3Q18 Earnings Conference Call · 2018-11-01 · ITGR: 3Q18 Earnings Conference Call / November 1,...
Transcript of 3Q18 Earnings Conference Call · 2018-11-01 · ITGR: 3Q18 Earnings Conference Call / November 1,...
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 1
3Q18 Earnings Conference Call
November 1, 2018
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 2
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, 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 November 1, 2018. 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.
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 3
Agenda
• Opening Comments
• Financial Results
• Product Line Review
• 2018 Outlook
• Question & Answer Period
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 4
Opening Comments
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 5
Strong Financial Results…Executing Strategy…Building Team
Integer delivered
another strong quarter
of sales and profit
growth
Launched Operational
Strategic Imperatives
Continued Building
Leadership Team
Financial Results
• 3Q results support improved guidance
- Revenue guidance increased to 6% - 7% growth
- EPS guidance increased primarily due to lower taxes and interest expense
• Continued Deleveraging
- Paid down $595 million of debt in 3Q
- Leverage ratio at 3.7 times adjusted EBITDA versus 5.6 at the beginning of 2018
Strategy
• Launched execution of multi-year Operational Strategic Imperatives in
September with Top 100 Senior Leaders
• Transitioning to a new sales organization structure in 4Q to drive customer
focused growth strategies and increase accountability for sales growth
Leadership
• Jason Garland joined as EVP/CFO to bring strong operational finance
leadership to execution of Operational Strategic Imperatives
• As previously announced, Jeremy Friedman, former COO/Interim CFO,
retiring at end of 2018. Customer Operational Strategic Imperatives
transitioned to Payman Khales (Pres. C&V) and Tony Gonzalez (Pres. CRMN)
Financial Results
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 7
$29
$35
3Q17 3Q18
$60$67
3Q17 3Q18
$284 $305
3Q17 3Q18
(1) Refer to the appendix of this presentation for a reconciliation of Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, and organic growth rates to the most directly comparable GAAP measure
(2) Organic growth for Sales excludes the impact of foreign currency exchange rates
(3) Organic growth for Adjusted EBITDA, Adjusted Net Income, and Adjusted EPS exclude the impact of foreign currency reported in other (income) loss, net
3Q18 Adjusted Financial Results(1)
($ in millions, except per share amounts)
Adjusted Sales Adjusted EBITDA Adjusted Net Income
$305Reported
$68FX adjusted
$36FX adjusted
$63FX Adjusted
As reported GAAP and Non-GAAP numbers
Foreign currency impact on reported GAAP and Non-GAAP numbers
FX Adjusted
Reported
Reported
Reported
$31FX Adjusted
Reported
$285Reported
7% organic(2)
9% organic(3)
15% organic(3)
7% reported 10% reported 18% reported% Growth
Reported 0.91$ 1.06$
FX
Adjusted0.98$ 1.10$
Adj.
EPS
FX Adjusted
FX Adjusted
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 8
4%
6%
7%
8%
9%
3Q17 4Q17 1Q18 2Q18 3Q18
0%
20%
40%
0%
4%
8%
12%
Year-over-Year Sales Improvement Continues(1)
Trailing 4 Quarters
0%
Integer
(1) Excludes impact from changes in foreign currency exchange rates
Cardio & Vascular
Advanced Surgical, Orthopedic & Portable Medical
(6)%
(2)%
2%
6%
0%
5%
10%
15%
Non-Medical (Electrochem)
Cardiac & Neuromodulation
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 9
Adj.
