CORPORATE PRESENTATION
AUGUST 2016
MARK GORDER
CHIEF EXECUTIVE OFFICER
SCOTT LONGVAL
CHIEF FINANCIAL OFFICER
SAFE HARBOR STATEMENT
Forward-looking statements contained in this presentation are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The
statements can be identified by words such as “may,” “will,” “expect,” “believe”,
“anticipate,” “estimate,” “continue” or other similar expressions. There are certain
important factors that could cause results to differ materially from those anticipated
by the forward-looking statements made herein. Reference is made to the company’s
Annual Report on Form 10-K for the year ended December 31, 2015 for further
information on such risk factors.
2
COMPANY OVERVIEW
Company Overview
Ticker Symbol
NASDAQ: IIN
Company Name
IntriCon Corporation
Company Headquarters
Arden Hills, MN
Business
Design, develop and manufacture body-worn medical devices for Value Hearing Health and Medical Biotelemetry
markets
Shares Outstanding
6,795,991
Share Price / Market Cap
$5.00 / $36 million
Revenue Expansion
TTM Revenue of $71.3 million, path to $250 million
Employees
600+ employees
Locations
Facilities located in the US, UK, Europe and Asia
Core technologies
Proprietary Ultra Lower Power (“ULP”) DSP and ULP Wireless, Microminiaturization, Miniature Transducers
Key Relationships
UnitedHealth Group, National Health Service, Academy of Doctors of Audiology (Value Hearing Health) and
Medtronic (Biotelemetry)
3
INVESTMENT HIGHLIGHTS
Strong and stable core medical business
• Value-added supplier business in growing markets (diabetes, cardiac event monitoring, drug delivery sets, etc.) with top tier medical
device manufacturers
• Sole source provider of Medtronic’s Continuous Glucose Monitoring (“CGM”) products and expect to see continued double-digit
growth as its components are built into the design of Medtronic’s current and future product portfolio
• Long standing relationships with Smiths Medical and Hospira to supply drug delivery products and kits
Disruptive opportunity in Value Hearing Health (“VHH”)
• New market entrants and hearing aid alternatives (PSAPs, etc.) are disrupting the traditional Hearing Health market and is driving
audiologists to explore new ways of operating
• Growing appetite among independent audiologists to find alternative, low-cost suppliers in an effort to unbundle devices and
services
• Manufacturing expertise, proprietary product portfolio, and key partnerships driving opportunity for IIN to supply VHH market
Proprietary technology portfolio complements global manufacturing expertise
• Extensive IP portfolio consisting of 19 awarded and 7 pending patents (ULP-DSP, ULP-Wireless, Microminiaturization, Miniature
Transducers)
• Cumulative R&D spend over last 5 years of $25 million in the VHH and Medical Biotelemetry markets
• Class I, II, III medical device manufacturer with all key facilities holding regulatory certifications
• FDA registrations in MN, CA and Singapore
Strong relationships with top tier customers and key partners in core medical business and VHH channel
• UnitedHealth Group – IIN to supply hearing aids for Medicare and Part D participants
• National Health Service – Approval to launch high-quality hearing aid line in the UK
• earVenture – JV with Academy of Doctors of Audiology (“ADA”) to develop VHH distribution channel
4
COMPANY OVERVIEW – CORPORATE MISSION & GOALS
IntriCon’s mission is to enhance the mobility and effectiveness of body-worn medical devices that connect
people and the device around them
TTM Revenue by Market
PADA
11%
Medical
59%
Corporate Goal
Status
Double-digit annual revenue growth




Improve gross margins to 30%+
 Gross margins increased to 27.2% in 2015
 2016 1H gross margins decreased 90 basis points over 2015 1H
 Anticipate achieving 30%+ gross margin run rate during 2017
Generate free cash flow and reduce debt
 Debt increased in 2015 due to significant infrastructure investments
 Anticipate debt reduction in 2016
Prudently invest in strategic R&D
 R&D investments over the last five years exceed $25M
 2016 1H R&D spend increased to 8.4% or revenue, compared to 7.4% in 2015 1H
 Anticipate increased R&D investments in wireless and DSP technologies
Validate VHH assumptions




