2Q19 Earnings Conference Call · 2019. 8. 1. · ITGR: 2Q19 Earnings Conference Call / August 1,...

ITGR: 2Q19 Earnings Conference Call / August 1, 2019 /

2Q19 Earnings Conference Call

August 1, 2019


Presentation of Financial Information &

Forward-Looking Statements

Historical financial and operating data in this presentation reflect the consolidated results of Integer for the periods

indicated.

This presentation includes financial information prepared in accordance with accounting principles generally accepted in

the United States, or 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 EPS, 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).

Statements made 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 Securities Exchange Act of 1934, as

amended, and involve a number of risks and uncertainties. These statements can be identified 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 August 1, 2019. The Company’s actual results could differ

materially from those stated or implied by such forward-looking statements. 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.

investor.integer.net


Agenda

• Opening Comments

• Financial Results

• Product Line Review

• 2019 Outlook

• Question & Answer Period


Opening Comments


2Q Financial Results

• Organic revenue increased 1% over record 2Q18, as expected

• Strong organic profit leverage

‒ Adjusted EBITDA +9%

‒ Adjusted Net Income +22%

• Cash Flow / Debt

‒ Paid $50M of debt

‒ Leverage reduced to 3.1x from 3.4x adjusted EBITDA in prior quarter

Increasing 2019 total year profit guidance

• Adjusted EBITDA up $2 million to $277 to $285

• Adjusted EPS up 10 cents to $4.25 to $4.45

Second Quarter Financial Highlights

Integer delivered

improved profitability on

flat revenue

Increased profit guidance

Continued deleveraging

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)

Adjusted Sales Adjusted EBITDA Adjusted Net Income

$314

$75$71

2Q19 Adjusted Financial Results(1)

Reported

$313 $35

$41

1% organic(2)

9% organic(3)

22% organic(3)

0% reported 6% reported 17% reported% Growth

Reported $1.06 $1.23

FX

Adjusted$1.01 $1.23

Adj.

EPS



2Q19 Adjusted Net Income

Adj.

EPS$1.06 $0.15 $(0.05) $0.04 $0.02 $1.23

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

2Q18 3Q18 4Q18 1Q19 2Q19

2Q18 3Q18 4Q18 1Q19 2Q19


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

%C

hange

Reported Trailing 4-Quarter Sales($ in millions)

Organic Quarterly Y-o-Y Growth

0%

Cardio & Vascular

11% 11% 10% 10% 7%

2% YoY in Q2 to mid single digits

• Strong 2Q peripheral vascular and structural heart growth,

offset by the expected impact of an electrophysiology (EP)

program maturing life cycle and a supplier quality related delay

• Slowing 4-quarter growth trend is primarily due to 2Q19 factors

• Expect similar growth in 3Q due to the decline in maturing EP

program peaking and supplier quality related delays, while

remainder of C&V grows at market; 4Q growth rate improves

on lower impact from maturing EP program, resolution of

supplier quality issue, and accelerating customer programs


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 to high-volume manufacturing

Pulse Generator Components &

Assemblies

Leads & Lead Components, Adaptors & Assemblies

Pulse Generators & External Solutions (Programmers, Chargers,

Patient Devices)

