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Integer Holdings Corporation Reports Results for Fourth Quarter and Full Year 2022

February 16, 2023

~ Strong sales growth over last year of 19% in 4Q22 and 13% for the full year ~
~ Expect 7% to 9% sales growth in 2023 with expanding margins ~

PLANO, Texas, Feb. 16, 2023 (GLOBE NEWSWIRE) -- Integer Holdings Corporation (NYSE:ITGR), a leading medical device outsource manufacturer, today announced results for the three and twelve months ended December 31, 2022. Unless otherwise stated, all results and comparisons are from continuing operations.

Fourth Quarter 2022 Financial Results (compared to fourth quarter 2021 , except as noted)

  • Sales increased 19% to $372 million.
  • GAAP income from continuing operations decreased $3 million to $17 million, a decrease of 15%. Adjusted net income increased $4 million to $37 million, an increase of 12%.
  • GAAP operating income increased $8 million to $37 million, an increase of 29%. Adjusted operating income increased $13 million to $57 million, an increase of 30%.
  • GAAP diluted EPS from continuing operations decreased $0.09 per share to $0.51 per share, a decrease of 15%. Adjusted EPS increased $0.12 per share to $1.11 per share, an increase of 12%.
  • Adjusted EBITDA increased $15 million to $73 million, an increase of 25%.

Full Year 2022 Financial Results (compared to full year 2021 )

  • Sales increased 13% to $1.376 billion.
  • GAAP income from continuing operations decreased $28 million to $65 million, a decrease of 30%. Adjusted net income decreased $6 million to $130 million, a decrease of 4%.
  • GAAP operating income decreased $14 million to $121 million, a decrease of 11%. Adjusted operating income increased $5 million to $192 million, an increase of 3%.
  • GAAP diluted EPS from continuing operations decreased $0.84 per share to $1.96 per share, a decrease of 30%. Adjusted EPS decreased $0.20 per share to $3.88 per share, a decrease of 5%.
  • Adjusted EBITDA increased $13 million to $256 million, an increase of 5%.
  • Generated $116 million of cash flow from operating activities.
  • Total debt increased $97 million to $925 million and net total debt increased $89 million to $907 million, attributable to the Aran Biomedical acquisition for $129 million, resulting in a leverage ratio of 3.5x times adjusted EBITDA as of December 31, 2022.

“Integer delivered fourth quarter and full year 2022 sales and income at the high-end of 2022 earnings guidance, while continuing to improve its ability to manage a challenging supply chain environment and deliver for customers and the patients they serve,” said Joseph Dziedzic, Integer’s president and CEO.

“We expect 7% to 9% organic sales growth in 2023, which begins what we project will be sustained above-market growth. We expect adjusted operating income to grow 10% to 16% from operational efficiencies in what remains a challenging supply chain environment. We continue to execute our strategy, and to deliver sustained above-market sales growth we are making critical capacity investments in 2023.”

Discussion of Product Line Fourth Quarter and Full Year Sales

  • Cardio & Vascular (C&V) sales increased 20% in the fourth quarter 2022 compared to fourth quarter 2021, driven by strong demand across all markets, especially structural heart, and key products, such as guidewires, as well as incremental sales from the acquisitions and the complex catheter supplier’s delivery performance gradually improving versus third quarter 2022. Full year sales increased 18% year-over-year, with double-digit growth across most C&V markets, driven by customer demand and strong acquisition performance.
  • Cardiac Rhythm Management & Neuromodulation sales increased 14% in the fourth quarter 2022 compared to fourth quarter 2021 driven by growth from the Oscor acquisition and improved supplier delivery performance versus third quarter 2022 for neuromodulation products. Full year sales increased 6% year-over-year, driven by the Oscor acquisition, with mid-single digit growth in both Cardiac Rhythm Management and Neuromodulation.
  • Advanced Surgical, Orthopedics & Portable Medical sales increased 32% in the fourth quarter 2022 compared to fourth quarter 2021, driven by higher demand to support the start of the multi-year Portable Medical exit announced in 2022 and low-double digit growth in Advanced Surgical and Orthopedics. Full year sales increased 12% year-over-year, driven by low double-digit growth in Portable Medical related to demand to support the multi-year Portable Medical exit.
  • Electrochem sales increased 41% in the fourth quarter 2022 compared to fourth quarter 2021, driven by strong demand across all market segments and supplier delivery recovery. Full year sales increased 21% year-over-year driven by mid-single digit energy market growth and strong demand in military and environmental markets.

