Gains in Medical and Value Hearing Health
Drive Record Sales;
Company to Acquire 49 Percent Stake in
Soundperience
IntriCon Corporation (NASDAQ: IIN), a designer,
developer, manufacturer and distributor of miniature and
micro-miniature body-worn devices, today announced financial
results for its first quarter ended March 31, 2017.
Highlights:
- Total first-quarter sales rose to $20.1
million, up 11 percent from the prior-year first quarter;
- Sales to IntriCon’s largest medical
customer increased $2.1 million from the 2016 first quarter and
were at record levels;
- The company’s value hearing health
initiatives delivered year-over-year growth, with Hearing Help
Express contributing $1.4 million in first-quarter revenue;
- IntriCon further enhanced its value
hearing health infrastructure, entering into an agreement to
acquire a 49 percent stake in self-fitting hearing aid technology
provider Soundperience GmbH and a related license agreement;
and
- The company completed the sale of its
cardiac diagnostic monitoring (CDM) business on February 17, 2017,
to Datrix, LLC.
Financial ResultsFor the 2017 first quarter, the company
reported net sales of $20.1 million, compared to $18.1 million in
the prior-year period. The increase was primarily due to
year-over-year revenue gains from IntriCon’s largest medical
customer and included a $1.4 million contribution from Hearing Help
Express (HHE). Net sales rose 13 percent sequentially from the 2016
fourth quarter.
IntriCon posted a net loss attributable to shareholders of
($428,000), or ($0.06) per share, versus net income attributable to
shareholders of $15,000, or $0.00 per diluted share, for the 2016
first quarter. The 2017 first-quarter loss included a loss from
discontinued operations of ($277,000), or ($0.04) per share,
related to the divestiture of the company’s CDM business. It also
included non-recurring acquisition and redundancy expenses of
approximately ($230,000), or ($0.03) per share.
As previously disclosed, IntriCon made the strategic decision to
divest its non-core CDM business in order to focus financial and
operational resources on value hearing health and the growing
direct-to-consumer (DTC) opportunity. The company found a buyer for
the business, and the sale closed in the 2017 first quarter.
On an adjusted basis, after adding back losses from discontinued
operations, costs associated with the HHE and Soundperience
acquisitions, and non-recurring redundancy (severance) costs in the
UK, the company generated $60,000 in adjusted net income for the
quarter. Management believes that this non-GAAP financial
information provides useful supplemental information regarding the
company’s performance by eliminating the discontinued operations
and non-recurring items noted in the table below to allow a more
meaningful analysis of organic operating results. A reconciliation
of GAAP basis net loss to adjusted net income follows:
Three months (in $000s) ended March 31, 2017
GAAP basis net loss $ (428 ) Losses from discontinued
operations 277 Non-recurring acquisition costs 110 Redundancy costs
101 Adjusted net income $ 60
“As expected, we delivered strong top-line growth in the first
quarter, which was driven by gains in medical and value hearing
health,” said Mark S. Gorder, president and chief executive officer
of IntriCon. “Furthermore, we’re making significant progress in
establishing a new direct-to-consumer hearing aid distribution
channel. Today’s Soundperience agreement is another important
milestone in that journey, and we continue to anticipate strong
hearing health and medical performance in the second quarter.”
Gross profit margins were 28.3 percent essentially flat with
28.2 percent in the prior-year first quarter.
Operating expenses for the first quarter were $6.0 million,
compared to $4.6 million in the prior-year first quarter. The
increase was largely due to the inclusion of HHE in 2017.
IntriCon to Acquire 49 Percent Stake in
SoundperienceAlong with first-quarter results, the company also
announced that it has entered into an agreement to acquire a 49
percent stake in Soundperience. Soundperience has designed state of
the art self-fitting hearing aid technology. Soundperience software
applications are the first psycho-acoustic way of analyzing
peripheral hearing and central hearing processing.
Headquartered in Frankfurt, Germany, Soundperience was founded
by Andreas Perscheid, a long-time audiologist and entrepreneur. The
company’s self-fitting hearing aid technology is being used in the
German market today, most notably though IntriCon’s previously
disclosed Signison joint venture with Soundperience. Currently, the
technology is PC based and is wired to the hearing aid during
programing.
