Hearing Health Revenues Rise; Company’s
Medical Business Grows $1.0 Million Sequentially
IntriCon Corporation (NASDAQ: IIN), a designer,
developer, manufacturer and distributor of miniature and
micro-miniature body-worn devices, today announced financial
results for its fourth quarter ended December 31, 2016.
Highlights:
- Sales to IntriCon’s largest medical
customer increased $1.0 million sequentially from the third
quarter—sales to this customer in the 2017 first quarter are
expected to be at record levels and continue to increase throughout
the year;
- The company’s value hearing health
initiatives delivered year-over-year growth, with Hearing Help
Express contributing $1.0 million in fourth-quarter revenue;
- IntriCon sharpened its focus on the
emerging value hearing health opportunity, exercising its option to
acquire 100 percent of Hearing Help Express (HHE). Beginning in the
quarter, HHE financial results have been consolidated into
IntriCon’s financial statements; and;
- The company found a buyer for its
non-core cardiac diagnostic monitoring (CDM) business, which is now
held for sale and classified as discontinued operations.
Financial ResultsFor the 2016 fourth quarter, the company
reported net sales of $17.7 million, compared to $18.4 million in
the prior-year period. The decline was primarily due to
year-over-year revenue shifts from IntriCon’s largest customer. Net
sales rose 14 percent sequentially from the 2016 third quarter and
included a $1.0 million contribution from HHE. IntriCon posted a
net loss attributable to shareholders of ($1,809,000), or ($0.27)
per share, versus net income attributable to shareholders of
$810,000, or $0.13 per diluted share, for the 2015 fourth quarter.
The 2016 fourth-quarter loss included a loss from discontinued
operations of ($1,014,000), or ($0.15) per share, of which
$796,000, resulted from a non-cash, write down of assets related to
the pending divestiture of the company’s CDM business.
“Fourth-quarter results reflect our efforts to right size and
focus our business to take advantage of the emerging value hearing
health opportunity while maximizing our core medical business,”
said Mark S. Gorder, president and chief executive officer of
IntriCon. “We made meaningful progress establishing a new
direct-to-consumer distribution channel during the quarter and look
forward to a strong first quarter and 2017 in both hearing health
and medical.”
Gross profit margins were 25.9 percent compared to 29.3 percent
in the prior-year fourth quarter. The decrease was primarily due to
lower revenue.
Operating expenses for the fourth quarter were $5.0 million,
compared to $4.2 million in the prior-year fourth quarter. The
increase was largely due to the consolidation of HHE during the
quarter.
Business UpdateSales in IntriCon’s medical business
decreased 8 percent in the 2016 fourth quarter, primarily driven by
timing shifts with IntriCon’s largest customer, Medtronic. The
lower sales to Medtronic were expected as they manage the
transition of their recently FDA-approved MiniMed 630G system.
IntriCon began ramping up MiniMed 630G production in the fourth
quarter which resulted in a $1.0 million sequential increase in
Medtronic revenue from the 2016 third quarter.
The company believes it’s well-positioned with Medtronic, with
2017 first-quarter sales expected to be at record levels, and
growth to continue throughout the year. In addition to the MiniMed
630G system, IntriCon is also designed into the MiniMed 670G system
which was recently approved by the FDA, and is scheduled to be
launched in the spring of 2017. The company is working on other
revenue opportunities with Medtronic that could result in notable
revenue gains in the second half of 2017.
Hearing health sales increased 4 percent from the prior-year
fourth quarter, primarily stemming from a $1.0 million contribution
from HHE. As previously announced, IntriCon acquired a 20 percent
stake in DeKalb, Ill.-based HHE, a direct-to-consumer mail order
hearing aid provider, in the fourth quarter of 2016. In January
2017, the company announced that it exercised its option to acquire
the remaining 80 percent stake in HHE—the deal is expected to close
in mid-2017.
Said Gorder, “Acquiring HHE gives IntriCon direct access to
consumers and the emerging value-based hearing health care market.
HHE offers a lower-priced alternative for consumers to purchase
devices directly—circumventing layers of costs associated with the
conventional hearing aid channel. We look forward to building on
the HHE platform by leveraging our own technically advanced devices
and making targeted investments in management, marketing and
advertising—and ultimately incorporating an online component.”
Since taking its initial stake, IntriCon has made meaningful
progress integrating and optimizing HHE. To date IntriCon has:
- Streamlined management
positions—generating nearly $300,000 in net annual cost
savings;
- Contracted a direct-to-consumer (DTC)
leader to head operations;
- Started to map out the introduction of
IntriCon’s advanced digital hearing devices into HHE’s product
line;
- Transitioned all treasury controls to
IntriCon corporate headquarters; and,
- Leased a new HHE facility which is
expected to drive operating efficiencies and better work management
by merging two locations into one.
