IIN Intricon Corporation

Intricon Corporation (NASDAQ: IIN), an international joint development manufacturer engaged in designing, developing, engineering, manufacturing, and packaging miniature interventional, implantable and body-worn medical devices, today announced financial results for its fourth quarter and year ended December 31, 2021.

Fourth Quarter Highlights:

• Revenue of $32.2 million compared to $30.3 million in the prior year period
  • Diabetes revenue increased 2% compared to the prior year
  • Other medical revenue increased 36.1% over the prior year period
• Gross profit margin of 25.2%, compared to 25.7% in the prior year period
• Net income of $0.00 per diluted share versus net income of $0.12 per diluted share in the prior year period
• Cash and investment securities of $29.6 million as of December 31, 2021

Full Year Financial Highlights:

• Revenue of $125.2 million compared to $102.8 million in the prior year
  • Diabetes revenue increased 17.6% year-over-year
  • Interventional catheters revenue increased 98.0%, which included a full year contribution from the acquisition of EMS in May 2020
  • Other medical revenue increased 13.9% year-over-year
• Gross profit margin of 25.1%, compared to 25.5% in the prior year
• Net loss per diluted share of $0.01 versus net loss of $0.28 per diluted share in the prior year

“The Intricon team delivered another strong quarter, demonstrating continued high-level execution and consistent growth throughout an undoubtedly challenging time. We saw expansion throughout our core markets, which led to another period of year-over-year and sequential revenue improvement," said Scott Longval, President and Chief Executive Officer. "We also continued to take steps towards further securing our supply chain and improving direct labor efficiencies to ensure we can continue to meet the future demands of our valued customers and partners."

Fourth Quarter 2021 Financial ResultsRevenue

For the 2021 fourth quarter, the company reported net revenue of $32.2 million versus $30.3 million in the comparable prior-year period.

Revenue in Intricon’s Medical business was $25.0 million, an increase from $23.9 million in the comparable prior-year period. The year-over-year increase was driven primarily by the Other medical business line following commercialization of newly developed products as the Company continued to expand its surgical navigation product offering.

Hearing Health revenue was $5.6 million in the fourth quarter of 2021 compared to $5.1 million in the prior-year fourth quarter. The revenue increase was largely attributed to the expansion of the company’s OTC hearing aid pilot program, offset by the planned transition from the direct-to-end-consumer business.

Gross Profit Margin and Operating Expenses

Gross profit margin in the fourth quarter of 2021 was 25.2%, compared to 25.7% in the prior-year fourth quarter, primarily due to product mix as well as supply chain inefficiencies.

Operating expenses for the fourth quarter were $8.0 million, compared to $6.8 million in the comparable prior-year period. The increase was primarily due to incentive compensation expense tied to year-over-year sales and EBITDA improvement, as well as one-time expenses associated with the CFO transition.

GAAP Net Income

GAAP net income was $22,000 or $0.00 per diluted share in the fourth quarter of 2021, versus net income of $1.1 million or $0.12 per diluted share, for the 2020 fourth quarter.

Non-GAAP Adjusted Net Income

Non-GAAP adjusted net income was $2.2 million or $0.23 per diluted share in the fourth quarter of 2021, versus non-GAAP adjusted net income of $3.0 million or $0.32 per diluted share, for the 2020 fourth quarter. See “Reconciliation of Adjusted Net Income and Earnings Per Share” in the tables that follow.

Full Year 2021 Financial ResultsRevenue

For 2021, the company reported net revenue of $125.2 million versus $102.8 million in 2020.

Revenue in Intricon’s Medical business was $98.4 million for 2021, an increase from $79.0 million in 2020. The year-over-year increase was primarily attributed to increased demand for diabetes products from Intricon’s largest customer as COVID-19 restrictions eased and new products originally launched in 2020 became more widely distributed. In addition, year-over-year revenue growth reflected a full year of EMS revenue, acquired in May 2020, which contributed $14.5M in 2021, as well as continued expansion of the company’s surgical navigation products.

Hearing Health revenue was $22.4 million in 2021 compared to $19.0 million in 2020. The revenue increase year-over-year was largely attributed to the launch of a new customer OTC hearing aid pilot program and stronger legacy OEM sales reflecting pent-up demand that emerged as a result of the COVID-19 pandemic.

Gross Profit Margin and Operating Expenses

Gross profit margin in 2021 was 25.1%, compared to 25.5% in 2020, reflecting supply chain and labor market inefficiencies throughout 2021, partially offset by higher revenue volumes.

