ITGR - Earnings call transcript Q2 2021 | Integer Holdings Corporation

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Anthony Borowicz

Good morning, everyone. Thank you for joining us and welcome to Integer’s Second Quarter 2021 Earnings Conference Call. With me today are Joe Dziedzic, President and Chief Executive Officer and Jason Garland, Executive Vice President and Chief Financial Officer.

As a reminder, the results and data we discuss today reflect the consolidated results of Integer for the periods indicated.

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

on these presentation, please and today’s schedules, are of appendix to the reconciliation integer.net. which today’s at of earnings available a non-GAAP refer measures, the trending For website our press release Please note statements. includes today’s that presentation forward-looking company’s our refer cause a discussion that results to differ filings of Please SEC for risk the the factors to actual could materially. full opening the On today’s update year results will for second review and Jason on call, Joe guidance. our comments will our and provide an quarter his provide financial will up your his will Joe on remarks closing provide come to the back then we questions. open for call With that, the over to I Joe. will turn call

Joe Dziedzic

Tony and you, the for joining call today. Thank to thanks everyone

Our second from recovery demonstrate the strong quarter pandemic. results continued

recognized manufacturing, chain accelerating continue and associates supply deliver volumes. dedicated customers to widely and our constraints Our the for patients despite

the to margin continued execution our growth strategy top expansion. continue above-market invest of to line drive We and in

capabilities, in versus Integer investments us all will associates for and Our profit deliver growth delivered and to capacity sales year. XXX% We enable stakeholders. talented XX% last growth

We second from quarter also grew as the sequentially first quarter. X% the about to grow continued

with of cash. and the within since left debt of to adjusted almost significant increase starting quarter quarter in average second on slide EBITDA, X.X. to strength is EBITDA quarterly and XXXX. summarizes This our adjusted and then net sales our growth for reduction range total to debt which continued our from Our back levels of the our pre-COVID and income guidance each X.Xx our reduced target leverage well ratio year-over-year The the full X.X supports pandemic, the year from operating plotting recovery the beginning sales, far XXXX

the the of sales impacted by first highlighted, were previously pandemic Integer we quarter As XXXX. not during

quarters adjust and second experienced bottom third rebounded customers their then quarter the last in XXXX. the customers, who in until the of on the year, quarter third We bottomed second largely second our of pandemic the and both of quarter. unlike demand did Integer during the not Our quickly

has continued recovery fourth Our in increase the started progressively to last year each and quarter. quarter of

quarter our to We suppliers. June, year. month happened the across last XX% to volume supply saw our believe sales This about over some into turn this over call are level second cover has this being our chain now year some factored been believe of third year as in second XXXX million average, full of the Jason increase constraints Although the many second the of we customers quarter increased I to results. accelerated mitigate into which quarterly $XXX the same and will the financial guidance. a experienced

Jason Garland

Good adjusted XXXX quarter you, for will XXXX. compared increased second line million joining trend, thank our morning, our Thank financial prior conclude on I provide will outlook for call. At with details start and you the a to is $XXX our our Joe. were XX% more sales results, our I again increase. results. million, strong second sales summarize which with $XX up and everyone product year, quarter

XXXX. million were to the of sales first up $XX compared quarter Additionally, sequentially

our second similar average our returned quarter earlier, sales mentioned essentially pre-pandemic levels being Joe quarterly As to have to XXXX. for sales

adjusted to Our last million, to a XXX% adjusted compared of we the share, million associated year, million, considerable net per higher adjusted was benefit prior With we earnings increase from up diluted income sales. income delivered operating up the as $X.XX $XX $X.XX $XX of year. leverage continue $XX with from at

sequentially recovery continued. improved financial quarter as growth year represent strong pandemic again the last second and from our results Our versus

prior to Our our driven year income sales adjusted in compared level. million as to returning pre-pandemic by increased volume XXXX the net $XX of quarter the the mostly second

ramp but we up and our our was customer spend to and to profitability and volume chain to process had hiring supply continued needs, our our We manage patient dampened. meet to leverage our have

