IntriCon Corporation (NASDAQ:IIN)
Q2 2014 Earnings Conference Call
July 23, 2014 12:00 PM ET
Scott Longval - Chief Financial Officer
Mark Gorder - Chief Executive Officer
Good day and welcome to the IntriCon Second Quarter Results Conference Call. Today’s conference is being recorded. At this time I’d like to turn the conference over to Scott Longval, Chief Financial Officer, please go ahead sir.
Thank you, operator. Joining me on today’s call is Mark Gorder, IntriCon’s CEO. Before we begin I’d 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 IntriCon’s 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. Important factors that could cause such differences include among others, those set forth under the heading Risk Factors, and management’s discussion and analysis of financial condition and results of operations in our 10-K filing for the year ended December 31, 2013.
With that I’d now like to introduce Mark for a strategic look at IntriCon’s second quarter.
Thank you, Scott. And thank you everyone for joining us today. I would like to begin by reviewing 2014’s second quarter key highlights and results for the Company. After that Scott will cover the financials in more detail and then we’ll open up the call for your questions.
By this time most of you have had a chance to review our second quarter press release. Revenue of 17.5 million and income of $813,000 represents our strongest quarter since completion of the C-list restructuring in 2005. Building on our first quarter momentum, we again delivered double digit topline gains across all of our businesses and increased profitability in the second quarter.
The strength of Medtronic 530G insulin pump system fueled our medical business, which accounted for a large portion of our year-over-year sales increase. However, we also saw improvements in the value hearing health segment of our business and professional audio sales nearly doubled from 2013. Operationally we remained focused on our strategy of driving business with our key medical and hearing health customers in pursuing our highest potential growth opportunities in value hearing health in medical biotelemetry. Looking at our three businesses, sales and medical rose 89% in the 2014 second quarter, compared to the year ago period. As I noted this strength was primarily due to Medtronic.
In addition to meeting the increased demand from Medtronic, the Company made strides within our medical biotelemetry business. We are pursuing large Tier-1 cardiac diagnostic monitoring customers which we anticipate will have a positive impact in 2015. Overall while we expect medical sales growth to remain strong overall in 2014 year-over-year, we do not anticipate a sequential increase from the record second quarter level.
In hearing health sales rose 13% over the prior year second quarter, chiefly due to strong device sales in the value space including personal sound amplifier products or PSAPs sold in the nontraditional channels. These gains were partially offset by lower conventional channel sales.
Looking forward to the second half of the year, we anticipate increased order activity from high health innovations and as previously discussed growth in the conventional hearing health channel continues to be constrained by high device cost, distribution inefficiencies and retail consolidation. These factors among others have created a need for an outcome based hearing health model.
To that end we continue to make significant investments to target emerging larger value hearing health opportunities. We anticipate securing at least one of these opportunities in the next six months. Looking at our professional audio business, sales increased 66% from the prior year period.
During the second quarter, we began delivery on a significant new contract with the Singapore government to provide technically advanced headsets worn in military applications. This contract will run through the end of 2014. We will continue to leverage our core technologies in professional audio to support existing customers, as well as pursue related hearing health and medical product opportunities.
I’ll now touch briefly on other key initiatives. As previously outlined on our last call, we are placing a priority on liquidity management and more specifically reducing bank debt. I’m pleased to report that during the second quarter we lowered our bank debt by nearly 300,000 with year-to-date paydown in debt of $1.3 million. Total bank debt at the end of the quarter was 7.2 million.
Now I’d like to turn the call over to Scott.
Thank you, Mark. I’ll begin by reviewing our second quarter financial results in more detail. In the 2014 second quarter the Company reported net sales of $17.5 million, up from $11.5 million in the prior year period. IntriCon posted net income of $813,000 or $0.13 per diluted share compared to a net loss of 3.4 million or $0.60 per diluted share for the 2013 second quarter.
Included in the 2013 second quarter results was a net loss from discontinued operations of 1.5 million or $0.26 per diluted share of which approximately 1 million or $0.18 per diluted share related to onetime non cash charges stemming from structuring activities. Gross margins increased to 27.3% from 16.2% for the prior year second quarter and held steadily sequentially compared to the 27.6% in the 2014 first quarter.
The year-over-year gains were primarily due to volume increases and cost reductions generated from the Company’s previously disclosed global restructuring plan. For the 2014 six month period, IntriCon reported higher net sales of 34.8 million and net income of 1.3 million or $0.22 per diluted share. This compares to 2013 six month net sales of 25.6 million and a net loss of 3.9 million or $0.69 per diluted share. In 2014 six month period net income from continuing operations was 1.6 million or $0.27 per diluted share with discontinued operations net loss of 270,000 or $0.05 per diluted share.
The 2013 six month results included discontinued operation net loss of 1.9 million or $0.34 per diluted share. Gross profit margins increased to 27.4% from 22% for the prior year six months, again the gain was primarily due to volume increases and cost reductions. Operating expenses for the second quarter year-to-date of 3.7 million and 7.5 million respectively increased 109,000 and 310,000 over the prior year comparable periods.
Turning to other financial metrics, as Mark previously mentioned, IntriCon reduced its bank debt to $7.2 million as of June 30, 2014. We generated approximately 1.3 million dollars in positive operating cash flow year-to-date with a keen focus on tight working capital management, our total cash cycle days at the end of the second quarter was 57. This is a marked improvement from 89 days at the end of the comparable prior year period. Cash cycle days are comprised to day sales outstanding, which totaled 38 days, plus day sales in inventory which stood at 73 days at the end of the second quarter, plus days payable outstanding which was 54 at the end of the quarter. Now I’d like to turn the call back over to the operator, so we can take your questions.
Thank you. (Operator Instructions) And I show we have no questions at this time, I’d like to turn the conference over to Mark Gorder, CEO for closing remarks.
Once again we appreciate all of you taking time out of your day to join the call. I am very encouraged with the progress we have made during the first half of 2014, both financially and strategically. Going forward we are well positioned to build on our positive momentum, looking ahead to the second half of the year, we anticipate revenue growth of approximately 20% over the comparable 2013 period, and strategically we remain steadfast in our focus going forward aggressively pursuing opportunities in value hearing health and medical biotelemetry. As a Company we've developed the infrastructure that positions IntriCon to secure large opportunities in the market place. We look forward to updating you on our progress in the future and thank you again for joining the call.
That does conclude our conference for today, thank you for your participation.
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