- Earnings call transcript Q3 2022

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Operator

Good day and welcome to the Integer Holdings Corporation Third Quarter 2022 Earnings Release Conference Call. Please note today’s conference is being recorded. [Operator Instructions] Thank you. At this time, I will turn the conference over to Anthony Borowicz, Senior Vice President of Investor Relations. Mr. your begin may you conference. Borowicz,

Anthony Borowicz

President Thank Good Vice welcome me President joining Officer Dzedzic, and and Chief for Integer’s morning, today Jason third Executive Joe With everyone. to call. quarter us conference Executive Officer. you XXXX Garland, Chief and Financial are and earnings

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

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

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

Joe Dziedzic

strategy medical providing suppliers, today, and fourth to Thank an material our eliminated for we dynamic all received Integer to preannouncement. we because Since chain related these the we the quarter October needed especially call time, component to our who have We to two start risk sales associates be that X you, continued our thought challenges the supply the update appropriate by additional outlook. meet thanks execute have through highlighted on the Tony joining it times. have to everyone on would that

critical components. we performance non-medical our sight for have to supplier consistent line and supply dual-sourcing from our more strategy of products, For component

to operational continue chain intensify to reduce We the of supply risk. our management

more and We executive faster have frequency increased of escalation the level including and and suppliers. depth managing delays engagement with supplier frequent tracking, risk, of shortages,

measures, cautious We and based includes more released adjustment X. XXXX where including supplier upon executing are quarter view guidance appropriate. our in Integer’s preliminary an existing accelerating we our results Also, strategies October risk that even updated financial with line third also dual-sourcing proactive on were the in-sourcing performance.

next year-over-year. XX% and Our third grew quarter versus October Integer’s million of $XXX push we challenges. financial Integer’s adjusted million. adjusted growth strategy third sales our are remains from about X outlook growth year-over-year income why the XXXX X% revenue sales out growth not fundamentals slide by the changed, EBITDA remains operating recent The supply of caused summarizes prospects. to quarter excited strong XX% growth with has despite XX% and chain and our $XXX unchanged the strategy grew XXXX release to our

will benefit industry, competitors better We consolidation Customers we demand chain believe that despite from a rates. in growth supplier performing supply challenges, to we pre-COVID returned we are are well-positioned us than has recession-resilient tell our and trends. where

in Aran and X% electrophysiology, the from introductions heart- concentrated acquisitions, expect and revenue accretive product backlog, XXXX to in of neuromodulation. growth significant strong growth X% and We a demand, Oscor to above-market new customer due structural

annualized leverage, We prices $X savings XXXX eliminating higher and volume from expect positions. the expansion in SG&A margin from in million

reduced United environment XX% X% improving. approximately is in the States We Ireland by during labor turnover third quarter. and direct in Our the

strong levels our more in most labor remain customers. demand and achieved on training have of our sites targeted fully focused efficiently and operate the our workforce We direct to fulfill from

to will and deliver Jason. now XXXX and margin in trained call a expected drive anticipate we productivity in that fully I progress, over our operations this staffed our expansion. will workforce hand Given the

Jason Garland

sales third thank At Good million, our currency sales our summarize year-over-year, conclude I’ll quarter product again point quarter by X more financial outlook. Joe. provide being third line our view. joining morning results were and Thanks, about XXXX XXX our $XXX you adjusted on and third trends call. Integer’s with details grew the with for XX% consistent preliminary our mostly our quarter October basis euro. drag, driven with results XXXX

up currency, Excluding acquisitions we and are year-over-year. X%

three third deteriorating $XX approximately have not deliveries our the reminder, performance been from a As and for commitments higher quarter primarily if would suppliers. million missed sales

third provided quarter and supplier sales are costs. by Our below the in an was volume direct by deliver million we effort lower wages, Manufacturing of $X million an adding $X last which adjusted adjusted manufacturing $XX guidance had million, Adjusted $XX X% year, the from and XXXX. increased that million, approximately higher income end $XX of of was million, the more in million freight reduced is The higher delays due compared sales high driven operating up EBITDA increase income July. with quarter to in slightly to to third X%. operating in labor quarter, the costs $X

cost fourth quarter benefit third the guidance. $X.XX XXXX. income year-to-date quarter levels. annualized net give quarter That net fourth delivered from $X.XX to color adjusted is the sold, align incentive following said, to and year diluted more to a third spend benefit savings adjusted lower be we from the includes and costs includes quarter SG&A the from we our higher on costs it similar typically the slide. with we to earnings of will expect than SG&A compensation highest on per down end-of-year share, SG&A quarter Though third saw some fourth of at of from in offset the I $XX adjusted updated quarter our the With as restructuring million, expense a second quarterly and services. an manufacturing As our higher goods income the in actions, the our quarter