We are improved continued year-over-year, we income these supply and expense, contributing speak reduction. in constraints driven $X chain also reduction continued more focus current by to million global labor due seeing to interest headwinds environment net direct discussion. on will also Adjusted the of from in emerging the debt our outlook our

delivered Our tax adjusted in as effective the versus second quarter. rate XX.X%. XXXX XX.X% in the adjusted was tax in was income last of million year rate quarter adjusted in improvement second This the $X net effective

in the generating growth the will strong we operating in as We was cash inclusive to capital This cash continued flow, first $XX during conversion of in collect $XX Moving generated than from free of income we Slide June month quarter quarter. activity. million cash of of flow quarter the XX, solid $X third the expenditures. from sales the to million second lower million $XX million

we second reduced the As still debt our million the $XX total in million. $XX in expenditures net further strategy, invest will we million strategy, year in to the Consistent quarter range. full continue our with our be to we expect capital by $XX to

net production peak a This pandemic. the Our which of debt is now significant from X.X is leverage caused X.Xx X.Xx total EBITDA. points, down adjusted ratio the is by

year. expects related senior facilities secured a prior company to As credit the XXXX will due XX, to refinance become the within debt when October update, X

reminder, first sales sales reflects a the of COVID. adjusted rate. significantly Slide our quarter impacted by were Through trailing XX As XXXX, organic four-quarter

pre-pandemic the in as reversed a has levels, sales four-quarter second growth significant trailing represents trend our to rate. return quarter the the driving sales expected, improvement As

on quarter. COVID first results. and up to second line, compared XX% beginning which the vascular our organically sales was the second the were quarter financial to of XXXX, in product cardio This of is impact Moving the

second interventional markets. strength vascular the cardiology, in The in by peripheral driven and particular growth electrophysiology quarter was

sales trend have cardio expected, returned in product our pre-pandemic vascular of line sequential and continues As the improvement and to levels.

like the sales high sales saw the the doubling. in CRM and decline grew to first quarter the CRMN across elective segment cardiac compared in last market versus neuromodulation. next we year market by On very the Sequentially, This quarter quarter our year. CRM more to high is Moving as XX%, low compared in low markets, neuromodulation our in growth in XX, second the medical said, while segment. steepest increase we XXXX. XXXX, all the line, With XXXX will medical product Slide of the significant that increasing to double-digits procedures a second by second the baseline the rhythm neuromodulation management markets experienced quarter, XX% driven prior drives strong the of grew and the quarter organically in part in with neuromodulation sales increased market, double-digit second single-digits. in cover particularly growth final impacted

our well of as our shown sales and under line, as surgical, As acquirer portable medical we advanced supply a product the reminder, includes former orthopedics line to our divested sales the July XXXX. portable product agreement in which AS&O medical today of

also Second Sequentially, peak first organic to sales the second versus year quarter the during sales ventilator quarter XX% XXXX. and quarter from from due demand decreased X% components the XXXX. prior of patient pandemic-driven declined increased for monitoring

We expect trailing declining, year. monitoring the flat ventilator and component of X-quarter slightly due sales sales sales remain patient to partially higher in to to the prior

quarter recovery market lower much emerging than in segment. of of remain the driven the sales Slide sequentially second energy XX% market. Finally, quarterly quarter in same the drove Electrochem’s run-rate. to summarizes XXXX. emerging non-medical evidence our an run-rate XX organically Electrochem, versus second sales The The from energy quarter to recovery by prior increase year, increased continues sales XXXX sales first our XX%

to energy the and continue expect XXXX the recover half into We to of in market XXXX. second

now XXXX. to will for move We expectations in our

XX% be the For now the XXXX. second XX% sales to consecutive in expect second by and and sales billion, the XXXX growing low our growth of quarter, range income range in outlook. sales We the the $XX to billion quarter, increasing This $X.XXX $X.XXX XX% end end We are we to adjusted our over strong of our increases year. increase range versus operating of an the delivered million. $XX prior by million high of

to of our objectives $XXX as a growth to reflecting the reflecting million, income, the to growth XX% of sales to our expect rate. operating expect inventory but we to strong of quarter, We the now global be constraints. will increasing to now our $XXX the quarter $X.XXX our of growing range income quarter growth year-over-year in now second of year-over-year at potential second in sales XX%. against income operating between rate million built million, expect outlook also we as than customers believe billion we XX% also to between to Xx expect year financial $X.XXX be some slightly growth lower of billion, one strategy, XX% chain $XXX million net we sales return, that adjusted and the adjusted to similarly our protect full to be are to supply $XXX of adjusted third expected for expect in With be meaning We

three to sales, As a variable look reasons. we but not half we margin second with outlook, our expect for profit primary at at full grow profit

