2Q18 Earnings Conference Call. August 2, 2018

Transcription

1 2Q18 Earnings Conference Call August 2, 2018

2 Presentation of Financial Information & Forward-Looking Statements Historical financial and operating data in this presentation reflect the consolidated results of Integer for the periods indicated. This presentation includes financial information prepared in accordance with accounting principles generally accepted in the United States, or GAAP, as well as other financial measures referred to as non-gaap. The non-gaap financial measures in this presentation, which include Adjusted Net Income, Adjusted Diluted EPS, Earnings Before Interest Taxes Depreciation and Amortization (EBITDA), Adjusted EBITDA, and organic growth rates should be considered in addition to, but not as substitutes for, the information prepared in accordance with GAAP. For reconciliations of these non-gaap financial measures to the most comparable GAAP measures, please refer to the appendix to this presentation and the earnings release associated with this quarterly period which can be found in the investor relations section of our corporate website (investor.integer.net). Statements made in this presentation whether written or oral may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of Securities Exchange Act of 1934, as amended, and involve a number of risks and uncertainties. These statements can be identified by terminology such as may, will, should, could, expects, intends, plans, anticipates, believes, estimates, predicts, potential or continue or variations or the negative of these terms or other comparable terminology. These statements are based on the company s current expectations and speak only as of August 2, The Company s actual results could differ materially from those stated or implied by such forward-looking statements. The Company assumes no obligation to update forward-looking information, including information in this presentation, to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial conditions or prospects. ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 2

3 Agenda Opening Comments Financial Results Product Line Review Post Divestiture Profile 2018 Outlook Question & Answer Period ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 3

4 Opening Comments

5 Continued Strong Growth Completed Divestiture Integer delivered another strong quarter of sales and profit growth Reduced leverage to 4x EBITDA Second Quarter Highlights Double digit sales and earnings growth Significantly reduced leverage to 4 times EBITDA (on July 10 th ) Strategy Completed AS&O divestiture on July 2, 2018 Paid down $548 million of debt on July 10, 2018 Completed AS&O divestiture on July 2 nd Full Year Outlook Increased guidance by $0.15 to $ $3.65 Repaid $548 million of debt on July 10 th ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 5

6 Financial Results

7 2Q18 Adjusted Financial Results (1) Pre-Divestiture ($ in millions, except per share amounts) Sales Adjusted EBITDA Adjusted Net Income % Growth 10% organic (2) 15% organic (3) 37% organic (3) 11% reported 27% reported 76% reported $363 Reported $403 Reported $89 Reported $399 FX Adjusted $76 FX Adjusted $70 Reported $87 FX Adjusted $24 FX Adjusted $35 Reported $33 FX Adjusted $20 Reported 2Q17 2Q18 2Q17 2Q18 2Q17 2Q18 As reported GAAP and Non-GAAP numbers Foreign currency impact on reported GAAP and Non-GAAP numbers Adj. EPS Reported $ 0.62 $ 1.06 FX $ 0.76 $ 1.01 Adjusted (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 ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 7

8 Quarterly YOY % Change Organic Quarterly YOY % Change - Organic YOY Sales Improvement Continues Trailing 4 Quarters Pre-Divestiture 12% Advanced Surgical, Orthopedics & Portable Medical 8% 4% Integer (1) 0% 2Q17 3Q17 4Q17 1Q18 2Q18 8% 15% Cardio & Vascular 6% 10% 5% 5% 0% 4% Cardiac & Neuromodulation 2% 3% 2% 0% (2)% (4)% 0% 2Q17 3Q17 4Q17 1Q18 2Q18 Non-Medical (Electrochem) 40% 20% 0% ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 8 (1) Excludes impact from changes in foreign currency exchange rates

9 Adjusted EBITDA & Adjusted Net Income ($ in millions except per share amounts) Adjusted EBITDA Adjusted Net Income $89 $12 $5 $1 $35 Tax Rate $70 +$19M YOY $16M from Operations $20 ($3) FX $8M FX YoY ($5M) Incentive Compensation Incentive Compensation Operational Improvement 2Q17 2Q18 2Q17 Incentive Operational Compensation Improvement FX Tax Rate 2Q18 Adj. EPS $0.62 ($0.09) $0.33 $0.17 $0.04 $1.06 (1) (1) Includes $0.02 unfavorable impact due to year-over-year share dilution Note: Amounts may not sum due to rounding ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 9

