3Q18 Earnings Conference Call - November 1, 2018

 
3Q18 Earnings Conference Call - November 1, 2018
3Q18 Earnings Conference Call

                                                                  November 1, 2018

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 1
3Q18 Earnings Conference Call - November 1, 2018
Presentation of Financial Information &
     Forward-Looking Statements
     Historical financial and operating data in this presentation reflect the consolidated results of Integer for the periods
     indicated.

     This presentation includes financial information prepared in accordance with accounting principles generally accepted in
     the United States, or GAAP, as well as other financial measures referred to as non-GAAP. The non-GAAP financial
     measures in this presentation, which include Adjusted Net Income, Adjusted Diluted EPS, Earnings Before Interest Taxes
     Depreciation and Amortization (EBITDA), Adjusted EBITDA, and organic growth rates should be considered in addition to,
     but not as substitutes for, the information prepared in accordance with GAAP. For reconciliations of these non-GAAP
     financial measures to the most comparable GAAP measures, please refer to the appendix to this presentation and the
     earnings release associated with this quarterly period which can be found in the investor relations section of our corporate
     website (investor.integer.net).

     Statements made in this presentation whether written or oral may be “forward-looking statements” within the meaning of
     Section 27A of the Securities Act of 1933, as amended, and Section 21E of Securities Exchange Act of 1934, as
     amended, and involve a number of risks and uncertainties. These statements can be identified by terminology such as
     “may,” “will,” “should,” “could,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or
     “continue” or “variations” or the negative of these terms or other comparable terminology. These statements are based on
     the company’s current expectations and speak only as of November 1, 2018. The Company’s actual results could differ
     materially from those stated or implied by such forward-looking statements. The Company assumes no obligation to
     update forward-looking information, including information in this presentation, to reflect changed assumptions, the
     occurrence of unanticipated events or changes in future operating results, financial conditions or prospects.

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 2
Agenda

     • Opening Comments
     • Financial Results
     • Product Line Review
     • 2018 Outlook
     • Question & Answer Period

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 3
Opening Comments

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 4
Strong Financial Results…Executing Strategy…Building Team

                                                            Financial Results
       Integer delivered                                          •   3Q results support improved guidance
                                                                       - Revenue guidance increased to 6% - 7% growth
       another strong quarter
                                                                       - EPS guidance increased primarily due to lower taxes and interest expense
       of sales and profit
                                                                  •   Continued Deleveraging
       growth                                                          - Paid down $595 million of debt in 3Q
                                                                       - Leverage ratio at 3.7 times adjusted EBITDA versus 5.6 at the beginning of 2018

                                                            Strategy
       Launched Operational                                       •   Launched execution of multi-year Operational Strategic Imperatives in
                                                                      September with Top 100 Senior Leaders
       Strategic Imperatives
                                                                  •   Transitioning to a new sales organization structure in 4Q to drive customer
                                                                      focused growth strategies and increase accountability for sales growth

                                                            Leadership
       Continued Building                                         •   Jason Garland joined as EVP/CFO to bring strong operational finance
       Leadership Team                                                leadership to execution of Operational Strategic Imperatives
                                                                  •   As previously announced, Jeremy Friedman, former COO/Interim CFO,
                                                                      retiring at end of 2018. Customer Operational Strategic Imperatives
                                                                      transitioned to Payman Khales (Pres. C&V) and Tony Gonzalez (Pres. CRMN)

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 5
Financial Results
3Q18 Adjusted Financial Results(1)
       ($ in millions, except per share amounts)

                   Adjusted Sales                                                         Adjusted EBITDA                                                 Adjusted Net Income
                                                                  (2)                                                                (3)                                                                 (3)
                                            7%       organic                                                   9%       organic                                                    15%        organic
             % Growth
                                            7%       reported                                                 10%       reported                                                   18%        reported

                                                                                                                                                                                               $36
                                                                                                                        $68                                                                FX adjusted
                                               $305                                                                                                                    $31
                                              Reported                                          $63                  FX adjusted
                                                                                                                                                                     FX Adjusted
                      $285                                                                  FX Adjusted
                     Reported                                                                                                                                                                 $35
                                               $305                                                                     $67                                                                 Reported
                                                                                               $60                    Reported                                         $29
                      $284                  FX Adjusted
                                                                                             Reported                                                                 Reported
                    FX Adjusted

