3Q19 Earnings Conference Call · 2019-10-31 · ITGR: 3Q19 Earnings Conference Call / October 31,...

ITGR: 3Q19 Earnings Conference Call / October 31, 2019 /

3Q19 Earnings Conference Call

October 31, 2019


Integer Holdings CorporationThird Quarter 2019 Earnings Conference Call9 a.m. Eastern Time, October 31, 2019

Speakers:

Joe Dziedzic

President and Chief Executive Officer

Jason Garland

Executive Vice President, Chief

Financial Officer

Tony Borowicz

Senior Vice President, Strategy,

Corporate Development & Investor

Relations

• A webcast of today’s call can be accessed in

the “Investors” section of the Company’s

website: http://investor.integer.net

• To participate on the call, please dial:

• 833-236-5762 (U.S.)

• 647-689-4190 (International)

• The conference ID is 2991322

• An online archive of the broadcast will be

available at the website three hours after the

live call, and will be available through

Thursday, November 7, 2019, by dialing

• 800-585-8367 (U.S.)

• 416-621-4642 (International)

• The conference ID is 2991322

http://investor.integer.net/


Presentation of Financial Information &

Forward-Looking StatementsImportant Information

This presentation contains summarized information concerning Integer Holdings Corporation (the “Company”) and its business,

operations, financial performance and trends. The historical financial and operating data contained herein reflect the consolidated

results of the Company for the periods indicated. No representation is made that the information in this presentation is complete. For

additional financial and business-related information, as well as information regarding business and product line trends, see the

Company’s most recent Annual Report on Form 10-K (“Form 10-K”) and Quarterly Reports on Form 10-Q filed with the U.S.

Securities and Exchange Commission (the “SEC”), as well other reports filed with the SEC from time-to-time. Such reports are or will

be available in the investor relations section of our corporate website (investor.integer.net) and the SEC’s website (www.sec.gov).

Non-GAAP Financial Measures. This presentation includes financial information prepared in accordance with accounting principles

generally accepted in the United States (“GAAP”) as well as other financial measures referred to as non-GAAP. The non-GAAP

financial measures in this presentation, which include adjusted net income, adjusted diluted earnings per share, earnings before

interest taxes depreciation and amortization (“EBITDA”), adjusted EBITDA, adjusted sales, and organic growth rates should be

considered in addition to, but not as substitutes for, the information prepared in accordance with GAAP. For reconciliations of these

non-GAAP financial measures to the most comparable GAAP measures, please refer to the appendix to this presentation and the

earnings release associated with this quarterly period which can be found in the investor relations section of our corporate website

(investor.integer.net).

Forward Looking Statements. Some of the statements contained in this presentation whether written or oral may be “forward-

looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities

Exchange Act of 1934, as amended, including statements relating to future sales, expenses, and profitability; expected growth of our

business and industry; our ability to execute our business strategy; our ability to identify trends within our industries and to offer

products and services that meet the changing needs of those markets; our ability to repay existing indebtedness; our ability to remain

in compliance with our debt covenants; projected capital expenditures; our expected tax rates; and other events, conditions or

developments that will or may occur in the future. You can identify forward-looking statements by terminology such as “may,” “will,”

“should,” “could,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or “variations”

or the negative of these terms or other comparable terminology. These statements are based on the Company’s current expectations

and speak only as of as of the date of this presentation. The Company’s actual results could differ materially from those stated or

implied by such forward-looking statements. Except as may be required by law, the Company assumes no obligation to update

forward-looking information, including information in this presentation, to reflect changed assumptions, the occurrence of

unanticipated events or changes in future operating results, financial conditions or prospects.


