IntriCon Corporation (NASDAQ: IIN), a Minneapolis-based designer, developer, manufacturer, and distributor of miniature and micro-miniature body-worn devices including hearing aids, announced financial results for its fourth quarter and year ended December 31, 2017. For the 2017 fourth quarter, the company reported net sales of $22.2 million, up 25.2% from $17.7 million in the prior-year period. According to the company, the increase was primarily due to year-over-year revenue gains from its largest medical customer and continued traction in value hearing health.

IntriCon is a leading manufacturer of economy hearing aids and hearables for many companies and distributors, and also recently acquired Hearing Help Express (HHE), the direct-to-consumer (DTC) mail-order provider of hearing aids. The company also manufactures hearing aids for a number of prominent companies in the field, including UnitedHealth’s hi HealthInnovations and EarVenture.

On the hearing health front, total sales increased 31.5% from the prior-year fourth quarter, primarily stemming from growing traction with the company’s value hearing health initiatives, including 28.0% growth in direct-to-insurance sales, the addition of new private label direct-to-consumer hearing device partners, and a $1.9 million contribution from HHE, partially offset by declining conventional channel sales. During the quarter, the company also closed on the acquisition of the remaining 80% equity interest in HHE. The transaction resulted in an $880,000 decrease in shareholders’ equity, but did not have an impact on net income. IntriCon posted net income attributable to shareholders of $518,000, or $0.07 per diluted share, versus a net loss attributable to shareholders of ($1.8) million, or ($0.27) per share, for the 2016 fourth quarter.

“Our medical and value hearing health businesses continue to drive strong top- and bottom-line performance, leading to record annual sales,” said Mark S. Gorder, president and chief executive officer of IntriCon in a press statement. “During the fourth quarter, we further advanced our new direct-to-consumer channel to deliver superior, outcomes-based, affordable hearing healthcare. In addition to completing our acquisition of HHE and continuing to deliver quarter-over-quarter progress, we also made further investments in Soundperience—a German-based provider of key self-fitting technology.”

Fourth-quarter gross profit margins were 30.0%, up from 25.2% in the prior-year fourth quarter. According to the announcement, the increase primarily stemmed from greater volume and stronger HHE margins in 2017, as more IntriCon devices are being sold through this channel.

Operating expenses for the fourth quarter were $6.1 million, compared to $5.1 million in the prior-year period. IntriCon attributes the increase to increased advertising investments at HHE in 2017 and other key initiatives to drive the business’ growth.

For the year ended December 31, 2017, IntriCon reported record sales of $88.3 million, up 29.9% from $68.0 million in 2016. The company delivered net income attributable to shareholders of $1.8 million, or $0.25 per diluted share, versus a net loss attributable to shareholders of ($4.6) million, or ($0.71) per diluted share, in 2016.

Expanding manufacturing footprint. Intricon also supplies advanced medical electronics to many med-tech companies, including several prominent medical device manufacturers in the Twin Cities area. Sales in IntriCon’s medical business increased 27.2% in the 2017 fourth quarter over the prior-year period. According to IntriCon, the gain was primarily driven by the ongoing production of wireless glucose monitoring systems for the company’s largest medical customer. IntriCon reports that they remain very “well-positioned” with this customer for 2018, providing key system components including, the continuous glucose monitor (CGM), sensor assembly, and related accessories. IntriCon anticipates system demand to further increase throughout 2018.

IntriCon’s overall medical business demand also continues to strengthen. Over the last six months, key medical customers have invested, or made commitments to invest, in over $3 million in capital equipment. In response to these commitments, IntriCon reports it is expanding its manufacturing footprint. First, the company is phasing out select legacy hearing health product lines in its existing Minnesota facility to free up manufacturing floor space. Second, in the current quarter, IntriCon intends to secure additional manufacturing floor space near its existing locations in Minnesota, to accommodate robotic assembly of medical components and systems. In conjunction with the added space, IntriCon is also increasing its molding capacity. During the 2017 fourth quarter, the company added 6 presses and has another 5 presses on order for delivery in the first half of 2018.

Hearing Health Express. During the fourth quarter, IntriCon completed its acquisition of HHE, acquiring the remaining 80%-stake of the DeKalb, Ill-based DTC mail-order hearing aid provider. Terms of the transaction included $650,000 in cash and repayment of approximately $1.8 million in debt to HHE’s 80%-holder.

Said Gorder, “Completing the HHE acquisition gives IntriCon direct access to consumers and the emerging value-based hearing healthcare market. HHE offers a lower-priced alternative for consumers to purchase devices directly—circumventing layers of costs associated with the conventional hearing aid channel.”

IntriCon reports that it continues to make progress integrating and optimizing HHE. During the fourth quarter, the company continued to increase its marketing and sales assets by hiring a professional web developer and graphic designer. In addition, new strategic relationships with third-party marketing firms were consummated. These efforts helped drive key fourth-quarter metrics over the sequential quarter including:

  • A 149% increase in new leads;
  • A 24% increase in net new hearing aid customers; and
  • A 6% increase in hearing aid orders.

During the fourth quarter, IntriCon made payments to secure its 49% equity interest in Frankfurt, Germany-based, Soundperience. Soundperience has designed the reportedly first psychoacoustic method of analyzing peripheral hearing and central hearing processing, branded as the Sentibo Smart Brain System.

“Having access to self-fitting technology is a critical step in creating our high-quality, low-cost hearing healthcare ecosystem,” said Gorder. “This technology, which has been widely tested and praised in Europe, will help eliminate cost and other barriers of adoption in the US market. We are excited to deploy this state-of-the-art technology once the FDA has finalized the regulation mandated by the OTC Hearing Aid Act of 2017.”

Also during the quarter, IntriCon amended its credit facilities with CIBC Bank USA (formerly The PrivateBank and Trust Company). The revised lending structure gives the company financial flexibility to move quickly on value hearing-health opportunities that arise, and supports IntriCon’s thriving medical business and related working capital growth requirements.

Looking Ahead. Gorder and his colleagues have set up Intricon as a major player in the emerging over-the-counter/DTC hearing aid market.  “2017 was a transformational year for IntriCon,” said Gorder. “We posted record top-line growth in our key medical and value hearing health businesses. Importantly, we began to strip away the significant barriers that prevent innovative hearing health solutions, and through HHE, we’re now providing affordable and accessible solutions to millions of unserved or underserved Americans. Additionally, we were able to strengthen key medical relationships, enabling meaningful growth opportunities. We enter 2018 with the assets in place to deliver superior, outcomes-based affordable hearing healthcare, drive continued growth in our medical business, and reward our shareholders with value.

“Based on information currently available, we anticipate 2018 first-quarter net sales, which incorporated new revenue recognition standards, to range between $23 million and $24 million. For the year, we are increasing our sales estimate, as we now anticipate sales to range between $103 million to $107 million.”

Source: Intricon