ITGR - Earnings call transcript Q3 2019 | Integer Holdings Corporation

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Integer Holdings, LLC Q3 2019 Earnings Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Tony Borowicz, Senior Vice President, Strategy, Corporate Development and Investor Relations. Thank you. Please go ahead.

Anthony Borowicz

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

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

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

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

Joe Executive the our provide Executive then for to discuss quarter, Garland, on full open Jason Financial are year Vice third President results for me then and Joe On and opening to comments. the it call guidance. come will our and financial we'll and Joe up then your Officer; provide today's updated call, Chief will closing remarks, will Jason questions. and results back review XXXX Joining Chief Officer. his his quarter Dziedzic, President on

the to call I'll Joe. point, this At turn over

Joseph Dziedzic

Integer strong serve and everyone. achieve morning, the pleased by in paid leverage and EBITDA you, and debt in we and markets execute win of growth down below expect debt Tony, do. adjusted the adjusted of sales. be as income Thank million we in growth good to our excellence quarter end XX% year. and X% delivered we Xx $XX on net everything We flat to delivered report cash We the I'm earnings that another of strategy we to in our

increase the confidence results quarter our give again third Our profit year guidance. full once to us

is our per $X.XX year $X.XX guidance of full by The higher. increased original our guidance our earnings midpoint million higher beginning adjusted midpoint EBITDA at of our guidance have the midpoint new guidance $X year. share is and the of the adjusted EPS of We than now the

strategy delivering and our We it are results. strong is executing

still Our in electrophysiology decline program, sales guidance, XXXX fiscal marketplace despite change the year-end. life are recent full original in year within the the and of our of end neuromodulation our the our

unchanged Our year X.X% rate the to remains the guidance is at market. growth, X% full growth which of within

Our this is as quarterly reality outsourcer our the device the of sales procedure volumes. are sales do timing flow not of linear, directly link variation and our not the medical daily medical to as

shifts the the volume to time are over that We in sales believe our adjusted. customers of quarter, reason rolling why single can inventory quarter it four we are buffered emphasized as is another inventories which any than cause view in a Our by hold, easier period revenue. is long quarterly which volumes predict

it about that a This year. structured July in XX.X%, on is the X which talked to result in implementing of increase worth sales than and X%, are from the reflect operating XX% EBITDA we direct strategy manufacturing manufacturing and is dramatic up and moment managing it's have of strategy our leverage per This excellence expansion adjusted margin year manufacturing last manner. versus On our all sites XXX been prior increasing across associates XX.X% SG&A. X,XXX share is think of executing year-to-date a to rigorous the of basis on quarters up through more excellence calls points last very earnings rate, EBITDA is up XX%. our we a and first a reflected the taking XXXX. I results margin basis, a I've in launched our how is

delivery is basis to the components and I this sites building increasing of devices that customers, evident our for products rate procedures. they call, strategy both the customers and and our physicians time at production our safety be to I've have that our ultimately our well on XX and the are improving associates patients. associates reflected manufacturing for the growth, floor, with visited the are diagnosis a and in our and lives. growing, guidance. our as our how so improve of lean the can benefits the even who the talked the earnings patients' of hard accelerate year spend of the twice quality work of last observing implementation in improving full the which profit spent time our support of about the the manufacturing that Integer And on are will medical time least, I've that who products Since surgeons as of do perform build system of activities on-time the year-to-date over operations revenue

in and they're teams spent with visit our the understand energized and I've journey each differentiation associates the to commitment time lives. and making site the better recognize our customers I tremendous eyes. strategy our customers' away and manufacturing need to of additional patients' came improving to help progress to serve by our executing thereby they're our how from continue they to passion where excellence

strategy goal the Our have success. twice success, to profit executing us manufacturing sales. of of allow in thereby our rate imperative, growing will sustain at our our I'm we that ensuring made confident the will customers' enable continued our progress

to detail. Jason the more turn now over to call discuss our financial in I'll results

Jason Garland

quarter with for you, Thank review you call. again our Good start our thank third morning, a of I'll financial Joe. results. joining and adjusted everyone,

sales our on We of adjusted organically. X% were quarter year reviews. increased basis basis. on income net line during provide $X.XX diluted or to or EBITDA XX% up per a I'll Adjusted of year-over-year reported and adjusted Third share, $XX million million. X% a flat sales at delivered prior on earnings reported product $X.XX our $XXX details more results

additional detail net Slide our To growth, income turn to X. some adjusted let's provide on

traction sales. excellence strategic This basis growth Our to continuing in and inflation flat both increased by million was $X strong on on third and improvements quarter manufacturing and adjusted operational net XX% expense a generated management, our headwinds. up by price imperatives income productivity, driven operating offset year-over-year, reported

