout think growth, growth sequential XXXX. at we're

again sequential a can on look and But some improvement of kind our if looking from a think revenue unless And call quarter quarter-over-quarter there. quarter-over-quarter. at So for mentioned. we to growth you've you there in were into looking the of kind XXXX, Medtronic XXXX, listened margin bolus gross the guidance we're there as this connect which dots perspective morning, back you sequential second at of XXXX, I

Jon Block

of flattish was up guys jump really And Okay. saying the you. got one, over sequentially. conference the $X.X of October to long-term my did in strengthening days. that to November. lag But longer-term, million on quarter high-XXs you hearing question last I'll guys the have about quarter, third I'll commentary skip DTC that I there so be is would margin in Mark. The still in know into that call expected cite the still gross orders slightly one. I you Q-over-Q. there XX thought number a about to I

can feel and up just making December that you trended guys. maybe into XXXX? about So, talk how about the you And Thanks, business in orders November, how January?

Mark Gorder

three Jon. stool the there is DTC Yes, actually question, to Good business. on legs the

year to new a the We to tries existing we is experiment were we have were portion others outbound a well. the debt in still think drive into telesales think just handling year starting some a our that We've debts of database into and campaign of advertising mail-order middle bad more we've advertising that so going We we but had database. goes well, few well media portion database. telesales. new with with in mix mail-order probably experimenting customers found, of to that, - going the drive into not the at got these right the we're how the to models, outbound we've people control, XXXX. print that we second with where We and were effect are some What about half even I learned mentioned of got lingering under - were of as we middle bad in last what last experimenting print of things things it the

going in of at the see half first do be The the telesales until So in come numbers XXXX but we're won't half first were year, is you of heavily of up to last the the see starting those within hearing end involved aid year. revenue to in an QX. late to more try that to what going you're that’s us through experiment drive outbound

end quarter still there anticipating first some we would to add last at we're into drag anything the the if don’t have to know year. the problems you were from be of that. this having year So of I Scott,

Scott Longval

are good those No, comments.

Mark Gorder

on But predictable experiment but Jon, hoping will some can more that we We're outbound hoping anticipate we that step-on, that - quite are there provides a here, as revenue have we come calls will lever we if are yet. we're we not that that some there growth, impact. can

Jon Block

Okay, I'll color, guys. great. for Thanks the offline. follow-up

Operator

Thank you.

D'Silva Riley from question Andrew FBR. next with comes Our B.

Andrew D'Silva

Hey, good quick A questions. afternoon. book-keeping Thanks for my of couple ones. taking

for as from you me cash does they fall if could know and relates let please just to were of point? like issued XXXX? As guidance of previously. issued first the the compensation, CapEx, the type guidance, what maybe And XXXX some half like at or guidance Scott, you've this in Is stock-based changed second operations, First, more it where methodology of half it seems quarter? the the flow it then

Scott Longval

- me Andy. some housekeeping with start Yes, let I'll of the items,

quarter managing CapEx calls we've the we're we for really stock-based and quarter-to-quarter. $XXX,XXX, million was If about prior depreciation excuse one the comp So, talked about of think things about the is talked guidance, for on not quarter. - was that the this internally was business $XXX,XXX, we've $X me,

and or we as into both value-based on this on work opportunity As years. we're get the that the direct-to-end see fully lumpiness hearing indirect-to-end an models. emerging expansion - and period. and this me, to anticipating looking And time, enter and consumer, topline expect over XX several from next leveraging over is into we excuse EBITDA business, Overtime, we see health to consumer growth day the any our those seeing we're on

thought the appropriate we was annual to basis to give accordingly. So guidance it on update group more and begin an a

into past, the give think just we've and primarily We some XXXX. relatively but because coming in as this extremely XXXX, we demands meet And have XXXX to be going also the done around of putting well is in us gross we're only color see were this margin. laid to infrastructure that in else XXXX. begin changed that in consistent hadn't out it's with in XXXX, year not important we Something where the to is that place we

still position investors So hold are term, we're we we much targets believe true. making upper-XXs we larger longer to And thought ourselves for longer it these to a a margins - to understand about those think was important much gross investments in be today the company. as

Andrew D'Silva

points of out, fourth the the topline than compression Okay. enough. I'm from can higher you margins to segment maybe were trying figure to close help most right. during That's fair be where the margin the the quarter? majority standpoint. QX, a XXX me seem about QX basis All pretty happened of which And other the gross crosswalk just

Scott Longval

We couple - Yes, of medical our in latter the as Singapore how things, XX,XXX in about talked over we expanded square also facility, half did within our there but and talked about footprint. facilities well, our Andy. US, a we're the for business. started the of first, the Mark our to we manufacturing expanded We foot earlier expansion beginning prepare XXXX, growth we

we So running and additional and costs getting that up staffing endured accordingly. with some

We fourth favorable And on then where higher the margin lastly, me, in depreciation also drove quarter the the little the bit within that a quarter, mix even more that some we a of mix in slightly gross excuse main saw pressure our in the a quarter. customers quarter, some a for had margin. fourth lower had third issue fourth

Andrew D'Silva

see what's you color that kick-in an is then or And prepared on partner I the long-term pending a makes partner? in of timing assuming that new Okay. that mentioned should remarks, in that existing sense. any Maybe going guidance, your when that's with contract. just would included also the be or useful? I'm on,