2023 Outlook (a)

  • 2023 Outlook includes the benefit of lower interest expense from the $500 million 2.125% coupon convertible note offering closed on February 3, 2023.
(dollars in millions, except per share amounts)   GAAP   Non-GAAP (b)
    As Reported   Change from
Prior Year
  Adjusted   Change from
Prior Year
Sales   $1,470 to $1,500   7% to 9%   N/A   N/A
Operating income   $134 to $145   10% to 19%   $211 to $222   10% to 16%
EBITDA   N/A   N/A   $285 to $296   11% to 16%
Net income   $71 to $81   8% to 24%   $134 to $144   4% to 11%
Diluted earnings per share   $2.11 to $2.41   8% to 23%   $4.00 to $4.30   3% to 11%
Cash flow from operating activities   $180 to $200   55% to 72%   N/A   N/A

(a) Except as described below, further reconciliations by line item to the closest corresponding GAAP financial measure for Adjusted operating income, Adjusted EBITDA, Adjusted net income and Adjusted Earnings per Share (“EPS”), all from continuing operations, included in our “2023 Outlook” above, and Adjusted total interest expense, Adjusted effective tax rate and Leverage ratio in “Supplemental Financial Information” below, 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 operating income for 2023 consists of GAAP operating income, excluding items such as amortization of intangible assets, restructuring and restructuring-related charges, and acquisition and integration costs, totaling approximately $77 million, pre-tax. Adjusted net income and Adjusted EPS for 2023 consist of GAAP net income and diluted EPS, excluding items such as amortization of intangible assets, restructuring and restructuring-related charges, acquisition and integration costs, and gain or loss on equity investments totaling approximately $81 million, pre-tax. The after-tax impact of these items is estimated to be approximately $63 million, or approximately $1.89 per diluted share.

Adjusted EBITDA is expected to consist of Adjusted net income, excluding items such as depreciation, interest, stock-based compensation and taxes totaling approximately $151 million to $152 million.

Supplemental Financial Information

(dollars in millions) 2023
Outlook
  2022
Actual
Depreciation and amortization $100 to $110   $92
Adjusted total interest expense(a) $45 to $50   $39
Stock-based compensation $22 to $25   $21
Restructuring, acquisition and other charges(b) $18 to $23   $21
Adjusted effective tax rate(c) 17.0% to 19.0%   16.1%
Leverage ratio(d) 2.5x to 3.5x   3.5x
Capital expenditures(d) $100 to $120   $74
Cash income tax payments $27 to $31   $11

(a) Adjusted total interest expense refers to our expected full-year GAAP total interest expense, expected to range from $49 million to $54 million for 2023, adjusted to remove the full-year impact of charges associated with the accelerated write-off of deferred issuance costs and unamortized discounts (loss on extinguishment of debt) included in GAAP total interest expense, if any.

(b) Restructuring, acquisition and other charges consists of restructuring and restructuring-related charges, acquisition and integration costs and other general expenses.

(c) Adjusted effective tax rate refers to our full-year GAAP effective tax rate, expected to range from 15.0% to 17.0% for 2023, adjusted to reflect the full-year impact of the items that are excluded in providing adjusted net income and certain other identified items.

(d) Please see “Notes Regarding Non-GAAP Financial Information” for additional information regarding leverage ratio and capital expenditures.

