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IntriCon Reports 2018 Second-Quarter Results

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Medical and Value Hearing Health Performance Drive Double-Digit
Second Quarter Sales Gains and Profitability

IntriCon Corporation (NASDAQ:IIN), a designer, developer,
manufacturer and distributor of miniature and micro-miniature body-worn
devices, today announced financial results for its second quarter ended
June 30, 2018.

Highlights:

  • Record quarterly revenue of $30.2 million increased 33.9 percent over
    the prior-year second quarter;
  • 2018 second-quarter gross margin of 33.1 percent was up from 29.5
    percent in the prior-year period;
  • IntriCon reported second-quarter diluted net income per share of $0.25
    versus $0.09 in the 2017 second quarter;
  • Sales to IntriCon's largest medical customer rose 59.1 percent from
    the 2017 second quarter;
  • Value-based direct-to-end-consumer and indirect-to-end-consumer
    hearing healthcare revenue increased 45.6 percent and 16.9 percent,
    respectively, in the second quarter over the prior-year period;
  • IntriCon began production in its newly leased space that provides an
    additional 37,000 square feet of manufacturing and clean room space to
    support medical volume increases; and,
  • The company amended its credit facilities with CIBC Bank USA in July
    2018, increasing its capital expenditures loan capacity to $10.0
    million and its revolving credit facility to $11.0 million.

Financial Results
For the 2018 second quarter, the company
reported net sales of $30.2 million, up 33.9 percent from $22.5 million
in the prior-year period. The increase was primarily due to
year-over-year revenue gains from IntriCon's largest medical customer,
and growth in the value-based hearing health direct-to-end-consumer and
indirect-to-end-consumer businesses.

IntriCon posted net income attributable to shareholders of $2.0 million,
or $0.25 per diluted share, versus $668,000 or $0.09 per share, for the
2017 second quarter.

"We are excited to announce another strong quarter, as we continue to
execute on our key growth initiatives," said Mark S. Gorder, president
and chief executive officer of IntriCon. "Our medical,
direct-to-end-consumer and indirect-to-end-consumer value hearing health
businesses continue to drive strong top- and bottom-line performance,
leading to another quarter of record sales that surpassed our
expectations."

Second-quarter gross profit margins were 33.1 percent, up from 29.5
percent in the prior-year second quarter. The increase primarily stemmed
from greater sales volume.

Operating expenses for the second quarter were $7.3 million, compared to
$6.0 million in the prior-year period. The increase stemmed from
increased advertising investments at Hearing Help Express (HHE) and
other support costs related to key initiatives to drive the business'
growth.

For the six-month period ended June 30, 2018, IntriCon reported sales of
$55.5 million, up 26.9 percent from $43.7 million in 2017. The company
delivered net income attributable to shareholders of $2.8 million, or
$0.35 per diluted share, versus $398,000, or $0.06 per diluted share, in
2017.

Business Update
Sales in IntriCon's medical business
increased 48.8 percent in the 2018 second quarter over the prior-year
period. The gain was primarily driven by the ongoing production of
wireless continuous glucose monitoring (CGM) systems for IntriCon's
largest customer. The company remains very well positioned with this
customer for 2018 and beyond, providing key system components including
CGM systems, sensor assembly and related accessories. IntriCon
anticipates system demand will continue to increase throughout 2018.

During the quarter, IntriCon began operations in its newly leased 37,000
square foot manufacturing and clean room space to support medical volume
increases. In conjunction with the volume increases, over the last
several quarters, key medical customers have invested, or made
commitments to invest, in several million dollars in capital equipment.
The additional manufacturing floor space is designed to accommodate
robotic assembly of medical components and systems. Along with the added
space, IntriCon also is increasing its molding capacity. In the first
half of the 2018, the company added six presses and has another 11
presses on order for delivery by the end of 2018.

On the hearing health front, total sales increased by 13.4 percent over
the prior-year second quarter, led by the company's value-based
direct-to-end-consumer and indirect-to-end-consumer businesses, which
posted strong sales growth at 45.6 percent and 16.9 percent,
respectively. As anticipated, these gains were partially offset by the
declining conventional sales channel.

