3q18 earnings conference call · 2018-11-01 · itgr: 3q18 earnings conference call / november 1,...

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 /

3Q18 Earnings Conference Call

November 1, 2018


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.

investor.integer.net


Agenda

• Opening Comments

• Financial Results

• Product Line Review

• 2018 Outlook

• Question & Answer Period


Opening Comments


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


$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


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


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)


$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


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


$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


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



$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



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


$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


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


2018 Revised Outlook


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+


~$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:


Cardiac Rhythm Management

How we win

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


Summary

Vision

Enhance patient’s lives by being our

customers partner of choice


- 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



APPENDIX


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


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%


2018 Full-Year Outlook – Supplemental Items Affecting Cash Flow($ in millions, except per share amounts)


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)


Footnotes to Non-GAAP Reconciliation


Non-GAAP Reconciliation3Q18 Net Income and Diluted EPS Reconciliation – Detailed View ($ in thousands, except per share amounts)


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


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.


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


Non-GAAP Reconciliation2018 Full-Year Outlook(a)

($ in millions, except per share amounts)


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


Contact Information

Tony BorowiczSVP, Strategy, Corporate Development & Investor Relations

[email protected]

www.integer.net

(O) 716.759.5809

http://www.integer.net/

3q18 earnings conference call · 2018-11-01 · itgr: 3q18 earnings conference call / november 1,...

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