Summary Financial Results
(dollars in thousands, except per share data)

  Three Months Ended December 31,   Year Ended December 31,
    2022     2021   Change     2022     2021   Change
Operating income $ 36,865   $ 28,663   28.6  %   $ 121,327   $ 135,711   (10.6 )%
Income from continuing operations $ 17,090   $ 20,001   (14.6 )%   $ 65,350   $ 93,020   (29.7 )%
Diluted EPS from continuing operations $ 0.51   $ 0.60   (15.0 )%   $ 1.96   $ 2.80   (30.0 )%
                       
EBITDA from continuing operations(a) $ 58,153   $ 48,529   19.8  %   $ 206,581   $ 214,060   (3.5 )%
Adjusted EBITDA(a) $ 73,082   $ 58,469   25.0  %   $ 256,101   $ 242,983   5.4  %
Adjusted operating income(a) $ 57,284   $ 44,019   30.1  %   $ 191,951   $ 187,175   2.6  %
Adjusted net income(a) $ 37,030   $ 33,057   12.0  %   $ 129,548   $ 135,550   (4.4 )%
Adjusted EPS(a) $ 1.11   $ 0.99   12.1  %   $ 3.88   $ 4.08   (4.9 )%

(a) EBITDA from continuing operations, Adjusted EBITDA, Adjusted operating income, Adjusted net income, and Adjusted EPS are Non-GAAP financial measures. Please see “Notes Regarding Non-GAAP Financial Information” for additional information regarding our use of non-GAAP financial measures. Refer to Tables A, B and C at the end of this release for reconciliations of adjusted amounts to the closest corresponding GAAP financial measures.

Summary Product Line Results
(dollars in thousands)

  Three Months Ended December 31,
    2022     2021   Change   Organic Change (a)
Medical Sales              
Cardio & Vascular $ 185,697   $ 154,952   19.8  %   13.1  %
Cardiac Rhythm Management & Neuromodulation   142,680     125,500   13.7  %   8.1  %
Advanced Surgical, Orthopedics & Portable Medical   28,401     21,462   32.3  %   32.4  %
Total Medical Sales   356,778     301,914   18.2  %   12.4  %
Non-Medical Sales   15,645     11,101   40.9  %   40.9  %
Total Sales $ 372,423   $ 313,015   19.0  %   13.4  %
               
  Year Ended December 31,
    2022     2021   Change   Organic Change (a)
Medical Sales              
Cardio & Vascular $ 699,469   $ 593,117   17.9  %   11.5  %
Cardiac Rhythm Management & Neuromodulation   532,580     502,288   6.0  %   (1.5 )%
Advanced Surgical, Orthopedics & Portable Medical   97,502     87,221   11.8  %   11.9  %
Total Medical Sales   1,329,551     1,182,626   12.4  %   6.0  %
Non-Medical Sales   46,545     38,453   21.0  %   21.0  %
Total Sales $ 1,376,096   $ 1,221,079   12.7  %   6.5  %

(a) Organic sales change is a Non-GAAP financial measure. Please see “Notes Regarding Non-GAAP Financial Information” for additional information regarding our use of non-GAAP financial measures and refer to Table C at the end of this release for a reconciliation of these amounts.

Conference Call Information
The Company will host a conference call on Thursday, February 16, 2023, at 8 a.m. CT / 9 a.m. ET 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 (888) 330-3567 (U.S.) or (646) 960-0842 (outside U.S.) and the conference ID is 9252310. 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.

From time to time, the Company posts information that may be of interest to investors on its website at investor.integer.net. To automatically receive Integer financial news by email, please visit investor.integer.net and subscribe to email alerts.

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

Contact Information

Tony Borowicz   Andrew Senn
SVP, Investor Relations   SVP, Strategy & Business Development
716.759.5809   763.951.8312
tony.borowicz@integer.net   andrew.senn@integer.net


Notes Regarding Non-GAAP Financial Information
In addition to our results reported in accordance with generally accepted accounting principles in the United States of America (“GAAP”), we provide adjusted net income, adjusted EPS, earnings before interest, taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA, adjusted operating income, and organic sales change rates.

Adjusted net income and adjusted EPS consist of GAAP amounts adjusted for the following to the extent occurring during the period: (i) amortization of intangible assets, (ii) certain legal expenses, (iii) restructuring and restructuring-related charges; (iv) acquisition and integration related costs; (v) other general expenses; (vi) (gain) loss on equity investments; (vii) extinguishment of debt charges; (viii) European Union medical device regulation incremental charges, (ix) inventory step-up amortization; (x) unusual, or infrequently occurring items; (xi) the income tax provision (benefit) related to these adjustments and (xii) certain tax items that are outside the normal tax provision for the period. Adjusted EPS is calculated by dividing adjusted net income by diluted weighted average shares outstanding.