Agenda

• Opening Comments

• Financial Results

• Product Line Review

• 2019 Outlook

• Question & Answer Period


Opening Comments


3Q Financial Results

• Sales flat

• Adjusted EBITDA +4%, Adjusted Net Income +14%

• Paid $36 million of debt

4Q Financial Outlook

• Expect double digit sales growth, up 10% to 15%

• Adjusted EBITDA up 6% to 12%, Adjusted EPS up 9% to 18%

Increasing 2019 total year profit guidance

• Adjusted EBITDA $282 to $286

• Adjusted EPS $4.55 to $4.65

• Sales guidance unchanged, at low end of range

Third Quarter Financial Highlights

Integer delivered

improved profitability on

flat revenue

Increased profit guidance

Expect strong 4th Quarter

Financial Results


(1) Refer to the appendix of this presentation for a reconciliation of Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, and organic growth rates to the most directly comparable GAAP measure

(2) Organic sales growth rate converts current period sales from local currency to U.S. dollars using the previous period’s foreign currency exchange rates.

(3) Organic growth for Adjusted EBITDA, Adjusted Net Income, and Adjusted EPS exclude the impact of foreign currency reported in other (income) loss, net

($ in millions, except per share amounts)

Sales Adjusted EBITDA Adjusted Net Income

$304 $69$67

3Q19 Adjusted Financial Results(1)

$305$35

$40

Reported $1.06 $1.20

FX

Adjusted$1.10 $1.19

Adj.

EPS

0% organic(2) 1% organic(3) 9% organic(3)

0% reported 4% reported 14% reported% Growth



3Q19 Adjusted Net Income

Adj.

EPS$1.06 $0.06 $0.05 $0.05 $(0.02) $1.20

Product Line Review


Cardio & Vascular

Year-over-Year Sales Growth Continues(1)

Trailing 4 Quarters

Integer – Trailing 4 Quarters

(1) Excludes impact from changes in foreign currency exchange rates

Advanced Surgical, Orthopedic & Portable Medical

Non-Medical (Electrochem)

Cardiac & Neuromodulation

Outlook

3% - 5%

4% - 7%

10% - 14%

2% - 5%

4% - 5.5%

Outlook


Offering a full-range of products and services for catheter-based interventional vascular devices and a suite of supply chain solutions to support the

development and manufacturing of complex components, sub-assemblies and finished devices

Steerable Sheaths Catheters & Sheaths Guidewires, Stylets & Accessories

Introducers

Reported Trailing 4 Quarter Sales($ in millions)

Organic Quarterly Y-o-Y % Change

ramp down for

PV Trend increases in the balance of the year resulting in a FY 9.1%

Cardio & Vascular

• 3Q19 decreased 1% as the growth in peripheral vascular

and structural heart was offset by an end of life

electrophysiology program, which experienced the largest

quarterly decline to date

• Slowing trailing 4 quarter growth trend is primarily driven by

the ramp down of a specific electrophysiology end of life

product

• Expect low to mid single digit growth in 4Q19 as an

electrophysiology end of life program impact lessens. Full

year growth at market, excluding electrophysiology program

end of life11% 10% 10% 7% 5%

4% 4%

Excluding sales of

electrophysiology

end of life program

Reported


Providing technology solutions for the active implantable medical device industry by partnering with customers to bring high-quality products to

established and emerging markets – from initial concept through high-volume manufacturing

Pulse Generator Components &

Assemblies

Leads & Lead Components, Adaptors & Assemblies

Pulse Generators & External Solutions (Programmers, Chargers,

Patient Devices)