Operating expenses for 2021 were $30.9 million, compared to $29.3 million in 2020. The change in operating expenses year-over-year was primarily due to continued expansion of the company’s business development function, an increase in incentive compensation expense and headcount additions.

GAAP Net Loss

GAAP net loss was $106,000 or $0.01 per diluted share for 2021, versus net loss of $2.5 million or $0.28 per diluted share, for 2020.

Non-GAAP Adjusted Net Income

Non-GAAP adjusted net income was $8.6 million or $0.89 per diluted share for the full year 2021, versus non-GAAP adjusted net income of $7.0 million or $0.75 per diluted share, for the prior year.

Cash, Cash Equivalents, and Short-term Investments

Total cash, cash equivalents and short-term investments, was $25.0 million as of December 31, 2021, compared to $28.4 million as of December 31, 2020.

Altaris Capital Partners Transaction Earlier today, Intricon announced that it has entered into a definitive agreement whereby an affiliate of Altaris Capital Partners, LLC (collectively with its affiliates, “Altaris”), an investment firm focused exclusively on the healthcare industry, will acquire the company. Under the terms of the agreement, Altaris will acquire all outstanding shares of Intricon for $24.25 per share that values Intricon at an equity value of approximately $241 million. The purchase price represents a meaningful premium of approximately 39% to Intricon's closing stock price on February 25, 2022.

In light of this pending transaction, Intricon will not host a conference call to review its fourth quarter and full year 2021 financial results.

About Intricon CorporationIntricon is a Joint Development Manufacturer that integrates components and assemblies to advance micro-medical technology across a range of device platforms for global customers. Intricon approaches each engagement with an all-in commitment, working with customers every step of the way- from the earliest idea stages to ongoing production - in order to advance program performance and deliver results. With a focus on key device platforms, Intricon helps advance clinical outcomes by always looking ahead with proactive support and resources through integration of its core competencies. Intricon has facilities in the United States, Asia and Europe. The company's common stock trades under the symbol "IIN" on the NASDAQ Global Market.

Use of non-GAAP Adjusted Financial Measures

This press release contains financial measures that have not been calculated in accordance with accounting principles generally accepted in the U.S. (GAAP). These non-GAAP measures include:

• Adjusted net income
• Adjusted net income per diluted share

These non-GAAP financial measures reflect adjustments for expenses and gains that the company believes do not reflect the company’s core operating performance. The company has presented these non-GAAP financial measures because the company believes this presentation, when reconciled to the corresponding GAAP measures, provides useful information to investors in evaluating the company’s operational performance. Management uses these non-GAAP measures internally to evaluate our performance and in making financial, operational and planning decisions, including with respect to incentive compensation. The company believes that the presentation of these measures provides investors with greater transparency with respect to the company’s results of operations and that these measures are useful for period-to-period comparison of results and trends. The company further believes that the use of these non-GAAP financial measures provides an additional tool for investors in comparing the company’s financial results with the financial results of other companies.

The company periodically reassesses the components of non-GAAP adjustments for changes in how the company evaluates Intricon’s performance, changes in how the company makes financial and operational decisions, and considers the use of these measures by Intricon’s competitors and peers to ensure the adjustments are still relevant and meaningful.

Non-GAAP financial measures should not be used as a substitute for GAAP measures, or considered in isolation, for the purpose of analyzing our operating performance. The presentation of these non-GAAP financial measures should not be construed as an inference that future results will not be affected by similar items.

Forward-Looking StatementsStatements made in this release and in Intricon’s other public filings and releases that are not historical facts orthat include forward-looking terminology, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be affected by known and unknown risks, uncertainties and other factors that are beyond Intricon’s control, including without limitation, the impacts of the COVID-19 pandemic and measures taken in response, the closing of the proposed Altaris transaction does not occur and global economic or political conditions, including the outbreak or escalation of hostilities, 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, 2020 and the Quarterly Report on Form 10-Q for the quarter ended September 30, 2021. 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.

Additional Information and Where to Find ItThis communication does not constitute an offer to sell or the solicitation of an offer to buy the securities of Intricon or the solicitation of any vote or approval. The proposed merger and the merger agreement described above will be submitted to Intricon’s shareholders for their consideration at a special meeting of the shareholders. In connection therewith, Intricon intends to file relevant materials with the SEC, including a definitive proxy statement on Schedule 14A, which will be mailed or otherwise disseminated to Intricon’s shareholders when it becomes available. Intricon may also file other relevant documents with the SEC regarding the proposed merger. SHAREHOLDERS ARE ADVISED TO READ THE PROXY STATEMENT AND ANY OTHER DOCUMENTS FILED OR TO BE FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. Shareholders may obtain a free copy of the definitive proxy statement and any amendments or supplements thereto and other documents filed by Intricon, once such documents are filed with the SEC, at the SEC's Web site at http://www.sec.gov. The proxy statement and such other documents may also be obtained for free from Intricon by directing such request to Intricon at 1260 Red Fox Road, Arden Hills, Minnesota, 55112, Attention: Scott Longval, telephone: 651-636-9770.