EBITDA is calculated by adding back interest expense, provision (benefit) for income taxes, depreciation expense, and amortization expense from intangible assets and financing leases, to net income, which is the most directly comparable GAAP financial measure. Adjusted EBITDA consists of EBITDA plus adding back stock-based compensation and the same adjustments as listed above except for items (i), (vii), (xi) and (xii). Adjusted operating income consists of operating income adjusted for the same items listed above except for items (vi), (vii), (xi) and (xii).

Organic sales change is reported sales growth adjusted for the impact of foreign currency and the contribution of acquisitions. To calculate the impact of foreign currency on sales growth rates, we convert any sale made in a foreign currency by converting current period sales into prior period sales using the exchange rate in effect at that time and then compare the two, negating any effect foreign currency had on our transactional revenue, and exclude the amount of sales acquired or divested during the period from the current/previous period amounts, respectively.

We believe that the presentation of adjusted net income, adjusted EPS, EBITDA, adjusted EBITDA, adjusted operating income, and organic sales change rates, 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. In addition to the performance measures identified above, we believe that net total debt and leverage ratio provide meaningful measures of liquidity and a useful basis for assessing our ability to fund our activities, including the financing of acquisitions and debt repayments. Net total debt is calculated as total principal amount of debt outstanding less cash and cash equivalents. We calculate leverage ratio as net total debt divided by adjusted EBITDA for the trailing 4 quarters. Free cash flow is defined as Net cash provided by operating activities (as stated in our Condensed Consolidated Statements of Cash Flows) reduced by capital expenditures (acquisition of property, plant, and equipment (PP&E), net of proceeds from the sale of PP&E).

Forward-Looking Statements
Some of the statements contained in this press release 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, including statements relating to; fourth quarter and full year 2022 performance, 2023 outlook, future sales, expenses, and profitability; customer demand; supplier performance (including delivery delays); costs (including wages, staffing levels and freight); future development and expected growth of our business and industry, including expansion of our manufacturing capacity; our ability to execute our business model and our business strategy, including completion and integration of current or future acquisition targets; having available sufficient cash and borrowing capacity to meet working capital, debt service and capital expenditure requirements for the next twelve months; projected capital spending; and other events, conditions or developments that will or may occur in the future. You can identify forward-looking statements by terminology such as “outlook,” “projected,” “may,” “will,” “should,” “could,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “project,” 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.

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 and other risks and uncertainties that arise from time to time are described in Item 1A “Risk Factors” of our Annual Report on Form 10-K and in our other periodic filings with the SEC and include the following:

  • operational risks, such as the duration, scope and impact of the COVID-19 pandemic, including the evolving health, economic, social and governmental environments and the effect of the pandemic on our associates, suppliers and customers as well as the global economy; our dependence upon a limited number of customers; pricing pressures that we face from customers; our reliance on third party suppliers for raw materials, key products and subcomponents; our ability to attract, train and retain a sufficient number of qualified associates; the potential for harm to our reputation caused by quality problems related to our products; the dependence of our energy market-related revenues on the conditions in the oil and natural gas industry; interruptions in our manufacturing operations; our dependence upon our information technology systems and our ability to prevent cyber-attacks and other failures; and our dependence upon our senior management team and technical personnel;
  • strategic risks, such as the intense competition we face and our ability to successfully market our products; our ability to respond to changes in technology; our ability to develop new products and expand into new geographic and product markets; and our ability to successfully identify, make and integrate acquisitions to expand and develop our business in accordance with expectations;
  • financial risks, such as our significant amount of outstanding indebtedness and our ability to remain in compliance with financial and other covenants under our senior secured credit facilities; economic and credit market uncertainties that could interrupt our access to capital markets, borrowings or financial transactions; financial and market risks related to our international operations and sales; our complex international tax profile; and our ability to realize the full value of our intangible assets; and
  • legal and compliance risks, such as regulatory issues resulting from product complaints, recalls or regulatory audits; the potential of becoming subject to product liability or intellectual property claims; our ability to protect our intellectual property and proprietary rights; our ability and the cost to comply with environmental regulations; our ability to comply with customer-driven policies and third party standards or certification requirements; our ability to obtain necessary licenses for new technologies; legal and regulatory risks from our international operations; and the fact that the healthcare industry is highly regulated and subject to various regulatory changes;

