IntriCon Reports Fourth Quarter and Full Year 2018 Results

February 19, 2019 |

11 min read

Medical and Value Hearing Health Performance Drive Record Quarterly Revenue; Company Provides Guidance for 2019

Feb. 19, 2019 21:05 UTC

Medical and Value Hearing Health Performance Drive Record Quarterly Revenue; Company Provides Guidance for 2019

ARDEN HILLS, Minn.--(BUSINESS WIRE)-- 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 and year ended December 31, 2018.

Recent Highlights:

Record quarterly revenue of $30.8 million, a 41.1 percent increase over the prior-year fourth quarter;
Gross margin of 30.0 percent, consistent with the comparable prior-year period;
Net income per share of $0.09 versus $0.05 in the 2017 fourth quarter;
Grew revenue from its largest medical customer by 74.8 percent compared to fourth quarter 2017;
Increased indirect-to-end-consumer hearing healthcare revenue by 79.9 percent year over year;
Continued buildout of infrastructure to meet future demand;
Acquired source code from Soundperience for its Sentibo Smart Brain self-fitting software; and
Hired Doug Pletcher as vice president of medical biotelemetry business development.

“Our medical and indirect-to-end-consumer value hearing health businesses continued to drive strong top-line performance, leading to another quarter of record revenue,” said Mark S. Gorder, president and chief executive officer of IntriCon. “I’m pleased with the meaningful progress we made in 2018 towards advancing our key growth initiatives, bolstering our medical leadership team, and expanding our technology.

“I am confident that we are entering 2019 in our strongest position to date. We have the capital to pursue strategic initiatives and a well-developed infrastructure to support our efforts in medical and value hearing health. I believe that we are well positioned in the early stages of long-term, sustained growth within our core markets. The diabetes market is experiencing tremendous growth, with continuous glucose monitoring (CGM) a critical component to serving the needs of many diabetics. And as the value-hearing healthcare space emerges, we believe we are at the forefront of providing affordable and accessible solutions to unserved or underserved hearing-impaired Americans.”

Fourth Quarter 2018 Financial Results
For the 2018 fourth quarter, the company reported net revenue of $30.8 million, up 41.1 percent from $21.8 million in the comparable prior-year period. The increase was primarily due to year-over-year revenue gains from the company’s largest medical customer and growth in its value-based indirect-to-end-consumer hearing healthcare business.

Fourth-quarter gross margins were 30.0 percent, consistent with 30.0 percent in the prior-year fourth quarter. Gross margins in the quarter were constrained by costs related to additional infrastructure investments.

Operating expenses for the fourth quarter were $8.2 million, compared to $6.1 million in the comparable prior-year period. The increase stemmed from increased advertising investments at Hearing Help Express (HHE), and support costs related to key initiatives to drive overall business growth.

The company posted net income of $868,000, or $0.09 per diluted share, versus $396,000 or $0.05 per diluted share, for the 2017 fourth quarter.

Full Year 2018 Financial Results
For the full year ended December 31, 2018, the company reported revenue of $116.5 million, up 28.5 percent from $90.6 million in 2017.

Gross margins were 31.9 percent, up from 29.5 percent in 2017. The increase in margin was primarily due to the increased volume throughout 2018.

Operating expenses were $30.0 million, compared to $24.2 million in the prior year. The increase stemmed from increased advertising investments at HHE, and support costs related to key initiatives to drive overall business growth.

Net income attributable to shareholders was $5.5 million, or $0.64 per diluted share, versus $2.1 million, or $0.28 per diluted share, in 2017.

Guidance for Full Year 2019
The company anticipates 2019 revenue to range between $128 million to $133 million. Gross margins for the 2019 full year are expected to be approximately 30.0 to 31.5 percent. In general, the company anticipates linear revenue growth and gross margin improvement through 2019, however this could be impacted by commercial product launch timing from its largest customer and mix shifts between product lines.

Business Update
Revenue in the company’s medical business increased 64.8 percent in the 2018 fourth quarter over the comparable prior-year period. The gain was primarily driven by the ongoing production of wireless CGM systems for the company’s largest customer. Revenue to this customer increased 74.8 percent in the fourth quarter over the comparable prior year period. The company remains very well positioned with this customer for 2019, providing key system components including CGM systems, sensor assembly and related accessories.

During the year, the company expanded its infrastructure to support anticipated growth from its current medical customers and other new business development efforts. Expansion efforts include a newly leased 37,000-square-foot medical manufacturing and clean room facility in Minnesota, an additional 10,000-square-foot medical assembly space in Singapore, 13 new molding presses and a high-speed printed circuit board assembly line. In addition to these investments, our current customers invested several million dollars in tooling and automation within our facilities. While the company has begun limited production on certain products, it is still working with current medical customers to complete required validation and qualification of several key production lines.

Recently, the company hired Doug Pletcher as Vice President of Medical Business Development. Pletcher has more than 25 years of executive management and business development experience in the medical device industry. In this new role, Pletcher is responsible for sales and marketing of new product platforms into the medical biotelemetry market.

On the hearing health front, total revenue increased by 10.3 percent over the prior-year fourth quarter, led by the company’s value-based indirect-to-end-consumer business, which posted strong revenue growth of 79.9 percent. This gain was partially offset by a temporary decline in the direct-to-end-consumer channel and expected continued waning in the conventional sales channel.

The company continues to build its value hearing health technology portfolio, with wireless and self-fitting technologies. Last month, the company closed on its acquisition of the Sentibo Smart Brain self-fitting software source code from Soundperience, positioning the company to capitalize on the pending over-the-counter (OTC) hearing aid regulation. Sentibo Smart Brain self-fitting software is designed to improve both channel productivity and the quality of first-time fittings, resulting in lower prices, greater access and increased customer satisfaction.

