4q19 earnings conference call · results of the company for the periods indicated. no...

ITGR: 4Q19 Earnings Conference Call / February 20, 2020 /

4Q19 Earnings Conference Call

February 20, 2020


Integer Holdings CorporationFourth Quarter 2019 Earnings Conference Call9 a.m. Eastern Time, February 20, 2020

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 8069250

• An online archive of the broadcast will be

available at the website three hours after

the live call, and will be available through

Thursday, February 27, 2020, by dialing

• 800-585-8367 (U.S.)

• 416-621-4642 (International)

• The conference ID is 8069250

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 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, profitability, cash flows, debt repayments and

leverage; expected growth of our business and industry; our ability to execute our business model and 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; 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,” “see,” “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

• Strategy Update

• Financial Results

• Product Line Review

• 2020 Outlook

• Question & Answer Period


Opening Comments


4Q Financial Results

• +7% sales growth … solid growth in all product lines

• Adj. EBITDA +8%, Adj. EPS +20%

• Debt leverage below 3 times Adjusted EBITDA

Full-Year Financial Results

• +4% sales growth … at low end of original guidance growth rate

• Adj. EBITDA +9%, Adj. EPS +23% … exceeded original guidance

• Paid $117 million debt … exceeded original guidance

Strong 2019 Financial Results …

All product lines posted

solid sales growth

Achieved two strategic

objectives: grew profit

2x sales growth rate

and reduced debt

leverage to 2.9x

(1) Guidance as provided during 4Q 2018 earnings call on February 21, 2019


Strategy Update


Journey to ExcellenceSales Growth versus Prior Year:

*Represents reported change prior to Advanced Surgical and Orthopedic (AS&O) divestiture

(2)%

(4)%

2015 20162015 2016

Declined

Declined

>6x

• Integrated $1.7B Lake

Region acquisition

• Spun off Nuvectra

• Challenging customer

relationships

Disruption

* *

5%

7%

2017 20182017 2018

Market growth

~1x sales growth

5.6x 3.5x

• New leadership team

• Operational stabilization

• Clear strategy

- Portfolio change

- Multi-year plans

Stabilizing & Building

*

Strategy Financial Objectives

• Sales growth 200 basis

points above market

• Profit growth 2x sales

growth rate

• Debt leverage 2.5x - 3.5x

1

2

3


Portfolio StrategyOperational Strategy:

Strategic ImperativesHow we win

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

Cardio & Vascular

Neuromodulation

Electrochem

Portable Medical

Invest to Grow

Protect & Preserve

Cardiac Rhythm Management

Strategy Developed in 2nd half of 2017


Business Presidents

Payman Khales

President

Cardio & Vascular

February 2018

Joel Becker

President, Cardiac

Rhythm Management

& Neuromodulation

April 2019

Carter Houghton

President, Electrochem

& Power Solutions

May 2019

Kirk Thor

Chief Human

Resources Officer

January 2018

Jason Garland

Chief Financial Officer

October 2018

Joe Flanagan

EVP, Quality &

Regulatory Affairs

2012

Jen Bolt

SVP, Global Operations

2005

Tony Borowicz

SVP, Strategy,

Business Development,

Investor Relations

2002

Functional Leaders

Joe Dziedzic

President & CEO

July 2017

Leadership Team In Place

Elizabeth Giddens

General Counsel and Chief

Ethics & Compliance Officer

August 2019

6 new leaders in 2018/2019


Building & Strengthening Culture

Investing in Culture Strategic Imperatives 2018 & 2019 Actions

Building Leadership Capability to Deliver Performance Excellence

Leadership Capability

Performance ExcellenceHR Transformation

• Talent Analytics

• Talent Review / Evaluation

• Selection Process

• Leadership Development

• Succession Planning

• Strategic Workforce Planning

• Associate Engagement

• Performance Management

• Total Rewards

• Organization Effectiveness

• Selection Process− Structured Interview Training

− 430+ Leaders Trained

− 350+ Interviews Conducted

• Candidate Assessment

• Individual Development Plans

• Performance Management

− Psychometric Assessment

− 70+ Candidates

− Baseline for development plans

− 40% of Sr. Leaders/Mgrs

− 60% of HiPo’s + Successors

− HiPo’s + Successors

− Key Role Identification

− Compensation Differentiation

1

2

3

4

Headcount +8%

Dollars spend +13%


20 LEAN Diagnosis events

Over 200 participants

140 Projects/Kaizen events

120 Site leaders trained

+50% +190 bps

July 2018 to December 2019 Adj. EBITDA Margin(1)LEAN Headcount

All sites trained & initial

LEAN Diagnosis executed

20.7%

22.6%

Investing in Manufacturing Excellence and LEAN

2017 2019 20192017

(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


Multi-year contracts

signed in 2019

+10% improvement+40% improvement

Delivering for Customers

~$425 million

Quality(1) On Time Delivery Sales

(1) Quality metric reflects improvement in customer complaints rate

Annual sales2017 20192017 2019


Portfolio & Product Line Strategy

✓ Divested AS&O … $600 million price; EPS accretive day one

✓ Addressed Portable Medical profitability … “Invest to Grow”

✓ Launched Growth Teams in 4Q18 … Defined strategy

process; own development and oversight of execution

Operational Strategic Imperatives

Strategy Execution … Status

Culture

• Built Leadership

Team

• Aspire to

Excellence

Cost

• LEAN

Deployment

• Operational

Improvements

Customers

• New Sales

Leadership

• Adding

Capabilities


Debt to Adj. EBITDA

Leverage Ratio(1)

Significantly Reduced Debt Leverage($ in millions)

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

(2) Net Total Debt shown is total principal amount of debt outstanding less Cash and Cash Equivalents

Net Total Debt(2) $1,719 $1,598 $916 $812


Delivered 67% Adjusted Earnings Per Share Growth

$2.81

$4.68

$3.80

Adjusted Earnings Per Share Up $1.87

+67%

Adjusted EPS(1)



Delivering for Investors … Met or Exceeded Guidance(1)

($ in millions)

N/A $255 $275

to to to

N/A $259 $283

$2.70 $3.35 $4.05

to to to

$3.10 $3.80 $4.25

Adjusted Sales Adjusted EBITDA(2) Adjusted EPS

$1,390 $1,175 $1,260

to to to

$1,430 $1,200 $1,280

Guidance

Consistently Delivering on Commitments

$1,213 $1,258

$1,462

$1,131 $259$284

$295

$234$3.80

$4.68

$3.09

$2.81

With

AS&O

Without

AS&O


(2) Guidance not provided for 2017 Adjusted EBITDA


2017 2018 2019

Profit Growth 2x Sales Growth Rate in 2019 … and Beyond($ in millions)

Adj. EBITDA $234

$259

$284

Continued Progress … Delivered Adj. EBITDA Growth 2.5x Sales Growth in 2019

Adj. EBITDA to

sales growth ratio(1) 0.1x 1.5x 2.5x

Adj. Sales growth 5% 7% 4%

Adj. EBITDA growth 0.1% 11% 9%




(2)%

(4)%

2015 2016

5%

7%

2017 20182015 2016 2017 2018

Market growth

~1x sales growth

5.6x 3.5x



• Clear strategy

- Portfolio change

- Multi-year plans

Declined

Declined

>6x


Region acquisition



relationships

Market growth

2x sales growth

2.9x 2.5x - 3.5x

• Leadership team complete

• Executing strategy, including

bolt-on acquisitions

• Deleveraging

4%

2019 2020

3% - 4%

Disruption Stabilizing & Building Profit Expansion

*Represents reported change prior to AS&O divestiture

* * *

Strategy

Financial

Objectives

Sales growth

200 basis

points above

market

Profit growth

2x sales

growth rate

Debt leverage

2.5x – 3.5x

1

2

3

Financial Results



($ in millions, except per share amounts)

Sales Adjusted EBITDA Adjusted Net Income

$326 $73$68

4Q19 Adjusted Financial Results(1)

$303 $34

$41

Adjusted EPS

% Growth 7% 8% 20%

$1.25$1.04



Adjusted Sales Adjusted EBITDA Adjusted Net Income

$1,258

$284

$259

$1,213 $124

$154

2019 Adjusted Financial Results(1)

% Growth 4% 9% 24%


Adjusted EPS

$4.68$3.80



2019 Adjusted Net Income(1)

$3.80 $0.63 $0.02 $0.17 $0.06 $4.68Adj.