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 Balance Sheets - Unaudited
(in thousands)
   
  December 31,
2022
  December 31,
2021
ASSETS      
Current assets:      
Cash and cash equivalents $ 24,272   $ 17,885
Accounts receivable, net   224,325     182,310
Inventories   208,766     155,699
Refundable income taxes   2,003     4,735
Contract assets   71,927     64,743
Prepaid expenses and other current assets   27,005     27,610
Total current assets   558,298     452,982
Property, plant and equipment, net   317,243     277,099
Goodwill   982,192     924,704
Other intangible assets, net   819,889     807,810
Deferred income taxes   6,247     5,711
Operating lease assets   74,809     70,053
Financing lease assets   8,852     8,047
Other long-term assets   26,856     35,809
Total assets $ 2,794,386   $ 2,582,215
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Current portion of long-term debt $ 18,188   $ 15,250
Accounts payable   110,780     76,859
Income taxes payable   10,923     725
Operating lease liabilities   10,362     9,862
Accrued expenses and other current liabilities   73,499     56,933
Total current liabilities   223,752     159,629
Long-term debt   907,073     812,876
Deferred income taxes   160,671     171,505
Operating lease liabilities   64,049     59,767
Financing lease liabilities   8,006     7,450
Other long-term liabilities   13,379     16,291
Total liabilities   1,376,930     1,227,518
Stockholders’ equity:      
Common stock   33     33
Additional paid-in capital   731,393     713,150
Retained earnings   680,701     614,324
Accumulated other comprehensive income   5,329     27,190
Total stockholders’ equity   1,417,456     1,354,697
Total liabilities and stockholders’ equity $ 2,794,386   $ 2,582,215


Condensed Consolidated Statements of Operations - Unaudited        
(in thousands except per share data)              
       
  Three Months Ended
December 31,
  Year Ended
December 31,
    2022       2021       2022       2021  
Sales $ 372,423     $ 313,015     $ 1,376,096     $ 1,221,079  
Cost of sales (COS)   274,507       231,149       1,017,090       884,109  
Gross profit   97,916       81,866       359,006       336,970  
Operating expenses:              
Selling, general and administrative (SG&A)   41,037       36,268       160,578       141,418  
Research, development and engineering   13,841       12,736       60,918       51,985  
Restructuring and other charges   6,173       4,199       16,183       7,856  
Total operating expenses   61,051       53,203       237,679       201,259  
Operating income   36,865       28,663       121,327       135,711  
Interest expense   14,215       5,511       38,632       31,628  
Loss on equity investments, net   2,025       1,276       7,636       3,143  
Other (income) loss, net   33       (252 )     (899 )     (123 )
Income from continuing operations before income taxes   20,592       22,128       75,958       101,063  
Provision for income taxes   3,502       2,127       10,608       8,043  
Income from continuing operations $ 17,090     $ 20,001     $ 65,350     $ 93,020  
               
Discontinued operations:              
Income from discontinued operations before income taxes   1,323       4,931       1,323       4,931  
Provision for income taxes   296       1,143       296       1,143  
Income from discontinued operations $ 1,027     $ 3,788     $ 1,027     $ 3,788  
               
Net income $ 18,117     $ 23,789     $ 66,377     $ 96,808  
               
Basic earnings per share:              
Income from continuing operations $ 0.52     $ 0.61     $ 1.97     $ 2.82  
Income from discontinued operations   0.03       0.11       0.03       0.11  
Basic earnings per share   0.55       0.72       2.00       2.93  
               
Diluted earnings per share:              
Income from continuing operations $ 0.51     $ 0.60     $ 1.96     $ 2.80  
Income from discontinued operations   0.03       0.11       0.03       0.11  
Diluted earnings per share   0.54       0.71       1.99       2.91  
               
