ITGR - Earnings call transcript Q4 2018 | Integer Holdings Corporation

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Operator

Good morning. My name is Leandra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Integer Holdings Corporation Q4 2018 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. you. Thank Instructions] [Operator Mr. Vice begin. Strategy, Senior Relations, Development, you may President Borowicz, Corporate of Investor Tony

Tony Borowicz

Thank consolidated Leandra, Fourth right. live, of us, Call. All you, call and and for everyone. The with welcome joining the for release press Thanks replay, section will today to the being Integer’s our periods website. corporate presentation, discuss of and we is on data Quarter along Conference Integer available the and be XXXX webcast earnings results reflect indicated. the The the and good Relations the copy of morning, results Investor

During we discuss measures. our call, some non-GAAP will

a reconciliation of to appendix the For the notes these of the financial please today’s see presentation in and measures, today’s statement non-GAAP release. earnings

presentation company’s forward-looking to of includes refer our could discussion a today’s SEC for risk to Please the factors the that results cause statements. a As materially. filings differ reminder,

discuss Chief Executive results, and me today quarterly Jason Garland. our on and Dziedzic; our Joe and to President Vice Financial Officer, Officer, call the Chief Joining President Executive

of financial In our comments. will opening Jason Joe provide will review agenda, sales then results. and our terms

call We Q&A. of a XXXX the outlook will provide closing remarks opening up provide financial our before and review for

to Joe. let turn call the Now me over

Joe Dziedzic

difficult Thanks, year hear to quarter a for results. strong comparison. to report another and I’m that joining Tony. prior Welcome about thank despite you quarter pleased everyone, to our fourth we delivered

sales the management clearing we’ve in fourth customer As was rhythm our of year, highest in cardiac product quarter the due highlighted throughout part backlogs XXXX, the XXXX line. in to quarter

of with by on enough strong continued fourth to XXXX the decline. We leverage was demonstrated strength X%. C&V X% sales the grew Our CRM in as the of increasing growth, anticipated sales offset EBITDA the impact operating in quarter

$XX debt million We flow also the paid to cash in of quarter. drive down and improved continued

of over financial financial reducing year the billion in middle year, provide X.Xx balance EBITDA of $XXX the more flow range. his divestiture, at of AS&O that in flexibility leverage million invest the the leverage met guidance, million closed down established our the results close $X.X to and XXXX, $XXX down the we debt the cash color at revenue, the drive year. and at to year-end. lower of Jason We from guidance on start to in paid will exceeded EPS sheet, to beginning year debt after finishing and allowed – expense For X.Xx reduce accelerated growth. full on to EBITDA during the we the we the the increased provides of debt with We review. view the aggressively to This interest more his us from

discuss developing and portfolio cover divestiture significant in growth net reduction. went on and strategic value AS&O through completed and of the to the the product status July, per of Let’s the highlights to of some the In the strategy. sale. identified was accretive review we both earnings XXXX The our transaction The line. product our opportunity executing from line our line Electrochem drive neuromodulation and XXXX, significantly the executing our and increased debt markets market million product as to share proceeds we the leverage to towards high-growth penetration $XXX product line. reestablish strategies debt Throughout in in C&V focused lowered unlock

maintain relationships our the market continued in In leadership on position. CRM line our to addition, product customer we strengthening focus to

and excellence. evolve to This to strategies will adjust continue as objectives. cultural implement, objectives of our and learning, line learn we accountability strategic reflects product our Our process achieve

of of excellence. our driving operational multiyear learning, and by plans, We culture improved operating partnering engagement imperatives Though operational the stages for establishing with executing broadly encompass are of communicated our on in customers, we leverage energized the through plans the accountability third call, the increased discussed am associates These early we of each we these and alignment the and I the with a manufacturing strategy strategy. operational launched on of team quarter in September our earnings executing have efficiency we our the strategic leadership more multiyear six As Integer imperatives. XXXX.