EPS$0.91 $0.25 $(0.12) $0.02 $0.03 $(0.04) $1.06
$60 $67
3Q17 3Q18
(1) Includes $0.02 unfavorable impact due to year-over-year share dilution
Note: Amounts may not sum due to rounding
Adjusted EBITDA
Adjusted EBITDA & Adjusted Net Income($ in millions except per share amounts)
Incentive
Compensation
FX
• $10 from Operations
• $1 FX
• $(4) Incentive
Compensation
Operational
Improvement
Tax Rate
(1)
$29
$9
$(4)
$1 $1
$(1)
$35
3Q17 OperationalImprovement
IncentiveCompensation
FX Interest Tax Rate 3Q18
Adjusted Net Income
(1)
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 10
$38
$34
$46
$21
$54
3Q17 4Q17 1Q18 2Q18 3Q18
$27
$21
$36
$13
$40
3Q17 4Q17 1Q18 2Q18 3Q18
5.8x5.6x
5.4x5.1x
3.7x
3Q17 4Q17 1Q18 2Q18 3Q18
$5 $7 $7 $7 $7
$33
$15
$43
$18
$38
$22
$50
$25
3Q17 4Q17 1Q18 2Q18 3Q18
Continued Deleveraging
Debt Payments($ in millions)
(1) Free Cash Flow defined as Cash Flow from Operations
less Capital Expenditures, net
(2) Leverage calculated as Total Debt less Cash and Cash
Equivalents divided by trailing 4 quarter Adjusted EBITDA
(3) 3Q18 Accelerated Repayments totaled $588M; $548 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
• Reduced leverage ratio to
3.7 times adjusted EBITDA
• $548M from divestiture
proceeds
• $40M in additional
accelerated pay down
• No significant maturities
until 2021; well within
covenantsLeverage (2)
$595
$40
$548
(3)
Product Line Review
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 12
7%
11%10%
13%
9%
3Q17 4Q17 1Q18 2Q18 3Q18
$516 $531 $544 $562 $575
3Q17 4Q17 1Q18 2Q18 3Q18
Offering a full-range of services for the design, development, and manufacturing of diagnostic and interventional
cardiac and endovascular delivery and retrieval devices, along with comprehensive supply-chain solutions
Cardio & Vascular
Steerable Sheaths Catheters & Sheaths Guidewires, Stylets &
AccessoriesIntroducers
0%
%C
hange
Trailing 4-Quarter Sales($ in millions)
9% 10% 10% 11% 11%
• 3Q18 year-over-year growth driven by continued strong
demand in the electrophysiology market stemming from
customer share gains & new product launch and timing from
a customer inventory replenishment
• Trailing 4-quarter sales growth of 11% driven by continued
strong demand and market penetration in the focus markets
of electrophysiology, structural heart and peripheral vascular
• Expect growth trend to remain above market from increased
focus on high growth C&V market segments
Organic Quarterly Y-o-Y Growth
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 13
$427 $428 $433 $443 $451
3Q17 4Q17 1Q18 2Q18 3Q18
(6)%
1%
5%
9% 8%
3Q17 4Q17 1Q18 2Q18 3Q18
Providing technology solutions for the active implantable medical device industry
by partnering with customers to bring high-quality products to
established and emerging markets – from initial concept through high-volume manufacturing
Cardiac & Neuromodulation
0%
%C
hange
Trailing 4-Quarter Sales($ in millions)
Pulse Generator
Components &
Assemblies
Leads & Lead Components,
Adaptors & Assemblies
Pulse Generators & External
Solutions (Programmers,
Chargers, Patient Devices)
(4)% (2)% (0)% 2% 6%
• CRM growth driven by increased components market
penetration & lower 2017 comparables from customer
inventory adjustments. Neuro growth driven by spinal cord
stimulation market demand and increased components
market penetration
• Trailing 4-quarter CRM sales slightly ahead of market
growth and neuromodulation sales running significantly
ahead of market due to accelerating demand in finished
devices and leads
• Expect sales to decrease in 4Q18 compared to extremely
strong 4Q17
Organic Quarterly Y-o-Y Growth
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 14
$114 $115 $121
$127 $130
3Q17 4Q17 1Q18 2Q18 3Q18
7%
4%