EPS



2019 Actual Results Compared to Original Guidance

Debt Payments

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

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

(3) 2019 guidance as provided on February 21, 2019

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


Original

Guidance(3) Actual ActualActual Actual

$160 - $170$165

$110 - $120 $117$105 - $115

$117

2.5x - 3.5x

2.9x

Original

Guidance(3)

Original

Guidance(3)

Original

Guidance(3)

Memo:

Bus Dev $15

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 and US Bio Design Acquisition

Advanced Surgical, Orthopedic & Portable Medical

Electrochem (Non-Medical)

Cardiac & Neuromodulation


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)

Quarterly Adjusted Sales Change(1)

Cardio & Vascular

10% 10% 7% 5% 4%

• 4Q19 growth led by a strong increase in peripheral vascular

demand from a customer launching existing program into new

geography and market growth. Incremental sales from the

signing of a customer contract on existing business fully offset

the impact of an end of life electrophysiology program

• Trailing 4 sales quarter driven by strong growth of peripheral

vascular and structural heart, overcoming a ~200 basis points

headwind from an end of life electrophysiology program

• Expect 2020 to be mid-single-digit growth as product

launches ramp and the impact of the end of life

electrophysiology program lessens

ramp down for

digits through 1H 2020 and increase in 2H 2020 to mid to high single digits

Y-o-Y%

Change

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

acquisitions


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

4% 4% 2% (1)% 3%

• 4Q19 growth driven by new and next generation product

launches, underlying strength in existing CRM programs,

and a new customer agreement on existing business,

partially offset by the Nuvectra Chapter 11 filing

• Trailing 4 quarter sales increase driven by CRM growth due

to higher market demand and the new customer agreement

on existing business, which was partially offset by slight

neuromodulation decline due to the Nuvectra Chapter 11

filing and market contraction

• Expect slight decline in total for 2020, as double-digit decline

in neuromodulation from Nuvectra bankruptcy offsets low-

single-digit growth in CRMY-o-Y%

Change

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



Orthopedic Implants &

Instruments

Core Battery

Pack AssembliesLi-Ion Battery

Packs

Electrosurgical

Accessories


Advanced Surgical, Orthopedics & Portable Medical

Offering a broad portfolio of power solutions and technologies to Portable

Medical markets and supporting the divested AS&O product line

14% 7% 1% 0% 1%

• 4Q19 sales growth driven by increased end-market demand

for Advanced Surgical and Orthopedic base products

• Trailing 4 quarter sales trend remains relatively flat across all

product lines

• Expect 2020 mid-single-digit growth with accelerating

Portable Medical demand

Y-o-Y%

Change




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

(7)% (8)% (4)% 4% 10%

• 4Q19 growth driven by increased military market

demand and growth in the energy market

• Trailing 4 quarter sales returning to double-digit growth

driven by strong demand in the military market and high-

single-digit growth with energy customers

• Expect 2020 high-single-digit growth from new product

launches and increased military and environmental

demand

Y-o-Y%

Change



2020 Outlook


2020 Sales Outlook($ in millions)

$59 - $79

$1,290 - $1,310

5% - 6% 3% - 4%(2)%% Growth

NuvectraFewer Days

in 2020

5 to 6% Growth Offset by 2% Headwinds

Growth Headwinds

Sales


2020 Full-Year Outlook(1)

Adjusted EPS

% Growth 3% - 4% 9% - 13%

Sales

6% - 8%

Adjusted EBITDA

$1,258

$4.68

$1,290 - $1,310

$5.10 - $5.30$284$300 - $307




Debt Payments

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

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

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

2020 Cash Flow Outlook

$548

$175 - $185

$105 - $125

$90 - $110

$52 - $72

Divestiture Proceeds

Accelerated Repayment

Required Repayment

$700

$117

CAPEX $60 - $70


Target

2.5x - 3.5x

Memo:

Bus Dev $15 $10

$44 $48

Summary



(2)%

(4)%

2015 2016

5%

7%

2017 20182015 2016 2017 2018

Market growth

~1x sales growth

5.6x 3.5x



• Clear strategy

- Portfolio change

- Multi-year plans

Declined

Declined

>6x


Region acquisition



relationships

Market growth

2x sales growth

2.9x 2.5x - 3.5x

• Leadership team complete

• Executing strategy, including

bolt-on acquisitions

• Deleveraging

4%

2019 2020

3% - 4%

Disruption Stabilizing & Building Profit Expansion

*Represents reported growth prior to AS&O divestiture

* * *

200 bps above market

2x sales growth

2.5x – 3.5x

“Excellence in

everything we do”

Market + 2%

Sales Growth Rate Expansion

Strategic Objectives


R&D Headcount Sales & Marketing $ SpendCapabilities

Chaska, Plymouth

+C&V quick-turn

US BioDesign (M&A)

+Complex braiding

Salem

+Laser machining

2017 20202017 2020

+30%+25%

Investing in Capabilities for Growth

Inomec (M&A)