the and creating He joined and as accountability One us of the in for visibility, us Kirk in is background instrumental & and we Vascular, XXXX Payman place. of in joined of Officer, of to leaders in position Integer successfully of unique in January executing and our finance and finance responsible expanded significant In October to leadership lead Jason Jason executing strong right the the and team joined to our has Khales, operational a the leading XXXX capability leadership imperatives. Officer. excellence. the insights a strategy current that line market-focused XXXX, us Cardio capabilities imperatives. Integer deliver strategy building building culture Chief Chief keys will brings is human our organization finance February and in responsible innovation, Thor, to and Resources operational to financial the Garland performance our President product success. us team leadership and deliver. for Human roles strategic is only added lead of talent XXXX having brings Financial for can us culture performance the been a to resources

the to this manufacturing, matter excellence Joe Flanagan, manufacturing, our imperative. perfect expert made capability industry regulatory Bolt we of subject excellence responsibilities. of our of standard key his made combined leadership has quality both existing this investor Integer. his XX expanded integrate manufacturing given right which, corporate rigorous lean addition several Tony She in and is our excellence and across and match suite promoted Borowicz’ quality and him passion the added with implement was to responsibilities. regulatory lean of process of to her disciplined strategy Tony’s leading the leader, and these imperative leaders. lead role of Jen development excellence facilities. Integer, manufacturing in is leadership lead and a choice all roles strategy her additions, operational to the In and perfect depth manufacturing to to approach for business a the This our expanded include relations, and to addition his person to responsibilities. knowledge for

Counsel is is the of at General search retiring a underway. Our and end March,

for lives. a team excellence delivering commitments, on our has leadership shared vision me ability Our realize passion and to patients’ our which in of gives improving confidence

a results. I guidance remarks our Let our me Jason before now and of on call Afterwards, opening XXXX your to Jason? provide discussion discuss some turn the for come the to call over questions. will for back financial concluding

Jason Garland

milestones call. up fourth quarter adjusted and again on $XXX review basis. per results. and development million driven a of our to XXXX, of delivered net basis. expense. I’ll the growth Good support by Joe. primarily you, development, fourth you Despite quarter in positive a basis. net or share, reported expense. development of thank of quarter at of with and a respect morning, customer delivered $X.XX interest Thank adjusted everyone, adjusted completed year-end SG&A research more sales start up Adjusted which comparables and and on management, we in financial we up lowered in on joining was growth, difficult We critical is strong sales million, $XX research and earnings and for programs, organic expense XXXX executed adjusted our income X% reported $XX which and lower our With with with a diluted net reported on our organically leverage income FX-adjusted Integer the X% up EBITDA EBITDA $X.XX year-over-year sales million, fourth X% delivered and

million leverage well Slide compensation sale X, as of side left on was the operating by timing quarter to of or driven of year-over-year fourth This increased a reported our you growth quarterly increased attention $X your as EBITDA sales improved Turning X%. see X% that on incentive expense. up will growth adjusted

to net same resulting right effective bridge adjusted last income Turning a The year. lower rate income, benefit adjusted additional page. factors the on EBITDA from of the with affected tax versus year-over-year net side the

from prior Our was million our XX.X% in adjusted benefit the an $X which versus interest to We meaningfully greater speak debt additional ongoing to we rate expense saw detail presentation. improvement the as in of tax our I’ll in year. later continue deleveraging, effective in XX.X%

Slide XX. to Looking

basis. X% strong double-digit in reported was We four delivered X.Xx. is of $XXX and which XX% $XXX growth reported on year or million, $X.XX leverage Integer up income $X.XX with EBITDA up reported FX-adjusted For of Adjusted basis the and adjusted up X% a a lines. growth full million year-over-year diluted basis. $X,XXX,XXX,XXX, at per our $X.XX product net EBITDA XXXX, improved basis, on sales by growth sales driven delivered an Integer adjusted on of share, a up two organic and up on our delivered on organically earnings

interest increased driven $XX sales by improvement X%, year-over-year, net up leverage higher of offset that side left income benefit sales an our effective with full million gain. XX% reported year basis XXXX. EBITDA as adjusted see additional for from expense primarily on XX, growth $X On operational compensation you’ll incremental rate was growth a the EBITDA tax adjusted FX from XX on XX%. up These and Slide of growth and was points better and adjusted remain was year-over-year million being income the adjusted a million the than by $X expense net incentive same benefit from mostly reduced our