Within HHE, IntriCon continues to make progress in delivering
high-quality hearing healthcare into the underserved market. For the
quarter, HHE posted revenue of $2.1 million, its highest revenue quarter
since the company took its initial equity position in October 2016.
Along with this, the company completed its first phase of ethnographic
research, which will enhance the development of HHE's consumer centric
ecosystem of hearing healthcare. Additionally, from an operations
perspective, HHE increased its inside sales representatives and
marketing expertise during the second quarter.

IntriCon continues to build its value hearing health technology
portfolio, with wireless and self-fitting technologies that are a
critical step in creating a high-quality, low-cost hearing healthcare
ecosystem. During the quarter, the company launched the industry's most
power efficient, wireless audio streaming hearing aids into the market:
IntriCon's Lumen™ 155 product family which incorporates NXP®
Semiconductor's NxH2003 Bluetooth Low Energy (BLE) audio streaming SoC.

By integrating NXP's NxH2003 into IntriCon's Lumen 155 product family,
IntriCon can provide outcome-based features, connecting its hearing aid
devices with various wireless accessories. The Lumen 155 can stream
wireless audio to IntriCon's wireless accessories such as remote
microphones, consuming only 2.6 mA current at 1.2 Volts, which is
industry leading.

"We are very excited about the launch of the wireless Lumen 155 with
streaming audio. In the near-term, we intend to integrate the Lumen 155
with a smart device app which will allow for remote adjustments," said
Gorder. "Also, in anticipation of the new FDA regulations, we also
intend to integrate this product line with our Sentibo Smart Brain
self-fitting software, which is designed to improve both channel
productivity and the quality of first-time fittings, resulting in lower
prices, greater access and increased customer satisfaction."

Looking Ahead
Concluded Gorder, "We continued to deliver
record performance in the second quarter, driven by our key medical and
value-based hearing health businesses. The expansion of our robotic
assembly, microelectronic assembly and molding capacity not only
positions us to meet current demand, but enables us to pursue new
medical opportunities that would benefit from our core competencies.
Furthermore, we continue to make meaningful progress developing and
advancing our direct-to-end-consumer hearing health channel, providing
affordable and accessible solutions to millions of unserved or
underserved Americans.

"Looking ahead, we feel good about the growth opportunities in our
markets and our competitive position in these markets. Based on
information currently available, we anticipate 2018 third-quarter net
sales to range between $30.0 million and $31.0 million. For the year, we
are increasing our sales guidance, and anticipate sales to range between
$115.5 million to $117.0 million."

Conference Call Today
As previously announced, the company
will hold an investment community conference call today, Wednesday, July
25, 2018, beginning at 4 p.m. CT. Mark Gorder, president and chief
executive officer, and Scott Longval, chief financial officer, will
review second-quarter performance and discuss the company's strategies.
To join the conference call, dial: 1-877-260-1479 and provide the
conference ID number 9655585 to the operator. To access the replay, dial
1-888-203-1112 and enter passcode 9655585.

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)
 
 
SECOND QUARTER YEAR TO DATE
($ in 000's) 2018 2017 Growth 2018 2017 Growth
 
Medical $ 20,198 $ 13,572 48.8% $ 36,131 $ 25,752 40.3%
Diabetes 17,307 10,879 59.1% 30,869 20,368 51.6%
Other Medical 2,891 2,693 7.4% 5,262 5,384 -2.3%
 
Hearing Health 8,442 7,444 13.4% 16,043 15,096 6.3%
Value Based Direct-to-End-Consumer 2,052 1,409 45.6% 3,837 2,825 35.8%
Value Based Indirect-to-End-Consumer 2,634 2,253 16.9% 4,608 3,609 27.7%
Legacy OEM 3,756 3,782 -0.7% 7,598 8,662 -12.3%
 
Professional Audio Communications   1,520   1,508 0.8%   3,349   2,890 15.9%
 
Total $ 30,160 $ 22,524 33.9% $ 55,523 $ 43,738 26.9%
 
       
INTRICON CORPORATION
Consolidated Condensed Statements of Operations
(In Thousands, Except Per Share Amounts)
 