First, as it the we with year variable during reduced the pandemic-driven the will returns the levels. previously, as to was impact ramp payout. year-over-year increase normal compensation of mentioned commensurate incentive had of XXXX compensation

required. direct back of costs we with the the support temporary Second, the chain we order increased that discretionary third, labor and constraints and are inflation that higher receipt XXXX. transportation to hiring include cost curtailed may customer increased support resources, some through the training we in managing labor material costs to some our and demand. and of overtime, are of growth, expedite associated supplies volume adding This costs direct supply global costs shortages and in And

serving patients and long view. are continue taking customers We to prioritize will the and we our believe

to between $XXX flow net difference our the flow debt out and and debt to year-over-year withholding as these sales the our And expect may $XXX acquisition and at also now flow $XXX million increased expect XXX million XXXX cost in commensurate to increasing free cash cash range outlook point outlook we units, restricted and is XXX The We the income estimated the able range total – of costs in pay-down income, million in $XX to expect finally, cash stock to with have pending a flow time. on operations. to refinance. these of million. our reduction earn-out be million withholding to $XX with to are year. cash Free outlook manage on million, our of for adjusted expected taxes estimated we remaining debt percent in from total previously Despite generate a see operating over of basis between increased to and our increase payments headwinds, $XXX be now

call meeting the back improve have of quarters a to the as to ratio targeted with diminishing to our and expect our X.Xx I We returned range have will within you. to that, financial continue Thank With to strategy X.Xx impact is EBITDA leverage calculation. objective Joe. as on reduced we back another of our EBITDA, COVID adjusted leverage the turn

Joe Dziedzic

Thank Integer shared you, is reiterate last to quarter, be now we we shareholder. message like is which that time a Jason. good the an I’d believe to

very class vision, barriers the growth strategy. We industry a portfolio, and model. and our of customer clear relationships, compelling to product talented dynamics associates global have strategy footprint, creates The amongst most deep development device our combined breadth combined values, outsourcers. and Integer’s with all strong Integer’s growth creates mid-single-digit with medical with capabilities, of research entry, a a resilient combined compelling world business manufacturing a high

and focus excellence, Our advantage. creating leadership is a with creates coupled capability performance deliver that commitment our competitive investment building associates culture in on growth, to performance a their to our

To flow during delivering to levels. reinforces quarter, debt leverage our and track year-over-year cash the up, strong reducing our we second continued wrap on delivered sequential and pre-pandemic record Finally, strength. growth financial of our strong while back financial commitments results almost generating

now call in ability metrics I our our shareholders. all We our guidance. strategy this moderator our back our for our for to financial our joining our you associates a call the our to I to in morning. Q&A will of strategy, confident earn remain call. and premium the have increased portion Thank for execute in valuation turn

Operator

We Thank have the first question Matthew of you. [Operator our line Mishan. Instructions] comes from

go open. ahead. is Please line Your

Matthew Mishan

telling sense on inventory, are they commentary Is quarter just adjusting it Hey, – built about are half I because trying what guys about for you or they am With you. good your some they the really better a just customers maybe second that or supply are get sense of Joe, recovery? to chain June. they nice the worse just and worried are inventory, morning issues? building

Joe Dziedzic

the question. Matt. for morning, Thanks Good

before or of industry to be So, June a did us we basis. month started that if to was you two when strong the year, manufacturing month for on And our year-over-year to March pandemic it some the in it because a adjust their really of took of schedules customers, impact back to sales. particularly expected a last impact our strong, customers many rewind our

April a basis. our April down XX% last think are we only sales, on So, I year-over-year

it from meaningful that you think standpoint. so, June were And more the had a really a and the a of it months see May And impact, bottom when July, pandemic. I and began communicated wasn’t June we until to at we from those look meaningful impact run-rate our sales X

as based is I there gauging interpretation focus make they bit like in to of So And the it variability than what for, our best a had sooner spike of always where And would normal that we volatility. this again, and we I as felt it. came with little It range happens And of customers be the in I we can to supply month originally, sure I’m was the demand. us. there had the saw for case know strong. knew they stronger anticipated. anticipated. as, chain decide June were that wanted recovery, the It customers each constraints a movements. on they inventory characterize inventory say just of of originally rate pulled within beginning had going of because drives on carry a lot each inventory they quarter than the we our But quarter, interpret in intense

modest it the still So more a I better in than we interpret is We something the anticipated we but first. the than way beginning, some modest. was the bottom quarter Obviously, we quarter out improvement the we second do and there the second. a the at had guidance line line. versus on little said $XX had full of were like top think that think what And third our came into million is, quarter raised year improvement both

the entering second than we that have is And aggregate we So quarter. part had the we things are think where this within better just variability of normal thought in the industry.