Scott Longval

here customer. note - first did pending in guidance is anticipate that we toward quarter, impact customer end that the and the contract is to and We existing to medical begin included numbers existing that question. a large great Yes, XXXX of our the long-term into the within

Andrew D'Silva

Help sales and run? number Okay, all one the has last guys we you one long touching DTC model, from marketing on the to three And three for Previously tied return for okay. that Maybe just on what still one or about talked expect that just is Hearing recalibrated at to me. should Express. been the one return Perfect. a in

Mark Gorder

that good we're should one think XXXX. little the expenditure it's for number. I drivers seeing the we XXXX been still be that the comment that bit outbound is a But in in expecting our number. run, lower we a short of telesales too, that's primary expect I be to long going In that that, in would probably investment that as but expand we run, than

Andrew D'Silva

going Okay. much and good luck All right, perfect. you Thank very forward.

Mark Gorder

Thank you, Andy.

Operator

Thank you. comes Dougherty. Dick Instructions] Our from [Operator next with question Ryan

Dick Ryan

obviously you your in telesales, an Mark, mentioned in-house added you've or direct sales your employee What you efforts sales in Say you. from Thank telephone increasing have count staffed-up. efforts?

Mark Gorder

when Well, the we dedicated we've business, think about and employees, have about XX had - we over employees now to outbound I took we about those XX of telesales. XX are

to have hopefully increase We telesales XX people. an about that [ph] would QX. testing the cell XX, that of going end expect by of forward our model to And we're outbound

Dick Ryan

you. into are channel results we What's that to there. monitoring or are you're Say of well? other Thank not get doing, well direct the - process? giving components since - the helping your once read? good you're your some And sculpt strategy doing Okay. people some the obviously some of what selling people is the you indirect and the What FDA through

Mark Gorder

Yes, guide are outbound they issues having into telesales, are We faring DTC doing other us kind how they approach of we with efforts. helping are their players bad - the with well us debt. with their what helping Great we how question, that how relationships see should Dick. have campaigns, with absolutely advertising they the are our

into recall good, we getting of the things, these marketplace. All GX we're

coming finding large addition, In some players is opportunities there now other that with the we're market. into rather

we they could military. their NFL going line space. aid, on think that good Bose headset which into positive. they provide for got they a to we professional a self-fitting a We the you go are emerging with side, hearing in Bose how have assemblies we audio products be and those the microphones, enter potentially think of microphone FDA into recall, very very we partner As is as a that But gauge this think version approval relationship

the a both we're helps it to market, a operation, are a to as in and going gives DTC great people the gauge our us disrupt platforms Help in to foot technology foot Hearing in these growth trying other whole. camps, of how with and having us So support insight our camp the Express develop that market

Dick Ryan

in? Bose your not entrants? how are you from then XXXX have in is seeing of the with mentioned is what else besides industry entrants new Okay. kind one priorities an for getting And may are there looking may - dynamics What who other landscape of interest. or interested you and the from What they

Mark Gorder

what serve large these are that And gain at a professionals, with you've we've we're they professionals. due Specsavers incoming market Central the in Switzerland. - We've they in potentially one that the we've the do quite UK, consumer some Europe, the in dealing players is oligopoly today And interested lot And type party, – direct they're direct-to-consumer Austria mainly Well, is partner drug store how somebody in on to offering. inquiries as got they going a to to do and through too interesting. with drug in and the they they consolidating are got other fact starting some well a inquiries there Europe had where of store got look market. and how a over of to these groups the lot the from global seeing - US as

that globally. we're but the well very market US see positioned our is also a just we So technology there in for not with opportunity platforms. And ITEC,

Scott Longval

only thing the I would… Yes,

Dick Ryan

Sorry that. about

Scott Longval

lot the of the a that people this No, I only obviously more that space market, the are going legislation there are and are closer, add to we're as more gets thing at in think have sniffing market. here, the would looking OTC around US I

of are aids. we don't the out cost technology, serve we understanding have last the hearing I extremely entrants that and point low don't capabilities don't there best the think that manufacturing - of these new feel have to to is breadth think Mark's the important high an have is, I building point, quality,

for know more as more that a to So today. radar be aren't closer, puts we is we that think and gets people there on unique inquiries our pretty and position, legislation in even going this us

Dick Ryan

it That's me. great. Okay, Thanks. for

Mark Gorder

Thanks, Dick.

Scott Longval

Dick. Thanks,

Operator

further queue Thank to back you. I Executive in And Officer closing we this would to Chief time. have Mark over no for the the at conference turn questions remarks. like Gorder, now

Mark Gorder

Once out direction day reiterate that the Thank time you, call. I'd taking closing, to excited of headed. I'm appreciate again, operator. the we're join with to you your In we like

We continue medical deliver affordable We to solid and on businesses. our value-based to health by to Thanks look consumer unserved channel, for to execute us performance mission driven future. and or continue our enabling millions advance provide we Furthermore, our updating of Americans. key in to forward our hearing direct-to-end health hearing accessible solutions you the to call. underserved joining

Operator

Ladies and gentlemen, this concludes today's teleconference.

now disconnect. may You

Intricon (IIN) 19 Feb 192018 Q4 Earnings call transcript