IIN - Earnings call transcript Q3 2019

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Operator

Good day, ladies and gentleman, and welcome to the IntriCon Corp.

Third Quarter 2019 Earnings Conference Call. [Operator Instructions]

I would like to turn the conference over to your host Ms. Leigh Salvo, Investor Relations. ahead. go Please

Leigh Salvo

Thank you.

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

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

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

Mark Gorder

you, everyone our today. for And you Thank call joining thank Leigh.

the enter vigilant beginning priorities this our the teams established we executing against As quarter the of and we year. of at final XXXX, remains

meet the maze. To In short, priorities our and our revenue demands and competencies diversify include X) business leverage of Medtronic. business these X) development biotelemetry volume to pursue medical in opportunities our core

and X) express expand marketing with partnership health seek advertising our prudently best-in-class entrance Aid in to To and market OTC direct X) with temporary emerging sales the our well hearing initiatives programs. Hearing

Medical in expanding confident our on Health. our opportunity market path Biotelemetry am right Hearing are to we that I and Importantly, two core businesses; existing the

micro of mentioned is past, allows borne markets where effectiveness devices have enhance key and new the a the expanding body continued we our progress. in device the to us producer is to strength mobility in military As

the in and remainder the a then of core to then will in of to questions. the for provide next financial for provide year. our XXXX. of detailed few businesses thoughts highlights performance our guidance in for like We'll both call outlook Scott minutes take review your I'd the recent open our

Starting results global its the product in continue timing our of reflect of quarter commercial to impact with ongoing XXXG. the launch Biotelemetry our the Medtronic's Medical business, third of

Encouragingly, following markets glucose adoption clearance we targeted momentum seeing anticipate few monitoring next increased of months EU in and Germany in in continuous in penetration the commencing international countries. other

further customer expect We education with roles acceleration ramp-up including as support be the initial XXXX out. patient to gradual in

Looking our Medtronic with further out, and even the us pipeline. enthusiasm leadership in exciting confidence the our recent diabetes at interactions with group team more provide for the relationship and developments

capabilities. also manufacturing In the it our commitment expanded this market biotelemetry we year opportunities design, that medical through development, to to and can addition best made seek our leverage Medtronic, priority expansion

business been As we have other our commented medical primarily expanding on due medical has to our previously, expertise. coil

business can identified have medical new market surgical a our navigation efforts as growth development including technologies capitalize Our on coils. core potential which

areas of micro leverage investing the and platforms addressing interventional intend specifically navigation pulmonology electrophysiology. by We surgical and coil strategic in value-added assembling micro to our coil in capabilities

medical significant harbored precision technology speed potential Leveraging of for growth rates and electronics, and our coil high in the micro-miniature coordination have that curves in markets IntriCon. molding technologies

these look opportunities the forward sharing details more to as quarters. We unfold coming in

customers validation internal equipped validations for and specific qualifications are to manufacturing their complete and in now the required waiting in facilities have we qualification. our completed the On front, and

to capacity the several will this, approximately demand Upon be years. us The capacity. next over well anticipated completion be positions of XX% operated at we excess

to second Turning core our segment, business Health. Hearing

and are from right player year best a infrastructure open many to market result in over-the-counter in that aid to positioned with the ensure We in the physicians hearing significant opportunities adjustments new legislation to material sales. will the have made and strategic resources market we throughout components be changes

pending The believe XXXX. start this we confirm aid hearing month FDA of is the expected OTC the related and in the hearing we'll health app to meaningful guidance from change in

today, potential hearing of impaired to Given this are find hearing have the the for tremendous could we aids change consumers. excited high cost

up As good billion hearing the loss well the as file U.S. a we'll high the opened justify and the to aids. monitoring current hearing can't health We regulation, estimate in market health market create that addressable knowing to cost in hearing $X change

unserved remain penetration By million enabling impaired individuals plus of greater hearing the today. XX that

international models Additionally, non-traditional are opportunities we that alternative seeking see delivery and with both are beginning sourcing options. to

as as While progress with we sales well progress, direct opportunities. targeting exciting continue to monitor we are selectively potential making legislative partners

our in As hearing past, channels. three includes we've health highlighted and the go-to strategy market

insurance minutes direct meaningful decline each business. in customers end-consumer, revenue few to like to with experienced a these in indirect recent In some quarter, again to the take I'd updates end-consumer, third health a with we Indirect within a large and of end-consumer. restructuring channels. hearing cover once activity OEM. the Starting legacy associated