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2018 2017 2018 2017

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

 
Sales, net $ 30,160 $ 22,524 $ 55,523 $ 43,739
Cost of sales   20,171     15,885     37,122     31,266  
Gross profit 9,989 6,639 18,401 12,473
 
Operating expenses:
Sales and marketing 2,881 2,204 5,721 4,515
General and administrative 3,108 2,705 6,169 5,263
Research and development   1,316     1,112     2,475     2,265  
Total operating expenses   7,305     6,021     14,365     12,043  
Operating income (loss) 2,684 618 4,036 430
 
Interest expense (211 ) (189 ) (405 ) (371 )
Other income (expense)   (196 )   (47 )   (401 )   9  
Income (loss) from continuing operations before income taxes and
discontinued operations
2,277 382 3,230 68
 
Income tax expense   269     54     455     118  
Income (loss) before discontinued operations 2,008 328 2,775 (50 )
Loss on sale of discontinued operations, net of income taxes - - - (164 )
Loss from discontinued operations, net of income taxes   -     (15 )   -     (128 )
Net Income (loss)   2,008     313     2,775     (342 )
Less: Loss allocated to non-controlling interest   -     (355 )   -     (740 )
Net Income (loss) attributable to shareholders $ 2,008   $ 668   $ 2,775   $ 398  
 
 
Basic income (loss) per share attributable to shareholders:
Continuing operations $ 0.29 $ 0.10 $ 0.40 $ 0.10
Discontinued operations   -     -     -     (0.04 )
Net income (loss) per share: $ 0.29   $ 0.10   $ 0.40   $ 0.06  
 
Diluted income (loss) per share attributable to shareholders:
Continuing operations $ 0.25 $ 0.10 $ 0.35 $ 0.10
Discontinued operations   -     -     -     (0.04 )
Net income (loss) per share: $ 0.25   $ 0.09   $ 0.35   $ 0.06  
 
Average shares outstanding:
Basic 6,991 6,845 6,930 6,828
Diluted 8,118 7,187 8,021 6,828
 
   
INTRICON CORPORATION
Consolidated Condensed Balance Sheets
(In Thousands, Except Per Share Amounts)
 
June 30, December 31,

2018

2017

(unaudited)

 
Current assets:
Cash $ 539 $ 373
Restricted cash 646 644
Accounts receivable, less allowance for doubtful accounts of $577 at
June 30, 2018 and $332 at December 31, 2017
10,067 9,052
Inventories 15,644 13,708
Contract Assets 6,032 2,979
Other current assets   1,760     1,544  
Total current assets 34,688 28,300
 
Machinery and equipment 36,684 40,124
Less: Accumulated depreciation   27,531     32,949  
Net machinery and equipment 9,153 7,175
 
Goodwill 10,808 10,808
Intangible Assets 2,662 2,740
Investment in partnerships 1,865 1,616
Other assets, net   3,799     3,835  
Total assets $ 62,975   $ 54,474  
 
Current liabilities:
Current maturities of long-term debt $ 2,072 $ 2,040
Accounts payable 13,173 10,423
Accrued salaries, wages and commissions 3,497 3,113
Other accrued liabilities   3,552     3,739  
Total current liabilities 22,294 19,315
 
Long-term debt, less current maturities 11,205 9,321
Other postretirement benefit obligations 433 455
Accrued pension liabilities 776 772
Other long-term liabilities   3,200     3,172  
Total liabilities 37,908 33,035
Commitments and contingencies
Shareholders' equity:
Common stock, $1.00 par value per share; 20,000 shares authorized;
7,037 and 6,900 shares issued and outstanding at June 30, 2018 and
December 31, 2017, respectively
7,037 6,900
Additional paid-in capital 22,489 21,581
Accumulated deficit (3,281 ) (6,056 )
Accumulated other comprehensive loss   (899 )   (733 )
Total shareholders' equity 25,346 21,692
Non-controlling interest   (279 )   (253 )
Total equity   25,067     21,439  
Total liabilities and equity $ 62,975   $ 54,474  

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