Weighted average shares outstanding:              
Basic   33,161       33,023       33,127       32,993  
Diluted   33,438       33,280       33,357       33,258  


Condensed Consolidated Statements of Cash Flows (a) - Unaudited
(in thousands)
   
  Year Ended December 31,
    2022       2021  
Cash flows from operating activities:      
Net income $ 66,377     $ 96,808  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization   91,991       81,369  
Debt related charges included in interest expense   2,036       6,954  
Inventory step-up amortization   798       301  
Stock-based compensation   21,023       16,185  
Non-cash gains related to customer bankruptcy         (348 )
Non-cash lease expense   10,914       8,235  
Non-cash loss on equity investments   7,636       3,143  
Contingent consideration fair value adjustment   3,097       133  
Other non-cash losses   5,854       1,901  
Deferred income taxes   (17,498 )     (10,270 )
Changes in operating assets and liabilities, net of acquisitions:      
Accounts receivable   (41,380 )     (17,539 )
Inventories   (56,721 )     4,700  
Prepaid expenses and other assets   764       (2,409 )
Contract assets   (7,543 )     (24,923 )
Accounts payable   26,038       19,525  
Accrued expenses and other liabilities   (9,529 )     (22,984 )
Income taxes payable   12,524       (4,115 )
Net cash provided by operating activities   116,381       156,666  
Cash flows from investing activities:      
Acquisition of property, plant and equipment   (74,728 )     (53,463 )
Proceeds from sale of property, plant and equipment   639       443  
Proceeds from return of capital from equity investments   304        
Acquisitions, net of cash acquired   (126,636 )     (217,978 )
Net cash used in investing activities   (200,421 )     (270,998 )
Cash flows from financing activities:      
Principal payments of term loans   (25,249 )     (741,786 )
Proceeds from issuance of term loans         818,250  
Proceeds from revolving credit facility   166,000       82,300  
Payments of revolving credit facility   (45,000 )     (63,000 )
Proceeds from the exercise of stock options   150       743  
Payment of debt issuance costs         (8,139 )
Tax withholding payments related to vested and released restricted stock units   (2,929 )     (4,592 )
Proceeds from contingent consideration   1,319        
Payment of contingent consideration   (972 )     (1,621 )
Principal payments on finance leases   (843 )     (169 )
Net cash provided by financing activities   92,476       81,986  
Effect of foreign currency exchange rates on cash and cash equivalents   (2,049 )     1,025  
Net increase (decrease) in cash and cash equivalents   6,387       (31,321 )
Cash and cash equivalents, beginning of year   17,885       49,206  
Cash and cash equivalents, end of year $ 24,272     $ 17,885  

(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 from Continuing Operations and Diluted EPS Reconciliations
(in thousands, except per share data)
  Three Months Ended December 31,
  2022   2021
  Pre-Tax   Net of Tax   Per
Diluted
Share
  Pre-Tax   Net of Tax   Per
Diluted
Share
Income from continuing operations (GAAP) $ 20,592     $ 17,090     $ 0.51     $ 22,128     $ 20,001     $ 0.60  
Adjustments(a):                      
Amortization of intangibles   12,298       9,720       0.29       10,524       8,323       0.25  
Certain legal expenses (SG&A)(b)                     175       139        
Restructuring and restructuring-related charges(c)   3,370       2,647       0.08       1,692       1,318       0.04  
Acquisition and integration costs(d)   4,209       3,375       0.10       2,252       1,811       0.05  
Other general expenses(e)   61       41             255       203       0.01  
Loss on equity investments   2,025       1,600       0.05       1,276       1,008       0.03  
Loss on extinguishment of debt   114       90                          
Medical device regulations(f)   493       389       0.01       270       214       0.01  
Customer bankruptcy(g)   (12 )     (11 )           (113 )     (89 )      
Inventory step-up amortization (COS)(h)                     301       266       0.01  
Tax adjustments(i)         2,089       0.06             (137 )      
Adjusted net income (Non-GAAP) $ 43,150     $ 37,030     $ 1.11     $ 38,760     $ 33,057     $ 0.99  
                       