our COVID I remain stated manage before volumes, are the optimism through potential patients of and the procedure there although think impact in any position much across large, think, Delta increase potential by board, better of aware were than share on also and and that universally been in but is optimistic, customers I cautious variants hospitals the the to it’s that. they we

Matthew Mishan

little correctly argue second kind heard – the I profit half believe that we’re going growth happy the would of than there? about going could half that be you definition not And What’s when second elaborate reasons have modest. – I’m you of lower revenue And I I more thought on to growth. a excellent. you the to there? I you bit on Can Okay, heard think you

Joe Dziedzic

at When example. look our Sure. an we midpoint the as year, of use full – the guidance for I’ll

basis. and XX%, year-over-year our If you profit of up revenue year-over-year midpoint are operating look sales operating and a the up XX%, on at a guidance, adjusted our about on is our basis, profit adjusted

on a strong profit very on year-over-year year-over-year basis. think basis, we operating on through the fall a growth So is there

meaningful we’re of the But the see year-over-year from positive. line, the impact are feel – manageable, do pointing we maybe be we adjusted we’re labor think, stack, pressures, do believe impact trend is And we as operating all the very they rack the And some the might growth to to of hiring about and think costs. we for And the be profit very looking this delivering pressures. sequential those, some You of trying and we margins. the pressures. chain objective year. at supply an still cost will rest and frankly, those quite We profit and of we direct the –

little relent confident costs constraints were manage can those a those we bit, of some as we soon out. As

impact over them costs to on we effectively, basis costs. to will, confident we’re strategic meaningfully manufacturing able that, also going our We’re overcome time. would and we’re point I be time, overcome the manage these of a fact, growing believe that imperative those will and But excellence in over year-over-year still

Matthew Mishan

can indicator a of pipeline. the leading I best engineers last talk that’s hiring? growth in increase your question, kind think little the of that out about And you you’re the with expecting years number how bit you’re into probably developmental Okay. of the

you’re Just talk growth? for engineers long-term of number you’re with at a and little developing bit the about the where pipeline

Joe Dziedzic

insightful it’s very Matt, a question.

You’re to the leading first to ability this when absolutely of our we’re last half more in at the year. end year, quarter engineers for fuel to the achieve the number a added going of second dived to above-market X% indicator in of growth. we of And look engineers up at what’s X%. We’ve end our we the compared have

R&D meaningful a continue for and the up to up, our see work because development don’t it total increase paying going although expect and customers is in that’s we’re spend, we the You doing. it are

to the delivering. we’ve faster-growing we all grow, in the the talked those growth that programs in in faster-growing development it’s focusing in about almost for We X And are have and got a our we’re electrophysiology, you years. cardiovascular, at efforts where when the end we’re where the like in last of demand And markets. focusing than more engineers, heart, programs certainly of development peripheral all number but we’re vascular. the doubled because of that structural our And look end innovation markets this, business is lot the customer

to making the as R&D the growth be a X, – a involved. to so faster customers the And we’re some and markets deliver Others of with years. short the for if X take much as our cycle as the growth. on number be can talked of achieving times we’re the get progress great we programs, can the X, and sign our industry. as confidence few supporting lines that cycles programs development about and development what We those as commercialized. there of market that these years them in are end begin engineers, the are is they and have we view the faster-growing end innovation the but will will that in the development come are we’re in towards customer investment, spend, clinical number engineering once And demand there, innovation markets market We delivering products time trials

Matthew Mishan

it. Jason. appreciate Joe and you, Thank I

Joe Dziedzic

Thanks, Matt.

Operator

our Instructions] next the line from We Sidoti. of have [Operator comes Jim question

Your line ahead. go Please open. is

Jim Sidoti

Can morning. hear good Hi, you me?