Continued Gorder, “Untreated hearing loss in the United States
is a substantial problem, and high device costs have created
significant barriers to access for most Americans. HHE offers a
lower-priced alternative for consumers to purchase devices
directly.”
According to Gorder, IntriCon’s near-term next steps for HHE are
to:
- Hire a DTC executive to manage
HHE;
- Enhance HHE’s sales and marketing
capabilities and increase advertising, a tactic historically proven
to drive sales; and,
- Introduce IntriCon’s digital hearing
aids and other technical advancements to HHE’s customer base.
The fourth-quarter hearing health gain also contained
contributions by PC Werth, acquired by IntriCon UK to build a
hearing health platform in England. In January 2017, IntriCon took
steps to reduce PC Werth’s cost structure by $200,000 and refocus
sales efforts into the National Health Service (NHS) clinics.
IntriCon is currently working with the NHS for approval of a third
device, the K940D, which will enhance IntriCon sales capabilities.
The K940D, which is a traditional behind-the-ear device, is very
appealing to the NHS because of its broad-fitting range and
advanced features. Approval of the K940D is anticipated by the end
of April.
In addition to HHE and PC Werth, IntriCon is focused on driving
growth and creating efficiencies in its current value-based hearing
healthcare initiatives. Domestically, IntriCon continues its work
with earVenture, a joint venture with the Academy of Doctors of
Audiology (ADA). Over 650 ADA members have registered to join the
earVenture program. According to Gorder, audiologists have shown
great interest in earVenture, but have been slow to adopt the new
model.
IntriCon has taken steps to right-size earVenture, without
compromising the ability to promote the business model. While the
company does not view earVenture, near term, as a meaningful
contributor to sales, it continues to provide valuable industry
insights and has the potential for future value by connecting it to
IntriCon’s emerging DTC channel.
Said Gorder, “Acknowledging the significant opportunity we have
with HHE has prompted us to focus our efforts with the ADA and NHS.
Over the last decade, we have invested in technology and low-cost
manufacturing to design and build superior devices and fitting
solutions to address the estimated $1 billion annual value hearing
health market.”
In order to focus financial and operational resources on value
hearing health and the growing DTC opportunity, IntriCon has made
the strategic decision to divest its non-core CDM business. The
company has found a buyer for the business, and the sale is
expected to close in the first quarter of 2017.
Looking AheadConcluded Gorder, “2016 was transitional
year for IntriCon as we made changes and investments to focus our
business. We enter 2017 with the infrastructure in place to drive
long-term growth, and we remain confident in the prospects of our
medical business and look forward to the expected 2017 ramp up of
Medtronic’s sales. Equally important, we’re excited about the
opportunity that we created through thoughtful hard work and
planning: a chance to deliver superior outcomes-based affordable
hearing healthcare. We expect that capitalizing on this opportunity
will lead to both a very bright future for IntriCon and to
long-term growth in shareholder value. Based on information
currently available, we anticipate 2017 first-quarter net sales to
be $18.6 to $18.8 million and positive EPS from continuing
operations. For the year, we anticipate revenue to range between
$78 million and $80 million.”
Conference Call TodayAs previously announced, the company
will hold an investment community conference call today, Thursday,
February 16, 2017, beginning at 4 p.m. CT. Mark Gorder, president
and chief executive officer, and Scott Longval, chief financial
officer, will review fourth-quarter performance and discuss the
company’s strategies. To join the conference call, dial:
1-888-263-2744 and provide the conference ID number 9031214 to the
operator. To access the replay, dial 1-888-203-1112 and enter
passcode 9031214.
About IntriCon CorporationHeadquartered in Arden Hills,
Minn., IntriCon Corporation designs, develops and manufactures
miniature and micro-miniature body-worn devices. These advanced
products help medical, healthcare and professional communications
companies meet the rising demand for smaller, more intelligent and
better connected devices. IntriCon has facilities in the United
States, Asia, the United Kingdom and Europe. The company’s common
stock trades under the symbol “IIN” on the NASDAQ Global Market.
For more information about IntriCon, visit www.intricon.com.
Forward-Looking StatementsStatements made in this release
and in IntriCon’s other public filings and releases that are not
historical facts or that include forward-looking terminology are
“forward-looking statements” within the meaning of the Securities
Exchange Act of 1934, as amended. These forward-looking statements
may be affected by known and unknown risks, uncertainties and other
factors that are beyond IntriCon’s control, and may cause
IntriCon’s actual results, performance or achievements to differ
materially from the results, performance and achievements expressed
or implied in the forward-looking statements. These risks,
uncertainties and other factors are detailed from time to time in
the company’s filings with the Securities and Exchange Commission,
including the Annual Report on Form 10-K for the year ended
December 31, 2015. The company disclaims any intent or obligation
to publicly update or revise any forward-looking statements,
regardless of whether new information becomes available, future
developments occur or otherwise.