Diluted weighted average shares outstanding       33,438               33,280      
                       
  Year Ended December 31,
  2022   2021
  Pre-Tax   Net of Tax   Per
Diluted
Share
  Pre-Tax   Net of Tax   Per
Diluted
Share
Income from continuing operations (GAAP) $ 75,958     $ 65,350     $ 1.96     $ 101,063     $ 93,020     $ 2.80  
Adjustments(a):                      
Amortization of intangibles   48,313       38,185       1.14       41,597       32,898       0.99  
Certain legal expenses (SG&A)(b)                     1,454       1,149       0.03  
Restructuring and restructuring-related charges(c)   9,265       7,251       0.22       4,804       3,755       0.11  
Acquisition and integration costs(d)   10,075       8,029       0.24       2,544       2,051       0.06  
Other general expenses(e)   1,188       902       0.03       508       372       0.01  
Loss on equity investments   7,636       6,033       0.18       3,143       2,483       0.07  
Loss on extinguishment of debt   114       90             3,774       2,981       0.09  
Medical device regulations(f)   1,105       873       0.03       744       588       0.02  
Customer bankruptcy(g)   (120 )     (95 )           (488 )     (385 )     (0.01 )
Inventory step-up amortization (COS)(h)   798       630       0.02       301       266       0.01  
Tax adjustments(i)         2,300       0.07             (3,628 )     (0.11 )
Adjusted net income (Non-GAAP) $ 154,332     $ 129,548     $ 3.88     $ 159,444     $ 135,550     $ 4.08  
                       
Diluted weighted average shares outstanding       33,357               33,258      

(a) The difference between pre-tax and net of tax amounts is the estimated tax impact related to the respective adjustment. Net of tax amounts are computed using a 21% U.S. tax rate, and the statutory tax rates applicable in foreign tax jurisdictions, as adjusted for the existence of net operating losses (“NOLs”). Expenses that are not deductible for tax purposes (i.e. permanent tax differences) are added back at 100%.

(b) Expenses associated with non-ordinary course legal matters.

(c) We initiate discrete restructuring programs primarily to realign resources to better serve our customers and markets, improve operational efficiency and capabilities, and lower operating costs or improve profitability. Depending on the program, restructuring charges may include termination benefits, contract termination, facility closure and other exit and disposal costs. Restructuring-related expenses are directly related to the program and may include retention bonuses, accelerated depreciation, consulting expense and costs to transfer manufacturing operations among our facilities.

(d) Acquisition and integration costs are incremental costs that are directly related to a business or asset acquisition. These costs may include, among other things, professional, consulting and other fees, system integration costs, and fair value adjustments relating to contingent consideration.

(e) Other general expenses are discrete transactions occurring sporadically and affect period-over-period comparisons. The expenses for the 2022 and 2021 periods primarily include severance, information technology systems conversion expenses, and expenses related to the restructuring of certain legal entities of the company.

(f) The charges represent incremental costs of complying with the European Union medical device regulations for previously registered products and primarily include charges for contractors supporting the project and other direct third-party expenses.

(g) In November 2019, one of our customers, Nuvectra Corporation, filed a voluntary Chapter 11 bankruptcy petition (the “Customer Bankruptcy”). The 2022 and 2021 amounts are predominantly due to favorable settlements on supplier purchase order termination clauses and benefits recognized from the utilization or sale of previously reserved inventory.

(h) The accounting associated with our acquisitions require us to record inventory at its fair value, which is sometimes greater than the previous book value of inventory. The increase in inventory value is amortized to cost of sales over the period that the related inventory is sold. We exclude inventory step-up amortization from our non-GAAP financial measures because it is a non-cash expense that we do not believe is indicative of our ongoing operating results.

(i) For the 2022 periods, tax adjustments predominately relate to acquisition costs that are not deductible for tax purposes and the establishment of uncertain tax benefits and interest related to acquired foreign tax credits. For the 2021 periods, tax adjustments predominately related to discrete tax benefits associated with the reversal of previously unrecognized tax benefits resulting from the effective settlement of tax audits and the utilization of acquired foreign tax credits during the periods presented.

Please see “Notes Regarding Non-GAAP Financial Information” for additional information regarding our use of non-GAAP financial measures.


