IntriCon Corporation

Ladies and gentlemen, welcome to the Intricorps Fourth Quarter 2020 Earnings Conference Call. At this time, all participants' lines are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star, then zero on your touch-tone telephone. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Ms. Leigh Salvo. Ma'am, 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 of Intercons 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 today's call. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factor section of our most recent annual and quarterly reports on Form 10-K and Form 10-Q, respectively, with the SEC. With that, I would now like to turn the call over to CEO Scott Longbaugh. Scott Longbaugh Thank you, Lee.

Good afternoon. I'd like to start by thanking our employees, partners, and suppliers that have stuck through us through a very difficult time. Despite the many challenges of 2020, our teams rallied together to support our mission to improve, extend, and save lives by advancing innovative micro-medical technologies through joint development and manufacturing partnerships. I'm confident this unwavering commitment will continue. I would also like to welcome Intercon's new CFO, Ellen Skipka, who joins me on today's call. Ellen brings a unique skill set that blends engineering with extensive financial experience. We are sure she will be a strong financial steward to our team as we continue to expand and advance our global footprint in micro-medical technology. On the call today, I'd like to start by briefly highlighting our financial and operation progress in each of the primary medical markets, as well as our priorities for 2021. Ellen will then cover our financial results in more detail, then we'll open it up for questions. In many ways, 2020 was transformational for Intracon. We kept our focus on the priorities we established earlier in the year, priorities that we believed would best enable us to leverage our core strengths into diversified, high-growth medical markets. And we see 2021 as a year of ongoing progress and execution. Key accomplishments in 2020 included the acquisition of Emerald Medical Services, or EMS, which expanded our market opportunity in surgical navigation and provided us with immediate access to a technology platform serving new high-growth medical end markets with complex interventional catheters. We also bolstered and diversified our leadership team with the addition of a new board member and several key executives with rich sector-specific experience in their respective fields. With advancements in our business also came organizational changes that enable us to better and more quickly pursue attractive development opportunities and key partnerships. We also kept a keen eye on our expenses and balance sheet in order to navigate through the unprecedented landscape of 2020 in order to maintain our solid financial footing. We also closely managed the resources needed to ensure we could emerge in a position of strength in the current and new medical markets. As a sign of our evolution, as well as our renewed commitment to our vision, we recently completed an extensive rebranding effort that incorporated an enhanced website for the publication of our environmental, social, and governance policies that are critical in demonstrating the corporate responsibility to our employees and our shareholders. These policies are included in a new corporate responsibility section of our website. Turning to our fourth quarter financial performance, as we noted on our last call, we were encouraged by the momentum we saw as we exited the third quarter, and that remained relatively consistent throughout the remainder of the year. Total revenues increased approximately 9% year-over-year to $30.3 million, and sequentially revenues grew 11%, exceeding our initial expectations. We also continued to outperform in our medical market, which included the contribution of EMS and the strong quarter-on-quarter growth in our diabetes business, despite the ongoing impact of COVID. Generally in line with our expectations, we recognize business-wide improvement combined with further financial strength. We have continued to emphasize our cost control efforts, coupled with the significant restructuring actions taken over the first half of the year, And as a result, we have delivered approximately $1.1 million in profit during the quarter, up from $644,000 of profit in the third quarter. I'd like to take a few minutes to dive into some detail on our progress in several of the key medical markets we're currently focused. Beginning with our diabetes business, Sales Demectronics Diabetes Group represented 59% of the total revenue in the fourth quarter. In the fourth quarter, we saw an impressive 22% quarter-over-quarter improvement as new patient momentum continued to increase due to the launch of the MiniMed 780G system in international markets and the MiniMed 770G system launch in the U.S. Following FDA approval for the MiniMed 770G, this system has received positive feedback from patients as they utilize smartphone connectivity features. The MiniMed 780G insulin pump system continues geographic expansion and now launched across 26 countries. In the US, the 780G system has been submitted to the FDA for approval. While this market continues to experience some COVID headwinds, we remain optimistic about the contributions of these insulin pump systems to the growth of our business in 2021. Next, turning to surgical navigation in the interventional catheter market, which in a very short period of time has already proven to be key growth drivers for Intracon. The integration of EMS continued at a faster pace than we originally expected, contributing $3.4 million in the fourth quarter and $7.4 million since the acquisition. This better-than-anticipated revenue contribution in 2020 was driven by Medtronic's launch of the chocolate bloom catheter in Japan, which is manufactured by EMS. Accordingly, the greater revenue level required us to take a $400,000 charge in the fourth quarter related to an earn-out provision in the EMS purchase agreement. We anticipate further approvals of the chocolate in other global regions during 2021 and believe it will continue to be one of our primary growth drivers this year. Going forward, we are confident that we can leverage EMS's strong reputation with Medtronic's cardiac and vascular group and Intracon's core technologies and financial stability to secure other business opportunities in this market. Lastly, our medical-coil business demand continued to be strong. However, due to capacity constraints, revenue for the fourth quarter was $1.1 million. We are working through these constraints and anticipate improved capacity in 2021 first quarter. Turning to the hearing health market, in the fourth quarter, we delivered growth of approximately 5% compared to the prior year period. The primary driver for this market was our legacy OEM business. On the third quarter call, we noted that access to the audiologist increased as the quarter progressed, and this trend continued throughout the fourth quarter. On the topic of the pending OTC regulation, our discussions with potential partners continue to progress well. We remain optimistic about the opportunity and are closely tracking our investments as we await official draft guidance. To that end, we are preparing to move forward with a few select pilots over the next couple quarters with partners to leverage our hearing health technology platform, including hardware, firmware, and software. It's early in the process, but the pilots aim to gauge end market interest, required post-sale engagement, and price considerations. We look forward to providing updates on the future calls. As previously disclosed, last year we elected to postpone our self-fitting software clinical trial until such time we can ensure the health and safety of trial patients. We have begun working on safety measures and adapt our clinical protocol to be COVID safe. While there are a number of moving parts, we maintain our goal of completing the trial in the third quarter of 2021. As we look out into the coming year, I'd like to highlight some of our key operational goals and activities. First and foremost, we view 2021 as a year of continued execution. We have a significant opportunity to drive growth in key markets, specifically diabetes, surgical navigation, and interventional. In 2021, we plan to continue to seek opportunities to diversify our customer base, add valuable partners, and pursue new high-end growth end markets that can best leverage our core competencies in micromedical technology. In addition to organic growth, we plan to selectively explore new inorganic opportunities and are putting a team in place to best identify and pursue those initiatives. With that, I will now turn the call over to Ellen to provide more detail on our financial results for the fourth quarter in the full year of 2020. Ellen?