Slide to Moving XX.

performed versus to how XXXX, close we want we As we reflect on our guidance.

above Slide payment operations, near second expected our from see on strong on for Cash our million the We following quarter of the lines, incredibly We primarily million we’re accelerated On operating flow AS&O the CapEx. the by call. on focus is lower exceeded an of provided With results right the debt, debt for that paid $XX by this focus EPS the & $XX management of a strength and were where very was second $X XX, a from better tax sales during favorable and expenses. the clarity, able fell million cash of $X.XX up $XX us. the the achieve announcement we of leverage cash – driven cash, Cardio Free guidance quarter. earnings X.Xx AS&O and end range. interest the strong you’ll EBITDA. high midpoint For end to flow our other Vascular our rate. continued additional million $X million divestiture $X a than high exceeded the guidance, cash EBITDA and from shared operations spend by across from bringing was of story down lower range, portable product with similar remain and additional from at an guidance flow better above our million end to

let’s Now our sales a line product turn of results. to review

may We growth trend contain our anomalies the trailing of purchasing the we meaningful that market Slide four-quarter customer a performing an As indicator shows believe decisions. reminder, from and organic XX this of in resulting sales. the individual a how timing more versus is quarter are

previously in in have fourth three mentioned, this, up from quarter, were product XXXX. positive the medical As the all comparable of trends lines. our we fourth we quarter Despite strong against

the slides, of drivers Over provide next detail few more around product line. the I’ll specific each

organic XX. specific and strong Turning growth slower-than-expected delivering product electrophysiology, market due and heart one line electrophysiology new XXXX, we from The and high-growth to cycle fourth top to Vascular growth high-growth programs for the Cardio customer programs. in market focus by structural our of drive year. above-market the headwinds line C&V on strength of continues the of sales quarter growth, Slide and with XXXX to XX% peripheral focus the maturity growth the on some to continued of & the life segments, year-over-year markets. In vascular driven full increased continue X% expect in customer these with growth

product year in the Neuromodulation quarter & slide, the On were next fourth but with line Cardiac X% sales the finished in X% down growth. our

essentially growth cardiac Neuromodulation Medical the Cardiac low our For strong revenue flat teens of to in with total In flat, rhythm high part CRM product management demand. cord in the offset we spinal XXXX, the be stimulation last neuromodulation, XX neuromodulation grew shows single year, digits expect Slide was from by segment. but strength continued & sales.

product Medical AS&O sales reminder, Viant Advanced Viant. acquired today shown line Orthopedics & Surgical, a line. our includes The As under with supply agreements Portable product

medical quarter primarily by saw demand the In while portable first be sales portable and strength in programs. positively year above-market expect for customer half in was driven to half impacted products launch. medical we orthopedics our XX by The second of Electrochem market And lower increased a the demand medical, XXXX, both Slide Electrochem, market summarizes the demand delayed continued fourth AS&O program sales energy the segment. decline experienced nonmedical and growth. finally, year-over-year portable in to and new in due customer in

reduction inventory driven X%, by were activity, delayed and drilling down American sales lower year, the North military For customer funding.

the back We guidance. expect I’ll turn new call in And customers, commentary on to funding. from XXXX provide renewed new ramp his Joe the to market and growth to products military XXXX

Joe Dziedzic

Jason. Thanks,

Medical, our Before I evolved over I end are where has XXXX, At company. discuss development we Lake of importantly, the spinning four for moment completed actively to engaged which we same reflect we were our the the At our how doubled time, and a neuromodulation want past business the Region on of outlook, of years transformational more the the going. acquisition Nuvectra, size out in program.