$X down expiration of year-over-year, covering including million service was the with the unfavorable $XXX,XXX In agreement Viant. fact, from adjusted our our transition impact SG&A

guidance Foreign through a $X not year to was benefit discrete by to and rate compensation. that strategic exchange Year-to-date, of planning we from this headwind debt XX.X% is was a management. our XX.X% reduced of an range the rate tax XX.X%, than our in third million reported did last effective to currency effective interest we that And expense last from previous year lowered XX.X% our of adjusted adjusted the repeat. XX.X% and continue XXXX, quarter favorable included stock due benefit tax have of year's to though we higher interest XX.X% a tax And guidance our XX.X%. rate from to and full

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

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

you Advanced trends, fourth Electrochem a upward product expected quarter of quarter, be in and to Surgical, turn outlook line, Our product but driven increase growth is to combined increase sales trailing the in Orthopedics CRM growth, our & the fourth line to by the X% can quarter an this as the the neuromodulation in with quarter X.X% slowed in third in see, Portable product in and strength in Medical significant will lines. growth four

& Vascular will level fourth in the Cardio off quarter.

continue organic end an & take growth peripheral On electrophysiology Cardio Vascular look life we Cardio in of & heart offset third our at and in the by strong Vascular. the to we'll largest the quarter decline in deeper sales quarter. see next to a down vascular X% of structural slide, were date was The program.

can of Cardio drove this XXX program's that you -- program see Vascular fact, total line. meaningful this headwind In product points on approximately basis & alone decline our

expect single-digit quarter of for vascular. heart peripheral we lessens, strength growth in of this as end We structural to see and program mid the and impact the life low fourth

full will the market electrophysiology the rest year. Excluding of line the life product at end for program, grow the of

in from organic quarter. shift down customer in and demand XX, & sales our fourth line the Cardiac into Slide product third the Neuromodulation a flat sales CRM in a neuromodulation On in quarter on X% were decline

strong fourth digits product quarter the million neuromodulation million quarter in the agreement. year-over-year to in the means due slowdown. year sales a will $XX supply commitments expect the million XXXX $XX therefore, sales total full to CRM we approximately line thereby And the sales impact benefit sales not extremely We mid-single XXXX, our see required year. year-over-year a fourth we supply in This neuromodulation the strong our have creating due $XX to in comparison. full the market for the grow And lower We anticipate neuro will of agreements. from favorable we in estimate headwind. potentially expect full We growth could neuromodulation that

of shows the XX Medical Slide part last segment. our

in will Medical XXXX Viant. with You Advanced product today & our line recall Viant AS&O Portable line. supply product agreements acquired Orthopedics sales the includes Surgical, under July shown

products in Orthopedics X% Surgical prior and increase launches organically third Advanced product Portable The third up Medical quarter versus based in new Surgical, Advanced growth, an returned quarter & Portable Medical. the year, to by driven

across increased We of the as market expect strong all sales demand. quarter products fourth in result end a

Finally, nonmedical segment. Slide summarizes our Electrochem, XX

customer driven by market XX% third and sales expected, quarter, a As demand grew strong Electrochem in the increased market penetration. energy

quarter from left XQ and year growth aligns fourth energy increased strong we X year, expect quarter We the market. continue fourth XXXX environmental guidance. slide additional despite out this military softening the XX, have in the a we at our outlook the With included that look call to outlook. with in to total demand Slide quarter

is a resources X% with leadership we by expenses imperative. fourth execute Adjusted continue we a strategic XX%, increase to in SG&A in sales discussed, XX%. EBITDA to grow new selectively to quarter and add projected growing expect expected our our As offset as strong volume XX% to to finish

favorability. X% EPS from with interest XX%, and lift added follows tax to Adjusted a growth expense

just forecasted Turning full full strong we XXXX to X.X% sales unchanged. our following outlined, the X% fourth to the for the expected of is growth quarter outlook year year and

growth on achieve by we X% to of manufacturing our expect Xx $XXX $XXX end sales over XX% low by our on strategic million consistent gives range expense objectives. excellence $X million. the million growth $X last high-end a So confidence our as us again we management of and to At our EBITDA to approximately that year, EBITDA with Traction imperative highlighted, our adjusted operating range. at which guidance and increase growth, to will strong strategic to increases million, our low-end be