and us reaching traditional that this to a customer. believe our and We end health provide longer brick triggering partnership that's that the with approach alliance strategy approach model mortar towards now more pivotal no

our to with to our diminish long-term while opportunities with results. As the consumer a efforts agreement of other centric care result, will we throughout the remainder continue to of short-term the better expect us enhance target to this decline, potential revenues and allow XXXX. will resources related this ecosystem reallocate ecosystem revenue Despite

strategy Partnerships the remain of segment. key a component our in gross

developments We are consumer we leaders business electronic of excited who pursuing recent space a number in healthcare are have initiatives. market of the our aware especially potential about

hearing in this Establishing these value-based to be enable partnerships us early would market. dominant a health participant emerging

best we our to the aids customer to value deliver to that self-fitting software and IntriCon that market. confident care ability parkers right profile superior steps with the high hearing are U.S. align are We taking

long-term our expenses to entry hearing to in optimize over-the-counter business, directly direct we Turning our to closely reach hearing customers. aid to a the for end-consumer to monitoring opportunity our we continue health as model expresses meant see market

traditional aid enhance channel anticipated. satisfaction. into OTC to represents support customer hearing in has and will deploy to the hearing final the after we technology able health issued, And and finally once customer market which revenue as continued been to product decline efficiency legacy only regulation Importantly, sold be

I am market. history hearing and deliver competency, with that ability and self-fitting us care in digital this be aids solutions a and participant technologies to our confident sophisticated customer to unique long partner coupled participate positions in wireless, including expanding software our and significant exciting state-of-the-art

In of summary, growth we of ahead have an opportunities exciting range us.

in the steps those of best many taken necessary have position markets. for IntriCon We success to

in with to growth we us markets. new enable making In long-term biotelemetry expertise addition our partners from medical to expand progress our will identifying diabetes are Medtronic benefit significant that and can group, partnership to

promise growth. upcoming that door to to opportunity balancesheet. legislative team affordable strong and directly hearing interacting the partners to and the open Supporting segment a opportunity see changes a meaningful tremendous leadership our in business the hearing the over-the-counter end-consumer. to two Both the with health is has aids And U.S. this

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

Scott Longval

Thank you, Mark.

for Turning quarter to net decrease our reported million the results we Mark revenue the period. a $XX.X XXXX noted, third of of as prior over financial year X%

sales This commercial Like or launch Medtronics the ongoing due to the or System medical of largely represented for our global XX% biotelemetry total XXXG and decline the of customers. business core revenue. continued to timing our product was decline impact by Pump partially Insulin million X.X% medical of coil increased offset have segment, business a been year-over-year $XX.X the of quarter using we

insurance In large revenue third sales $X.X the declining our year XX.X% hearing decrease largely referenced customer was in continued third his quarter segment, million a health business over a to This Mark earlier total the with was prior comments. down quarter. in due as

and consumer indirect our million to OEM was hearing end-consumer Within express revenue million was legacy $X.X revenue direct was $X.X segment, the hearing revenue health health to million. $X.X business and

down margins year the in from XX.X% gross quarter prior third were XX.X% Third quarter.

constrained capacity manufacturing in lower expense as due higher were as volume primarily and margins future existing anticipated recent the ongoing well volume related and Gross requirements meet excess our to qualification and expansion of to customers. validation the

expenses were slightly non-cash a from offset advertising The million was quarter period. our the increased in in year by business. expense $XXX,XXX $X Operating and decrease compared to the for to prior $X.X end-consumer in expense stem severance direct million compensation stock higher expense third

of monitoring we third gaining market as versus this emerging align attributed We $X.X model per net are shareholders of share to of better income the to losses $X.XX or share XXXX cost attributed per committed the business segment quarter. opportunities. health hearing posted sales to closely deluded our to We and deluded $XXX,XXX shareholders for $X.XX our refine in efficiencies or million

revenue, in a advertising insurance a loss revenue spend lower constant our our largest $XXX we the customer impact revenue reduction $XXX range of and our guidance. from XXXX Due million. to full-year now expect to expected of than Turning of XXG, diabetes between million to and

XX%. and range XXXX margin is to gross expected between XX.X% Full-year

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

Operator

it's question Stifel. from first Block Our Jon from Instructions] [Operator

line Your open. is

Jon Block

questions. or the in guys, good gross Thanks first start for is for margins. Great. afternoon, taking the Scott, maybe the one just with you, to two thanks

just I'm surprised just magnitude somewhat the detrimental, of of at the math. sort think I'm running I

a in about your equal where business greater sales gross million in with of XQ'XX arguably the down were and $X.X down amount hearing percent year-over-year, and was The XQ'XX. revenues in profit DTC versus almost margin highest that's gross

XQ'XX we So, most light capacity it going just think additional margins how the can gross about talk the in importantly maybe and you about of forward?