During we became growth. and momentum transactions on an X% focused average executing these that the time, Revenue and by XXXX. internally and declined integrating over more sales of on XXXX watched our on

restoring our and the was Entering a Region leverage to level. debt the years sales acquisition. year ended and Lake a the our ratio also with more stemming XXXX, We were Xx, difficult our priority two getting us leverage from for growth Those investors. approximately manageable of

stabilizing our leadership turned period. progress our on our increasing We and performance, quality two-year to average over two-year the we decline, X% meaningful on-time operational and made business, of delivery talent. an with improving this adding focus sales Additionally, and sales metrics, including key reversed

strong in overall successful we reducing to sales. in delivered due Over market, this to and commensurate XXXX leverage the X.Xx and the by free generation. were also with business period, two-year the AS&O combination a debt growth of growth our end flow of cash We sales earnings line with with stabilized our divestiture

the to developed to will plans do. to plans we slightly years in quarters sales we market in the Our XXX operational developing and we execute XXXX, X% executing range to the portfolio, We three In we are XXXX September in spend of grow next product top and out everything the at these leaders line strategy strategy expecting our of our three excellence multiyear multiyear achieve and first rolled strategy. XXXX, was this XXXX, above to in X%. spent or

imperatives growth X.Xx in operational expect growth strategic will begin of earnings the We driving improved revenue our that rate of approximately XXXX.

on We revenue in leverage expect the on growth mark turning our point at XXXX delivering rate the sales profit twice towards of journey growth growth. to more profit delivering a

journey excellence, across our and of excellence terms, twice is defining growth have growth. We are the on the operational terms financial defined revenue that business. faster are on markets than we a rate excellence revenue we to profit growth in as But and

on where With are we us. We’re and where on let’s multiyear glad journey, with you this this journey our have been that guidance. backdrop review are we on XXXX

We X% the X%. expect which of growth, of sales X% to to about grow within to range our is X%, which is market view

We expect EBITDA the sales which X% X.Xx grow adjusted growth. to X%, is to

past over is rate interest adjusted sales EPS, expect twice to driven few faster-growing per growth, X% approximately is share which This years. EPS which compared growing taxes. EBITDA earnings to and an the XX%, lower EBITDA than profit to by or is We the sales, pattern, of expense increase is improvement But is a there whether faster growth.

designed into we’ve guidance Our profit XXXX. on our us this leverage and operational incorporated give strategic to sales imperatives growth, for are

leverage. are cover making a and deliver the towards capital to turn back to on we investments an improvement, both human XXXX outlook debt and incremental I’ll business this it flow financial in point goal to and our Integer. We our inflection Jason for is this cash is step excellence, of capital. believe over in

Jason Garland

Joe. Thanks,

flow. cash to Turning

amount range million with from cash of We million performance to million, we million in expect free line in cash of cash $XXX $XXX the This generate $XXX respectively. to and generated is flow and flow operations cash flow XXXX. to of in $XXX the increase $XX million This as million to in strategy to higher to capital XXXX. plan drive our reflects growth. in aggressively compared million, invest more $XX in In the slightly XXXX, spent range our $XX accelerated to spending we expect

of volume increase higher loss to Together, AS&O nearly on spent In divestiture. addition operating in generation our to all XXXX XXXX. to cash capital we to spending, to primarily $XX utilizing growth. two $XX these $XX increase taxes the million due from the flow net offset million additional expect cash compared to The factors in million carryforwards is

down debt our EBITDA the and free in we will to projection, best cover new where flow AS&O our reducing in deployment the let’s focused so allow of this that required at excess leverage item, capital is better over add premium will can with how us to line, flow the leverage This modestly of investors. of years. significantly slide. to slide on This growth the than leverage outcome X.Xx cash X.Xx of financial maintain range EBITDA. ways a disciplined in execute acquisitions, we’re our cash in and reduce less in bolt we’ve debt flow next our we anticipate year, $XXX continued two The end sign we we market in deliver the free We is penetrate of EBITDA to thinking to and, range of valuation further the debt been ultimately strategy about The flexibility to range the ratio. X.Xx able divestiture XXXX. X.Xx acquisitions. we expect structure a on-sized our cash in the payments this product sized to $XXX leverage million debt last where and With the XXXX a that believe to million the invest and ended with for in growth that leverage maintaining on to our increases have Given will capital capabilities paying between of EBITDA with

to turn final me Joe now comments. it back some for Let

Joe Dziedzic

for premium our Thanks, to our a shareholders. will of strategy is execution the that us valuation Jason. earn It allow

will excellence we line to will six have in allow have that strategies achieve us serve win how in everything operational developed markets do. the we and and we We product clearly for imperatives portfolio identified

and We strategic growth of aggressively we more well have to portfolio aggressive deliver objectives. and a personal are growth into our accountability learning, strategic and and our In our objectives. plan and will of invest goals, propel with to on excellence, summary, culture to our execution professional us product associates’ strategy the