                     3Q17                     3Q18                                            3Q17                    3Q18                                            3Q17                   3Q18

                                                                                                                                                  Adj.   Repo rted     $ 0.91                 $ 1.06
        As reported GAAP and Non-GAAP numbers                                                                                                     EPS    FX
                                                                                                                                                                       $ 0.98                 $ 1.10
                                                                                                                                                         A djusted
        Foreign currency impact on reported GAAP and Non-GAAP numbers

 (1)    Refer to the appendix of this presentation for a reconciliation of Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, and organic growth rates to the most directly comparable GAAP measure
 (2)    Organic growth for Sales excludes the impact of foreign currency exchange rates
 (3)    Organic growth for Adjusted EBITDA, Adjusted Net Income, and Adjusted EPS exclude the impact of foreign currency reported in other (income) loss, net

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 7
Year-over-Year Sales Improvement Continues(1)
Trailing 4 Quarters
      Cardio & Vascular
   12%

    8%

    4%

    0%
                                                                                                           Integer
                                                                                                                                                 9%
      Cardiac & Neuromodulation
                                                                                                                                          8%
   6%

                                                                                                                      7%
   2%
                                                                                                   6%
  (2)%

                                                                               4%
  (6)%

      Advanced Surgical, Orthopedic & Portable Medical
  15%

  10%
                                                                  0%
   5%                                                                        3Q17                4Q17               1Q18                  2Q18   3Q18
   0%

      Non-Medical (Electrochem)

  40%

  20%

   0%
                                                                  (1)   Excludes impact from changes in foreign currency exchange rates

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 8
Adjusted EBITDA & Adjusted Net Income
     ($ in millions except per share amounts)

                        Adjusted EBITDA                                                                    Adjusted Net Income

                                                                                               $9
                                                                                                                                                      $1                      $35
                                                                                                                                  $1
                        $67                                                                                    $(4)                                                   $(1)
                                                                            $29
     $60                                                                                                                                     FX            Tax Rate

                                          • $10 from Operations
                                          • $1 FX
                                                                                                  Incentive         Operational
                                          • $(4) Incentive                                      Compensation       Improvement

                                            Compensation

    3Q17               3Q18                                                 3Q17           Operational  Incentive
                                                                                          Improvement Compensation
                                                                                                                                   FX             Interest        Tax Rate    3Q18
                                                                                                                                                                                     (1)

                                                                  Adj.                                                                                                               (1)
                                                                             $0.91           $0.25            $(0.12)             $0.02           $0.03           $(0.04)    $1.06
                                                                  EPS

                                                                         (1) Includes $0.02 unfavorable impact due to year-over-year share dilution
                                                                         Note: Amounts may not sum due to rounding

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 9
Continued Deleveraging
          Cash Flow From Ops                                       Free Cash Flow (1)
          ($ in millions)                             $54          ($ in millions)                        $40
                                                                                            $36
                                 $46
          $38
                                                                                                                 •     Reduced leverage ratio to
                                                                          $27                                          3.7 times adjusted EBITDA
                       $34
                                                                                     $21
                                           $21                                                                   •     $548M from divestiture
                                                                                                   $13
                                                                                                                       proceeds

                                                                                                                 •     $40M in additional
                                                                                                                       accelerated pay down
         3Q17         4Q17       1Q18     2Q18       3Q18               3Q17         4Q17   1Q18   2Q18   3Q18

                                                                                                                 •     No significant maturities
         Debt Payments                                             Leverage (2)                                        until 2021; well within
         ($ in millions)                             $595
                                                                                                                       covenants
                                                                           5.8x
                                                                                     5.6x
                                                                                            5.4x
                                 $50                 $548                                          5.1x

          $38

                                           $25                                                            3.7x
                           $22   $43
                                                      $40
           $33
                           $15             $18

           $5               $7    $7        $7         $7
                                                             (3)                                                 (1)   Free Cash Flow defined as Cash Flow from Operations
         3Q17         4Q17       1Q18     2Q18       3Q18                  3Q17 4Q17 1Q18 2Q18 3Q18
                                                                                                                       less Capital Expenditures, net
 Accelerated Repayment from Divestiture Proceeds                                                                 (2)   Leverage calculated as Total Debt less Cash and Cash
 Accelerated Repayment                                                                                                 Equivalents divided by trailing 4 quarter Adjusted EBITDA
 Required Repayment                                                                                              (3)   3Q18 Accelerated Repayments totaled $588M; $548 from
                                                                                                                       divestiture proceeds plus $40M from operations
ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 10
Product Line Review
Cardio & Vascular

