IntriCon Corporation (IIN) 2011 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the IntriCon second-quarter 2011 earnings conference call. During today's presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). This conference is being recorded today, Wednesday, August 10, 2011.

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 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 from the expectations contained in today's call. Important factors that could cause such differences include, among others, those set forth under the headings Risk Factors and Management's Discussion of Analysis of Financial Condition and Results of Operations in our 10-K filing for the year ended December 31, 2010.

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 our 2011 second-quarter results and key highlights for the Company. After that, Scott will cover the financials in more detail, and then we'll open up the call for questions.

By this time, most of you have had a chance to review our second-quarter press release. Long-term, we believe we are well-positioned to serve markets with strong growth prospects. However, the continued economic softness has clearly applied pressure on all of our core businesses. In addition, while our steadfast approach to increasing R&D investment has led to recent design wins across all markets, it has had a short-term adverse financial impact.

Our Hearing Health revenue rose 7.4% from the 2010 second quarter, while Medical and Professional Audio Communications declined 11.4% and 17.5%, respectively. We are pleased that Hearing Health revenues were up over the year-ago period. This business continues to be favorably impacted by market acceptance of our innovative Digital Signal Processing, or DSP circuits, such as our new Overtus DSP amplifier.

Our Medical revenues increased sequentially from the first quarter. However, they were lower than historical levels, as a few of our large medical customers continued to experience fluctuations in demand and are working through inventory levels above their immediate needs. We continue to believe this lull in medical orders is temporary and are working very closely with our customers to monitor the situation.

In Professional Audio Communications, orders were impacted by delays in funding for government-sponsored programs. This was particularly evident in our security business. Funding is now in place and we anticipate this portion of the business to rebound during the second half of the year.

I'll now briefly touch on core technology advances and product development highlights. I am pleased to announce that, just yesterday, we received 510(k) market clearance from the FDA for our Centauri Cardiac Diagnostic Monitoring, or CDM, device. The Centauri, IntriCon's first post-Datrix acquisition FDA-cleared CDM device, provides diagnostic evaluation of patients who experience transient symptoms that suggest cardiac arrhythmia. The Centauri offers continuous monitoring, automatic arrhythmia detection, and wireless transmission of recorded cardiac activity to a licensed physician for review. We anticipate this device will begin generating revenue in the 2011 fourth quarter.

As previously announced, IntriCon launched its new patent-pending APT Open ITC hearing aid earlier in 2011. A complete, technically-advanced hearing aid, APT is powered by IntriCon's Overtus DSP amplifier and features the Company's Reliant CLEAR adaptive feedback canceller, and the AcousTAP acoustic pushbutton. Reliant CLEAR is the latest in feedback cancellation, offering added stable gain and faster reaction time. With its small, comfortable, open, in-the-canal fit, APT has established a new product category in Hearing Health. We are in the process of finalizing fitting modifications that will ultimately increase market penetration.

On the core technology front, IntriCon's PhysioLink wireless technology is currently being incorporated into various product platforms. PhysioLink enables audio and data streaming to ear-worn and body-worn applications over distances of up to five meters. This advanced wireless technology has applications across multiple markets, including Medical, Hearing Health, and Professional Audio Communications.

The first product platform to incorporate PhysioLink will be Sirona, our second-generates generation wireless CDM device. This small rechargeable product platform can be used as an event recorder, a halter monitor, or a wireless event recorder. We anticipate submitting the Sirona for a 510(k) approval with the FDA in the 2011 third quarter.

In July 2011, the Company established a low-cost manufacturing facility in Batam, Indonesia to further reduce our manufacturing costs. We will initially occupy 15,000 square feet, which will be used to manufacture select Hearing Health and Professional Audio Communication products. It is imperative that we have low-cost manufacturing operations to drive continued margin improvement. This new facility gives us that, as well as the ability to pursue the potential high volume Hearing Health and Professional Audio Communications opportunities that we're seeing right now in the marketplace. Our Indonesian facility is currently in ramp-up phase and we will begin transferring projects there in the third quarter.

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. The Company reported net sales of $13.9 million in the 2011 second quarter, a decrease of 7% from net sales of $14.9 million for the prior-year period. Our net loss for the period was $294,000 or $0.05 per diluted share compared to net income of $269,000 or $0.05 per diluted share for the prior-year's second quarter.

Gross profits in the 2011 second quarter were 22.7%, down from 27% in the prior-year period, mainly due to lower sales volume and unfavorable sales mix. We anticipate margin expansion as newer products with our proprietary technology gain traction in the marketplace, and overall volumes increase.

We continue to focus on gross profit initiatives, including ongoing implementation of lean manufacturing programs. In addition, as Mark mentioned, we recently established a low-cost manufacturing facility in Indonesia. This facility originally slated for labor-intensive assembly programs within our Hearing Health and Professional Communications markets. We're currently in ramp-up phase, and anticipate a favorable impact to margins beginning in the second half of 2012.

Operating expenses for the second quarter were relatively consistent with the first quarter and the prior-year comparable period. For the first six months, research and development has increased to 8.2% of sales, up from 7.5% in 2010. As Mark previously mentioned, we firmly believe our continued commitment to prudently invest in key research and development initiatives will drive new products and future revenue growth. This is exemplified by the increasing number of new products based on our proprietary technology, such as Overtus, APT, and Centauri.

Looking at the six-month period, IntriCon reported 2011 net sales of $27.7 million and a net loss of $584,000, or $0.10 per diluted share. This compares with the 2010 net sales of $29.5 million and net income of $287,000, or $0.05 per diluted share. Gross profits for the 2011 six-month period was 22.5%, down from 26.1% in the prior-year period -- again, primarily due to lower sales volume and unfavorable sales mix.

Turning to other financial metrics, IntriCon generated approximately $900,000 in positive operating cash flow during the first half of 2011, primarily driven by tight working capital management. IntriCon's total cash cycle days at June 30, 2011 was 80 days versus 81 days for the comparable 2010 period. Cash cycle days are comprised of days sales outstanding, which was 46 days, plus days sales and inventory, which was 74 days at the end of the second quarter, less days payable outstanding, which stood at 40 days.

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'm showing no questions at this time. I'd like to turn the conference back over to President and CEO, Mark Gorder. Please go ahead.

Once again, we appreciate you taking the time out of your day to join the call. The first half of 2011 presented certain marketplace challenges which contributed to our constrained financial performance. And while the duration of these challenges is difficult to predict, given the instability of the current economic environment, we're diligently working to overcome these obstacles.

We have some exciting things on the horizon, and we remain committed to our strategy of designing the best portfolio of products and technologies that enhance the world we live in. In short, making body-worn devices that are smaller, better connected, and more mobile.

We look forward to updating you on our progress in the future. Thanks again for your participation.

Thank you, sir. Ladies and gentlemen, if you'd like to listen to a replay of today's conference, please dial 1-800-406-7325 or 303-590-3030 using the access code of 4460928 followed by the pound key. This does conclude the IntriCon second-quarter 2011 earnings call. Thank you very much for your participation. You may now disconnect.