10 Continued Deleveraging Cash Flow From Ops ($ in millions) $39 $38 $34 $46 Free Cash Flow (1) ($ in millions) $28 $27 $36 Reduced leverage to 5.1x at end of Q2 $21 $21 $13 July 10 paid down additional $548M from divestiture proceeds 2Q17 3Q17 4Q17 1Q18 2Q18 2Q17 3Q17 4Q17 1Q18 2Q18 $75M debt pay down in 1H18 Debt Payments ($ in millions) $40 $38 $50 Leverage (2) 5.9x 5.8x 5.6x 5.4x 5.1x No significant maturities until 2020; well within covenants $31 $33 $22 $15 $43 $25 $18 4.0x $8 $5 $7 $7 $7 2Q17 3Q17 4Q17 1Q18 2Q18 Accelerated Repayment Required Repayment 2Q17 3Q17 4Q17 1Q18 2Q18 July 10 th Post Divestiture (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 Adjusted EBITDA ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 10

11 Product Line Review

12 % Change Cardio & Vascular 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 Organic Quarterly YOY Growth 8% 7% 11% 9% 13% Steerable Sheaths Catheters & Sheaths Guidewires, Stylets & Accessories Introducers 0% 2Q17 3Q17 4Q17 1Q18 2Q18 Trailing 4-Quarter Sales ($ in millions) $512 $522 $537 $550 $568 Q2 YOY growth driven by increased sales of Catheter & Guidewires due to market growth and new business wins Trailing 4-quarter sales driven by market penetration in the high growth Peripheral Vascular, Neurovascular & Structural Heart markets 2H17 comparables more difficult, expect lower year-overyear growth rates 2Q17 3Q17 4Q17 1Q18 2Q18 7% 9% 9% 10% 11% ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 12

13 % Change Cardiac & Neuromodulation 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 to high-volume manufacturing Organic Quarterly YOY Growth 5% 9% 0% (1)% (6)% 1% 2Q17 3Q17 4Q17 1Q18 2Q18 Trailing 4-Quarter Sales ($ in millions) $434 $428 $428 $433 $443 2Q17 3Q17 4Q17 1Q18 2Q18 (2)% (4)% (2)% 0% 2% Pulse Generator Components & Assemblies Leads & Lead Components, Adaptors & Assemblies Pulse Generators & External Solutions (Programmers, Chargers, Patient Devices) Neuromodulation increased from market demand for spinal cord stimulation leads and battery sales to a new customer CRM grew low single digits due to new component business and increased capacitor volume Trailing 4-quarter CRM and Neuro sales have returned to growth driven by Neuromodulation 2H17 comparables more challenging as 4Q17 was ~13% higher than prior quarters ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 13

14 % Change Advanced Surgical, Orthopedics & Portable Medical Providing a wide range of technologies and solutions to the Advanced Surgical and Orthopedic markets Organic Quarterly YOY Growth 12% 9% 10% 6% Orthopedic Implants & Instruments Laparoscopy & General Surgery Arthroscopy Products Biopsy & Drug Delivery Portable Medical (Power Solutions) 0% 0% 2Q17 3Q17 4Q17 1Q18 2Q18 Trailing 4-Quarter Sales ($ in millions) $421 $428 $440 $456 $470 2Q18 sales increase driven by instrument product launch, market demand for implants and new business wins Portable Medical continues to exhibit strong growth Trailing 4-quarter sales growth remains strong stemming from increased market penetration and timing from inventory builds AS&O Product line divested in the second half except Power Solutions and remaining sales to Viant 2Q17 3Q17 4Q17 1Q18 2Q18 (0)% 2% 6% 8% 12% ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 14

15 % Change Electrochem Enhancing lives worldwide by providing superior power solutions that enable the success and advancement of our customers critical applications Organic Quarterly YOY Growth 60% 71% 30% Battery Cells Battery Packs Battery Chargers 0% $47 $54 12% (5)% 2Q17 3Q17 4Q17 1Q18 2Q18 Trailing 4-Quarter Sales ($ in millions) $57 $58 $58 2Q18 sales slightly behind 2Q17 due to timing of government funding for Military orders. Trailing 4-quarter softening as the Energy markets shifts from recovery to stabilization. Positive outlook for the second half of the year from execution of growth initiatives. 2Q17 3Q17 4Q17 1Q18 2Q18 1% 23% 37% 41% 22% ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 15

