Disclaimer

Please note that you are now entering a website directly or indirectly maintained by a third party (the "External Site") and that you do so at your own risk.

Please note that you are now entering a website directly or indirectly maintained by a third party (the "External Site") and that you do so at your own risk.

By clicking “Accept” you acknowledge and agree that neither ITGR nor third party provider Virtua Research, Inc. (“Virtua) is responsible, or accepts or assumes any responsibility or liability whatsoever for, the content, the data or the technical operation of the Linked Site. Further, by entering the External Site, you also acknowledge and agree that you completely and irrevocably waive any and all rights and claims against ITGR and Virtua and further acknowledge and agree that in no event shall ITGR or Virtua, its officers, employees, directors and agents be liable for any (i) indirect, consequential, incidental, special, compensatory or punitive damages, (ii) damages for loss of income, loss of business profits, business interruption, loss of data or business information, loss of or damage to property, (iii) claims of third parties, or (iv) other pecuniary loss, arising out of or related to this disclaimer or the External Site

By entering the External Site, you further acknowledge and agree that the disclaimer of warranties and limitations of liability set out in this disclaimer shall apply regardless of the causes, circumstances or form of action giving rise to the loss, damage, claim or liability, even if such loss, damage, claim or liability is based upon breach of contract (including, without limitation, a claim of fundamental breach or breach of a fundamental term), tort (including, without limitation, negligence), strict liability or any other legal or equitable theory, and even if ITGR and Virtua are advised of the possibility of the loss, damage, claim or liability. The waiver and release specifically includes, without limitation, any and all rights and claims pertaining to the processing of personal data, including but not limited to any rights under any applicable data protection statute(s).

If in any jurisdiction, any part of this disclaimer is held to be unenforceable by a court of competent jurisdiction, such part of this disclaimer shall be restricted or eliminated to the minimum extent and the remaining disclaimer shall otherwise remain in full force and effect.

Please note the information presented is deemed representative at the time of its original release. Changes in historical information may occur due to adjustments in accounting and reporting standards & procedures.

Non-GAAP Information

In addition to disclosing results determined in accordance with GAAP, ITGR may also disclose certain non-GAAP and pro forma non-GAAP results of operations, including certain ratios, operational and miscellaneous data, as well as net income, diluted earnings per share, operating expenses, and operating income that make certain adjustments or exclude certain charges and gains that are outlined in the schedules included in this website. Management believes that this non-GAAP and pro forma non-GAAP information provides investors with additional information to assess ITGR operating performance by making certain adjustments or excluding costs or gains and assists investors in comparing our operating performance to prior periods. Management uses this non-GAAP and pro forma non-GAAP information, along with GAAP information, in evaluating its historical operating performance. ITGR and Virtua also take no responsibility for third party pricing data provided for informational purposes and certain ratio results formulated from the provided third party pricing data.

The non-GAAP information is not prepared in accordance with GAAP and may not be comparable to non-GAAP information used by other companies. The non-GAAP information should not be viewed as a substitute for, or superior to, other data prepared in accordance with GAAP.

Integer Holdings Corporation Reports Third Quarter 2018 Results

November 01 2018

~ Strong 3Q18 Growth in Sales and Profit ~
~ Raises Full Year Earnings Guidance ~

PLANO, Texas, Nov. 01, 2018 (GLOBE NEWSWIRE) -- Integer Holdings Corporation (NYSE:ITGR), a leading medical device outsource manufacturer, today announced results for the three and nine months ended September 28, 2018.

Third Quarter 2018 Highlights

  • On July 2, 2018, completed the divestiture of the Advanced Surgical and Orthopedic product lines (“AS&O Product Line”), and on July 10, 2018, paid down debt by $548 million, including all $360 million of outstanding senior notes with 9.125% fixed rate.
  • GAAP and Non-GAAP Sales from continuing operations increased 7% to $305 million.
  • GAAP income from continuing operations decreased $28 million to a loss of $8 million.  Current quarter includes charges totaling $41 million for the extinguishment of debt, primarily in connection with the divestiture of the AS&O Product Line.  Non-GAAP adjusted income from continuing operations increased $5 million to $35 million.
  • Adjusted EBITDA from continuing operations increased 10% to $67 million.
  • GAAP diluted EPS from continuing operations decreased $0.88 per share to a loss of $0.26 per share, inclusive of the aforementioned extinguishment of debt charges of $0.98 per diluted share.  Non-GAAP adjusted diluted EPS from continuing operations increased $0.15 per share to $1.06, an increase of 16%.
  • Paid down $595 million of debt, reducing total outstanding debt to $954 million.

Revised 2018 Full Year Financial Guidance

  • GAAP sales guidance increased to a range of $1.197 billion to $1.212 billion.  Non-GAAP sales guidance increased to a range of $1.195 billion to $1.210 billion.
  • GAAP diluted EPS guidance increased to a range of $1.34 to $1.49.  Non-GAAP adjusted diluted EPS guidance increased to a range of $3.55 to $3.70.