higher due expenses adjusted dollar. debt than stronger than third of million outstanding our interest a by The partially decreased interest an rate last currency impacted benefit primarily income million higher more The to $X the XXXX, year U.S. net by in higher also quarter expense the offset interest increase to from Oscor to due by principal $X environment being the million acquisitions. the amount million $X increasing is of but third compared Aran and from the in quarter driven $XXX

approximately outcome the said, expect the XX% the rest increase Although year. long-term. fixed the and continue moves of view our to we the expense swap, is that subscribe rest an with therefore, floating to the through over the best market to interest of That we rate produces debt with through LIBOR interest

to quarter of XXXX, quarter effective a the compared of rate $X.XX Our third XX.X% year-over-year XX% was tax in the adjusted in of share. roughly creating headwind third XXXX per

in million operating of $XX the biggest XXXX first being the activities, XXXX, quarter The items generated year quarters, discrete third because $XX sequentially benefited rate an ship from the million quarter added effective delays. up quarter flow that with grown the project third with the in we million quarter rate adjusted We from third XX% through a not tax quarter. did total second In the being driver supplier of in the of we the has fourth cash single from rate XX.X% XX%. in Inventory and products three to $XX quarter. increase the

in fourth to quarter. inventory the expect reduce We

$XX of of organic as the inventory expect year-to-date the time and million in $XX following since Our between third free in growth. million for by million continue to increase of acquisition that at million We of still flow, XXXX. total the we investments we million the peaking quarter. Biomedical, reflects $XXX second of debt capabilities to quarter quarter and in balance $XX the decreased million it million capital spend of third CapEx the $XX cash expenditures end and net impact With capacity year-to-date spend in the our Aran $XX $XX

at the adjusted the down X.Xx end leverage quarter third the debt trailing was second Our from quarter. EBITDA, slightly of four-quarter

target our Although to the expect quarter the acquisition, X.Xx we are between X.Xx to in we improve XXXX to again and to in X.Xx of quarter our third still leverage leverage. range be fourth Aran of and temporarily X.Xx the due expect above

sales lines. product sales. Cardio Vascular of the to the quarter of the XX% XXXX strong XX% with compared quarter Trailing third transition four-quarter all first product reported sales Beginning of now will discussion line, in quarter XXXX. to with We and across third growth in up a were product line our grew our third

ultimately we that Heart to have the quarter. chain grew As discussed, double-digit pushed and previously markets. of out and supply caused we Structural continue environment sales face on demand a high-growth backlog to impact, Electrophysiology this challenging we in the strong be Despite

continued performance XX%. accelerate Cardio our have Vascular from quarter continue which sales Trailing fourth growth, seen and to strong strong also both acquisitions, year-over-year Aran Oscor growth. We and up sales the

the year. this expect continue We throughout momentum to

sales discussed. with In four-quarter Neuromodulation, Orthopedics Portable products Moving up plan sales delays our production. exit provide XX%, third we Advanced to our of in with driven our they quarter that X%. sales the our to includes X% need line, customers beginning our portable growth were acquisition. Medical from supplier the Trailing medical posted Surgical, quarter, our and This Oscor of Management by to impact products product neuromodulation grew as primarily of multi-year the and Cardiac transition growth as previously year-over-year the affected third sales Rhythm work the

generated growth low sales double-digit four-quarter also and Trailing was Surgical in roughly year-over-year. Advanced quarter. We third business Orthopedics the the in flat

nonmedical segment. with up the wrap we Electrochem, will Finally, discussion product our line

environmental, XX% energy lower sales delays. energy military quarter due driven XX% Third strong supplier and to could markets than recovering four-quarter continued the the market despite been driven sales demand grew they year-over-year, being across by have market. energy increased in the sales by Trailing

performance transition outlook XXXX. of to to the to with X in sales, last to Oscor now basis, are our for And acquisitions. billion, organic the be XX% sales forecasting Starting We to expect versus expectations X% to X% consistent updated year The October an sales update. billion compared the with noteworthy XXXX. million $X.XX year. will delay, we $X.XX we and range our considering grow XX% increase on sales our from full to includes an sales This Aran is of $XX