Table B: Adjusted Operating Income Reconciliations
(in thousands)
  Three Months Ended
December 31,
  Year Ended
December 31,
    2022       2021       2022       2021  
Operating income (GAAP) $ 36,865     $ 28,663     $ 121,327     $ 135,711  
Adjustments:              
Amortization of intangibles   12,298       10,524       48,313       41,597  
Certain legal expenses         175             1,454  
Restructuring and restructuring-related charges   3,370       1,692       9,265       4,804  
Acquisition and integration costs   4,209       2,252       10,075       2,544  
Other general expenses   61       255       1,188       508  
Medical device regulations   493       270       1,105       744  
Customer bankruptcy   (12 )     (113 )     (120 )     (488 )
Inventory step-up amortization         301       798       301  
Adjusted operating income (Non-GAAP) $ 57,284     $ 44,019     $ 191,951     $ 187,175  


Table C: EBITDA Reconciliations
(in thousands)
  Three Months Ended
December 31,
  Year Ended
December 31,
    2022       2021       2022       2021  
Income from continuing operations (GAAP) $ 17,090     $ 20,001     $ 65,350     $ 93,020  
               
Interest expense   14,215       5,511       38,632       31,628  
Provision for income taxes   3,502       2,127       10,608       8,043  
Depreciation   10,736       10,366       42,617       39,772  
Amortization of intangible assets and financing leases   12,610       10,524       49,374       41,597  
EBITDA from continuing operations (Non-GAAP)   58,153       48,529       206,581       214,060  
Certain legal expenses         175             1,454  
Stock-based compensation(a)   4,783       3,832       19,573       15,913  
Restructuring and restructuring-related charges   3,370       1,692       9,265       4,804  
Acquisition and integration costs   4,209       2,252       10,075       2,544  
Other general expenses   61       255       1,188       508  
Loss on equity investments   2,025       1,276       7,636       3,143  
Medical device regulations   493       270       1,105       744  
Customer bankruptcy   (12 )     (113 )     (120 )     (488 )
Inventory step-up amortization         301       798       301  
Adjusted EBITDA (Non-GAAP) $ 73,082     $ 58,469     $ 256,101     $ 242,983  

(a) Total stock-based compensation expense less amounts included in Restructuring and restructuring-related charges and Acquisition and integration costs.


Table D: Organic Sales Change Reconciliation (% Change)
  GAAP Reported Growth   Impact of Acquisitions and Foreign Currency (a)   Non-GAAP Organic Change
QTD Change (4Q 2022 vs. 4Q 2021)          
Medical Sales          
Cardio & Vascular 19.8%   6.7%   13.1%
Cardiac Rhythm Management & Neuromodulation 13.7%   5.6%   8.1%
Advanced Surgical, Orthopedics & Portable Medical 32.3%   (0.1)%   32.4%
Total Medical Sales 18.2%   5.8%   12.4%
Non-Medical Sales 40.9%     40.9%
Total Sales 19.0%   5.6%   13.4%
           
YTD Change (2022 vs. 2021)          
Medical Sales          
Cardio & Vascular 17.9%   6.4%   11.5%
Cardiac Rhythm Management & Neuromodulation 6.0%   7.5%   (1.5)%
Advanced Surgical, Orthopedics & Portable Medical 11.8%   (0.1)%   11.9%
Total Medical Sales 12.4%   6.4%   6.0%
Non-Medical Sales 21.0%     21.0%
Total Sales 12.7%   6.2%   6.5%

(a) Sales have been adjusted to exclude the impact of foreign currency exchange rate fluctuations and acquisitions.


Table E: Net Total Debt Reconciliation
(in thousands)
  December 31,
2022
  September 30,
2022
  December 31,
2021
Total debt   925,261     938,646     828,126
Add: Unamortized discount and deferred debt issuance costs included above   5,977     6,404     7,361
Total principal amount of debt outstanding   931,238     945,050     835,487
LESS: Cash and cash equivalents   24,272     20,187     17,885
Net Total Debt (Non-GAAP) $ 906,966   $ 924,863   $ 817,602

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Source: Integer Holdings Corporation