“Integer delivered another strong quarter of sales growth and even stronger net income, leading to another increase in our revenue and EPS guidance,” said Joseph Dziedzic, Integer’s president and chief executive officer.  “We also reduced our debt dramatically during the quarter and lowered our debt leverage ratio to 3.7 times adjusted EBITDA, down from 5.6 at the beginning of the year.

“At the beginning of the fourth quarter we hired Jason Garland as our new executive vice president and chief financial officer.  Jason brings nearly 25 years of public company, global financial leadership experience and significant manufacturing and customer contract expertise to Integer.  I look forward to his leadership in executing our strategy.

“With the executive leadership team in place, we are focused on executing our portfolio strategy to win in the markets we serve and our operational strategy to achieve excellence in everything we do.  We remain in a strong position to deliver on our long-term objectives of sales growth above the market, profit growth two times sales growth, and earning a valuation premium,” Mr. Dziedzic concluded.

Discussion of Third Quarter Financial Results

  • Medical segment sales from continuing operations grew by 8%.

    o  Cardio & Vascular sales increased primarily due to continued strong demand in the electrophysiology market stemming from customer share gains, new product launches, and timing from customer inventory replenishment. Cardio & Vascular growth trend is expected to remain above market from increased focus on high growth market segments.

    o  Cardiac Rhythm Management growth was driven by increased components market penetration and lower 2017 comparables from customer inventory adjustments.  Neuromodulation remained strong, with growth driven by spinal cord stimulation market demand and increased components market penetration. Cardiac & Neuromodulation sales are expected to decrease in the fourth quarter of 2018 compared to an extremely strong fourth quarter of 2017.

    o  Advanced Surgical, Orthopedics & Portable Medical includes sales to the acquirer of our AS&O Product Line, Viant, under supply agreements associated with the divestiture.  The sales increase was driven by above market demand. Sales are expected to level off from strong first half and growth is expected to be more in line with the overall market.

  • Non-Medical segment sales declined by 18% primarily due to North American drilling activity leveling off which has led to customer inventory adjustments.  The quarter was also impacted by planned phase out of certain rechargeable battery pack products.  We expect fourth quarter 2018 year-over-year sales to be flat and we expect solid sales growth in 2019 from new customers and products, and renewed military market government funding.

  • GAAP loss from continuing operations was $8 million, compared to income of $20 million in the prior year.  Current quarter includes charges of $41 million for the extinguishment of debt, primarily in connection with the divestiture of the AS&O Product Line.  Non-GAAP adjusted income from continuing operations increased $5 million, or 18%, due to the higher volume of sales, partially offset by higher effective tax rates.

  • Adjusted EBITDA margins increased by 60 basis points to 21.8% in the current year from 21.2% in the prior year, primarily due to operating leverage on the higher sales volume.

  • Paid down $595 million of debt during the quarter using $548 million from the divestiture of the AS&O Product Line and $47 million from operations.

Revised 2018 Outlook(a)
(dollars in millions, except per share amounts)

    GAAP   Non-GAAP(b)
Continuing Operations:   As Reported   Growth   Adjusted   Growth
Sales   $1,197 to $1,212   5% to 7%   $1,195 to $1,210   6% to 7%
Net Income   $44 to $49   (50)% to (44)%   $117 to $122   18% to 23%
EBITDA   N/A   N/A   $255 to $265   9% to 13%
Earnings per Diluted Share   $1.34 to $1.49   (51)% to (46)%   $3.55 to $3.70   15% to 20%

(a) Except as described below, further reconciliations by line item to the closest corresponding GAAP financial measure for Adjusted Sales, Adjusted Net Income, Adjusted EBITDA, and Adjusted Earnings per Diluted Share, included in our “Revised 2018 Outlook” above, are not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity and visibility of the charges excluded from these non-GAAP financial measures.

(b) Adjusted Net Income and EPS for 2018 is expected to consist of GAAP Net Income and EPS, excluding items such as intangible amortization, IP-related litigation costs, consolidation and realignment costs, asset disposition and write-down charges, and loss on extinguishment of debt totaling approximately $89 million. The after-tax impact of these items is estimated to be approximately $70 million, or approximately $2.13 per diluted share. Additionally, Adjusted Net Income and EPS is expected to exclude the estimated impact relating to our disallowed deduction of the Global Intangible Low-Taxed Income (“GILTI”) tax, as mandated by the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”). This disallowed deduction of the GILTI tax (approximately 50% of the total GILTI tax) is due to the Company making use of its U.S. net operating losses (“NOLs”), and will be eliminated once the Company’s U.S. NOLs are fully utilized, which is expected to be in 2019. This adjustment makes our Adjusted Diluted EPS more comparable with other global companies that are not subject to this disallowed GILTI tax deduction and more comparable to the Company’s results following the full utilization of its U.S. NOLs.