EBITDA additional adjusted million with due was higher freight million sales $XX approximately labor. shared, of lower direct volume costs updated and from million our previously adjusted by and As the income $X forecast and supplier to operating $XX from increased delays impacted wages, manufacturing

XXXX impacts, is With be EBITDA X% million between year-over-year to expect adjusted growth. to million, and $XXX which $XXX flat we these

between be million a reflecting be to $X.XX. income between operating of of growth $XXX adjusted is XXXX expected and $X.XX our a Adjusted decline EPS million, $XXX X% X%. expect to to We to

delayed outlook the of the as projected higher EPS latest which the our rate, be between adjusted XX% view mentioned adjusted interest is tax Our year. effective manufacturing includes earlier, costs, to for higher to impact sales, XX.X% and of expense

strong expect organically $XX $XX to reduce we cash to million used third $XX between the invest execute on As demand flow the as This cash supplier through inclusive have adjusted debt business expect continued inventory million flow the million to million free be impact to $XX million continue our expenditures $XXX of we quarter to also with now I outlook. $XXX growth. we we in shipments. from close, free to of operations to to as of $XX strategy, between million. we expect cash includes to is generate spend now of have $XX we by to investment between drive net flow our latest million. expect are million. estimate and our It EBITDA Most delayed outlook total and to the generate Consistent maintaining will We the still capital CapEx, made

our range you. with of to We our call X.Xx. and ratio Thank year expect will that, to With adjusted end X.Xx I to back Joe. to between the the X.Xx target within close leverage EBITDA, turn X.Xx

Joe Dziedzic

Jason. Thanks,

our our customers We and chain patients. have deliver intensified for management supply to

and X%, approximately expect is sales supply end than sales XX% X% is Our points we XXX to XX% despite of chain we unchanged, challenges. XXXX, outlook with growth faster we basis year financial growth the In markets to the to year-over-year serve. expect which

higher trained expansion We focused volume XXXX direct and labor fully prices and also remain expect workforce. strategy. executing margin We more our efficiencies from staffed in leverage, on a from

an at high. We all-time development have Customer product new ever pipeline. is our largest demand

direct needed on labor We added have to successfully this demand. the fulfill

sales to XXXX expansion. deliver in strong growth margin We are positioned with

As our fast twice we back maintain points confident you remain labor stabilize ability supply of our market, debt XXX to as to for this in basis of grow portion to will our grow than between deliver and sales the Thank call call. morning. on financial faster call objectives as we moderator EBITDA. turn adjusted strategy X.Xx the profit X.Xx now and and sales for the I chain, Session our joining the leverage Question-and-Answer Q&A our

Operator

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

Joe Dzedzic

Good morning Matt.

Operator

Matthew, your line is open.

Matthew Mishan

Good morning.

pieces for have Sorry first well, guidance, and I Without guys just as revenue margin growth given on am to year. about start mute. the X% you X% and to year, on I that, should initial wanted off how giving next help the initiatives think moving of the tailwinds improve? you about margins company-specific next implementing maybe that we are should and point some guys of of some like at headwinds this

Joe Dzedzic

Sure. question, Thank Matt. you for the

we as go will we XXXX, with this it’s at years expand down from prior to we start year going So, look margins. going confident be to are I are next and with customers to can price increases. year, we having priced our

that last the we element X years. core a changes have impact of immediate in an the of trajectory that’s doing what So, been

positive. will that So, be a

than able We we have have increase been output. significantly added year, significant to direct labor more this

feel labor We the We training some have get time our is the the to into to anticipate the headcount efficiencies. direct And workforce. manufacturing XXXX. do proficiency right level – are our we run We for our training of workforce focused period operations drive on increasing the the quarter. not in to adding we fourth now need focus on and

helping needing that direct near-term. X% So, to anticipate you that’s meaningful we that in believe we to on And get us. be leverage the sales, labor X% volume do with contributor a to going to increase not

third implemented end on We million. we on overhead and the lower annualized the volume actions the costs next at of the volume taken leverage operating leverage by which the year costs, also quarter. specific SG&A our have get an facilities to already We $X that in

see as those positive we trends. So,

also We And you typically, going that new that’s new the we know products highest marketplace when in see are we have introducing. launch are all them. price products to the you

going also. to that’s help so And

growth expected and driving performing We been are there. we have in are who They growth meaningful of we this synergies we than efficiencies continue see the we synergies end significant. to did and synergies acquisition drive additional and with And Oscor, strong at got meaningful XXXX, better has significant the year. customers the