Conference Call
The company will hold a conference call today, Tuesday, February 19, 2019, beginning at 4 p.m. CT. To join the conference call, dial: 1-855-719-5012 and provide the conference ID number 7881455 to the operator. To access the replay, dial 1-888-203-1112 and enter passcode 7881455.

About IntriCon Corporation
Headquartered 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 Statements
Statements 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, 2017. 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
MARKET REVENUE
(Unaudited)

	FOURTH QUARTER						YEAR TO DATE
($ in 000's)	2018		2017		Growth		2018		2017		Growth

Medical	$	20,158	$	12,232	64.8	%	$	75,645	$	53,452	41.5	%
Diabetes		17,666		10,104	74.8	%		65,197		43,365	50.3	%
Other Medical		2,492		2,128	17.1	%		10,448		10,087	3.6	%

Hearing Health		8,761		7,943	10.3	%		33,578		31,019	8.2	%
Value Based Direct-to-End-Consumer		1,525		1,904	-19.9	%		6,858		6,492	5.6	%
Value Based Indirect-to-End-Consumer		3,681		2,046	79.9	%		11,949		7,908	51.1	%
Legacy OEM		3,555		3,993	-11.0	%		14,771		16,619	-11.1	%

Professional Audio Communications		1,886		1,662	13.5	%		7,239		6,166	17.4	%

Total	$	30,805	$	21,837	41.1	%	$	116,462	$	90,637	28.5	%


INTRICON CORPORATION
Consolidated Condensed Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)

	Three Months Ended						Twelve Months Ended
	December 31,			December 31,			December 31,			December 31,
	2018			2017			2018			2017
				(as adjusted)						(as adjusted)

Revenue, net	$	30,805		$	21,837		$	116,462		$	90,637
Cost of sales		21,568			15,290			79,299			63,890
Gross profit		9,237			6,547			37,163			26,747

Operating expenses:
Sales and marketing		3,640			2,590			12,369			9,447
General and administrative		3,575			2,378			13,009			10,339
Research and development		978			1,146			4,671			4,458
Total operating expenses		8,193			6,114			30,049			24,244
Operating income		1,044			433			7,114			2,503

Interest (income) expense, net		139			(168	)		(314	)		(716	)
Other expense		(189	)		(39	)		(769	)		(367	)
Income from continuing operations before income taxes and discontinued operations		994			226			6,031			1,420

Income tax expense (benefit)		126			(157	)		484			8
Income before discontinued operations		868			383			5,547			1,412
Loss on sale of discontinued operations, net of income taxes		-			-			-			(164	)
Loss from discontinued operations, net of income taxes		-			-			-			(128	)
Net Income		868			383			5,547			1,120
Less: Loss allocated to non-controlling interest		-			(13	)		-			(938	)
Net Income attributable to shareholders	$	868		$	396		$	5,547		$	2,058


Basic income (loss) per share attributable to shareholders:
Continuing operations	$	0.10		$	0.06		$	0.73		$	0.34
Discontinued operations		-			-			-			(0.04	)
Net income per share:	$	0.10		$	0.06		$	0.73		$	0.30

Diluted income (loss) per share attributable to shareholders:
Continuing operations	$	0.09		$	0.05		$	0.64		$	0.32
Discontinued operations		-			-			-			(0.04	)
Net income per share:	$	0.09		$	0.05		$	0.64		$	0.28

Average shares outstanding:
Basic		8,647			6,883			7,599			6,852
Diluted		9,439			7,646			8,630			7,307


INTRICON CORPORATION
Consolidated Condensed Balance Sheets
(In Thousands, Except Per Share Amounts)
(Unaudited)

	December 31,			December 31,
	2018			2017
				(as adjusted)
Current assets:
Cash, cash equivalents and restricted cash	$	8,047		$	1,017
Available for sale securities		38,093			-
Accounts receivable, less allowance for doubtful accounts of $807 at December 31, 2018 and $332 at December 31, 2017		11,479			9,052
Inventories		18,981			13,708
Contract assets		5,624			2,979
Other current assets		2,320			1,544
Total current assets		84,544			28,300

Machinery and equipment		37,161			40,124
Less: Accumulated depreciation		25,429			32,949
Net machinery and equipment		11,732			7,175

Goodwill		10,808			10,808
Intangible assets		2,585			2,740
Investment in partnerships		2,091			1,616
Other assets, net		3,488			3,835
Total assets	$	115,248		$	54,474

Current liabilities:
Current maturities of long-term debt	$	-		$	2,040
Accounts payable		13,191			10,423
Accrued salaries, wages and commissions		4,409			3,113
Other accrued liabilities		4,014			3,739
Total current liabilities		21,614			19,315

Long-term debt, less current maturities		-			9,321
Other postretirement benefit obligations		377			455
Accrued pension liabilities		739			772
Other long-term liabilities		544			3,172
Total liabilities		23,274			33,035
Commitments and contingencies
Shareholders’ equity:
Common stock, $1.00 par value per share; 20,000 shares authorized; 8,664 and 6,900 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively		8,664			6,900
Additional paid-in capital		84,999			21,581
Accumulated deficit		(509	)		(6,056	)
Accumulated other comprehensive loss		(927	)		(733	)
Total shareholders' equity		92,227			21,692
Non-controlling interest		(253	)		(253	)
Total equity		91,974			21,439
Total liabilities and equity	$	115,248		$	54,474