The system is expected to be integrated with IntriCon’s wireless
hearing aids during the current quarter, and initially rolled out
in Germany. IntriCon anticipates piloting a cloud-based version of
this fitting system in the United States in the 2017 third
quarter.
Said Gorder, “Incorporating self-fitting technology is a
critical step in creating our high-quality, low-cost hearing
healthcare ecosystem. We believe Soundperience’s technology has the
potential to drastically reduce the price of hearing aids, drive
greater access and increase customer satisfaction. We anticipate
piloting the cloud-based system, with our wireless hearing aids in
the U.S. market via Hearing Help Express.”
Terms of the transaction include IntriCon immediately acquiring
a 17 percent stake (approximately $440,000 U.S.), followed by an
additional 32 percent stake (approximately $880,000 U.S.) in the
2017 fourth quarter. As part of the initial investment, IntriCon
received an irrevocable, worldwide license. The license is
exclusive in the United States.
Business UpdateSales in IntriCon’s medical business
increased 19 percent in the 2017 first quarter from the prior-year
period. The gain was primarily driven by the expected production
ramp of Medtronic’s MiniMed 630G wireless glucose monitoring
system. Higher first-quarter production also resulted in a $1.9
million sequential increase in Medtronic revenue from the 2016
fourth quarter.
The company remains well-positioned with Medtronic, with 2017
second-quarter sales also expected to be at record levels, and
growth anticipated to continue throughout the second-half of 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 available in the United States
in spring 2017.
Hearing health sales increased 9 percent from the prior-year
first quarter, primarily stemming from a $1.4 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 the second half of the year.
Said Gorder, “HHE and Soundperience give IntriCon direct access
to consumers and the emerging value-based hearing health care
market, and the ability to self-fit hearing aids. We believe that
the combination will drive a lower-priced alternative for consumers
to purchase devices directly and successfully manage their own care
experience—circumventing layers of costs associated with the
conventional hearing aid channel.”
Since taking its initial stake in HHE, IntriCon has made
substantial progress integrating and optimizing the organization.
In 2017, IntriCon:
- Completed the relocation of the
business, which is expected to drive operating efficiencies and
better work management by merging two locations into one;
- Enhanced HHE’s sales and marketing
capabilities and increased advertising; and,
- Introduced IntriCon’s
first advanced digital hearing device, the EarMate 4220, into
the HHE portfolio.
The first-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. On
April 24, 2017, IntriCon received formal approval from the NHS for
a third device, the K940D, which will enhance IntriCon’s 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.
Continued Gorder, “On the public policy front, there have been
significant developments during the first quarter. Legislation was
introduced in the House and Senate to make hearing aids available
over the counter for those with mild to moderate hearing loss.
Should it pass, this legislation has substantial implications for
IntriCon and the entire value hearing health industry.”
The proposed legislation would require the FDA to write
regulations ensuring that this new category of over-the-counter
hearing aids meets the same high standards for safety, consumer
labeling and manufacturing protections as all medical devices,
providing consumers the option of an FDA-regulated device at lower
cost.
Said Gorder, “The Over-the-Counter Hearing Aid Act of 2017 has
the potential to remove the significant barriers existing today
that prevent innovative hearing health solutions. We believe that
this legislation would invigorate competition, spur innovation and
facilitate the development of an ecosystem of hearing health care
that provides affordable and accessible solutions to millions of
unserved or underserved Americans.”
Looking AheadConcluded Gorder, “We’re encouraged by our
start to 2017. Sales are ramping as expected and we have the
infrastructure in place to deliver long-term growth. Moreover,
we’re excited about creating and cultivating a new channel to
deliver superior, outcomes-based affordable hearing healthcare
directly to consumers. We believe that this effort will drive
success for IntriCon and deliver value for our shareholders. Based
on information currently available, we anticipate 2017
second-quarter net sales to be $20.0 to $20.4 million and positive
EPS from continuing operations. For the year, we anticipate net
sales to range between $79 million and $81 million.”
Conference Call TodayAs previously announced, the company
will hold an investment community conference call today, Tuesday,
April 25, 2017, beginning at 4 p.m. CT. Mark Gorder, president and
chief executive officer, and Scott Longval, chief financial
officer, will review first-quarter performance and discuss the
company’s strategies. To join the conference call, dial:
1-800-768-6544 and provide the conference ID number 7376617 to the
operator. To access the replay, dial 1-888-203-1112 and enter
passcode 7376617.