Scott Longval

kind of towards our working was and mid-year was in of manufacturing think fully by of time we the first XXXX. part Yes That XXXX Jon, end of capacity that was the had the XXXX. step challenge in began up I that the XXXX expansion the or

margin had our of So, part and we the a was overhead as large footprints. additional deterioration of new in from part cost expansion the manufacturing

little look slightly you the which make-up year-over-year direct some the on If had impact. the business, minor of end-consumer of also bit a lower margin, at

Jon Block

I can offline. more it. got a follow-up Okay, I little guess, bit

Scott Longval

just on Jon. And expand maybe that, I'll

be said facility the think roughly capacity. at once final on qualifications customers is the have and will importantly, from our new and XX% validations equipment I Mark we at will we this and

leverage in margin volume of we our XXXX to a so, to lot the we'll that in side anticipating be infrastructure revenue we're additional And see the in ability at which of have point the line. this

Jon Block

quick guess, a you the occur? Does or qualification the or follow-up to by it this as year XXXX customers. XQ'XX that to and Scott what that, anticipate expect I end And from your that validation Okay. of

Scott Longval

say Jon. two I would the next over quarters,

Jon Block

million you is is to like $X the to for that million versus The And what attributable maybe of out medical a $X parse at what guidance hearing. a even just business topline, approximately Okay. then, there Mark way of looks the just and to follow-ups. couple roughly lower

And I likely that guess within hearing in it's IDTEC mostly business.

Scott Longval

from from about its the side, medical hearing That's of of side. coming health third the X/Xrds its Correct. coming

Jon Block

you. Okay, Mark, And for alright. then

medical bit pulmonology seemed relative you this You mean opportunities, I past occur alluded quarters. little to for quarter electrophysiology. a those detailed to other some The timeline's more to

designed into and you as curve of in be over to however opportunities a calling of to have know some these take but these I it when does sort talk that just you now, out a if might you result think platforms you do can hold. specific

Mark Gorder

question, Good Jon.

I and about our the briefly what side, are think if little we've as bit historically of look I coils in we other interventional been medical sensors doing spoken in have used a expertise medical which catheters.

we have the are good roughly new medical who players end market. picture last core the strides development business developing XXXX, we've at customer in three on because the And based focus good think over area on with technologies. that years, you I that we our And several the in recall made brought also that and of with and relationships

one made had that that we pulmonology catheter we where opportunities coils, specifically and already first electrophysiology the found interventional well various. to done of in customers in And degree significant have and we very with market evaluated progress the Doug we the in developed in medical interventional relationships some was more business has since areas have

market. do were or look assemblies just be that added upstream that in can market to value build since that to in create only but a would it our we additional where medical there, revenue very how a great seemed coils platform that not customers we And we we that generate can serve area for that appropriate along at add

significant is we've to a seems us. reason opportunity, that potential at more emerging very for that the detail technology curve that it a as steep a we good growth given now offer So, see that rate very have

quarters make over So, we how to out enter begin forcefully strategy our market be we a tree investments. and detail will to as next more this will clear I become few to more more and that as to the think continued

Jon Block

consumer around hearing, helpful. guys One some word And for the and partners then great, and details last you talked bit more a calling indirect I'll I a promise Okay, back from queue. more also electronics. hop little me our bit in consumer

it at by look. be of a where players and that a would it what high tied mean how structured company. exclusive How one is would would Mark, one to I with those level, sort partnership of you're be

because in your your can Would you convey keep and potential agreements time. wants to that consumer someone how guys you multiple competitors are other enough look. out along companies, they structure electronic expect discussions for and us that exclusive to Thanks where you far would want