           Offering a full-range of services for the design, development, and manufacturing of diagnostic and interventional
              cardiac and endovascular delivery and retrieval devices, along with comprehensive supply-chain solutions

                 Organic Quarterly Y-o-Y Growth

                                                             13%
                                    11%
                                               10%                            9%
                     7%
% Change

                                                                                       Steerable Sheaths   Catheters & Sheaths   Guidewires, Stylets &   Introducers
                                                                                                                                     Accessories

           0%                                                                      •    3Q18 year-over-year growth driven by continued strong
                   3Q17            4Q17       1Q18          2Q18         3Q18           demand in the electrophysiology market stemming from
                 Trailing 4-Quarter Sales
                                                                                        customer share gains & new product launch and timing from
                 ($ in millions)
                                                                        $575
                                                                                        a customer inventory replenishment
                                             $544         $562
                  $516             $531
                                                                                   •    Trailing 4-quarter sales growth of 11% driven by continued
                                                                                        strong demand and market penetration in the focus markets
                                                                                        of electrophysiology, structural heart and peripheral vascular

                                                                                   •    Expect growth trend to remain above market from increased
                                                                                        focus on high growth C&V market segments

                 3Q17              4Q17     1Q18          2Q18          3Q18
                  9%               10%        10%           11%           11%

           ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 12
Cardiac & Neuromodulation

                                   Providing technology solutions for the active implantable medical device industry
                                             by partnering with customers to bring high-quality products to
                              established and emerging markets – from initial concept through high-volume manufacturing

                 Organic Quarterly Y-o-Y Growth

                                                            9%            8%
                                               5%
% Change

                                   1%
                                                                                          Pulse Generator                              Pulse Generators & External
           0%                                                                                               Leads & Lead Components,
                                                                                          Components &                                   Solutions (Programmers,
                                                                                                              Adaptors & Assemblies
                  3Q17             4Q17      1Q18          2Q18         3Q18                Assemblies                                  Chargers, Patient Devices)

                 (6)%
                                                                                   • CRM growth driven by increased components market
                                                                                     penetration & lower 2017 comparables from customer
                 Trailing 4-Quarter Sales
                 ($ in millions)                                                     inventory adjustments. Neuro growth driven by spinal cord
                  $427             $428      $433          $443          $451        stimulation market demand and increased components
                                                                                     market penetration

                                                                                   • Trailing 4-quarter CRM sales slightly ahead of market
                                                                                     growth and neuromodulation sales running significantly
                                                                                     ahead of market due to accelerating demand in finished
                                                                                     devices and leads

                  3Q17             4Q17      1Q18          2Q18         3Q18       • Expect sales to decrease in 4Q18 compared to extremely
                   (4)%            (2)%        (0)%           2%              6%
                                                                                     strong 4Q17
           ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 13
Advanced Surgical, Orthopedics & Portable Medical

                                          Supporting our divested AS&O business and providing technologies
                                                 and solutions to Portable Medical markets

                 Organic Quarterly Y-o-Y Growth

                                              25%
                                                            21%

                                                                                   Orthopedic Implants &   Electrosurgical    Li-Ion Battery     Core Battery
% Change

                                                                                        Instruments         Accessories           Packs        Pack Assemblies
                                                                              9%
                   7%
                                    4%
           0%

                  3Q17             4Q17       1Q18          2Q18         3Q18       •     3Q18 sales increase driven by above market growth in
                                                                                          advanced surgical and orthopedic products
                 Trailing 4-Quarter Sales
                 ($ in millions)
                                                                        $130
                                             $121
                                                           $127                     •     Trailing 4-quarter sales growth strong due to robust 1st
                  $114             $115
                                                                                          half 2018 market demand primarily in Portable Medical
                                                                                    •     Sales expected to level off from strong first half to be
                                                                                          more in line with overall market growth

                 3Q17              4Q17      1Q18         2Q18          3Q18
                  6%               8%         10%           13%           13%

           ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 14
Electrochem

                           Enhancing lives worldwide by providing superior power solutions that
                        enable the success and advancement of our customers’ critical applications
                 Organic Quarterly Y-o-Y Growth

                  71%

                                   30%
% Change

                                                                                           Battery Cells          Battery Packs           Battery Chargers
                                              12%
                                                           (5)%
           0%
                                                                              (18)%