+Delivery systems,

catheters

Investing ~$35 million ‘18-’20

+ERP at 4 sites


Salem MontevideoJuarez

Tijuana South Tijuana North

+Site expansion +Site expansion +Site expansion

+Build-out +First IPG device manufacturing site in Mexico, FDA approved

+IPG manufacturing capacity

Investing in Capacity for Growth

Investing ~$40 Million 2018 to 2020


Attractive Value Proposition

Financial Objectives StatusInteger Strategy

Profit growth

2x sales

growth rate

Profit

• Strong Leadership Team2 • Investing to Execute Strategy4

• Clear Strategy1 • Delivering Strong Operational

& Financial Results3

Sales growth

200 bps above

market

Sales

2.5x – 3.5x

adjusted

EBITDA

Debt Leverage

Earn a valuation premium


Questions?


APPENDIX


4Q19 Adjusted Net Income (1)


$1.04 $0.17 $(0.01) $0.05 $0.00 $1.25Adj.

EPS



Debt Payments

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

Capital Expenditures (acquisition of property, plant, and

equipment (PP&E), net of proceeds from sale of PP&E)

(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

2.9 times adjusted EBITDA

• No significant maturities

until 2022; well within

covenants

Leverage (2)

$595

$40

$548

(3)

2019 Highlights

Cash Flow & Leverage($ in millions)


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 (income)/loss, net

Adjusted EPS, as reported

Organic

Adjusted

EPS(3)

(2)

$265

$313 $305 $303$280 $285

$301 $292

$315 $314$304

$(0.05)

$(0.01)

$0.58 $0.91 $0.98 $0.89 $0.66 $1.01 $1.10 $1.04 $1.00 $1.23 $1.19 $1.26

$326

Historical Financial Results(1)



2020 Full-Year Outlook($ in millions, except per share amounts)


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

See the Footnotes to this table on page 48 of this presentation

($ in thousands, except per share amounts)

** Watch the page # in the footnote **


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

See the Footnotes to this table on page 48 of this presentation



Footnotes to Non-GAAP Reconciliation


Non-GAAP Reconciliation4Q19 Income from Continuing Operations and Diluted EPS Reconciliation – Detailed View



Non-GAAP ReconciliationYTD Income from Continuing Operations and Diluted EPS Reconciliation – Detailed View



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


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


12/31/19 Original 12/31/19

As Reported Rate Rate

Cash & Cash Equivalents 13$

$200M Revolver [Due 2022] -$ L + 325 L + 200

TLA [Due 2022] 267$ L + 325 L + 200

TLB [Due 2022] 558$ L + 425 L + 250

Total Principal Amount of Debt Outstanding 825$

Deferred Fees and OID (10)$

Total Debt (Principal Amount of Debt Outstanding Less Deferred Fees and Discounts) 815$

Net Total Debt (Principal Amount of Debt Outstanding Less Cash) 812$

Continuing Operations Statistics

Trailing 4 Quarter Adjusted EBITDA 284$

Trailing 4 Quarter Cash Interest Expense 45$

Trailing 4 Quarter Capital Expenditures 48$

Credit Statistics

Net Total Debt / Trailing 4 Quarter Adjusted EBITDA 2.9x

Trailing 4 Quarter Adjusted EBITDA / Cash Interest Expense 6.3x

(1)

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

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

(2)

Capitalization($ in millions)


Non-GAAP Reconciliation for Fiscal Year 2017 & 2016GAAP income from continuing operations to Adj. EBITDA from continuing operations($ in thousands)


Non-GAAP Reconciliation for Fiscal Year 2017 & 2016GAAP income from total operations to Adj. EBITDA from total operations($ in thousands)


Non-GAAP Reconciliation for Fiscal Year 2017YTD Income from Continuing Operations and Diluted EPS Reconciliation – Detailed View($ in thousands, except per share amounts)


Non-GAAP Reconciliation for Fiscal Year 2017GAAP net income and diluted EPS to adjusted amounts($ in thousands, except per share amounts)


Non-GAAP Reconciliation for Fiscal Year 2017GAAP net income and diluted EPS to adjusted amounts – detailed view($ in thousands, except per share amounts)

(a)

(a)


Contact Information

Tony BorowiczSVP, Strategy, Business Development & Investor Relations

[email protected]

www.integer.net

(O) 716.759.5809

http://www.integer.net/

4q19 earnings conference call · results of the company for the periods indicated. no...

Documents