our the In on tightened adjusted guidance end $X.XX our adjusted on a in earnings high outlook. $X.XX addition expense to EBITDA tax to planning range up Accordingly, adjusted guidance low drive to a XX% new increased versus share our efforts per $X.XX, improvement range. interest and new range of to and end reflects continue EPS of growth reduction to in improvement, $X.XX have of the and the XX% the XXXX. up we This

to Turning XX. Slide

flow cash quarter as million. $XXX was $XX million third we year-to-date the strong line and from Our to expectations with in operations, bringing delivered in total cash flow our

million also our paid adjusted quarter, $XXX unchanged. EBITDA. We is million, payments reducing Xx to $XX year-to-date flow our track, and bringing cash in leverage We to down the in full debt year our outlook third further on remain

payments from to still expect tax We million $XX the in $XX by expenditures million of flow approximately million free are to to million, Capital $X be lower to $XXX cash million. operations expected of of flow. to $XXX are generate million $XXX and to range be $XXX and million cash now expected cash

XXXX Our debt our range of with debt remain continue payment outlook, X.X BioDesign capabilities month. the our strategy add in acquisition powder critical $XX despite unchanged this within EBITDA, for projected we leverage to acquisition adjusted with US And X.Xx to assets remain million earlier to from targeted debt this our of bolt-on payments announced portfolio. dry solidly

the turn to comments. back final call for Joe his now I'll

Joseph Dziedzic

XXXX we've XXXX. Thanks, summarizes the in to achieve of of strategy plans Jason. the this this the and formally during This and we second win markets XXXX, during out built the in September everything of developed slide excellence strategy half launched half strategy our first multiyear we serve in We do.

entering are of year now So just we the executing our operational second strategy.

of execution Becker been We strategy. human as two Carter Operations in Jen and to about new the May the necessary you told role business well capital making the presidents, have successful and investments of both our Joel the the Bolt Global back ensure excellence. and Houghton, promotion financial I of manufacturing as internal to leadership in our

deep leadership experience and We've with automation During the medical leaders bring experts several device manufacturing further lean manufacturing, experience. made robotics manufacturing quarter, strong by additional adding who and and third we investments more accelerate business manufacturing our process lean strengthened our expertise to plans. in backgrounds and

in to anticipate capability to the the to growth our this strategies. in to support product approximately necessary leaders, our support strategy. $XX the addition investing two capacity our In CapEx line in we million both investments and operations make to develop new and expand and continue We year innovation

Additionally, the Elizabeth leadership bring General I'm mergers acquisitions hired and areas have Giddens we happy law, in to as skills the say Compliance and Chief now corporate that Ethics complete. Integer Counsel to our accelerate we and expertise Officer. The securities governance Her and of need executive is strategy. team our

our and guidance Our EBITDA earnings of The sales the sales EPS to original guidance grow increase about and adjusted adjusted original grow the of X% are EBITDA XX%. share sales to full twice the the above rate guidance per year adjusted XX% X.X%, and both is is to middle adjusted in by at guidance.

debt below by Xx slightly year-end. EBITDA our adjusted expect be to leverage We

first achieve transfer function a the strategy I basis the objectives business grow market financial of win we grow the introduced profit said is regulatory rate sales of could to we to and above in sales the new points and the which From growth. and environment the profit the time of faster at operate. sales. our we than twice This growth the time XXX

a the in can growth wins achieving, investing until beyond we to the sales been pipeline market. that growth innovation, and rate we've company build of growth and the strategies the we current are the product above the but accelerate achieve We growth our team necessary market market are

twice Regarding at profit sustainable. rate is of the growth, believe that are now sales growing we and

in So at growing potential the growth, and slowdown looking forward, pending impact neuromodulation sales we see of profit market sales. the twice XXXX market of rate the

our capability We The is closed adding portfolio. which that can complex acquisition high-growth our Cardio customer of product for excellence assets, relationships. one & technology we offer braiding month, a earlier synergies of becomes Vascular US and customers capability this example expect we immediately with BioDesign markets. of existing to This is revenue deliver a our to and bolt-on us, center combined acquisition when technology for now

markets. to that end We capabilities for pipeline a bring high-growth bolt-on robust additional would continue of opportunities work

in developing our their enable One innovation largest objective I've is the relationships earnings together We're Integer of much make we continue to and areas last time strategic of our sales meaningful our partner. to as heavily their partner. lead on relationships operational customers. customer Integer to building we're We've call, X our our strategic Since that making spent excellence. invest and their discussed long strategy outsourced history a team. through and way participating to believe most with success our a growth I deeper significant progress in in can in more

reach addition we to leaders In and time relationships, our investing our sales customer expanding the are by outside U.S. deepening adding

cardiovascular been management and adding the teams. rhythm cardiac cardiac new neuromodulation and a members the have both to leader rhythm have neuromodulation We new management and and sales sales

plus I customers it to improve colleagues, customers my I because we speak when excited of through lives. serve know I our that Integer our for say I'm is all patients' X,XXX

and the strategy, organization I a summary, objectives leadership am aligned we have In shareholders. are team place confident our executing well we positioned for deliver the long-term with earn to our entire on on premium valuation and financial our in