Revenue increased 29% in 2014 and 2% in 2015
2016 1H revenue increased 4% over 2015 1H
Anticipate single-digit revenue growth in 2016
Positioned for double-digit growth in 2017
Secured partnership with hi HealthInnovations (UnitedHealth Group)
Received NHS product approval
Established joint venture with the ADA
Anticipate securing additional channel partners
5
Hearing Health
30%
COMPANY OVERVIEW – TECHNOLOGY PORTFOLIO
• We currently have 4 core technologies

Ultra Low Power (“ULP”) Digital Signal Processing (“DSP”)

ULP Wireless

Microminiaturization (Mechanics 7 Electronics)

Miniature Transducers
Medical
Biotelemetry
Value Hearing
Health
PADA
• Currently we hold over 19 patents, with 7 more patents pending
• In addition to patents we hold numerous trade secrets
• Cumulative R & D spend over last five years of $25M has positioned the company to drive growth in the
Value Hearing Health and Medical Biotelemetry markets
6
INVESTMENT PROPOSITION – MULTIPLE GROWTH PLATFORMS
Emerging VHH Business
Established OEM Business
• Establishing disruptive hearing
health delivery model
• Market has significant growth
potential
• Secured key channel partners:
• Established in growing markets with
strong fundamentals
• Solid customer base, including
Medtronic, Smiths, UNH
• Sole source provider of Medtronic’s
CGM products
• Extensive IP portfolio
• Global, low-cost manufacturing
footprint
•
•
•
•
earVenture (JV with ADA)
National Health Service (NHS)
UnitedHealth Group
DTC / OTC
• Significant investment in IP and
infrastructure
7
TWO GROWTH PLATFORMS
Medical Biotelemetry
Value Hearing Health
8
MEDICAL BIOTELEMETRY MARKET DYNAMICS
• Growing need for body-worn technology to deliver new methods for diagnosis and therapy
• Home care and alternative care requires connectivity through low power wireless
• IntriCon has proven capability for developing proprietary body-worn medical devices for both custom OEM or
proprietary platform based products
 Glucose Sensor Transmitter – Medtronic
 Cardiac Diagnostic Monitoring Devices (Holter, event and MCT)
• IntriCon’s miniaturization skills, core technologies and proven body-worn medical device expertise position the
Company to assist large medical product manufacturers to enter the alternative care and home care markets
• Currently serve the Diabetes and Cardiac medical markets with biotelemetry monitoring devices
• Design and develop suite of medical coils and micro coils that are currently being used in pacemaker programming
and interventional catheter positioning applications
• Supply various drug delivery products and kits to top tier medical device companies such as Smith Medical and
Hospira
Diabetes
• Largest product line is Medtronic’s MiniMed REALTime Transmitter (“GST”)
Cardiac Diagnostic Monitoring
• Provide solutions for ambulatory cardiac monitoring,
including:
 630G system received FDA approval in August 2016
 Designed into future generations, including 670G system
 Provide host of system accessories as well, including the
Enlite Sensor, Connect and Charger
 VX3 – FDA approved
• Digital Holter monitor designed for 24-72 hours
continuous Holter recording
 Sirona Platform – FDA approved
• Lighter, thinner Holter and Event Recorder designed for
patient comfort
• Provides high fidelity data acquisition for accurate
ambulatory monitoring with wireless communication into
mobile devices and into the cloud
• Medtronic revenue makes up approximately 40% of