So, those year. margin all fact. in expansion That’s that specific boat. to things challenging. the we But I The are remains think integer same drive some of environment very the expect we supply chain the are next

need we have. pressure those, third most that in obviously improve – on everyone’s the there. quarter and You feel We managing have effectively. with announcements that We earnings had seen this are the quarter, we those is gaps we to some and

We are getting much deeper with suppliers.

are faster am issues other engaging We the as leaders are personally leadership challenging members escalating that are – our with and suppliers of I other teams.

specific ensure next So, supply this will volatile in we to actions think we Integer chain that environment. there manage that taken are margins continued expand year some we able we that very and be difficult have will

Matthew Mishan

we revenue to back starting supply little get to should next the Is given for income a point it or growth, to assume that two-to-one your chain the fair as year you growth to year cautious more environment? be op bit a start

Joe Dzedzic

goal a And as environment, that we That’s and as continue profit labor grow fast confident, get we granularity sales. our absolutely to when are we more give look chain can prepared supply stable XXXX. confident are we that So, we of are level not to as to we for twice long-term.

this meaningful year are guidance labor increases have focus We the and expansion. to ready to training to yet, think not added of as just we is some meaningful direct taken have ensure give price on decreases, but we we margin amounts them. The XXXX opposed our actions

built have we believe where – more safety going up to be got stock inventory reduce we to than have and of We what that now start need. meaningfully some maybe able increased are to we we inventory we

expand be year. do margins able next we to So, to expect

to is guidance just not ready you be. tell We to going now right what are that

quarter We that call. our fourth will earnings on provide

Matthew Mishan

million about to That these the environment? issues how was million you $XXX How of basis. have we be implemented target rates program M&A an current for $XXX But should Okay. thinking M&A program your on supply that to like are interest before annual some risen. adapting chain before

Joe Dzedzic

Yes. Great question, Matt.

acquisitions at higher We we to transparent end our our we to We expand capabilities with we think that us growth solution markets. integrated strategy. our have are in look very customers looking are tuck-ins, that looking to for a to the aligned more continue vertically offer those are been for opportunities enable and

where So, already and in where Aran our wheelhouse, can do, Oscor are our significant customers. examples targeted, the more integrate an new think been Oscor customers. we and either we synergies what further differentiated We and capability acquisitions have specific. our to vertically we very we generate of great added serve very have We think offer to expansion that’s and is

X.Xx that committed But get to X.Xx our you into continue we near-term look acquisition, we to the leverage. do might to we very so to that. within a mean an you at up plan back That very Obviously, have X.Xx remain X.Xx. to doesn’t bump when And high-Xs.

remain And to sells. If to seller opportunities. active get them, at market in require very looking the so would we price. an we incentivize We don’t above probably that were decide where

an strategy it’s very our But that. there to so synergies. important it’s we target. over able deliver have to very acquire, We the active demonstrated and our our feel our we and we tuck-ins, part of to of will we integrate that think that X.Xx we framework the and our leverage. going we Aran also results and demonstrate also capability doing drive to that demonstrates that the time, think are we within and strategy And remain ability this both forward. think is leverage our not Oscor, been with But committed this We think and X.Xx

Matthew Mishan

more of guess probably should outside be think this that. for to we think I exposure growing Okay. your exposed that was you how mean I you about where on a will stimulation. spinal neuromodulation. like it some are faster are legacy investors think would of understand point? focused And helpful Integer I But the about How areas about little it’s cord more are at to

Joe Dzedzic

Certainly.

more today, stim emerging or epilepsy, cord spinal sleep are apnea failure. it’s whether more [indiscernible] sales – customers for a the lean therapies, of stim more treating much development lot are sure. non-spinal and towards are So, part our therapies or pipeline. or our emerging cord But those in are lean that of towards incontinence our pipeline and heart There our applications

is high-single and cord instead spinal spinal is around it’s heavily some although news includes of our but course, of today much digits, reimbursements pipeline stim, growth also stim. So, it’s rates, of more – mid-single only the stim it maybe cord cord weighted getting digits around spinal not outside

So, we therapies. are confident in and those that pipeline

We number are of various remember revenue a development have launching in generation of that they phase the customers phase. stages are and the

So, us think is non-spinal think when cord stim. towards in neuro, the pipeline weighted you about about heavily

Matthew Mishan

at last supply one, guidance, up the just And your as that you guidance secured that’s that midpoint I of And have far or that fourth assuming meet and Okay. will talking components you whether down. how the right chain – as to in there are supplies from we not you evolves range. or see quarter. am mentioned given the the the