Participants in the Solicitation

Intricon and its directors, executive officers and other members of its management and employees may be deemed to be participants in the solicitation of proxies from its shareholders in connection with the proposed merger. A list of the names of such directors and executive officers and information concerning such participants’ ownership of Intricon’s common stock is set forth in Intricon’s definitive proxy statement on Schedule 14A for the 2021 annual meeting of shareholders, filed with the SEC on March 22, 2021, as modified or supplemented by any Form 3 or Form 4 filed with the SEC since the date of such proxy statement, and by Intricon’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 16, 2021. Additional information about the direct or indirect interests, by security holdings or otherwise, of those participants will be included in the definitive proxy statement and other documents filed with the SEC regarding the proposed merger, if and when they become available. Free copies of these materials may be obtained as described in the preceding paragraph.

Investor ContactLeigh Salvo(415) 937-5404investorrelations@intricon.com

INTRICON CORPORATIONMARKET REVENUE(Unaudited)

	FOURTH QUARTER									YEAR TO DATE
($ in 000's)	2021			2020			Change			2021			2020			Change
Medical:
Diabetes	$	18,097		$	17,742		2.0	%		$	69,733		$	59,311		17.6	%
Interventional Catheters		3,133			3,400		-7.9	%			14,572			7,361		98.0	%
Other Medical		3,770			2,770		36.1	%			14,084			12,365		13.9	%
Hearing Health:Hearing Health Value Based DTEC		792			917		-13.6	%			3,479			4,430		-21.5	%
Hearing Health Value Based ITEC		2,195			1,670		31.4	%			8,048			5,558		44.8	%
Hearing Health Legacy OEM		2,613			2,524		3.5	%			10,848			8,968		21.0	%
Other:Professional Audio Communications		1,573			1,278		23.1	%			4,442			4,780		-7.1	%
Total	$	32,173		$	30,301		6.2	%		$	125,206		$	102,773		21.8	%

INTRICON CORPORATIONCONSOLIDATED STATEMENT OF OPERATIONS(In Thousands, Except Per Share Amounts)

		Three Months Ended								Twelve Months Ended
		December 31,				December 31,				December 31,				December 31,
		2021				2020				2021				2020
Revenue, net	$	32,173			$	30,301			$	125,206			$	102,773
Cost of goods sold		24,055				22,502				93,821				76,598
Gross profit		8,118				7,799				31,385				26,175
Operating expenses:
Sales and marketing		2,224				1,633				8,275				6,671
General and administrative		4,587				3,334				16,579				15,007
Research and development		1,540				1,380				5,315				5,248
Other operating expenses		(337	)			407				729				660
Restructuring charges		-				-				-				1,171
Acquisition costs		-				-				-				493
Total operating expenses		8,014				6,754				30,898				29,250
Operating income (loss)		104				1,045				487				(3,075	)
Interest (expense) income, net		11				9				(21	)			331
Other (expense) income, net		(134	)			23				(395	)			316
(Loss) Income before income taxes		(19	)			1,077				71				(2,428	)
Income tax (benefit) expense		(43	)			(33	)			135				61
Net income (loss)		24				1,110				(64	)			(2,489	)
Less: Income allocated to non-controlling interest		2				18				42				35
Net income (loss) attributable to Intricon shareholders	$	22			$	1,092			$	(106	)		$	(2,524	)
Income (loss) per share attributable to Intricon Shareholders:
Basic	$	0.00			$	0.12			$	(0.01	)		$	(0.28	)
Diluted		0.00				0.12				(0.01	)			(0.28	)
Average shares outstanding:
Basic		9,147				8,945				9,082				8,894
Diluted		9,564				9,447				9,082				8,894

INTRICON CORPORATIONCONSOLIDATED BALANCE SHEET(In Thousands, Except Per Share Amounts)