total revenue
9
TWO GROWTH PLATFORMS
Value Hearing Health
Medical Biotelemetry
10
HEARING HEALTH MARKET OPPORTUNITY
• Over 5 percent of the world’s population have a disabling hearing loss
• ~ 11M hearing aids are sold globally per year: ~4.5M Europe, ~3M US, ~2M APAC, ~1.5M ROW
• Big 6 manufactures control over 98 percent of the global market
• Global hearing aid unit volume is growing at 3 to 5 percent per year
Development in Population with Hearing Loss in US
Hearing Aid Penetration by Country
60.0
Population (millions)
50.0
40.0
30.0
24.7 26.1
28.6
31.5
33.4
35.8
38.4
41.0
43.7
46.4
48.8
50.9
50.0%
52.9
40.0%
30.0%
20.0%
20.0
10.0%
10.0
0.0%
-
• Current penetration of the market US is 20%
(consistent with most developed world countries)
and has not changed in four decades
• In the US there are ~ 36M hearing impaired
individuals and this population to expected to
increase to ~45M by 2030
11
HEARING HEALTH MARKET DYNAMICS
• Increasing number of conflicts in channels
 Big 6 manufacturers own conventional retail outlets and control ~80% of US retail
 Alternative channels beginning to emerge, Costco now has approximately 10% of US market
 Independent Health Care providers are feeling threatened by suppliers
 Unregulated devices such as PSAPs and SLDs are growing rapidly
• In order to drive widespread insurance models in the US, there must be a shift
from the current retail model to an outcome-based model, with significantly lower
device costs and unbundling of device and services costs
 Cost ~$100 to manufacture
 Sold @ ~$800 wholesale
 Sold @~$2,300 retail
 PCAST report highlights the inefficiencies of the current distribution channel
 This highlights the need for revising regulation and creating new channels to increase the
opportunities for consumer choice
 Strong support from consumer groups such as the HLAA
• Opportunity for new channels / fitting methods / product solutions
 Emergence of disruptive low power wireless technology to improve channel productivity,
ease of use, and consumer outcomes
12
HEARING HEALTH ADDRESSABLE MARKET
Our initial focus is attacking great unmet need in the United States and United Kingdom markets
 United States Market
US Market: ~ 40M Hearing Impaired
 Double the penetration via more effective delivery model
 As demonstrated by several countries, reimbursement or significantly less
expensive hearing health care has tremendous effect on penetration
20%
 We estimate the unserved addressable US market to be approx $1B
 Phase 1: Provide best outcome based technology at best price
 Phase 2: Expand DTC with best-in-class customer service
20%
 Phase 3: DTC with Network of dispensers
60%
 Phase 4: Connect Dispenser Network with Payer
Est $1B
Market: 5.5M
Hearing
Devices per
year
 United Kingdom
 Current penetration rate of 40 percent, primarily due NHS reimbursement
 NHS largest distributes ~ 1.2 million hearing aids a year ($120M spend)
 IntriCon appointed to NHS framework in beginning of 2016
 Increased sales and marketing infrastructure, offering best outcome based
technology at competitive price
 Conducting trails with wireless technology to improve NHS fitting efficiency
 A modest 10 percent market share of NHS = 120,000 devices or $12.0M
 Other International Markets
 Partner with large retailers and other distributors
13
Unserved
Served
Addressable
INTRICON’S UNIQUE POSITION
We are best positioned to supply to the emerging Value Hearing Health Market