We the are of at very our imperatives. stages executing early strategic operational

We have XXXX. to commitment in on XXXX our deliver diligently financial worked and

you sales through lives. improve our growth serve financial call excited is it XXXX incorporated guidance. profit in to associates All We to have are compared Thank we Integer joining that because our customers customers today. faster our for our patients’

Let’s Q&A. open the up for lines

Operator

your KeyBanc. of the Instructions] question with line Matthew [Operator first comes Mishan from And

open. is line Your

Matthew Mishan

Hi, for questions. good morning thank you and the taking

Joe Dziedzic

Good morning, Matt.

Matthew Mishan

Joe, give this I start of the is rate want that Could trends in of like market to the just market or of growth said you around just you your X% X%, to growth off. of the customers view rate kind a market like that high-level industry? CMOs? outsourcing And rate growth

Joe Dziedzic

for Matt, thanks question. the

we the into what what our our do our use in as then see trends are you the sales that – growth had look So at define if been those to it’s what our markets, they’re a do is look that at we markets. we in doing mix should with markets, do differentiated to market. upon then is they want we and And see customers balance with the sales selling looking our and of mix the expand look what manufacturing delivery significant what see and in how all discussion is look clear we customers, match – proxy asked we to see business In we us. markets all footprint. based a between and growing every I’ve innovation our sales our markets, are be the and In at when what is see and and growth what here’s we and how for. market customers want What customers. on-time where we their That’s continued we market outsourcing markets, But way outsourcing. we’re certain about, we customers it not is to at deliver we the customers’ other more we quality for

their reducing seeing because they is it the in-house, processes have. see want in footprint. constraining they’re to You announcements And chain, outsourcing, and they’re we’re and their see of plants growth out and manufacturing in for their often that strategies what increased their plants their pushing of they where supply out reducing certain retain work in we their number capabilities demand

outsourcing. we So meaningful continue see to opportunities for

multiple opportunities. in be cycle for the know can outsourcing and You aggressively we’re industry pursuing the business transferring time years, those

Matthew Mishan

that. you this Thank for excellence about that you’re rolling phasing point, thinking programs? programs at then And of we should how through the the operational those the from footprint return start around your

Joe Dziedzic

Great first is our to question our to at you rate clearly growth revenue. our out intentional. of profit the guidance, get our the it XXXX rate then, was of objectives towards profit getting in of laid what twice step, us growing the we revenue. first guidance because very Xx the see And In making way phasing

is rate intentional X% You performed X% to lean five specifically changes We’ve workshops see It’s That or X% at sites. manufacturing we’re excellence, growing already our the sales, got EBITDA. we’ve to EBITDA of manufacturing was at diagnosis intentional. the of implemented X.Xx underway. sales on because X% the and on well making, operational

And we in of a is We have plants. end more one our by have refresher, a March. some our And where starting August, of assess in every and diagnosis we part lean of measures, at achieve portion will build in plant, single through and improvement operations operator been the utilization, two the of delivery, and in goals quality, portion six-month we the on how we excellence then it’s a plant. in on-time performing out of those operation, a to that scrap, look plan set go

going next This is so I’ll give disciplined plant. journey years And plants over of years, the of X August. operations I’ll our XXX% through And every been by will a every our a very say have a of one XXX% And highlights. we approach. that’s That’s to X.X get portion not you plant. where of rigorous it’s multiyear to we’re but every through

scrap looking XX% into For we in well scrap a our of to, around We’ve first we’re the already went for process, our objective one diagnosis example, that our and rate example that’s problem. were half, piece our implemented at late delivery of quarter. event the small specific was changes, And very was manufacturing of operations, obviously, we the cut this and well were that. And achieving our was delivery. the on-time way but we’re and on a third first in We one in just on-time mid-XXs that lean in to to and looking how at site works. that’s that’s rate, this

of portion the time our one follow Six go at Lean and operations a You the Sigma rigor of and discipline processes.