Adjusted EBITDA is expected to consist of Adjusted Net Income, excluding items such as depreciation, interest, stock-based compensation and taxes totaling approximately $140 million.


Summary of Financial and Product Line Results from Continuing Operations

(dollars in thousands, except per share data) Three Months Ended
GAAP September 28,
2018
  September 29,
2017
  Change   Organic
Growth(a)
Medical Sales              
Cardio & Vascular $ 150,230     $ 137,712     9.1 %   9.2 %
Cardiac & Neuromodulation 109,620     101,612     7.9 %   7.9 %
Advanced Surgical, Orthopedics & Portable Medical 32,789     31,715     3.4 %   8.9 %
Total Medical Sales 292,639     271,039     8.0 %   8.7 %
Non-Medical Sales 12,449     15,129     (17.7 )%   (17.7 )%
Total Sales $ 305,088     $ 286,168     6.6 %   7.3 %
               
Income from continuing operations $ (8,303 )   $ 19,882     NM      
Diluted EPS from continuing operations $ (0.26 )   $ 0.62     NM      
               
  Nine Months Ended
GAAP September 28,
2018
  September 29,
2017
   Change   Organic
Growth(a)
Medical Sales              
Cardio & Vascular $ 435,859     $ 391,914     11.2 %   10.6 %
Cardiac & Neuromodulation 334,471     311,540     7.4 %   7.4 %
Advanced Surgical, Orthopedics & Portable Medical 101,481     88,148     15.1 %   17.8 %
Total Medical Sales $ 871,811     $ 791,602     10.1 %   10.1 %
Non-Medical Sales 40,167     42,218     (4.9 )%   (4.9 )%
Total Sales $ 911,978     $ 833,820     9.4 %   9.3 %
               
Income from continuing operations $ 27,837     $ 32,389     (14.1 )%    
Diluted EPS from continuing operations $ 0.86     $ 1.01     (14.9 )%    

(a)  Organic Growth for sales is a Non-GAAP measure, which excludes foreign currency exchange impact reported in other loss, net and are primarily non-cash and includes the impact of the Long-term Supply Agreements (“LSAs”) entered into between the Company and Viant as of the closing of the divestiture of the AS&O Product Line. These LSAs govern the sale of products supplied by Viant to the Company for further resale to customers and by the Company to Viant for further resale to customers. Refer to Table C at the end of this release for a reconciliation of these amounts.

(NM) Calculated change not meaningful.

  Three Months Ended
Non-GAAP(a) September 28,
2018
  September 29,
2017
  QTD
Change
  Organic
Growth(b)
Adjusted EBITDA from continuing operations $ 66,606     $ 60,324     10.4 %   8.8 %
Adjusted income from continuing operations $ 34,850     $ 29,420     18.5 %   15.2 %
Adjusted diluted EPS from continuing operations $ 1.06     $ 0.91     16.5 %   12.2 %
               
  Nine Months Ended
Non-GAAP(a) September 28,
2018
  September 29,
2017
  YTD
Change
  Organic
Growth(b)
Adjusted EBITDA from continuing operations $ 191,907     $ 169,960     12.9 %   6.7 %
Adjusted income from continuing operations $ 90,013     $ 70,447     27.8 %   15.0 %
Adjusted diluted EPS from continuing operations $ 2.75     $ 2.21     24.4 %   12.6 %

(a) Refer to Tables A and B at the end of this release for reconciliations of adjusted amounts to the closest corresponding GAAP financial measures.

(b) Organic Growth for Adjusted EBITDA from continuing operations, Adjusted income from continuing operations, and Adjusted diluted EPS from continuing operations are Non-GAAP measures, which exclude the foreign currency exchange impact reported in other loss, net and are primarily non-cash.  Refer to Table D at the end of this release for a reconciliation of these amounts.

Conference Call Information
The Company will host a conference call on Thursday, November 1, 2018, at 9:00 a.m. ET / 8:00 a.m. CT to discuss these results.  The scheduled conference call will be webcast live and is accessible through our website at investor.integer.net or by dialing (833) 236-5762 (U.S.) or (647) 689-4190 (outside U.S.) and the conference ID is 6884746. The call will be archived on the Company’s website.  An earnings call slide presentation containing supplemental information about the Company’s results will be posted to our website at investor.integer.net prior to the conference call and will be referenced during the conference call.

About Integer™
Integer Holdings Corporation (NYSE: ITGR) is one of the largest medical device outsource (MDO) manufacturers in the world serving the cardiac, neuromodulation, vascular, portable medical and orthopedics markets. The Company provides innovative, high-quality medical technologies that enhance the lives of patients worldwide. In addition, it develops batteries for high-end niche applications in energy, military, and environmental markets. The Company's brands include GreatbatchTM Medical, Lake Region MedicalTM and ElectrochemTM. Additional information is available at www.integer.net.