Mark Gorder

That's talked tell in can the partners about in great I people want a I to market we've of now, that think are to a are enough nuance a Year in past along that. how detailed little talking question, give to give a Jon. don’t don’t I work. such that are description complementary I we're calls. to that you to partnership we But might Go like that far us

potentially that companies through looking benefits we're CVS, partners in which Walgreens, stores, our at partner the provide partners could drug with business, like people looking are at U.K. and also like include various major direct Specsavers retailers, that consumer plans We branding insurance the

both teleradiology. The the interesting ship that well care is self-fitting doing product by as & our all side, things and of we're technologies director the software developing can pick on service business we're as be the potential consumer the remote like served in customer partners these core pack that on thing

that clear in will components array It's partners value different of that technologies. core different

multiple yes made position to clear partners but that us do not emerge to ourselves ways. exactly a feel will it's and putting So, to in how position the what's investments talk in different that we've are we

on but will some advantageous. clarity And I point the XX months depending to opportunities most be possible. the appear it's which to to I be we say over have to pivot pretty much prepared I be XX at think next And think this here

the answer question, that Does Jon?

Jon Block

your for Mark. It thanks Great, guys, does, time.

Operator

from Our it's B. from D'Silva Andrew Riley next question FBR.

Your open. line is

Andrew D'Silva

my taking for thanks questions. afternoon, good Hey

quarter. take and into start you're all. at you was anything I why guidance, know was EU at off, it the depreciation that, pulling happening looking the for can me And operations to with CapEx amortization, at cash the Just let what flow from does then, account Medtronic just beneficial

we in they seems out thinking should reimbursement that we pattern Germany. some But internationally some established should like announced progress just the in until XXX in upside really XXXG things holding is or being It right be with about like a mute there the with interim. now as is the the

Scott Longval

The the was is $XXX,XXX from this amortization part depreciation Andrew, and CapEx the I'll So first your $XXX,XXX and to quarter the question. Scott, Cash was pick of quarter. flow $X,XXX,XXX. negative operations for was

medical guidance that If geographic to approvals educating gets base certain educating in full-year, the a the typically there have period relates what and is install months. takes typically we that Medtronic the areas, community several their of after for seen

going started rest are we we view of year. about as So, the thinking how to the

from anything as to We Medtronic. basically discounted the international related it market

the and business very Mark said, team on And being are with with weeks bullish and I internationally. and group both can they interface diabetes that had to all leadership with chance the I two the you their ago. domestically tell executive our Now, team last

about So, we the heading, product start catalyst executing where provided pipeline XX how they think overview and they we're this excited was to we that are XXXX. we excited thinking going about be we're a as great at are

Andrew D'Silva

at acquisition, in United, was access then, epic were to XX% relates discount to targeting. their up hearing traditional related And they as announced to to an what they great. integration the Okay, including that when to they it brought like noted devices, aids

consumer somewhere discount brick into or that leveraging going and to and kind platforms Can mortar you direct where you and to relative that either of reconcile how traditional mortar have? there in brick just to online a maintain a they're able while

Mark Gorder

Mark. is this Andy,

going I think discount not. that of a traditional to through XX% of model There'd range XX% services epic and operating be probably discount. will I whole doubt they're be and some they the the Because all them works channel. some be

buying in have that? And do more to cases to they many consumer subsidies but add the they're devices. Scott, for expensive anything provide you

Scott Longval

as dividers of is would then what think what again networks I typically and to cost which see model squeeze out get the think turns I that's -- access that very rapidly. be what and can most will is to be No, to that we'll do will get likely to

the little So, something between in somewhere ultimately higher. probably a we'll XX% be bit

Andrew D'Silva

is regulations sense. of that's that kind to out as Okay, and there item forward of to provide but couple your enough or in the And part the we're confidence likely one code documentation that aspect draft move makes then, self-fitting for self-fitting, federal a or with guidance self-fitting relates waiting the XXX-K knowing register. federal actually of it enough come just I does on the know you to inability for posted that guidance? follow still

Scott Longval

does receive approval technology. de lot there novo a is good it for self-fitting Yes, and initially of what their both the very a because for if that's the Andy, FDA was approved. exactly coming from a is comment not the But documentation was

in reference a you things well-received doing trial our clarified that of the lot we're clinical have approval what we're it technology we the that involved be will novo And by made, confidence us that that gives both. with the for for clearly de very FDA. just self-fitting And

--. also think that I will

Andrew D'Silva

Okay, oh last go ahead. --

Scott Longval

Sorry, important with to do also we're the supposed registers obviously it to technologies or is discussions more but self-fitting that we're of FDA our confidence federal think when us the -- what gives with I our a heading is one-on-one lot well.