Low cost, high quality supplier of hearing aids for over 35 years

Extensive product portfolio – state of the art technology

Technology Road Map: Extensive pipeline of core technologies

Global Manufacturing Presence

Proven track record high volume, high quality medical device manufacturing
–
Medtronic with Class III miniature wireless medical devices
–
United HealthCare with hearing aid devices
–
Success with biotelemetry devices
–
Have provided over 250,000 hearing devices per year on an OEM basis
14
REVENUE AND PROFITABILITY
Revenue & Non-GAAP EPS
• Revenue for 1H increased 4% over 2015 1H
• Revenue and profitability in 1H was below expectations primarily due to
Medtronic as they manage the transition of their recent FDA product
approval and launch for the MiniMed 630G system
• Anticipate increased revenue and profitability in 2H
$38.0
$0.45
$0.30
$36.0
$0.15
$34.0
$0.13
$33.7
$30.0
$(0.45)
2016 1H
EPS
$10.0
30.0%
$8.0
28.0%
26.4%
$6.0
$4.0
$6.9
25.5%
26.0%
$7.4
24.0%
$2.0
22.0%
$2015 1H
Fixed Overhead
20.0%
2016 1H
Gross Margin %
$4.0
9.0%
8.4%
8.5%
$3.0
8.0%
$2.0
7.5%
7.5%
$2.5
$3.0
2015 1H
2016 1H
$1.0
7.0%
R&D Spend
15
$(0.15)
$(0.30)
Revenue
Research & Development
• In 2015 the Company spent $5.2 million and approximately $25M over
the last 5 years
• Current investments are directed towards development of wireless
technologies geared to driving efficiencies in the VHH delivery model
• Anticipate R&D spend to range between 7% – 8.5% in future periods
$(0.24)
$-
$32.0
2015 1H
Gross Margin
• Invested heavily in global manufacturing footprint
• $2.5M upgrade of ERP system in 2015
• Investment has been completed, allowing for future gross margin
expansion
• Existing capacity allows for anticipated revenue growth in 2017 and 2018
$35.2
R&D % of Revenue
BALANCE SHEET OVERVIEW
All values in USD 000’s
December 31, 2015
June 30, 2016
$979
$1,083
23,910
23,954
6,742
7,023
10,255
10,734
$41,886
$42,794
$11,678
$10,438
Total Debt (incl. current portion)
9,837
9,581
Other Liabilities
1,474
1,482
18,897
21,293
$41,886
$42,794
Consolidated Balance Sheet as of,
Cash & Equivalents
Other Current Assets
Property, Plant and Equipment, net
Other Assets
Total Assets
Current Liabilities (ex. Current debt)
Shareholders’ Equity
Total Liabilities & Shareholders’ Equity
16
COMPANY OVERVIEW – GLOBAL MANUFACTURING PRESENCE
Locations
•
Arden Hills, MN (HQ) – ISO 13485:2003
•
Vadnais Heights, MN – ISO 13485:2003
•
Singapore – ISO 13485:2003 / ISO 9001:2008
•
Batam, Indonesia – ISO 9001:2008
•
San Diego, CA – ISO 13485:2003
•
Munich, Germany
•
United Kingdom
Global manufacturing footprint provides:
•
Class I, II, III medical device manufacturer
•
High-tech medical products with a low cost option
•
All key facilities with regulatory certifications (JPAL, TSO,
ISO, CE)
•
FDA registrations in MN, CA, and Singapore
17
INVESTMENT HIGHLIGHTS
Strong and stable core medical business
• Value-added supplier business in growing markets (diabetes, cardiac event monitoring, drug delivery sets, etc.) with top tier medical
device manufacturers
• Sole source provider of Medtronic’s Continuous Glucose Monitoring (“CGM”) products and expect to see continued double-digit
growth as its components are built into the design of Medtronic’s current and future product portfolio
• Long standing relationships with Smiths Medical and Hospira to supply drug delivery products and kits
Disruptive opportunity in Value Hearing Health (“VHH”)
• New market entrants and hearing aid alternatives (PSAPs, etc.) are disrupting the traditional Hearing Health market and is driving
audiologists to explore new ways of operating
• Growing appetite among independent audiologists to find alternative, low-cost suppliers in an effort to unbundle devices and
services
• Manufacturing expertise, proprietary product portfolio, and key partnerships driving opportunity for IIN to supply VHH market
Proprietary technology portfolio complements global manufacturing expertise
• Extensive IP portfolio consisting of 20 awarded and 8 pending patents (ULP, DSP, ULP Wireless, Microminiaturization, Miniature
Transducers)
• Cumulative R&D spend over last 5 years of $24 million in the VHH and Medical Biotelemetry markets
• Class I, II, III medical device manufacturer with all key facilities holding regulatory certifications
• FDA registrations in MN, CA and Singapore
Strong relationships with top tier customers and key partners in core medical business and VHH channel
• UnitedHealth Group – IIN to supply hearing aids for Medicare and Part D participants
• National Health Service – Approval to launch high-quality hearing aid line in the UK
• earVenture – JV with Academy of Doctors of Audiology (“ADA”) to develop VHH distribution channel
18