Contact Information
Tony Borowicz
VP, Investor Relations
716.759.5809
tony.borowicz@integer.net

Notes Regarding Non-GAAP Financial Information
In addition to our results reported in accordance with generally accepted accounting principles (“GAAP”), we provide adjusted sales, adjusted income, adjusted earnings per diluted share, earnings before interest, taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA, adjusted EBITDA margin, and organic growth rates, all from continuing operations.  Adjusted income and adjusted earnings per diluted share from continuing operations consist of GAAP amounts adjusted for the following to the extent occurring during the period: (i) acquisition and integration related charges and expenses, (ii) amortization of intangible assets including inventory step-up amortization, (iii) facility consolidation, optimization, manufacturing transfer and system integration charges, (iv) asset write-down and disposition charges, (v) charges in connection with corporate realignments or a reduction in force, (vi) certain litigation expenses, charges and gains, (vii) unusual or infrequently occurring items, (viii) gain (loss) on cost and equity method investments, (ix) extinguishment of debt charges, (x) the net impact of the LSAs between the Company and Viant, (xi) the income tax (benefit) related to these adjustments and (xii) certain tax items that are outside the normal provision for the period.  Adjusted earnings per diluted share from continuing operations are calculated by dividing adjusted income from continuing operations by diluted weighted average shares outstanding.  Adjusted EBITDA from continuing operations consists of GAAP net income (loss) from continuing operations plus (i) the same adjustments as listed above except for items (xi) and (xii), (ii) GAAP stock-based compensation, interest expense, and depreciation, (iii) GAAP provision (benefit) for income taxes and (iv) cash gains received from cost and equity method investments during the period.  Adjusted EBITDA margin is adjusted EBITDA as a percentage of adjusted sales, all from continuing operations.  To calculate organic sales growth rates, we convert current period sales from local currency to U.S. dollars using the previous period’s foreign currency exchange rates and exclude the amount of sales acquired/divested during the period from the current/previous period amounts, respectively.  Adjusted Sales from continuing operations consist of GAAP Sales adjusted for item (x) above.  Organic growth rates for Adjusted EBITDA from continuing operations, Adjusted income from continuing operations and Adjusted Diluted EPS from continuing operations exclude the impact of foreign currency exchange gains and losses included in other (income) loss, net. We believe that the presentation of adjusted sales, adjusted income, adjusted diluted earnings per share, EBITDA, adjusted EBITDA, adjusted EBITDA margin, and organic growth rates, all from continuing operations, provides important supplemental information to management and investors seeking to understand the financial and business trends relating to our financial condition and results of operations.

Forward-Looking Statements
Some of the statements contained in this press release and other written and oral statements made from time to time by us and our representatives are not statements of historical or current fact. As such, they are “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. We have based these forward-looking statements on our current expectations, and these statements are subject to known and unknown risks, uncertainties and assumptions. Forward-looking statements include statements relating to:

  • future sales, expenses, and profitability;
  • future development and 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 remain in compliance with our debt covenants; and
  • projected capital expenditures.

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 only predictions. Actual events or results may differ materially from those stated or implied by these forward-looking statements. In evaluating these statements and our prospects, you should carefully consider the factors set forth below. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary factors and to others contained throughout this release.

Although it is not possible to create a comprehensive list of all factors that may cause actual results to differ from the results expressed or implied by our forward-looking statements or that may affect our future results, some of these factors include the following: our high level of indebtedness, our inability to pay principal and interest on this high level of outstanding indebtedness or to remain in compliance with financial and other covenants under our senior secured credit facilities, and the risk that this high level of indebtedness limits our ability to invest in our business and overall financial flexibility; our dependence upon a limited number of customers; customer ordering patterns; product obsolescence; our inability to market current or future products; pricing pressure from customers; our ability to timely and successfully implement cost reduction and plant consolidation initiatives; our reliance on third-party suppliers for raw materials, products and subcomponents; fluctuating operating results; our inability to maintain high quality standards for our products; challenges to our intellectual property rights; product liability claims; product field actions or recalls; our inability to successfully consummate and integrate acquisitions and to realize synergies and benefits from these acquisitions and to operate these acquired businesses in accordance with expectations; our unsuccessful expansion into new markets; our failure to develop new products including system and device products; the timing, progress and ultimate success of pending regulatory actions and approvals; our inability to obtain licenses to key technology; regulatory changes, including health care reform, or consolidation in the healthcare industry; global economic factors including foreign currency exchange rates and interest rates; the resolution of various legal actions brought against the Company; enactment related and ongoing impacts related to the Tax Reform Act, including the GILTI tax; and other risks and uncertainties that arise from time to time and are described in Item 1A “Risk Factors” of our Annual Report on Form 10-K and in our other periodic filings with the SEC.  Except as may be required by law, we assume no obligation to update forward-looking statements in this press release whether to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial conditions or prospects, or otherwise.