So working in but our destination to we’re to terms clear of get the we of that’s growth destination showing profit journey, XXXX when of that realize, a X.Xx aggressively step sales. what by is towards

Matthew Mishan

and question How last going then in It where sounds that and your back queue. should we think M&A forward? the around jump comfortable And about debt your M&A you’re Okay. more getting are. for levels me, I’ll criteria

Joe Dziedzic

the debt, penalty we point, is So And to the of starting risky. to thinking to the we our leverages We about when many Xx for world X.Xx on communicating which X.Xx was Jason realized investors deemed be Xx how bracket. and valuation or that you a we’re want that is leverage, framed too in. kind that us we’re for were debt live

in that much So business, the looked said like within we X.Xx at to the to X.Xx can leverage. where we we at market need are very debt said range We what live comfortable a and with. we looked we did X.Xx we are and we investors looks was X.Xx what most and

have, the growth, do how EBITDA thinking And we the generation say it. we when Given bolt-on given flow can we’re acquisitions. here’s we about bolt-on, go cash

We’re structural want look looking We in. we very example. electrophysiology, C&V, to Take peripheral vascular. heart, specifically for at at the grow markets

technologies are in what what we’re at looking to after. the the going to be need markets, that what growth we accelerate end able that’s are and higher-growth We’re capabilities, the those

will us higher-growth going We’re penetrate faster. markets end allow to our that capabilities after

that to what it can to million the general. $XXX within But leverage. bolt-ons, stay amount how debt to frames So spend. the thinking us leverage that It’s allows thinking that’s can about we range in you we’re the $XXX math acquiring. we’re do – about of thinking dollars X.Xx we’re how acquisition the That’s X.Xx million in about

Matthew Mishan

very you Thank much.

Joe Dziedzic

Matt. questions, for Thanks

Operator

line question comes from your next the with & Sidoti And Jim of Company. Sidoti

is line Your open.

Jim Sidoti

me? you morning. Good Can hear

Joe Dziedzic

Yes, morning. Jim. Good

Jim Sidoti

or pricing. great. XXXX, there approximately flat or The is possible tailwind? of are there’s you assuming Great, pricing X% some have question top you Quick if on growth guidance line in relatively pressure

Jason Garland

past We’ve if X% in we you the outlook headwind, seen that X% continued and in baked years, in pressure will, XXXX. to our for

Jim Sidoti

when increase And capital that is fuel what talked Is to that you software Okay. help in spending slight line that? more about is growth, – top systems? the

Jason Garland

we customer opportunities Yes, investment. programs for our certainly, and programs, requires products of solutions have, new we as That, right, find course, customers. grow or for

story So that’s a for capital piece of our XXXX.

as talked and another our improvement about we Joe excellence continuous will lot a CapEx efforts, addition, focus the projects. so manufacturing In for that be area of of drive investment organic

Jim Sidoti

then? automation more are there So

Jason Garland

the It be efficiency, equipment two. ages, of lose – equipment the automation. right, we could or of efficiencies, little so as as be a be mix could advancement could equipment It aging it

Jim Sidoti

that do in I but you covered up for bit to don’t number the $XXX $XXX lift you’ll a think a this accounts get since I – did the at little been you Okay. XXXX? back end under it’s receivable guys, divestiture, million the know know I sorry, you you And range? million in how finally, long stay when then under you expect Or in – creep do – that I’m

Jason Garland

capital driving it’s efficiency higher there. point, the year-over-year working terms to our put comparisons. of and your continue the by on sort to divestiture We’ll focus of Certainly, in affected

see as the greater focus an capital, payable continue around we’ll side. – growth that some certainly, area line, of So on with we as working to or that well modest with that sort the will we’ll be in sales, it but both put AR

Jim Sidoti

right. you. Thank All

Jason Garland

Thanks, Jim.

Operator

this we conclude today’s [Operator questions call. Instructions] This have no will further conference And time. at

You may now disconnect.

Integer (ITGR) 22 Feb 192018 Q4 Earnings call transcript