Mark Gorder

Scott. point, Good

Andrew D'Silva

And other some related now that you do hear. just to out really to outside what Okay, have on from that guidance. just question need like get really the points good with last clarity major self-fitting, it's to me, the we hammered

you for FDA another? an can to need consumer for or that move partnerships one see business, direction to what to be put established your indirect the then understand you direct the to X) X) would out For and

Mark Gorder

the think, if I we allows to is implement the They're and way talk per that these the professional more the And channel efficient. it legislation clearance. bypass for looking the whether retail to all that Well etcetera. ITEC the when written, partners they partners, partners us regulation make potential

into bind Because none with clearly regulatory device. a or or trying of get a a they're It's service them to want sell medical device. FDA to the

efficient and designation it market, a state I any lot no And the exactly per And OTC mile-to-moderate legislation open going so, from of they're are more the will drive which think the interference to innovation. of go forward and critical. make

Andrew D'Silva

Okay, the good luck perfect. much year. and Thank closing very out you

Mark Gorder

Andy. Thanks,

Scott Longval

Andy. Thanks,

Operator

is next Bauser & Dougherty Company. from from Kyle Our one

Your open. line is

Kyle Bauser

taking evening, good Hi and thanks for questions. the

the I self-fitting to the bow a many Just XXX. following-up be assuming on the subjects you as enroll support did, clinical think it was activity will the they serenade application. XXX-K as Since predicate, I'm will

And sort are then, trial follow-up of you that what for endpoints the time support considering application? and to

Mark Gorder

those, great a I a a think quite subjects. Bostrom the FDA looking to But don’t many did. subjects trial nature is The Bostrom actually to in of XX going about run It's similar to what different question. ran -- trials, we're couple as they [ph] report we have for as

requires shortly about long will TAT. that XX and the we're I'm and subjects process hope yet timing because be to in it of exactly the be that pole finding starting the of the subjects. So, XX organizing the And not sure

Kyle Bauser

Alright.

Mark Gorder

three than more to a certainly it few take months. shouldn’t than four But more months,

Kyle Bauser

Sure.

kind for potential And on a of track approval? say submission I'd in QX so, for mid-XXXX still

Mark Gorder

trying do, we're yes. to what That's

Kyle Bauser

bit in priorities the assume of in question OTC partners what for regulation? prior to following-up then, your you're the these market pending you speak one we draft holding the if this partnerships release market. is more a in of regard Jon's OTC with pattern they're to tending And specifically some of about hearing a on appetite Can the seek Okay.

how mild-to-moderate requirements most What be pause things FDA clinical do about gives such helpful, loss Any OTC I'm and a might as the approval. potential define, hearing here for potential think thanks. color thinking the or you would partner

Mark Gorder

they're think business. healthcare healthcare that use these a the partners you going is professional to of not it. get not that biggest because they're to of to aspect I the the regulation providers, for issue lot into the want They're to bypass retailers allows looking to provide

be able restriction the any able from be to their to sell these position without marketing want to devices them in they matrix FDA. But and

the the So, any giving that's that's state from pause, I think regulation. it's that's thing the any interference

straight-forward. Andy will power are mile a of well look probably classification all it that out going the that things. known spot fed output document What moderate referenced is takes like to relatively gain those terms This pretty and losses, pretty the in and specification be kind and to of what

be systemize, I the be dispense So, regulatory no assured any state critical will think hassles point that interference to want from they no to agencies. there's

Kyle Bauser

helpful. That's okay, so it me, Sure, much. thanks from that's

Operator

end I the call. Mr. Mark to of the call And session to now that us of will for Q&A remarks. Gorder brings turn the closing the today's over

Mark Gorder

act for new and continues you, Thank locate you your again them like business call operator. would diversify thank grow our continued their that Thank for team The I as upon joining today. and to shareholders our well opportunities IntriCon and as to support.

look are many We getting seeing during conferences for great call. you joining evening of our a Have upcoming trips. and and to forward thank you

Operator

Thank call. This you, conference for participating. today's concludes

You disconnect. may now

Intricon (IIN) 4 Nov 192019 Q3 Earnings call transcript