CRM & Neuromodulation

• 3Q19 decline due to neuromodulation customer demand

shift to the fourth quarter and flat CRM; total year

neuromodulation device commitments remain, per supply

agreements

• Trailing 4 quarter decline driven by CRM variability and

slower neuromodulation sales

• Expect double digit 4Q19 growth from neuromodulation

devices and strong CRM volume. Expect full year double

digit neuromodulation growth and low-single-digit CRM

growth

6% 4% 4% 2% (1)%



Orthopedic Implants &

Instruments

Core Battery

Pack AssembliesLi-Ion Battery

Packs

Electrosurgical

Accessories

• 3Q19 rebound of sales attributable to an increase in the

advanced surgical base products and new product launches

in portable medical

• Trailing 4 quarter sales trend remains relatively flat across all

product lines

• Expecting strong 4Q19 sales across all categories from

increased end-market demand


Advanced Surgical, Orthopedics & Portable Medical

14% 14% 7% 1% 0%

Offering a broad portfolio of power solutions and technologies to Portable

Medical markets and supporting the divested AS&O product line



Enhancing lives worldwide by providing superior power solutions that

enable the success and advancement of our customers’ critical applications

Battery Packs Battery ChargersBattery Cells


Electrochem

• 3Q19 growth driven by energy market demand and

favorable military order timing

• Trailing 4 quarter revenue returning to growth as we cycle

through 2017 energy industry growth and inventory

replenishment

• Expect strong 4Q19 growth to continue from increased

military and environmental demand against softening

energy market

3% (7)% (8)% (4)% 4%


2019 Outlook


4Q 2019 Outlook

Adjusted EPS

$303 $1.04

$333 - $348 $1.13 - $1.23

($ in millions except per share amounts)

Growth % 10% - 15% 9% - 18%

Sales

$68$72 - $76

6% - 12%

Adjusted EBITDA


2019 Full-Year Outlook

Adjusted EPS

$1,213$3.80

$1,265 - $1,280 $4.55 - $4.65

($ in millions except per share amounts)

Growth % 4% - 5.5% 20% - 22%

Adjusted Sales

$259

$282 - $286

9% - 10%

Adjusted EBITDA

$1,265 - $1,280 $277 - $285 $4.25 - $4.45Prior Guidance

$1,260 - $1,280 $275 - $283 $4.05 - $4.25Original Guidance


Debt Payments

(1) Free Cash Flow defined as Cash Flow from Operations less Capital Expenditures, net of proceeds from sale of property, plant, and equipment

(2) Leverage calculated as total principal amount of debt outstanding less Cash and Cash Equivalents divided by Trailing 4 Quarter Adjusted EBITDA

Cash Flow From Ops Free Cash Flow(1) Leverage(2)

2019 Cash Flow Outlook($ in millions)

$548

$160 - $170

$110 - $120

$105 - $115

$67 - $77

Target

2.5x - 3.5x

Divestiture Proceeds

Accelerated Repayment

Required Repayment

$700

$160 - $170 $110 - $120 $105 - $115 2.5x - 3.5xOriginal

Guidance

No

change,

despite

$15 million

acquisition

~2.9x

Summary


Cardio & Vascular

Neuromodulation

Electrochem

Portable Medical

Invest to Grow

Protect & Preserve

Portfolio Strategy Operational Strategy:

Strategic Imperatives

Cardiac Rhythm Management

How we win

in the markets we serveHow we achieve excellence in everything we do

Focused Strategy to Drive Long-term Growth


Summary

Full Year Operational & Financial Execution

• Adjusted sales up 4% to 5.5%

• Adjusted EBITDA up 9% to 10%

• Adjusted EPS up 20% to 22%

• Year-end estimated debt leverage ~2.9x from 3.5x

Strategy

• Executing bolt-on acquisition strategy with acquisition of complex

braiding capability for high-growth C&V markets

• Manufacturing excellence strategic imperative generating efficiency

• Strengthening the sales team and customer relationships


Questions?


APPENDIX

Integer Confidential / October 9, 2019 /

Cash Flow & Leverage

Debt Payments

(1) Free Cash Flow defined as Cash Flow from Operations

less Capital Expenditures, net of proceeds from sale of

property, plant, and equipment

(2) Leverage calculated as total principal amount of debt

outstanding less Cash and Cash Equivalents divided by

trailing 4 quarter Adjusted EBITDA

(3) 3Q18 Accelerated Repayments totaled $588M; $548M

from divestiture proceeds plus $40M from operations

Cash Flow From Ops Free Cash Flow (1)

Accelerated Repayment from Divestiture Proceeds

Accelerated Repayment

Required Repayment

• Reduced leverage ratio to

3.0 times adjusted EBITDA

• No significant maturities

until 2021; well within

covenants

Leverage (2)

$595

$40

$548

(3)

2019 3Q Highlights

($ in millions)


Historical Financial Results($ in millions except per share amounts)

Adjusted Sales Adjusted EPS

(1) Refer to the appendix of this presentation for a reconciliation of Adjusted Sales and Adjusted EPS to the most directly comparable GAAP measure

(2) The quarterly and annual EPS numbers are calculated independently and may not sum to the total