%C

hange



0%

CRM & Neuromodulation

2% 6% 4% 4% 2%

• 2Q decline is due to difficult prior year comparables and

low growth in neuromodulation; total year

neuromodulation finished device commitments remain,

per supply agreements

• Trailing 4-quarter growth led by neuromodulation finished

devices and increasing revenue from small, early stage

neuro companies

• Expect solid 2nd half growth driven by 4Q

neuromodulation finished device shipments, early stage

neuro companies, and continued modest CRM growth


Offering a broad portfolio of power solutions and technologies to Portable

Medical markets and supporting our divested AS&O business

Orthopedic Implants &

Instruments

Core Battery

Pack AssembliesLi-Ion Battery

Packs

Electrosurgical

Accessories%C

hange



0%

Advanced Surgical Orthopedics & Portable Medical

14% 14% 14% 7% 1%

• 2Q portable medical growth was offset by decline in

advanced surgical & orthopedic products

• Trailing 4-quarter sales trend driven by strong orthopedics

sales offset by decline in portable medical

• Expect strong 2nd half growth from both portable medical

new product launches and AS&O customer demand


Enhancing lives worldwide by providing superior power solutions that

enable the success and advancement of our customers’ critical applications

Battery Packs Battery ChargersBattery Cells

%C

hange

0%



Electrochem

• 2Q growth driven by energy market demand and

increased customer market penetration

• Trailing 4-quarter revenue improving due to modest

energy market recovery and increased military demand

• Expect strong growth to continue to ramp from new

product launches, increased military demand and new

customer growth initiatives

22% 3% (7)% (8)% (4)%

2019 Outlook


2019 Outlook

Adjusted EPS

$1,213$3.80

$1,265 - $1,280 $4.25 - $4.45

($ in millions except per share amounts)

Growth % 4% - 5.5% 12% - 17%

Adjusted Sales

$259

$277 - $285

7% - 10%

Adjusted EBITDA

$1,265 - $1,280 $275 - $283 $4.15 - $4.35Prior Guidance


Debt Payments

(1) Free Cash Flow defined as Cash Flow from Operations less Capital Expenditures, net

(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 - 3.5xPrior

Guidance

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

Financial Execution

• 2Q: sales as expected, profit slightly better

• Full year outlook: profit guidance increased

Strategy

• Strong Manufacturing Excellence execution

• Culture Strategic Imperatives gaining momentum

• Growth Teams deepening product line strategies

• Solid acquisition pipeline to add / strengthen capabilities


Q&A


APPENDIX


Cash Flow & Leverage

Debt Payments($ in millions)

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

less Capital Expenditures, net

(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($ in millions)

Free Cash Flow (1)

($ in millions)

Accelerated Repayment from Divestiture Proceeds

Accelerated Repayment

Required Repayment

• Cash flows in line with

expectations

• Reduced leverage ratio to

3.1 times adjusted EBITDA

• No significant maturities

until 2021; well within

covenants

Leverage (2)

$595

$40

$548

(3)

2019 2Q Highlights


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

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 gain or 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

$(0.05)

$280 $285$301 $292

$315

(1)

$314


2019 Full-Year OutlookSupplemental Items Affecting Cash Flow($ in millions, except per share amounts)


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

See the Footnotes to this table on Slide 27 of this presentation

($ in thousands, except per share amounts)


Footnotes to Non-GAAP Reconciliation


Non-GAAP Reconciliation2Q19 Income from Continuing Operations and Diluted EPS Reconciliation – Detailed View ($ in thousands, except per share amounts)

2018

GAAP Non-GAAP Non-GAAP

Sales 314,194$ -$ -$ -$ -$ 314,194$ 313,156$ 0.3%

Cost of sales 217,210 (3,195) - - - 214,015 214,001 0.0%

Gross profit 96,984 3,195 - - - 100,179 99,155 1.0%

Gross margin 31% 1% 0% 0% 0% 32% 32% 0.2%

Operating expenses:

Selling, general and administrative 33,143 (6,636) (680) - - 25,827 29,496 -12.4%

SG&A as a % of sales 11% -2% 0% 0% 0% 8% 9% -1.2%

Research, development and engineering 11,396 - - - - 11,396 12,897 -11.6%

RD&E as a % of sales 4% 0% 0% 0% 0% 4% 4% -0.5%

Other operating expenses 3,108 - - (3,108) - - - 0.0%

Total operating expenses 47,647 (6,636) (680) (3,108) - 37,223 42,393 -12.2%

Operating income 49,337 9,831 680 3,108 - 62,956 56,762 10.9%

Operating margin 16% 3% 0% 1% 0% 20% 18% 1.9%

Interest expense 13,612 - - - (562) 13,050 14,817 -11.9%

Loss on equity investments 1,611 - - - (1,611) - - 0.0%

Other income, net (718) - - - - (718) (2,387) -69.9%

Income before taxes 34,832 9,831 680 3,108 2,173 50,624 44,332 14.2%

Provision for income taxes 6,610 2,053 143 729 457 9,992 9,588 4.2%

Effective tax rate 19% 21% 21% 23% 21% 20% 22% -1.9%

Net income 28,222$ 7,778$ 537$ 2,379$ 1,716$ 40,632$ 34,744$ 16.9%

Diluted earnings per share 0.85$ 0.24$ 0.02$ 0.07$ 0.05$ 1.23$ 1.06$ 16.0%

Weighted average shares - Diluted 33,009 33,009 33,009 33,009 33,009 33,009 32,720 0.9%