Condensed Consolidated Statements of Operations - Unaudited        
(in thousands except per share data)              
               
  Three Months Ended   Nine Months Ended
  September 28,
 2018
  September 29,
 2017
  September 28,
 2018
  September 29,
 2017
Sales $ 305,088     $ 286,168     $ 911,978     $ 833,820  
Cost of sales 213,165     196,982     637,758     573,431  
Gross profit 91,923     89,186     274,220     260,389  
Operating expenses:              
Selling, general and administrative expenses (SG&A) 34,091     35,064     107,300     105,004  
Research, development and engineering costs 12,234     12,227     38,445     35,104  
Other operating expenses (OOE) 4,139     6,069     12,615     24,490  
Total operating expenses 50,464     53,360     158,360     164,598  
Operating income 41,459     35,826     115,860     95,791  
Interest expense 54,526     15,808     85,355     49,233  
(Gain) loss on cost and equity method investments, net (291 )   (1,906 )   (5,545 )   2,919  
Other loss, net 1,684     2,490     257     10,654  
Income (loss) from continuing operations before income taxes (14,460 )   19,434     35,793     32,985  
Provision (benefit) for income taxes (6,157 )   (448 )   7,956     596  
Income (loss) from continuing operations $ (8,303 )   $ 19,882     $ 27,837     $ 32,389  
               
Discontinued operations:              
Income (loss) from discontinued operations before taxes (1) 195,874     (7,444 )   188,251     (21,074 )
Provision (benefit) for income taxes 73,492     (1,252 )   73,869     (1,026 )
Income (loss) from discontinued operations $ 122,382     $ (6,192 )   $ 114,382     $ (20,048 )
               
Net income $ 114,079     $ 13,690     $ 142,219     $ 12,341  
               
Basic earnings (loss) per share:              
Income (loss) from continuing operations $ (0.26 )   $ 0.63     $ 0.87     $ 1.03  
Income (loss) from discontinued operations $ 3.80     $ (0.20 )   $ 3.57     $ (0.64 )
Basic earnings per share $ 3.54     $ 0.43     $ 4.44     $ 0.39  
               
Diluted earnings (loss) per share:              
Income (loss) from continuing operations $ (0.26 )   $ 0.62     $ 0.86     $ 1.01  
Income (loss) from discontinued operations $ 3.80     $ (0.19 )   $ 3.52     $ (0.63 )
Diluted earnings per share $ 3.54     $ 0.43     $ 4.38     $ 0.39  
               
Weighted average shares outstanding:              
Basic 32,211     31,594     32,050     31,304  
Diluted 32,211     32,173     32,451     31,947  

(1)  Includes a gain from the sale of the AS&O Product Line of $194.7 million for three and nine months ended September 28, 2018.


Condensed Consolidated Balance Sheets - Unaudited
(in thousands)
   
  September 28,
 2018
  December 29,
2017
ASSETS      
Current assets:      
Cash and cash equivalents $ 22,881     $ 37,341  
Accounts receivable, net 200,147     194,845  
Inventories 193,631     176,738  
Prepaid expenses and other current assets 12,008     16,239  
Current assets of discontinued operations held for sale     106,746  
Total current assets 428,667     531,909  
Property, plant and equipment, net 232,108     235,180  
Goodwill 834,520     839,870  
Other intangible assets, net 825,359     862,873  
Deferred income taxes 3,618     3,451  
Other assets 31,724     30,428  
Noncurrent assets of discontinued operations held for sale     344,634  
Total assets $ 2,355,996     $ 2,848,345  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Current portion of long-term debt $ 37,500     $ 30,469  
Accounts payable 69,270     64,551  
Income taxes payable 16,298     5,904  
Accrued expenses 54,922     60,376  
Current liabilities of discontinued operations held for sale     47,703  
Total current liabilities 177,990     209,003  
Long-term debt 916,694     1,578,696  
Deferred income taxes 210,303     140,964  
Other long-term liabilities 11,678     11,335  
Noncurrent liabilities of discontinued operations held for sale     14,966  
Total liabilities 1,316,665     1,954,964  
Stockholders’ equity:      
Common stock 33     32  
Additional paid-in capital 687,644     669,756  
Treasury stock (5,668 )   (4,654 )
Retained earnings 318,287     176,068  
Accumulated other comprehensive income 39,035     52,179  
Total stockholders’ equity 1,039,331     893,381  
Total liabilities and stockholders’ equity $ 2,355,996     $ 2,848,345  