(3) Excludes impact of foreign currency reported in other (income)loss, net

Impact of foreign currency reported in other gain or loss, net

Adjusted EPS, as reported

Organic

Adjusted

EPS(3)

(2)

$265

$313$305 $303

$280 $285$301

$292

$315

(1)

$314$304

$(0.05)

$0.58 $0.91 $0.98 $0.89 $0.66 $1.01 $1.10 $1.04 $1.00 $1.23 $1.19

$(0.01)


2019 Full-Year OutlookSupplemental Items Affecting Cash Flow($ in millions)


Non-GAAP ReconciliationIncome from Continuing Operations and Diluted EPS Reconciliation – QTD

See the Footnotes to this table on page 30 of this presentation

($ in thousands, except per share amounts)


Non-GAAP ReconciliationIncome from Continuing Operations and Diluted EPS Reconciliation – YTD

See the Footnotes to this table on page 30 of this presentation

($ in thousands, except per share amounts)


Footnotes to Non-GAAP Reconciliation


Non-GAAP Reconciliation3Q19 Income from Continuing Operations and Diluted EPS Reconciliation – Detailed View ($ in thousands, except per share amounts)

2018

GAAP Non-GAAP Non-GAAP

Sales 303,587$ -$ -$ -$ -$ 303,587$ 305,088$ (0.5)%

Cost of sales 210,201 (3,165) - - - 207,036 209,798 (1.3)%

Gross profit 93,386 3,165 - - - 96,551 95,290 1.3%

Gross margin 30.8% 1.0% 0.0% 0.0% 0.0% 31.8% 31.2% 0.6 pts

Operating expenses:

Selling, general and administrative 32,935 (6,617) (99) - - 26,219 26,852 (2.4)%

SG&A as a % of sales 10.8% -2.2% 0.0% 0.0% 0.0% 8.6% 8.8% (0.2) pts

Research, development and engineering 11,729 - - - - 11,729 12,195 (3.8)%

RD&E as a % of sales 3.9% 0.0% 0.0% 0.0% 0.0% 3.9% 4.0% (0.1) pts

Other operating expenses 2,241 - - (2,241) - - - 0.0%

Total operating expenses 46,905 (6,617) (99) (2,241) - 37,948 39,047 (2.8)%

Operating income 46,481 9,782 99 2,241 - 58,603 56,243 4.2%

Operating margin 15.3% 3.2% 0.0% 0.7% 0.0% 19.3% 18.4% 0.9 pts

Interest expense 12,337 - - - (291) 12,046 13,872 (13.2)%

Gain on equity investments (986) - - - 986 - - 0.0%

Other (income) loss, net (369) - - - - (369) 1,684 (121.9)%

Income before taxes 35,499 9,782 99 2,241 (695) 46,926 40,687 15.3%

Provision for income taxes 4,913 2,032 21 531 (146) 7,351 5,837 25.9%

Effective tax rate 13.8% 20.8% 21.2% 23.7% 21.0% 15.7% 14.3% 1.4 pts

Net income 30,586$ 7,750$ 78$ 1,710$ (549)$ 39,575$ 34,850$ 13.6%

Diluted earnings per share 0.92$ 0.23$ -$ 0.05$ (0.02)$ 1.20$ 1.06$ 13.2%

Weighted average shares - Diluted 33,068 33,068 33,068 33,068 33,068 33,068 32,899 0.5%

Adjusted

Continuing

Operations

2019

Adjusted

Continuing

Operations CHANGE

Adjustments

Continuing

Operations

Amortization

of intangibles

Certain legal

expenses

Other

operating

expenses

Debt /

investment

related

charges


Non-GAAP ReconciliationYTD Income from Continuing Operations and Diluted EPS Reconciliation – Detailed View ($ in thousands, except per share amounts)

2018

GAAP Non-GAAP Non-GAAP

Sales 932,457$ -$ -$ -$ -$ 932,457$ 909,975$ 2.5%

Cost of sales 653,477 (9,622) - - - 643,855 631,118 2.0%

Gross profit 278,980 9,622 - - - 288,602 278,857 3.5%

Gross margin 29.9% 1.0% 0.0% 0.0% 0.0% 31.0% 30.6% 0.4 pts

Operating expenses:

Selling, general and administrative 101,034 (19,845) (2,175) - - 79,014 85,558 (7.6)%

SG&A as a % of sales 10.8% -2.1% -0.2% 0.0% 0.0% 8.5% 9.4% (0.9) pts

Research, development and engineering 34,720 - - - - 34,720 38,329 (9.4)%

RD&E as a % of sales 3.7% 0.0% 0.0% 0.0% 0.0% 3.7% 4.2% (0.5) pts

Other operating expenses 8,239 - - (8,239) - - - 0.0%

Total operating expenses 143,993 (19,845) (2,175) (8,239) - 113,734 123,887 (8.2)%

Operating income 134,987 29,467 2,175 8,239 - 174,868 154,970 12.8%

Operating margin 14.5% 3.2% 0.2% 0.9% 0.0% 18.8% 17.0% 1.8 pts

Interest expense 39,779 - - - (1,265) 38,514 43,227 (10.9)%

Loss on equity investments 666 - - - (666) - - 0.0%

Other (income) loss, net (921) - - - - (921) 257 (458.4)%

Income before taxes 95,463 29,467 2,175 8,239 1,931 137,275 111,486 23.1%

Provision for income taxes 15,289 6,143 457 1,933 406 24,228 21,473 12.8%

Effective tax rate 16.0% 20.8% 21.0% 23.5% 21.0% 17.6% 19.3% (1.7) pts

Net income 80,174$ 23,324$ 1,718$ 6,306$ 1,525$ 113,047$ 90,013$ 25.6%

Diluted earnings per share 2.43$ 0.71$ 0.05$ 0.19$ 0.05$ 3.42$ 2.75$ 24.3%

Weighted average shares - Diluted 33,019 33,019 33,019 33,019 33,019 33,019 32,681 1.0%

Adjusted

Continuing

Operations CHANGE

2019

Adjustments

Continuing

Operations

Amortization

of intangibles

Certain legal

expenses

Other

operating

expenses

Debt /

investment

related

charges

Adjusted

Continuing

Operations


Non-GAAP ReconciliationEBITDA and Adjusted EBITDA Reconciliation($ in thousands)


Non-GAAP ReconciliationOrganic Sales Growth Rate Reconciliation (% Change)


Non-GAAP Reconciliation2019 Full-Year Outlook(a)



Capitalization

(1)

(1) Principal amount of debt outstanding, not reduced for unamortized discount and debt issuance costs

(2) 4Q18 $68M (reconciliation on page 37), YTD 2019 $211M (reconciliation on page 33)

(3) Leverage calculated as total principal amount of debt outstanding less Cash and Cash Equivalents divided by trailing 4 quarter Adjusted EBITDA

($ in millions)

(2)

(3)

09/27/19 Original 09/27/19

As Reported Rate Rate

Cash & Cash Equivalents $15

$200M Revolver [Due 2020] $0 L + 325 L + 225

TLA [Due 2021] $277 L + 325 L + 225

TLB [Due 2022] $563 L + 425 L + 300

Total Principal Amount of Debt Outstanding $840

Deferred Fees and OID ($12)

Principal Amount of Debt Outstanding Less Deferred Fees and Discounts $828

Net Total Debt (Principal Amount of Debt Outstanding Less Cash) $825

Continuing Operations Statistics

Trailing 4 Quarter Adjusted EBITDA $278

Trailing 4 Quarter Cash Interest Expense $47

Trailing 4 Quarter Capital Expenditures $36

Credit Statistics

Net Total Debt / Trailing 4 Quarter Adjusted EBITDA 3.0x

Trailing 4 Quarter Adjusted EBITDA / Cash Interest Expense 5.9x


Non-GAAP ReconciliationEBITDA and Adjusted EBITDA Reconciliation($ in thousands)


Contact Information

Tony BorowiczSVP, Strategy, Corporate Development & Investor Relations

[email protected]

www.integer.net

(O) 716.759.5809

http://www.integer.net/

3Q19 Earnings Conference Call · 2019-10-31 · ITGR: 3Q19 Earnings Conference Call / October 31,...

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