IntriCon Reports 2011 First-Quarter Results

Sales Increases Posted in Hearing Health and Professional Audio Communications; Centauri Medical Device Submitted to FDA for Approval

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 first quarter ended March 31, 2011.

For the 2011 first quarter, the company reported net sales of $13.8 million, versus net sales of $14.6 million for the prior-year period. The company reported a net loss in the 2011 first quarter of $290,000, or $0.05 per diluted share, compared to net income before discontinued operations of $178,000, or $0.03 per diluted share, for the prior-year first quarter.

“We delivered year-over-year sales gains in both hearing health and professional audio communications, but temporary softness in our medical business offset these advances,” said Mark S. Gorder, president and chief executive officer of IntriCon. “The 2010 fourth-quarter lull we saw in medical orders persisted during the 2011 first quarter, as a few large customers experienced fluctuations in demand and worked through inventory levels above their immediate needs. In discussions with our medical OEM customers, we continue to believe this lull in medical orders is temporary, and we anticipate order patterns to normalize in the second half of 2011.”

First-Quarter Results
Professional audio communications revenue rose 9.4 percent over the prior-year first quarter. Driving the increase was accelerated growth from the company’s high-performance microphone and hearing-protection products used in the aviation, police, military and professional audio markets. Hearing health was up 1.0 percent from the 2010 first quarter as pent-up demand and the overall rebound in the hearing aid market continued to favorably impact results. Medical declined 16.8 percent from the prior-year period due to the factors noted above.

Said Gorder, “Our professional audio communications business continues to post strong results. Customers are demanding smaller and more durable products that perform well in noisy or hazardous environments—and we’re meeting their needs by introducing value-added acoustical solutions for demanding environments.

“In the hearing health business, the first quarter is historically our weakest. We are very encouraged with the modest gain over the prior-year period driven by significant growth in our digital signal processing (DSP) circuits, partially offset by temporary declines in legacy products. Moreover, we expect the recent introductions of our new hybrid Overtus™ DSP amplifier and APT™ Open in-the-canal (ITC) hearing aid to generate future growth.”

As a percentage of total 2011 first-quarter revenue, IntriCon’s medical business contributed 39 percent, with hearing health and professional audio communications contributing 40 percent and 21 percent, respectively. This compares to 45 percent, 37 percent and 18 percent for medical, hearing health and professional audio communications, respectively, in the 2010 first quarter.

Gross profits in the 2011 first quarter were 22.4 percent, down from 25.3 percent in the prior-year period, primarily due to sales mix and volume.

Key Milestones
As noted above, IntriCon launched its new, patent-pending APT™ Open ITC hearing aid during the first quarter. A complete, technically advanced hearing aid, APT is powered by IntriCon’s Overtus DSP amplifier and features the company’s Reliant CLEAR™ adaptive feedback canceller and the AcousTAP ™ acoustic push button. Reliant CLEAR is the latest in feedback cancellation, offering added stable gain and faster reaction time. The AcousTAP Switch changes user programs when the ear is patted, which eliminates the physical push button, saving size and cost.

Said Gorder, “Customer response to APT and Overtus has been very positive. While there is an initial learning curve with fitting the small devices, we anticipate growth from these product lines over the course of 2011.”

According to Gorder, IntriCon is in the final stages of commercializing its PhysioLink wireless technology. As previously disclosed, PhysioLink enables audio and data streaming to ear-worn and body-worn applications over distances of up to five meters. While PhysioLink has applications across multiple markets—including medical, hearing health and professional audio communications—the first product platform to incorporate the technology will be Sirona, the company’s second-generation wireless cardiac diagnostic monitoring (CDM) device.

IntriCon’s situational listening device (SLD) product platform also will leverage PhysioLink. SLDs help assist people to hear in noisy environments, allowing them to listen to television, music and direct broadcast by wireless connection. SLDs supplement conventional hearing aids that don’t handle noisy situations well. The company will conduct market trials of its SLD platform in the second half of 2011, and anticipates moderate 2011 revenue from the initial embodiments.

In the medical arena, IntriCon recently submitted the Centauri, its first-generation CDM device, for 510(k) approval with the Food and Drug Administration (FDA). The company anticipates FDA approval in the second half of 2011, with the product available for sale in late 2011. The Sirona, which incorporates PhysioLink technology, will be submitted for 510(k) approval in mid 2011. Said Gorder, “We are excited about the recent submission of the Centauri, and the progress we have made on the Sirona. Initial feedback from lead customers has been very positive.”

Continued Gorder, “Research and development remains a priority at IntriCon and our 2011 first-quarter investments in this area were consistent with the 2010 fourth quarter. As we continue to work to develop our core technologies across multiple product platforms and launch new devices, research and development is critical to our long-term growth.

“To that end, our strategy remains constant: designing the best portfolio of products and technologies that enhance the world that we live in. This entails making body-worn devices that are smaller, better connected and more mobile.”

Conference Call Today
As previously announced, the company will hold an investment community conference call today, Tuesday, May 3, 2011, beginning at 4:00 p.m. CT. Mark Gorder, president and chief executive officer, and Scott Longval, chief financial officer, will review financial performance and discuss the company’s strategies. To join the conference call, dial: 1-800-762-8795 (international 1-480-629-9868) and provide the conference identification number 4435805 to the operator.