25%
21%
9%
3Q17 4Q17 1Q18 2Q18 3Q18
Advanced Surgical, Orthopedics & Portable Medical
Supporting our divested AS&O business and providing technologies
and solutions to Portable Medical markets
Orthopedic Implants &
Instruments
Core Battery
Pack AssembliesLi-Ion Battery
Packs
Electrosurgical
Accessories
0%
%C
hange
Trailing 4-Quarter Sales($ in millions)
Organic Quarterly Y-o-Y Growth
6% 8% 10% 13% 13%
• 3Q18 sales increase driven by above market growth in
advanced surgical and orthopedic products
• Trailing 4-quarter sales growth strong due to robust 1st
half 2018 market demand primarily in Portable Medical
• Sales expected to level off from strong first half to be
more in line with overall market growth
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 15
$54 $57 $58 $58 $55
3Q17 4Q17 1Q18 2Q18 3Q18
71%
30%
12%
(5)%
(18)%
3Q17 4Q17 1Q18 2Q18 3Q18
Electrochem
Enhancing lives worldwide by providing superior power solutions that
enable the success and advancement of our customers’ critical applications
Battery Packs Battery ChargersBattery Cells
0%
%C
hange
Trailing 4-Quarter Sales($ in millions)
23% 37% 41% 22% 3%
• 3Q18 sales decline due to timing of energy customer
inventory adjustments and planned phase out of certain
rechargeable battery pack products
• Trailing 4-quarter trend reflects flattening of North American
drilling activity.
• Expect growth in 2019 from new customers and products
and renewed military market government funding
Organic Quarterly Y-o-Y Growth
2018 Revised Outlook
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 17
2017 2018Outlook
2017 2018Outlook
2017 2018Outlook
2018 Outlook
Adjusted EPS
$1,131 $3.09
$1,195 - $1,210 $3.55 - $3.70
($ in millions except per share amounts)
Growth % 6% - 7% 15% - 20%
Adjusted Sales
$234
$255 - $265
9% - 13%
Adjusted EBITDA
$1,175 - $1,200 $255 - $265 $3.35 - $3.65Prior Outlook
$47
$103
$120
FY16 FY17 FY18
$106
$149
FY16 FY17 FY18
$29 $31 $30
$15
$98$44
$129
$145
2016 2017 2018
Debt Payments($ in millions)
(1) Free Cash Flow defined as Cash Flow from Operations less Capital Expenditures, net
(2) Leverage calculated as Total Debt less Cash and Cash Equivalents divided by Trailing 4 Quarter Adjusted EBITDA
(3) Reflects debt payments excluding $55M of borrowings used to fund $76M of cash provided to Nuvectra as part of the spin-off on March 14, 2016.
Cash Flow From Ops($ in millions)
Free Cash Flow(1)
($ in millions)
Leverage(2)
$160+ $110+ $665+Prior
Outlook
~$695
Outlook
Accelerated Repayment
Required Repayment
6.1x5.6x
3.6x
YE16 YE17 YE18Outlook Outlook Outlook
(3)
~
$145+
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 18
~$120~$165
Increased Cash Flow Outlook
Cardio & Vascular
Neuromodulation
Electrochem
Focused Strategy to Drive Long-term Growth
Invest to Grow
Protect & Preserve
Improve Profitability
Portable Medical
Portfolio Strategy Operational Strategy:
Strategic Imperatives
Cardiac Rhythm Management
How we win
in the markets we serveHow we achieve excellence in everything we do
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 19
Summary
Vision
Enhance patient’s lives by being our
customers partner of choice
Strategic Imperatives
- Sales Force Excellence
- Market Focused Innovation
- Manufacturing Excellence
- Business Process Excellence
- Performance Excellence
- Leadership Capability
Clear Goals
- Sales Growth Above Market
- Profit Growth 2x Sales Growth
- Earn a Valuation Premium
Financial Results
• 3Q results support slightly improved guidance
• Continued Deleveraging
Strategy
• Launched execution of multi-year Operational Strategic Imperatives
• Transitioning to a new sales organization structure in 4Q
Leadership
• Jason Garland joined as EVP/CFO
• Jeremy Friedman, former COO/Interim CFO, retiring at YE18