Condensed Consolidated Statements of Cash Flows - Unaudited (a)
(in thousands)
   
  Nine Months Ended
  September 28,
 2018
  September 29,
 2017
Cash flows from operating activities:      
Net income $ 142,219     $ 12,341  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 68,447     74,584  
Debt related amortization and extinguishment fees included in interest expense 47,173     8,850  
Stock-based compensation 7,684     9,895  
Non-cash (gain) loss on cost and equity method investments (1,043 )   3,833  
Other non-cash losses (771 )   6,833  
Deferred income taxes 66,953     (6,821 )
Gain on sale of discontinued operations (194,734 )    
Changes in operating assets and liabilities:      
Accounts receivable (4,805 )   (13,958 )
Inventories (19,688 )   (20,259 )
Prepaid expenses and other assets 5,155     8,460  
Accounts payable 10,488     12,905  
Accrued expenses (14,904 )   4,191  
Income taxes payable 8,562     14,716  
Net cash provided by operating activities 120,736     115,570  
Cash flows from investing activities:      
Acquisition of property, plant and equipment (33,340 )   (34,059 )
Proceeds from sale of property, plant and equipment 1,366     464  
Purchase of cost and equity method investments (1,230 )   (1,316 )
Proceeds from sale of discontinued operations 582,359      
Other investing activities     209  
Net cash provided by (used in) investing activities 549,155     (34,702 )
Cash flows from financing activities:      
Principal payments of long-term debt (670,094 )   (156,526 )
Proceeds from issuance of long-term debt     50,000  
Proceeds from the exercise of stock options 11,757     17,074  
Payment of debt issuance and redemption costs (31,991 )   (1,789 )
Tax withholdings related to net share settlements of restricted stock unit awards (2,568 )   (76 )
Net cash used in financing activities (692,896 )   (91,317 )
Effect of foreign currency exchange rates on cash and cash equivalents 1,790     1,970  
Net decrease in cash and cash equivalents (21,215 )   (8,479 )
Cash and cash equivalents, beginning of period 44,096     52,116  
Cash and cash equivalents, end of period $ 22,881     $ 43,637  

(a)   The Condensed Consolidated Statements of Cash Flows - Unaudited includes cash flows related to discontinued operations.


Reconciliations of Non-GAAP Measures from Continuing Operations

Table A: Income (Loss) from Continuing Operations and Diluted EPS Reconciliations
(in thousands except per share amounts)

  Three Months Ended
  September 28, 2018   September 29, 2017
  Pre-Tax
Income
(Loss)
  Income
(Loss)
  Per
Diluted
Share
  Pre-Tax
Income
(Loss)
  Income
(Loss)
  Per
Diluted
Share
As reported income (loss) from continuing operations (GAAP) $ (14,460 )   $ (8,303 )   $ (0.26 )   $ 19,434     $ 19,882     $ 0.62  
Adjustments:                      
Amortization of intangibles(a) 9,896     7,830     0.24     10,145     7,103     0.22  
IP related litigation (SG&A)(a)(b) 749     591     0.02     1,735     1,128     0.04  
Strategic reorganization and alignment (OOE)(a)(c) 2,643     2,085     0.06              
Manufacturing alignment to support growth (OOE)(a)(d) 877     657     0.02              
Consolidation and optimization expenses (OOE)(a)(e) 137     108         2,979     2,630     0.08  
Acquisition and integration expenses (OOE)(a)(f)             2,267     1,106     0.03  
Asset dispositions, severance and other (OOE)(a)(g) 482     412     0.01     823     546     0.02  
(Gain) loss on cost and equity method investments, net(a) (291 )   (230 )   (0.01 )   (1,906 )   (1,239 )   (0.04 )
Loss on extinguishment of debt(a)(h) 40,654     32,117     0.98     778     506     0.02  
LSA adjustments(a)(i)             (3,450 )   (2,242 )   (0.07 )
Tax adjustments(j)     (417 )   (0.01 )            
Adjusted income from continuing operations (Non-GAAP) $ 40,687     $ 34,850     $ 1.06     $ 32,805     $ 29,420     $ 0.91  
                       