Q&A. call the turn now to back Rob, facilitate moderator, the to the I'll

Operator

[Operator Instructions].

the from of line from KeyBanc. comes Your question first Matt Mishan

Matthew Mishan

inherent also there's the business, get largest volatility you're I your in but CDMO.

team question your your mean, Your your positive made I guess you to like changes headwind year the customers. the next mid- And and relationships that significant with changes I neuromodulation push customers of new I your deliver to booming. is, enough through to to growth. still business the seeing potential made and you've single-digit are and and feel from a kind are management business market have you tailwinds

Joseph Dziedzic

Matt, Matt, it's a question. great

now, market into we've beginning with products strides tremendous ensure see outsourcing medical then of above we take what sales customers has through the cord to players believe more clinicals There tell, manufacturing be of their year market, where get supply we making to along agreement. digit goal felt And longer above are stem those choice growing twice because spinal mid-single grow I needs. which absolutely all the done as or is impact have is to that not we're to in our first market, those we're for that still the in work to the this go at that profit we And reporting, revenue. best to year. looking that neuromodulation first ourselves get rate reality market. with So can we've piece qualification industry of get the of deals position is said take the Right longer. will our designed of the just at accelerate their and of to to and the achieved us We're pipeline half the device declined this the we and are of the

neuromod low still in a year. and do growth million and growing market we a over that business. think something is We above high headwind potential that's that's $XX we're single digit, that revenue our that rate see So double-digit next about as of

or business going and And a we to that growth extra us at still until that's be the we of flat the are help is rate deals that we're neuro market As that is the about we'll look would In year-over-year pipeline rate growing of we above believe assuming market faster, the markets. million rate. can do push absence see into market If a the $XX growth that, rest XXXX, market, kind that of products we to see kind have. the the of end The $XX us a of market offset of about million. some rate rate, obviously headwind.

reality, impact point, as year maybe, market gives do the fact, after growing time the year, us we're that. neuro look we not which the immune market that for in this serve, in next a we us decline is neuro has But see double-digit to this your to declined the to to decline we year. the And won't work and markets address strong that at So we rate, range. market so until benefit feel the

Matthew Mishan

commercialization them the you don't something which neuromodulation early sort year Okay. of customers, of stage of -- lot to early as of lot also their companies, a included has your some then as about moderation those but stage I year, also in And new expected slowdown here call expectations. talked or there breadth they been expected progressed this a Have you've type customers. modest or want

Joseph Dziedzic

question, Great Matt.

investments feel will the making us. We number we're have are And not clinicals any the And to be to stim. we that of growth the for most The have incorporate the spinal the growth. in the all seen way the in plans commercialization support we early to We've that can we're necessary ensure of and decline the their working on as potential up. excited and our of through that working And we're about seen guidance customers market segment their working in growth stage we we drive change those whatsoever future with firm prospects. market. extremely that those cord continue capacity in a meaningful with companies plans, in

Matthew Mishan

how for forward? Okay. And margin on margin-accretive these kind or you durable as some And the improvements of off, you're product move product 'XX, then side, forward XXXX was a that's moving and you? dilutive are then rolling off, that first of seeing EP the into

Joseph Dziedzic

impact have quarterly year enough total margin to So EP different not an total from or program, the And also mix of dollars on $XXX the meaningfully the impact. it's the rate. the to not million -- billion not revenue impact. the a It's a $X.X size it's meaningful enough have on meaningful given

it's question we're We quarter really our here feel your it's launched XXXX. We in much. July impacting not it the sixth With feel So sit durability that of about our of today, rate imperative. the and the of respect we expansion, durable. in to we strategic manufacturing excellence margin very

sixth be build, the and X So to durable. to belt. margins, feel It'll that's enable we've twice to to expect profit to continue We us expand of in at going to under grow our be going continue revenue it's continue able to We're quarter. and rate forward. to the got quarters we going

achieved us our of increased we've element, though cash the reinvest as that business. financial element that the feel more allows terms we aggressively strategy So and profitability critical flow the to in in of

see we the growing So going ourselves rate of for revenue profit at twice forward.