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 20
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 21
APPENDIX
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 22
Historical Financial Results($ in millions except per share amounts)
Adjusted Sales Adjusted EPS
(1) Refer to the appendix of this presentation for a reconciliation of Adjusted 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)
$0.58 $0.91 $0.98 $0.89 $0.66 $1.01 $1.10
(1) (2)
$265
$280 $285$301
$292
$313$305
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 23
2018 Full-Year Outlook($ in millions except per share amounts)
2018 OutlookPrior Guidance
(Non-GAAP)Growth
Updated Guidance(Non-GAAP)
Growth
Adjusted Revenue $1,175 - $1,200 4% to 6% $1,195 - $1,210 6% to 7%
Adjusted Net Income $110 - $120 11% to 21% $117 - $122 18% to 23%
Adjusted EBITDA $255 - $265 9% to 13% $255 - $265 9% to 13%
Adjusted Earnings per Diluted Share $3.35 - $3.65 8% to 18% $3.55 - $3.70 15% to 20%
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 24
2018 Full-Year Outlook – Supplemental Items Affecting Cash Flow($ in millions, except per share amounts)
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 25
Non-GAAP ReconciliationNet Income and Diluted EPS Reconciliation – QTD
See the Footnotes to this table on Slide 26 of this presentation
($ in thousands, except per share amounts)
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 26
Footnotes to Non-GAAP Reconciliation
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 27
Non-GAAP Reconciliation3Q18 Net Income and Diluted EPS Reconciliation – Detailed View ($ in thousands, except per share amounts)
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 28
Non-GAAP ReconciliationEBITDA and Adjusted EBITDA Reconciliation($ in thousands)
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 29
Non-GAAP ReconciliationOrganic Sales Growth Rate Reconciliation (% Change)
a) Represents adjustment to third quarter and year-to-date 2017 sales to exclude the net impact of the LSA.
b) Third quarter and year-to-date 2018 sales were positively impacted by $0.1 million (negative impact) and $2.3 million (positive impact), respectively, due to foreign
currency exchange rate fluctuations, primarily in our Cardio & Vascular product line.
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 30
Non-GAAP ReconciliationNon-GAAP Organic Growth Rate Reconciliation (% Change)
NM calculated change not meaningful
(a) Represents the impact to our growth rate from our Non-GAAP adjustments.
(b) Represents the impact to our growth rate due to changes in foreign currency exchange rates
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 31
Non-GAAP Reconciliation2018 Full-Year Outlook(a)
($ in millions, except per share amounts)
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 32
Capitalization
($ in millions) As Reported Original 6/30/18 9/28/18
9/28/18 Rate Rate Rate
Cash and Cash Equivalents $23
$200m Revolver due 2020 -- L + 325 L + 325 L + 250
Term Loan A due 2021 314 L + 325 L + 325 L + 250
Term Loan B due 2022 658 L + 425 L + 325 L + 300
Total Secured Debt $972
Senior Unsecured Notes due 2023 -- 9.125% 9.125% --
Total Debt $972
Net Debt $949
Continuing Operations statistics
LTM Adjusted EBITDA $256
LTM Cash Interest Expense 52
LTM Capital Expenditures 36
Credit statistics
Net Total Debt / LTM Adjusted EBITDA 3.7x
LTM Adjusted EBITDA / Cash Interest Expense 4.9x
(1)
(1) Gross debt outstanding, not reduced for unamortized discount and debt issuance costs
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 33
Contact Information
Tony BorowiczSVP, Strategy, Corporate Development & Investor Relations
www.integer.net
(O) 716.759.5809