Diluted weighted average shares for adjusted EPS     32,899             32,173      
                       
  Nine Months Ended
  September 28, 2018   September 29, 2017
  Pre-Tax
Income
(Loss)
  Income
(Loss)
  Per
Diluted
Share
  Pre-Tax
Income
(Loss)
  Income
(Loss)
  Per
Diluted
Share
As reported income from continuing operations (GAAP) $ 35,793     $ 27,837     $ 0.86     $ 32,985     $ 32,389     $ 1.01  
Adjustments:                      
Amortization of intangibles(a) 31,068     24,523     0.75     30,375     21,205     0.66  
IP related litigation (SG&A)(a)(b) 1,546     1,221     0.04     3,027     1,968     0.06  
Strategic reorganization and alignment (OOE)(a)(c) 8,424     6,662     0.20              
Manufacturing alignment to support growth (OOE)(a)(d) 2,493     1,841     0.06              
Consolidation and optimization expenses (OOE)(a)(e) 698     553     0.02     8,055     6,525     0.20  
Acquisition and integration expenses (OOE)(a)(f)             10,057     6,276     0.20  
Asset dispositions, severance and other (OOE)(a)(g) 1,000     776     0.02     6,378     4,144     0.13  
(Gain) loss on cost and equity method investments, net(a) (5,545 )   (4,381 )   (0.13 )   2,919     1,897     0.06  
Loss on extinguishment of debt(a)(h) 42,128     33,281     1.02     3,272     2,127     0.07  
LSA adjustments(a)(i) (6,119 )   (4,834 )   (0.15 )   (9,361 )   (6,084 )   (0.19 )
Tax adjustments(j)     2,534     0.08              
Adjusted income from continuing operations (Non-GAAP) $ 111,486     $ 90,013     $ 2.75     $ 87,707     $ 70,447     $ 2.21  
                       
Diluted weighted average shares for adjusted EPS     32,681             31,947      

(a) The difference between pre-tax and income (loss) amounts is the estimated tax impact related to the respective adjustment.  Income (loss) amounts are computed using a 21% U.S. tax rate (35% U.S. tax rate for 2017 periods), and the statutory tax rates in Mexico, Netherlands, Uruguay, Ireland and Switzerland, as adjusted for the existence of NOLs.  Amortization of intangibles and OOE expense have also been adjusted to reflect the estimated impact relating to our disallowed deduction of the GILTI tax, as described in footnote (j) below.  Expenses that are not deductible for tax purposes (i.e. permanent tax differences) are added back at 100%.

(b) In 2013, we filed suit against AVX Corporation alleging they were infringing our intellectual property. Given the complexity and significant costs incurred pursuing this litigation, we are excluding these litigation expenses from adjusted amounts. This matter proceeded to trial during the first quarter of 2016 and again in the third quarter of 2017 that resulted in a jury awarding damages in the amount of $37.5 million.  In March 2018, the court vacated that damage award and ordered a new trial on damages, which is scheduled for January 2019.  To date, no gains have been recognized in connection with this litigation.

(c) As a result of the strategic review of our customers, competitors and markets we undertook during the fourth quarter of 2017, we began to take steps to better align our resources in order to invest to grow, protect, preserve and to enhance the profitability of our portfolio of products. This will include focusing our investment in RD&E and manufacturing, improving our business processes and redirecting investments away from projects where the market does not justify the investment.  As a result, during 2018 we incurred charges related to this strategy, which primarily consisted of severance costs and fees for professional services.

(d) In 2017, we initiated several initiatives designed to reduce costs, improve operating efficiencies and increase manufacturing capacity to accommodate growth.  The plan involves the relocation of certain manufacturing operations and expansion of certain of our facilities.

(e) During 2018 and 2017, we incurred costs primarily related to the closure of our Clarence, NY facility and the transfer of our Beaverton, OR portable medical and Plymouth, MN vascular manufacturing operations to Tijuana, Mexico.

(f) Reflects acquisition and integration costs related to the acquisition of Lake Region Medical, which occurred in October 2015.

(g) Amounts for 2017 primarily include expenses related to our CEO and CFO transitions.

(h) Represents debt extinguishment charges in connection with pre-payments made on our Term B Loan Facility, which are included in interest expense.  In addition, the 2018 periods include a “make-whole” premium of $31.3 million, paid as a result of redeeming our senior notes in July 2018.

(i) Reflects the net impact of the LSAs entered into as of the closing of the divestiture of the Advanced Surgical and Orthopedic product lines. These LSAs govern the sale of products supplied by Viant to the Company for further resale to customers and by the Company to Viant for further resale to customers.

(j) Tax adjustments primarily includes the estimated impact relating to our disallowed deduction of the GILTI tax, as mandated by the Tax Reform Act.  This disallowed deduction of the GILTI tax (approximately 50% of the total GILTI tax) is due to the Company making use of its U.S. NOLs, and will be eliminated once the Company’s U.S. NOLs are fully utilized, which is expected to be in 2019.  This adjustment makes our Adjusted Diluted EPS from continuing operations more comparable with other global companies that are not subject to this disallowed GILTI tax deduction and more comparable to the Company’s results following the full utilization of its U.S. NOLs.