INTRICON CORPORATION Consolidated Condensed
Statement of Operations (In Thousands, Except Per Share
Amounts) Three Months Ended Twelve
Months Ended December 31, December 31, December 31,
December 31, 2016 2015 2016 2015
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
Sales, net $ 17,747 $ 18,435 $ 68,009 $ 68,527 Cost of sales
13,148 13,027 50,937
49,771 Gross profit 4,599 5,408 17,072 18,756
Operating expenses: Sales and marketing 1,343 1,134 4,700 3,733
General and administrative 2,583 1,931 9,154 7,013 Research and
development 1,126 1,116 4,688 4,279 Restructuring charges -
- 132 - Total
operating expenses 5,052 4,181
18,674 15,025 Operating income (loss) (453 )
1,227 (1,602 ) 3,731 Interest expense (167 ) (82 ) (553 )
(369 ) Other income (expense) (129 ) (278 )
(602 ) (261 ) Income (loss) from continuing operations
before income taxes and discontinued operations (749 ) 867 (2,757 )
3,101 Income tax (benefit) expense 97
(88 ) 217 19 Income (loss) before
discontinued operations (846 ) 955 (2,974 ) 3,082 Loss from
discontinued operations, net of income taxes (1,014 ) (256 ) (1,770
) (965 ) Gain on sale of discontinued operations, net of income
taxes - - - -
Net Income (loss) (1,860 ) 699
(4,744 ) 2,117 Less: Loss allocated to
non-controlling interest (51 ) (111 ) (157 )
(111 ) Net Income (loss) attributable to shareholders $
(1,809 ) $ 810 $ (4,587 ) $ 2,228 Basic income
(loss) per share attributable to shareholders: Continuing
operations $ (0.12 ) $ 0.18 $ (0.43 ) $ 0.54 Discontinued
operations (0.15 ) (0.04 ) (0.27 )
(0.16 ) Net income (loss) per share: $ (0.27 ) $ 0.14 $
(0.71 ) $ 0.38 Diluted income (loss) per share
attributable to shareholders: Continuing operations $ (0.12 ) $
0.17 $ (0.43 ) $ 0.51 Discontinued operations (0.15 )
(0.04 ) (0.27 ) (0.15 ) Net income (loss) per share:
$ (0.27 ) $ 0.13 $ (0.71 ) $ 0.36 Average
shares outstanding: Basic 6,805 5,977 6,497 5,907 Diluted 6,805
6,291 6,497 6,241
INTRICON CORPORATION
Consolidated Condensed Balance Sheets (in thousands,
except per share data) December 31,
December 31,
2016
2015
(unaudited)
Current assets: Cash $ 667 $ 367 Restricted cash 595 610
Accounts receivable, less allowance for doubtful accounts of $170
at December 31, 2016 and $135 at December 31, 2015 7,289 8,335
Inventories 12,343 13,635 Other current assets 957 856 Current
assets of discontinued operations 123 1,086
Total current assets 21,974 24,889 Machinery and
equipment 40,152 38,426 Less: Accumulated depreciation
33,546 31,717 Net machinery and equipment
6,606 6,709 Goodwill 10,555 9,551 Intangible Assets 2,920 -
Investment in partnerships 146 224 Other assets, net 1,557 480
Other assets of discontinued operations - 33
Total assets (a) $ 43,758 $ 41,886
Current liabilities: Current maturities of long-term debt $ 2,346 $
1,908 Accounts payable 6,722 7,763 Accrued salaries, wages and
commissions 2,413 2,466 Deferred gain - 55 Other accrued
liabilities 1,914 1,279 Liabilities of discontinued operations
123 116 Total current liabilities
13,518 13,587 Long-term debt, less current maturities 9,284
7,929 Other postretirement benefit obligations 501 542 Accrued
pension liabilities 737 812 Other long-term liabilities 707
119 Total liabilities (a) 24,747 22,989
Commitments and contingencies Shareholders’ equity: Common stock,
$1.00 par value per share; 20,000 shares authorized; 6,820 and
5,981 shares issued and outstanding at December 31, 2016 and
December 31, 2015, respectively 6,820 5,981 Additional paid-in
capital 21,383 17,721 Accumulated deficit (8,633 ) (4,046 )
Accumulated other comprehensive loss (1,014 ) (721 )
Total shareholders' equity 18,556 18,935 Non-controlling interest
455 (38 ) Total equity 19,011
18,897 Total liabilities and equity $ 43,758 $
41,886 (a) Assets of HHE, the consolidated variable
interest entity, that can only be used to settle obligations of HHE
were $5,159 at December 31, 2016. Liabilities of HHE, for which
creditors do not have recourse to the general credit of IntriCon
were $3,833 at December 31, 2016.
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version on businesswire.com: http://www.businesswire.com/news/home/20170216006160/en/
At IntriCon:Scott Longval, CFO,
651-604-9526slongval@intricon.comorAt PadillaCRT:Matt
Sullivan, 612-455-1709matt.sullivan@padillacrt.com
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