                  3Q17             4Q17      1Q18          2Q18         3Q18          •   3Q18 sales decline due to timing of energy customer
                                                                                          inventory adjustments and planned phase out of certain
                 Trailing 4-Quarter Sales                                                 rechargeable battery pack products
                 ($ in millions)

                                                                                      •   Trailing 4-quarter trend reflects flattening of North American
                                   $57        $58           $58                           drilling activity.
                   $54                                                   $55
                                                                                      •   Expect growth in 2019 from new customers and products
                                                                                          and renewed military market government funding

                  3Q17             4Q17      1Q18          2Q18         3Q18
                  23%              37%        41%           22%               3%

           ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 15
2018 Revised Outlook
2018 Outlook
     ($ in millions except per share amounts)

                    Adjusted Sales                                 Adjusted EBITDA         Adjusted EPS

     Growth %                            6% - 7%                            9% - 13%              15% - 20%

                                  $1,195 - $1,210                           $255 - $265           $3.55 - $3.70

                 $1,131                                             $234                  $3.09

                    2017                  2018                      2017      2018        2017        2018
                                         Outlook                             Outlook                 Outlook

     Prior Outlook                  $1,175 - $1,200                         $255 - $265            $3.35 - $3.65

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 17
Increased Cash Flow Outlook

       Cash Flow From Ops                                     Free Cash Flow(1)                                         Debt Payments                        Leverage(2)
       ($ in millions)                                        ($ in millions)                                           ($ in millions)

                                                                                                                                                    ~$695

                                   ~$165
                         $149                                                               ~$120
                                                                                             $120                                                             6.1x
                                                                                                                                                                      5.6x
                                                                                $103

       $106                                                                                                                                          $145
                                                                                                                                                                             ~ 3.6x
                                                                                                                                          $129
                                                                                                                                                    $145+
                                                                 $47
                                                                                                                                          $98
                                                                                                                         $44
                                                                                                                          $15
                                                                                                                          $29             $31         $30

       FY16              FY17       FY18                        FY16            FY17         FY18                       2016 (3)          2017      2018     YE16    YE17     YE18
                                  Outlook                                                  Outlook                                                 Outlook                   Outlook

                                                                                                                       Accelerated Repayment
                                                                                                                       Required Repayment

            Prior
                                    $160+                                                   $110+                                                    $665+
           Outlook

     (1)    Free Cash Flow defined as Cash Flow from Operations less Capital Expenditures, net
     (2)    Leverage calculated as Total Debt less Cash and Cash Equivalents divided by Trailing 4 Quarter Adjusted EBITDA
     (3)    Reflects debt payments excluding $55M of borrowings used to fund $76M of cash provided to Nuvectra as part of the spin-off on March 14, 2016.

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 18
Focused Strategy to Drive Long-term Growth

                 Portfolio Strategy                                       Operational Strategy:
                          How we win                                      Strategic Imperatives
                   in the markets we serve
                                                                   How we achieve excellence in everything we do

                        Invest to Grow

                          Cardio & Vascular
                          Neuromodulation
                               Electrochem

                    Protect & Preserve

               Cardiac Rhythm Management

                  Improve Profitability

                           Portable Medical

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 19
Summary

           Vision                                                  Financial Results
           Enhance patient’s lives by being our                     •   3Q results support slightly improved guidance
           customers partner of choice                              •   Continued Deleveraging

           Strategic Imperatives
            - Sales Force Excellence
                                                                   Strategy
            - Market Focused Innovation
                                                                    •   Launched execution of multi-year Operational Strategic Imperatives
            - Manufacturing Excellence
                                                                    •   Transitioning to a new sales organization structure in 4Q
            - Business Process Excellence
            - Performance Excellence
            - Leadership Capability

                                                                   Leadership
           Clear Goals                                              •   Jason Garland joined as EVP/CFO
            - Sales Growth Above Market                             •   Jeremy Friedman, former COO/Interim CFO, retiring at YE18
            - Profit Growth 2x Sales Growth
            - Earn a Valuation Premium

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 20
APPENDIX

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 21
Historical Financial Results
     ($ in millions except per share amounts)