16 Post Divestiture Profile

17 Strategic Rationale for Divestiture Transaction Rationale Strategic 2H17 Integer strategic review identified opportunity to unlock value in AS&O Highly fragmented AS&O CMO market poised for consolidation AS&O and MedPlast, LLC combination creates market leader and one of largest MDO s serving AS&O market AS&O valuation multiple slightly above both Integer s and the Lake Region acquisition multiple (4Q15) Clear leader in remaining product lines with differentiated technology Cardio & Vascular, Cardiac & Neuromodulation, Electrochem Creates financial flexibility to invest more aggressively in faster growing markets where Integer is differentiated Post divestiture customer overlap limited to a few major customers Integer valuation metrics improved Positioning Integer to Earn a Valuation Premium ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 17

18 Impact of Advanced Surgical & Orthopedic Divestiture Financials H18 Actual 2018 Full Year Estimate Sales: $331M $180M $345M Operating Profit: $31M $11M $23M ($1M) (adjusted) Increased Reduced $38M Income Income Interest Expense: $42M $0.27 EPS $22M $0.02 EPS $44M $6M Increased Income $0.15 EPS Better positioned to execute our strategy ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 18

19 Non-GAAP Financials (excluding Divested AS&O Product Lines)

20 2Q18 Non-GAAP Financial Results Post Divestiture (1) ($ in millions, except per share amounts) Adjusted Sales Adjusted EBITDA Adjusted Net Income % Growth 11% organic (2) 9% organic (3) 14% organic (3) 12% reported 26% reported 47% reported $280 Reported $313 Reported $312 FX Adjusted $63 FX Adjusted $57 Reported $71 Reported $69 FX Adjusted $29 FX Adjusted $35 Reported $33 FX Adjusted $24 Reported 2Q17 PF 2Q18 PF 2Q17 PF 2Q18 PF 2Q17 PF 2Q18 PF As reported GAAP and Non-GAAP numbers Foreign currency impact on reported GAAP and Non-GAAP numbers Adj. EPS Reported $ 0.74 $ 1.06 FX $ 0.91 $ 1.01 Adjusted (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 loss, net PF = Proforma basis (excluding divested AS&O Product lines) ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 20

21 2018 Revised Outlook

22 2018 Outlook Post-Divestiture ($ in millions except per share amounts) Adjusted Sales Adjusted EBITDA Adjusted EPS Growth % 4% - 6% 9% - 13% 9% - 19% $1,175 - $1,200 $255 - $265 $ $3.65 $1,131 $234 $ Outlook Outlook Outlook Prior Outlook Pre-Divestiture $1,510 - $1,550 $310 - $320 $ $3.50 ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 22

23 Increased Cash Flow Outlook Cash Flow From Ops ($ in millions) Free Cash Flow (1) ($ in millions) Debt Payments ($ in millions) Leverage (2) $149 $160 + $103 $110 + $ x 5.6x $106 $47 $129 $115+ ~ 3.6x $15 $29 $31 $30 FY16 FY17 FY18 FY16 FY17 FY YE16 YE17 YE18 Outlook Outlook Outlook Outlook $44 (3) $98 Accelerated Repayment Required Repayment Prior Outlook $160+ $110+ $115+ (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 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, ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 23

24 Strategy to Drive Long-Term Growth Portfolio Strategy Invest to Grow Cardio & Vascular Neuromodulation Electrochem Protect & Preserve Cardiac Rhythm Management Operational Strategy Strategic Imperatives Customers earn business daily Sales Force Excellence Market Focused Innovation Improve Profitability Portable Medical Costs fuel for growth Culture how we act, every interaction Manufacturing Excellence Business Process Excellence Performance Excellence Leadership Capability ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 24

25 Summary Vision Enhance patient s lives by being our customers partner of choice Strategic Imperatives - Sales Force Excellence - Market Focused Innovation - Manufacturing Excellence - Business Process Excellence - Performance Excellence - Leadership Capability Clear Goals Second Quarter 2018 Strong growth continues Full year EPS guidance increased $0.15 on AS&O divestiture Strategy AS&O divestiture complete Significant debt pay down and deleveraging Executing strategy to win in the markets we serve and achieve excellence in everything we do - Sales Growth Above Market - Profit Growth 2x Sales Growth - Earn a Valuation Premium ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 25