		December 31,				December 31,
		2021				2020
Current assets:
Cash and cash equivalents	$	5,584			$	8,608
Restricted cash		645				672
Short-term investment securities		19,420				19,793
Accounts receivable, less provision for doubtful accounts of $69 at December 31, 2021 and $210 at December 31, 2020		8,257				10,115
Inventories		24,456				19,513
Contract assets		11,455				9,107
Other current assets		4,564				1,466
Total current assets		74,381				69,274
Machinery and equipment		48,208				45,661
Less: Accumulated depreciation		34,371				31,484
Net machinery and equipment		13,837				14,177
Goodwill		13,873				13,714
Intangible assets		8,999				10,785
Operating lease right-of-use assets, net		5,138				6,701
Investment in partnerships		473				570
Long-term investment securities		4,558				5,085
Other assets, net		1,200				990
Total assets	$	122,459			$	121,296
Current liabilities:
Current financing leases	$	4			$	21
Current operating leases		1,807				2,156
Accounts payable		9,398				8,670
Accrued salaries, wages and commissions		5,185				3,581
Other accrued liabilities		3,818				4,235
Total current liabilities		20,212				18,663
Noncurrent operating leases		3,431				4,726
Pension and postretirement benefit obligations		1,093				1,292
Deferred tax liabilities, net		873				1,018
Other long-term liabilities		3,100				4,398
Total liabilities		28,709				30,097
Commitments and contingencies
Shareholders’ equity:
Common stock, $1.00 par value per share; 20,000 shares authorized; 9,179 and 8,951 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively		9,179				8,951
Additional paid-in capital		91,785				89,702
Accumulated deficit		(6,916	)			(6,810	)
Accumulated other comprehensive loss		(393	)			(679	)
Total shareholders' equity		93,655				91,164
Non-controlling interest		95				35
Total equity		93,750				91,199
Total liabilities and equity	$	122,459			$	121,296

INTRICON CORPORATIONReconciliation of Adjusted Net Income (Loss) and Earnings Per Share(Unaudited)

		Three Months Ended								Fiscal Year Ended
		December 31,				December 31,				December 31,				December 31,
		2021				2020				2021				2020
Net loss - GAAP attributable to Intricon	$	22			$	1,092			$	(106	)		$	(2,524	)
Identified adjustments attributable to Intricon:
Depreciation (1)		814				684				3,167				3,017
Amortization of intangibles (2)		516				497				2,007				1,456
Stock-based compensation (3)		436				338				1,925				1,982
Other amortization (4)		119				(6	)			367				150
Legal settlement and related fees (5)		13				229				1,468				530
Fair value of contingent consideration (6)		(350	)			407				(739	)			660
COVID-19 Singapore government support (7)		(44	)			(193	)			(185	)			(779	)
Executive transition costs (8)		649				-				649				843
EMS acquisition costs (9)		-				-				-				493
Restructuring charges (10)		-				-				-				1,171
Non-GAAP adjusted net income attributable to Intricon (11)	$	2,175			$	3,048			$	8,553			$	6,999
Average basic shares outstanding		9,147				8,945				9,082				8,894
Average diluted shares outstanding		9,564				9,447				9,613				9,312
Non-GAAP adjusted net income attributable to Intricon per diluted share	$	0.23			$	0.32			$	0.89			$	0.75
(1) Depreciation represents the expense of property, plant and equipment.
(2) These expenses represent amortization expenses of intangible assets.
(3) Stock-based compensation represents expenses related to awards under the Company's equity incentive plans.
(4) These expenses represent amortization of other assets.
(5) The Company's subsidiary, Hearing Help Express, Inc., settled its Telephone Consumer Protection Act litigation in the second quarter of 2021 for $1,300. The settlement will be paid during the 2022 first quarter. Additional fees included herein relate to the legal fees associated with the TCPA defense.
(6) These expenses represent changes in the fair value of contingent consideration in the period for the purchase of EMS.
(7) Singapore Government provided COVID-19 financial assistance to our Singapore subsidiaries during the periods.
(8) Executive transition costs include; (i) a payment of $390 (equal to one year's salary and other benefits) and $259 of RSUs issued to our former CFO in 2021 and (ii) a payment of $443 (equal to one year's salary) and issuance of $400 of RSUs to our retiring CEO, Mark Gorder, in 2020
(9) In May of 2020, the Company acquired EMS and recorded $493 in acquisition related costs in the 2020 second quarter.
(10) On May 20, 2020, the Company announced a strategic restructuring plan designed to accelerate the Company’s future growth by focusing resources on the highest potential growth areas. Total restructuring charges for the nine months ended September 30, 2020 were $1,171, including $732 related to one-time employee termination benefits, $326 for lease modification costs at Hearing Help Express and $113 for losses on disposal of assets.
(11) None of these adjustments have a material income tax impact.