Matthew Mishan

apologize I I'm are Okay. to who but it behind I have anyways. two more, to people me, going and ask the

First an align with a out building another strategic off, asking how devices? specifically And stool. it's very your diabetes are leg in to of question would the a and growth of you interested platform, well customers around it I'm seem potentially in area

Joseph Dziedzic

about Great September launched question, our I at last moment again, strategy the Matt. our in year. is What say we of strategy can

markets to other But near device and are when and faster very least XXX that do executing bring on I can focused be think to for growing explore capacity or than more XXX the our potentially the products the investments in this that about growing are we we tell differentiation. demonstrating on other rate, right medical we that strategy a at executing ensuring in to and we profit existing the above points. we contemplate the do point twice and of term, that of We areas. branch we and to basis your that, points market, this revenue adjacent But then point, what place very bets the at to that by could focused you, serve. we're growing get bigger us And basis think we where industry, market strategy some earns outside and create make we're

Matthew Mishan

CapEx producing -- energy level drop-off XXXX. here. like a piece at -- ton or the actually How lastly, and manufacturing not exposed And are that not can to like It revenue seems your the that's patch of current got have it your nonmedical customers a and of confident in you the kind seems productively Electrochem. in some sustain in Okay, very and of producers investing are when in it. you are some necessarily

Joseph Dziedzic

Yes.

the of One immediately customers, much energy interesting with other met more to The Saudi is developments in demand. world. responsive supply have market from in supply additional changes they our in market become recent disruption almost the of was in parts seem to Arabia the

wasn't increase sustained And as their price strategy more though it customers react investment that cycles. seems to -- than adjusted a in really very there they quickly oil. in much our space have in investment have prior so And quickly, their

be we much Right. looking some that and energy a magnitude not sector. we to the that responsively for there growth during changes new and decline look products seeing, we'll the bit, less So also able future market. of expect we're to seem much a that we're that space the that softening given pronounced spike opportunities to because at but -- grow to introducing slight both above the the we in as some decline it And be little the customers market, we that in see But same or cycles. reacting confident have of be we're more

Operator

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

James Sidoti

for to you've Apologize with guidance much? trying quarter. up track so couple ticks what past I years. of a have for to initiatives well. the growth -- But reported there the year two you're questions I'm the over basically seems fourth place had and The in that once put in never implies What double-digit two from that you for the in listen you one revenue you I that question calls of guys like goes is it have advance, at the lot on

Jason Garland

that have year, extra the last fiscal at if number versus the made. we've of quarter, couple fourth Yes, got look we you despite a one, change days year still -- we

The comp the for AS&O electrophysiology also also see low we just that a we'll highlighted us. then in that last the from neuro. also significant about we see got Electrochem CRM highlighted And the strength from the life growth program, fourth and drag line. -- of has year. product end So we've We've quarter. talked that's lift the lessens a

Jim, the backlog really geared So the the are plants great -- of got. lot things direction. factories to right we going just that execute news, up and a have The are in is we've

quarter a looking sales strong we're for XQ. So for

James Sidoti

the was That Okay. one question.

second lot you've The made question progress is, of the margins. on a

of you've acquisition made integrate keep had going little that you think You so take far? the do Or in you do same an step bit that? a with as quarter, a the you back momentum you

Joseph Dziedzic

Jim, small a bolt-on we acquisition. going. some brings small it's testing, adding with other that products capability. to about but in US for and heat It expertise for It's a for pipeline complex lectropolishing us capabilities, in our braiding, really with de minimis a of the It's BioDesign. really deep they're but nitinol are number and keep today expect customers setting really sales, exciting operation us for

going. and impact any don't ability expect have on momentum executing we we excellence So whatsoever continue our the that expansion margin keep manufacturing the to on our to drive

Operator

call we Borowicz And for the questions. no have closing I'll remarks. to further back turn Instructions]. [Operator Tony

Anthony Borowicz

replay joining call. Happy That everyone, call be the in on that on Thank will you, and -- be Integer thanks, and your today's Robin, safe. Thanks continued this interest conference Integer. concludes Please us for note website. for and again. website call Halloween the available

Operator

gentlemen, disconnect. This now your and and you participation. today's concludes thank Ladies for you conference may call

Integer (ITGR) 2 Nov 192019 Q3 Earnings call transcript