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,
including estimates of future results, 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, 2016. 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 Statements of
Operations (In Thousands, Except Per Share Amounts)
Three Months Ended March 31, March 31, 2017 2016
(Unaudited)
(Unaudited)
Sales, net $ 20,088 $ 18,064 Cost of sales 14,412
12,966 Gross profit 5,676 5,098 Operating expenses:
Sales and marketing 2,311 1,156 General and administrative 2,558
2,266 Research and development 1,153 1,165 Total
operating expenses 6,022 4,587 Operating income
(loss) (346) 511 Interest expense (182) (126) Other income
(expense) 56 (70) Income (loss) from continuing
operations before income taxes and discontinued operations (472)
315 Income tax (benefit) expense 64 34 Income
(loss) before discontinued operations (536) 281 Loss on sale of
discontinued operations, net of income taxes (164) - Loss from
discontinued operations, net of income taxes (113)
(300) Net Income (loss) (813) (19) Less: Loss
allocated to non-controlling interest (385) (34) Net
Income (loss) attributable to shareholders $ (428) $ 15
Basic income (loss) per share attributable to shareholders:
Continuing operations $ (0.02) $ 0.05 Discontinued operations
(0.04) (0.05) Net income (loss) per share: $ (0.06) $
0.00 Diluted income (loss) per share attributable to
shareholders: Continuing operations $ (0.02) $ 0.05 Discontinued
operations (0.04) (0.05) Net income (loss) per share:
$ (0.06) $ 0.00 Average shares outstanding: Basic 6,826
5,981 Diluted 6,826 6,228
INTRICON CORPORATION
Consolidated Condensed Balance Sheets (In Thousands,
Except Per Share Amounts) March 31, December 31,
2017
2016
(unaudited)
Current assets: Cash $ 380 $ 667 Restricted cash 612 595
Accounts receivable, less allowance for doubtful accounts of $167
at March 31, 2017 and $170 at December 31, 2016 8,129 7,289
Inventories 13,239 12,343 Other current assets 1,104 957 Current
assets of discontinued operations - 123
Total current assets 23,464 21,974 Machinery and equipment
40,202 40,152 Less: Accumulated depreciation 33,755
33,546 Net machinery and equipment 6,447 6,606
Goodwill 10,555 10,555 Intangible Assets 2,856 2,920 Investment in
partnerships 238 146 Other assets, net 1,447
1,557 Total assets (a) $ 45,007 $ 43,758
Current liabilities: Current maturities of long-term debt $
2,368 $ 2,346 Accounts payable 8,403 6,722 Accrued salaries, wages
and commissions 2,171 2,413 Other accrued liabilities 1,785 1,914
Liabilities of discontinued operations - 123
Total current liabilities 14,727 13,518 Long-term
debt, less current maturities 9,830 9,284 Other postretirement
benefit obligations 490 501 Accrued pension liabilities 730 737
Other long-term liabilities 691 707
Total liabilities (a) 26,468 24,747 Commitments and contingencies
Shareholders’ equity: Common stock, $1.00 par value per share;
20,000 shares authorized; 6,836 and 6,820 shares issued and
outstanding at March 31, 2017 and December 31, 2016, respectively
6,836 6,820 Additional paid-in capital 21,646 21,383 Accumulated
deficit (9,061 ) (8,633 ) Accumulated other comprehensive loss
(952 ) (1,014 ) Total shareholders' equity 18,469
18,556 Non-controlling interest 70 455
Total equity 18,539 19,011 Total
liabilities and equity $ 45,007 $ 43,758
(a) Assets of HHE, the consolidated variable interest entity,
that can only be used to settle obligations of HHE were $5,040 at
March 31, 2017. Liabilities of HHE, for which creditors do not have
recourse to the general credit of IntriCon were $4,166 at March 31,
2017.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170425006545/en/
At IntriCon:Scott Longval, CFO,
651-604-9526slongval@intricon.comorAt Padilla:Matt Sullivan,
612-455-1709matt.sullivan@padillaco.com
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