                                                                                                                                                                                                 (1) (2)
                               Adjusted Sales                                                                                                               Adjusted EPS
                                                                               $313
                                                                                              $305                Organic
                                               $301
                                  $285                         $292                                               Adjusted
                     $280                                                                                          EPS(3)
       $265                                                                                                             $0.58         $0.91              $0.98            $0.89               $0.66        $1.01   $1.10

                                                                                                                             Impact of foreign currency reported in other gain or loss, net
                                                                                                                             Adjusted EPS, as reported

                                        (1)   Refer to the appendix of this presentation for a reconciliation of Adjusted EPS to the most directly comparable GAAP measure
                                        (2)   The quarterly and annual EPS numbers are calculated independently and may not sum to the total
                                        (3)   Excludes impact of foreign currency reported in other gain or loss, net

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 22
2018 Full-Year Outlook
     ($ in millions except per share amounts)

2018 Outlook                                                       Prior Guidance     Growth      Updated Guidance    Growth
                                                                     (Non-GAAP)                      (Non-GAAP)

Adjusted Revenue                                                   $1,175 - $1,200    4% to 6%     $1,195 - $1,210    6% to 7%
Adjusted Net Income                                                 $110 - $120      11% to 21%      $117 - $122     18% to 23%
Adjusted EBITDA                                                     $255 - $265      9% to 13%       $255 - $265     9% to 13%
Adjusted Earnings per Diluted Share                                 $3.35 - $3.65    8% to 18%      $3.55 - $3.70    15% to 20%

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 23
2018 Full-Year Outlook – Supplemental Items Affecting Cash Flow
    ($ in millions, except per share amounts)

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 24
Non-GAAP Reconciliation
     Net Income and Diluted EPS Reconciliation – QTD
     ($ in thousands, except per share amounts)

 See the Footnotes to this table on Slide 26 of this presentation

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 25
Footnotes to Non-GAAP Reconciliation

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 26
Non-GAAP Reconciliation
     3Q18 Net Income and Diluted EPS Reconciliation – Detailed View
     ($ in thousands, except per share amounts)

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 27
Non-GAAP Reconciliation
     EBITDA and Adjusted EBITDA Reconciliation
     ($ in thousands)

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 28
Non-GAAP Reconciliation
     Organic Sales Growth Rate Reconciliation (% Change)

        a)    Represents adjustment to third quarter and year-to-date 2017 sales to exclude the net impact of the LSA.
        b)    Third quarter and year-to-date 2018 sales were positively impacted by $0.1 million (negative impact) and $2.3 million (positive impact), respectively, due to foreign
              currency exchange rate fluctuations, primarily in our Cardio & Vascular product line.

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 29
Non-GAAP Reconciliation
     Non-GAAP Organic Growth Rate Reconciliation (% Change)

        NM   calculated change not meaningful
        (a) Represents the impact to our growth rate from our Non-GAAP adjustments.
        (b) Represents the impact to our growth rate due to changes in foreign currency exchange rates

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 30
Non-GAAP Reconciliation
     2018 Full-Year Outlook(a)
     ($ in millions, except per share amounts)

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 31
Capitalization
                           ($ in millions)                                                    As Reported Original         6/30/18   9/28/18
                                                                                                9/28/18    Rate              Rate      Rate

                           Cash and Cash Equivalents                                                $23

                           $200m Revolver due 2020                                                     --        L + 325   L + 325   L + 250
                           Term Loan A due 2021                                                     314          L + 325   L + 325   L + 250
                           Term Loan B due 2022                                                     658          L + 425   L + 325   L + 300
                           Total Secured Debt                                                      $972

                           Senior Unsecured Notes due 2023                                             --        9.125%    9.125%      --
                                                                                                           (1)
                           Total Debt                                                              $972
                           Net Debt                                                                $949

                           Continuing Operations statistics
                           LTM Adjusted EBITDA                                                     $256
                           LTM Cash Interest Expense                                                 52
                           LTM Capital Expenditures                                                  36

                           Credit statistics
                           Net Total Debt / LTM Adjusted EBITDA                                     3.7x
                           LTM Adjusted EBITDA / Cash Interest Expense                              4.9x

 (1)   Gross debt outstanding, not reduced for unamortized discount and debt issuance costs

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 32
Contact Information

     Tony Borowicz
     SVP, Strategy, Corporate Development & Investor Relations

     Integer
     Tony.Borowicz@Integer.net
     (O) 716.759.5809

     www.integer.net

ITGR: 3Q18 Earnings Conference Call / November 1, 2018 / Page 33
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