Table B: EBITDA and Sales Reconciliations
(in thousands)

  Three Months Ended   Nine Months Ended
  September 28,
 2018
  September 29,
 2017
  September 28,
 2018
  September 29,
 2017
Income (loss) from continuing operations (GAAP) $ (8,303 )   $ 19,882     $ 27,837     $ 32,389  
               
Interest expense 54,526     15,808     85,355     49,233  
Provision (benefit) for income taxes (6,157 )   (448 )   7,956     596  
Depreciation 9,960     9,534     29,929     28,262  
Amortization 9,896     10,145     31,068     30,375  
EBITDA from continuing operations 59,922     54,921     182,145     140,855  
IP related litigation 749     1,735     1,546     3,027  
Stock-based compensation (excluding OOE) 2,087     2,041     7,265     7,116  
Strategic reorganization and alignment 2,643         8,424      
Manufacturing alignment to support growth 877         2,493      
Consolidation and optimization expenses 137     2,979     698     8,055  
Acquisition and integration expenses     2,267         10,057  
Asset dispositions, severance and other 482     823     1,000     6,378  
Non-cash (gain) loss on cost and equity method investments (291 )   (992 )   (5,545 )   3,833  
LSA adjustments     (3,450 )   (6,119 )   (9,361 )
Adjusted EBITDA from continuing operations (Non-GAAP) $ 66,606     $ 60,324     $ 191,907     $ 169,960  
               
Total Sales (GAAP) $ 305,088     $ 286,168     $ 911,978     $ 833,820  
LSA adjustments     (1,604 )   (2,003 )   (3,758 )
Adjusted sales from continuing operations (Non-GAAP) $ 305,088     $ 284,564     $ 909,975     $ 830,062  
               
Adjusted EBITDA margin 22 %   21 %   21 %   20 %


Table C: Organic Sales from Continuing Operations Growth Rate Reconciliation (% Change)

  GAAP
Reported
Growth
  Impact of
LSAs(a)
  Impact of
Foreign
Currency(b)
  Non-GAAP
Organic
Growth
QTD Change (3Q 2018 vs. 3Q 2017)              
Medical Sales              
Cardio & Vascular 9.1 %   %   0.1 %   9.2 %
Cardiac & Neuromodulation 7.9 %           7.9 %
Advanced Surgical, Orthopedics & Portable Medical 3.4 %   5.4 %   0.1 %   8.9 %
Total Medical Sales 8.0 %   0.6 %   0.1 %   8.7 %
Non-Medical Sales (17.7 )%           (17.7 )%
Total Sales 6.6 %   0.6 %   0.1 %   7.3 %
               
YTD Change (9M 2018 vs. 9M 2017)              
Medical Sales              
Cardio & Vascular 11.2 %   %   (0.6 )%   10.6 %
Cardiac & Neuromodulation 7.4 %           7.4 %
Advanced Surgical, Orthopedics & Portable Medical 15.1 %   2.8 %   (0.1 )%   17.8 %
Total Medical Sales 10.1 %   0.3 %   (0.3 )%   10.1 %
Non-Medical Sales (4.9 )%           (4.9 )%
Total Sales 9.4 %   0.2 %   (0.3 )%   9.3 %

(a) Represents adjustment to third quarter and year-to-date 2017 sales to exclude the net impact of the LSAs.

(b) Third quarter and year-to-date 2018 sales were 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.


Table D: Non-GAAP Organic Growth Rate Reconciliation (% Change)

  GAAP
Reported
Growth
  Impact of
Non-GAAP
Adjustment(a)
  Impact of
Foreign
Currency(b)
  Non-GAAP
Organic
Growth
QTD Change (3Q 2018 vs. 3Q 2017)              
EBITDA from continuing operations 9.1 %   1.3 %   (1.6 )%   8.8 %
Income from continuing operations NM     18.5 %   (3.3 )%   15.2 %
Diluted EPS from continuing operations NM     16.5 %   (4.3 )%   12.2 %
               
YTD Change (9M 2018 vs. 9M 2017)              
EBITDA from continuing operations 29.3 %   (16.4 )%   (6.2 )%   6.7 %
Income from continuing operations (14.1 )%   41.9 %   (12.8 )%   15.0 %
Diluted EPS from continuing operations (14.9 )%   39.3 %   (11.8 )%   12.6 %

(a) Represents the impact to our growth rate from our Non-GAAP adjustments. See Tables A and B for further detail on these items.

(b) Represents the impact to our growth rate due to changes in foreign currency exchange rates realized in income and reported in other loss, net in the consolidated statements of operations.

(NM) Calculated change not meaningful.


Table E: Supplemental Financial Items Affecting Cash Flow
(dollars in millions)

    2018
Outlook
  2017
Actual
 
Capital Expenditures   $37 - $42   $30   
Depreciation and Amortization   $80 - $85   $79   
Stock-Based Compensation   $9 - $11   $11   
Other Operating Expense   $15 - $20   $36   
Adjusted Effective Tax Rate   20% - 22%    19%
 
Cash Tax Payments   $20 - $25   $9   


integer logo.jpg

Source: Integer Holdings Corporation