Joe Dzedzic

products we correct, physically that We said, the only the that supply put the hand we That’s Matt. those have had let’s absolutely we with discussed we products pre-announce. what that side. chain so medical We the issues on de-risk include on and during

on the sourcing of confident are the the those non-medical and suppliers. given given We dual performance

which of I does address actions to in suppliers, for heard the still the the points fourth quarter with a it now well is committed work volumes well issues the improved other turnover talk labor. when improving. taken to we by flowing as that labor our the continue as that’s and environment, have I have the back the it’s for care U.S., that of and challenging, Most I of show those remains positive. XX%, is suppliers. taken, chain. And And we as of on we signs are products pipeline been XXXX that we ensuring think that working to of to but the supply good, other say it those also labor wouldn’t highlight We some it have we suppliers There can have

places, around and labor think places they our also improved their that We pointing very some as And well. with to supply, to are think we are ability an we turnover we the environment it’s improving labor remains company in but it other challenging. in that some also hearing still suppliers of improving

board I think quarter. heard you the earnings on calls this have that across

Matthew Mishan

Okay. very much. Thank you

Joe Dzedzic

Thanks Matt.

Operator

from with comes the Jim Sidoti question of Sidoti. next Your line

Jim Sidoti

my Good questions. Hi. taking for morning. Thanks

Joe Dzedzic

Good morning Jim.

Jim Sidoti

I thing, growth you First quarter. think was about in X% the said organic

Aran So, $XX sales million I just the Is right? million are to want to confirm range. that $XX that and in Oscor

Jason Garland

a rate, From growth Jim?

Jim Sidoti

Aran in quarter? Just Oscor the what and were sales

Jason Garland

quarterly But yes, haven’t and difference their those so organic be a all growth shared the is We X%, rate. that there basis. on in would

Jim Sidoti

Yes.

left, get at are $X.XX the of Alright. factors you the just fourth Okay. it’s to quarter then looking What range annual the that? And guidance, a high that end there. the

Jason Garland

us, continuing been to manage third the and have impact in fourth we that chain we biggest are the quarter. the supply as and the environment, So, has obviously, for quarter the certainly variable at looked

that have And deliver as as as talked is demand customer And strong. the to the so to the be we we get sales. need, what we maybe the the on EPS. of sites the to to able high of on range will materials side we can That’s Jim, more, expecting, we the higher continue more driving the much and than us to help get are to or the deliver about, going biggest certainly feed team pipeline deliver more the are to and driver, be

Jim Sidoti

confident that biggest meet are there. being that like correct? is supply it to the demand So, you able is sounds is issue to The demand,

Jason Garland

Absolutely. Alright.

they that talked giving fair in is, well conversations how a customers as demand are having strong the with are both as backlog and have our amount we We in certainly us. that about forecasts

having that on getting customers. out and hand so through about shops our our is to this And material

Jim Sidoti

Alright. And then last one.

but margin to and to you did relative expense sales indicate be implicit is an up gross give SG&A didn’t You that September guidance, the going quarter.

that the compared improvement improved, in that these issues third because the third are So, improved, or labor gross an margins it quarter or what’s in like have supplies to quarter. the seems driving fourth quarter you improvement? – expecting Is in

Jason Garland

Yes.

that Just from talked and well to that with really the rate to bit to costs by manufacturing, costs this higher And half guidance the environment can. think and was as we certainly, have about in point, about basis we that about, best again, XXX certainly the run be leverage facing about right, There will third quarter, pressure points quarter. talked first the that but in the most, we dropped absorb of stranded labor as over believe manage In inherent impacted as as stranded the higher, then quarter, had to are We get fourth sales the the lost labor about continuing in that from the have our that. we we the the fourth we we we our is and the talked we we – we are sales, volume well. we suppliers. that able benefit of has increasing as a your other the still get

Jim Sidoti

taking for again question. Thanks me. for it the was That

Jason Garland

Jim. Thanks

Operator

the back no further turn [Operator are Instructions] will of closing call time. at there Anthony remarks. questions Borowicz this Q&A End any to And I now for

Anthony Borowicz

Thank for call. you joining everyone today’s

this As Integer for and presentation our call. interest well covered. does on your conclude Thank we as replay website call available is always, you again it of as that just in the today’s a

Operator

participating. for you Thank

You at disconnect may this time.

Integer (ITGR) 29 Oct 222022 Q3 Earnings call transcript