A replay of the conference call will be available one hour after the call ends through 11:59 p.m. CT on Monday, May 9, 2011. To access the replay, dial 1-800-406-7325 (international 1-303-590-3030) and enter access code: 4435805.

About IntriCon Corporation
Headquartered in Arden Hills, Minn., IntriCon Corporation designs, develops, manufactures and distributes miniature and micro-miniature body-worn devices. The company is focused on three key markets: medical, hearing health, and professional audio communications. 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. 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 such as “may”, “will”, “believe”, “anticipate”, “expect”, “should”, “optimistic” or “continue” or the negative thereof or other variations thereon are “forward-looking statements” within the meaning of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, without limitation, statements concerning prospects in the miniature body-worn device arena, new products and their timing, strategic alliances, future growth and expansion, market fundamentals, future financial condition and performance, prospects and the positioning of IntriCon to compete in chosen markets and the Company’s planned investments in research and development. 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 factors include, without limitation, risks related to the current economic crisis, the risk that IntriCon may not be able to achieve its long-term strategy, weakening demand for products of the company due to general economic conditions, risks related to the company’s strategic alliances and joint venture, possible non-performance of developing the Centauri, Scenic, Overtus, APT, Sirona, PhysioLink, wireless glucose monitor and situational listening device products and other technological products, the volume and timing of orders received by the company, changes in the mix of products sold, competitive pricing pressures, the cost and availability of electronic components and commodities for the company’s products, ability to create and market products in a timely manner, competition by competitors with more resources than the company, government regulation and review of products, foreign currency risks arising from the company’s foreign operations, ability to satisfy and maintain compliance with the covenants under the company’s loan facility, the costs and risks associated with research and development investments and other risks 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, 2010. 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
Consolidated Condensed Statements of Operations (in thousands, except per share data)
		Three Months Ended
		March 31,			March 31,
		2011			2010
		(Unaudited)			(Unaudited)
	Sales, net	$	13,768		$	14,553
	Cost of sales		10,688			10,877
	Gross profit		3,080			3,676
	Operating expenses:
	Sales and marketing		803			787
	General and administrative		1,404			1,444
	Research and development		1,249			1,119
	Total operating expenses		3,456			3,350
	Operating income (loss)		(376	)		326
	Interest expense		(142	)		(169)
	Equity in income (loss) of partnerships		209			(12)
	Other (expense) income		(8	)		44
	Income (loss) from continuing operations before income taxes and discontinued operations		(317	)		189
	Income tax (benefit) expense		(27	)		11
	Income (loss) before discontinued operations		(290	)		178
	Loss from discontinued operations, net of income taxes		--			(160)
	Net income (loss)	$	(290	)	$	18
	Basic income (loss) per share:
	Continuing operations	$	(0.05	)	$	0.03
	Discontinued operations		0.00			(0.03)
	Net income (loss)	$	(0.05	)	$	0.00
	Diluted income (loss) per share:
	Continuing operations	$	(0.05	)	$	0.03
	Discontinued operations		0.00			(0.03)
	Net income (loss)	$	(0.05	)	$	0.00
	Average shares outstanding:
	Basic		5,559			5,471
	Diluted		5,559			5,471

IntriCon Corporation
Consolidated Condensed Balance Sheets (in thousands, except per share data)
		March 31,
		2011		December 31,
		(Unaudited)		2010
	Current assets:
	Cash	$	399	$	281
	Restricted cash		491		478
	Accounts receivable, less allowance for doubtful accounts of $220 at March 31, 2011 and $219 at December 31, 2010		7,610		8,228
	Inventories		8,553		8,331
	Refundable income taxes		83		--
	Other current assets		702		446
	Total current assets		17,838		17,764
	Machinery and equipment		36,789		36,610
	Less: Accumulated depreciation		30,700		30,184
	Net machinery and equipment		6,089		6,426
	Goodwill		9,709		9,709
	Investment in partnerships		1,318		1,109
	Other assets, net		1,181		1,259
	Total assets	$	36,135	$	36,267
	Current liabilities:
	Checks written in excess of cash	$	73	$	409
	Current maturities of long-term debt		2,092		2,095
	Accounts payable		4,259		3,161
	Accrued salaries, wages and commissions		1,756		1,593
	Deferred gain		110		110
	Partnership payable		260		260
	Income taxes payable		--		24
	Other accrued liabilities		1,274		1,497
	Total current liabilities		9,824		9,149
	Long-term debt, less current maturities		5,934		6,465
	Other postretirement benefit obligations		704		710
	Long-term partnership payable		240		240
	Deferred income taxes		190		169
	Accrued pension liabilities		477		464
	Deferred gain		468		495
	Other long-term liabilities		9		4
	Total liabilities		17,846		17,696
	Commitments and contingencies
	Shareholders’ equity:
	Common stock, $1.00 par value per share; 20,000 shares authorized; 6,079 and 6,073 shares issued; 5,563 and 5,557 shares outstanding at March 31, 2011 and December 31, 2010, respectively		6,079		6,073
	Additional paid-in capital		15,680		15,644
	Accumulated deficit		(1,934)		(1,644)
	Accumulated other comprehensive loss		(271)		(237)
	Less: 516 common shares held in treasury, at cost		(1,265)		(1,265)
	Total shareholders' equity		18,289		18,571
	Total liabilities and shareholders’ equity	$	36,135	$	36,267