Adjusted

Continuing

Operations

2019

Adjusted

Continuing

Operations CHANGE

Adjustments

Continuing

Operations

Amortization of

intangibles

IP related

litigation

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 628,870$ -$ -$ -$ -$ 628,870$ 604,887$ 4.0%

Cost of sales 443,276 (6,457) - - - 436,819 421,320 3.7%

Gross profit 185,594 6,457 - - - 192,051 183,567 4.6%

Gross margin 30% 1% 0% 0% 0% 31% 30% 0.2%

Operating expenses:

Selling, general and administrative 68,099 (13,228) (2,076) - - 52,795 58,706 -10.1%

SG&A as a % of sales 11% -2% 0% 0% 0% 8% 10% -1.3%

Research, development and engineering 22,991 - - - - 22,991 26,134 -12.0%

RD&E as a % of sales 4% 0% 0% 0% 0% 4% 4% -0.7%

Other operating expenses 5,998 - - (5,998) - - - 0.0%

Total operating expenses 97,088 (13,228) (2,076) (5,998) - 75,786 84,840 -10.7%

Operating income 88,506 19,685 2,076 5,998 - 116,265 98,727 17.8%

Operating margin 14% 3% 0% 1% 0% 18% 16% 2.2%

Interest expense 27,442 - - - (974) 26,468 29,355 -9.8%

Loss on equity investments 1,652 - - - (1,652) - - 0.0%

Other income, net (552) - - - - (552) (1,427) -61.3%

Income before taxes 59,964 19,685 2,076 5,998 2,626 90,349 70,799 27.6%

Provision for income taxes 10,376 4,111 436 1,402 552 16,877 15,636 7.9%

Effective tax rate 17% 21% 21% 23% 21% 19% 22% -3.4%

Net income 49,588$ 15,574$ 1,640$ 4,596$ 2,074$ 73,472$ 55,163$ 33.2%

Diluted earnings per share 1.50$ 0.47$ 0.05$ 0.14$ 0.06$ 2.23$ 1.69$ 31.5%

Weighted average shares - Diluted 32,995 32,995 32,995 32,995 32,995 32,995 32,572 1.3%

Adjusted

Continuing

Operations CHANGE

2019

Adjustments

Continuing

Operations

Amortization of

intangibles

IP related

litigation

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

($ in millions)

06/28/19 Original 06/30/18 12/28/19 06/28/19

As Reported Rate Rate Rate Rate

Cash & Cash Equivalents 16$

$200M Revolver [Due 2020] 10$ L + 325 L + 325 L + 250 L + 250

TLA [Due 2021] 286$ L + 325 L + 325 L + 250 L + 250

TLB [Due 2022] 580$ L + 425 L + 325 L + 300 L + 300

Total Secured Debt 876$

Senior Unsecured Notes [Due 2023] -$ 9.125% 9.125% -- --

Total Principal Amount of Debt Outstanding 876$

Deferred Fees and OID (13)$

Principal Amount of Debt Outstanding Less Deferred Fees and Discounts 862$

Principal Amount of Debt Outstanding Less Cash 860$

Continuing Operations Statistics

TTM Adjusted EBITDA 275$

TTM Cash Interest Expense 48$

TTM Capital Expenditures 41$

Credit Statistics

Net Total Debt / TTM Adjusted EBITDA 3.1

TTM Adjusted EBITDA / Cash Interest Expense 5.7


Contact Information

Tony BorowiczSVP, Strategy, Corporate Development & Investor Relations

[email protected]

www.integer.net

(O) 716.759.5809

http://www.integer.net/

2Q19 Earnings Conference Call · 2019. 8. 1. · ITGR: 2Q19 Earnings Conference Call / August 1,...

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