Joe Dziedzic

Good Yes. Jim. morning,

Jason Garland

Jim. morning, Good

Jim Sidoti

Great.

New news, fact variant, lots and vaccines So cause here increase in in is that risk of Are York. or down, your the that Delta there the again about that And are back of at are offsetting is increased hearing hospitalizations slow we’re cases that cases? procedure the any the is least out customers down in the about concerned in any year? rates the of the the

Joe Dziedzic

Great question, Jim.

given, we caution are by a handle all when bit think as the little equipped guidance look patients. in industry that surge people hospitals probably have better is think at share you optimism much of I guidance can so and the And large, the be through I in most in manage there may universal think But month-to-month linear any view maybe to with network that I like as it. to hospital not maybe there it be. the that would is we the

continue for see we the second to half. outlook so And optimistic positive

our our and have guidance. confidence we We in guidance believe

very we it’s good much us, we’ve – we half we much the the and the have seeing, second visibility XX placed the We’ve be on patients hospitals doctors customers what so For year and very talked are to obviously good the the rest of placed the to going about expectations. is rest to customers’ got believe backlog pretty are orders the for on And demand XX that correlated we they and we aligned is they about to our have that and are certainly next they with where the with sit are, and aligned think year. of to so And they strong. feel than closer days, us.

year, strong second was bottom look and were really a the When for us the you what sales have our third to expect We at quarter. last quarter. third

another should our be year-over-year of XX% this year third So of growth. quarter order magnitude,

ability feel And the so trajectory industry’s ability and support and we we’re to our that that growth. the on good about

Jim Sidoti

of that all and those confident new second those back launches the product they XXXX? postponed that have pretty pandemic, you’re throughout of those the half So on track, are will because continue

Joe Dziedzic

our those launches. months. be our I reengage growth they But back start definitely many the we’re seeing now development product the on with Jim. that next working pandemic, on spread XX customers. pre were XX, those and we’re was of Absolutely, fully a out will But impact on think executed, over to I launches there to wish X, that an where and were but be those will track they launches programs with to contributor

Jim Sidoti

any few And about do expect next then there? you we the interest say debt Should now? the mentioned you’re and covenants likely changes months. they refinance Or to are rates you over where anticipate

Joe Dziedzic

Yes.

actively with the evaluating we options will with where follow and are to we market when still rates certainly but partners, We’re our and will we be optimize can, share Jim, our that. working and able is and

Jim Sidoti

inventory year? back supply then over that ahead talked having they in do at level, the it your possible add the where it’s was to better below of your the things customers’ doing and half of about at or XXXX. you And inventory I’m looking you you’re anticipate Is adding Right. But just might be levels inventory shortages. because how inventory

Joe Dziedzic

plants we’re think the running how to I at we’re ago. definitely Jim, X compared better years XXXX,

they that just focuses manufacturing balance the ready really and chain. to management and flow good quarter our normal to number our inventory thought strategic quarter the that ebb there but third job a this working flow, also and constraints efficiency is But places. definitely supply optimization spike I sure to take more inventory, is our team bit on strategic product at the large, having managing definitely product, early. chain excellence impact capital and decided case little in efficient they customers all excellence by that. of think the in in had the that and Again, take the felt think second I we just on our their seeing are quarter, hands how our a of said, other not was, a working I’ll there customer cash go on – you’re were that maybe if had make supply in numbers. I demand any some probably imperative imperative attribute but it a we was capital, going we has manufacturing And we’re done to think inventory and positive it the of I I much of or has we a think

Jim Sidoti

Okay.

$X.X know, checking billion it’s Just handling because Jason’s business, and a you the cash.

Just making sure you’re not running Alright. to Thank out run of inventory it. just you.

Joe Dziedzic

Great. Thanks, Jim.

Operator

no [Operator phone turn Instructions] questions. There back Tony. you, Please are ahead. to call I’ll the more go over

Anthony Borowicz

Thank everyone great. call. you Alright, today’s for joining

that As just always, as on this to a replay of our available as presentation is going website well the covered. call be we

So for interest And Integer. in call. your concludes today’s that thank you

Operator

today. you for participating. That all for our does conference Thank conclude

You great may a now Have disconnect. day.

Integer (ITGR) 31 Jul 212021 Q2 Earnings call transcript