26 APPENDIX

27 Historical Financial Results Pre-Divestiture ($ in millions, except per share amounts) Sales Adjusted EPS (1)(2) Organic $345 $363 $363 $390 $382 Adjusted $0.76 $0.87 $0.98 $0.64 $1.01 $363 $363 $16 $15 $109 $108 $390 $15 $119 $382 $13 $122 $403 $15 $122 EPS (3) $0.05 $0.02 ($0.04) $106 $102 $117 $109 $116 $0.14 $0.82 $0.96 $0.03 $1.06 $0.62 $0.61 $132 $139 $140 $138 $150 2Q17 3Q17 4Q17 1Q18 2Q18 Non-Medical Adv. Surgical, Ortho & Portable Medical Cardiac & Neuro Cardio & Vascular ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 27 2Q17 3Q17 4Q17 1Q18 2Q18 (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

28 Financials Before and After Divestiture ($ in millions, except per share amounts) Before Remove AS&O (1) H 2018 Reduce Interest Expense After Before Remove AS&O Reduce Interest Expense Sales $1,462 ($331) $1,131 $785 ($180) $605 Operating Profit $225 ($31) $194 $121 ($23) $99 Interest Expense $103 ($42) $60 $51 ($22) $29 Net Income $90 ($19) $28 $99 $54 ($17) $17 $55 After EPS $2.81 ($0.60) $0.87 $3.09 $1.67 ($0.50) $0.53 $1.69 EBITDA ($) $286 ($52) $234 $158 ($32) $125 EBITDA (%) 19.5% 20.7% 20.1% 20.7% (1) $400M of sales included in divestiture, includes Integer sales to Medplast/Viant post divestiture. ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 28

29 2018 Full-Year Outlook ($ in millions except per share amounts) Proforma Post Divestiture 2018 Outlook Prior Guidance (Non-GAAP) + Divestiture Adjustments = Updated Guidance (Non-GAAP) Pre-Divestiture 1H Post-Divestiture 2H Revenue $1,510 - $1,550 ($335) - ($355) $1,175 - $1,200 $1,350 - $1,390 Adjusted Net Income $103 - $113 $7 $110 - $120 $110 - $120 Adjusted EBITDA $310 - $320 ($55) $255 - $265 $285 - $295 Adjusted Earnings per Diluted Share $ $3.50 $0.15 $ $3.65 $ $3.63 ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 29

30 2018 Full-Year Outlook Supplemental Items Affecting Cash Flow ($ in millions, except per share amounts) ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 30

31 Non-GAAP Reconciliation Net Income and Diluted EPS Reconciliation QTD ($ in thousands, except per share amounts) See the Footnotes to this table on Slide 32 of this presentation ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 31

32 Footnotes to Non-GAAP Reconciliation ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 32

33 Non-GAAP Reconciliation 2Q18 Net Income and Diluted EPS Reconciliation Detailed View ($ in thousands, except per share amounts) ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 33

34 Non-GAAP Reconciliation EBITDA and Adjusted EBITDA Reconciliation ($ in thousands) ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 34

35 Non-GAAP Reconciliation Organic Sales Growth Rate Reconciliation (% Change) (a) Second quarter 2018 sales were positively impacted by $0.9 million due to foreign currency exchange rate fluctuations, primarily in our Cardio & Vascular product lines. ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 35

36 Non-GAAP Reconciliation Non-GAAP Organic Growth Rate Reconciliation (% Change) NM calculated change not meaningful (a) Represents the impact to our growth rate from our Non-GAAP adjustments. (b) Represents the impact to our growth rate due to changes in foreign currency exchange rates ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 36

37 Non-GAAP Reconciliation 2018 Full-Year Outlook (a) ($ in millions, except per share amounts) ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 37

38 Capitalization ($ in millions) As Reported Pro Forma Original Previous 6/30/18 6/30/18 Rate Rate Pro Forma Rate Cash and Cash Equivalents $20 $19 $200m Revolver due L L L Term Loan A due L L L Term Loan B due L L L Total Secured Debt $1,207 $1,019 Senior Unsecured Notes due % 9.125% -- Total Debt $1,567 $1,019 Net Debt $1,547 $1,000 Operating statistics LTM Adjusted EBITDA $309 $250 LTM Cash Interest Expense LTM Capital Expenditures Credit statistics Net Total Debt / LTM Adjusted EBITDA 5.0x 4.0x LTM Adjusted EBITDA / Cash Interest Expense 3.3x 4.7x ITGR: 2Q18 Earnings Conference Call / August 2, 2018 / Page 38

39 Contact Information Tony Borowicz VP, Investor Relations Integer (O)