Integer Holdings Corporation (NYSE:ITGR), a leading medical device
outsource manufacturer, today announced results for the three
months ended September 29, 2023.
Third Quarter
2023 Highlights (compared to
Third Quarter 2022, except as noted)
- Sales increased 18% to $405 million, with organic growth of
18%.
- GAAP net income increased $11 million to $27 million, an
increase of 70%. Non-GAAP adjusted net income increased $11 million
to $43 million, an increase of 35%.
- GAAP operating income increased $19 million to $48 million, an
increase of 64%. Non-GAAP adjusted operating income increased $18
million to $64 million, an increase of 39%.
- GAAP diluted EPS increased $0.33 per share to $0.81 per share.
Non-GAAP adjusted EPS increased $0.32 per share to $1.27 per
share.
- Adjusted EBITDA increased $18 million to $81 million, an
increase of 28%.
- From the end of 2022, total debt increased $16 million to $941
million and net total debt increased $17 million to $924 million,
mostly attributable to fees associated with the $500 million
convertible notes and the $35 million related capped call,
resulting in a leverage ratio of 3.1 times adjusted EBITDA as of
September 29, 2023.
Acquired certain assets of InNeuroCo, Inc. to further
strengthen neurovascular catheter capabilities
- Closed acquisition October 1, 2023 and expect it to be
immediately accretive to EPS.
- InNeuroCo brings deep design expertise and manufacturing
capabilities in high growth neurovascular catheters used primarily
in the treatment of ischemic stroke and intracranial
aneurysms.
- $42 million purchase price plus additional consideration
contingent on achieving specific revenue targets through 2027.
- The acquisition structure provides tax deductions that are
expected to offset cash taxes by approximately $5 million, net
present value, over the next 15 years.
- InNeuroCo 2023 sales estimated to be approximately $25 million
with accretive margin profile. Integer’s fourth quarter 2023
outlook includes $5 million sales and $1 million adjusted operating
income from InNeuroCo.
“Integer delivered another strong quarter with organic sales up
18% and adjusted operating income growth of 39%, more than twice
the sales growth rate,” said Joseph Dziedzic, Integer’s president
and CEO. “As we continue to see strong customer demand across our
targeted growth markets, we are increasing our full year sales
outlook to 15% growth at the midpoint. Additionally, we are raising
our adjusted operating income outlook to 25% growth at midpoint. As
part of our growth strategy, we completed the tuck-in acquisition
of InNeuroCo on October 1st to further strengthen our neurovascular
catheter capabilities.”
Discussion of Product Line
Third Quarter
2023 Sales
- Cardio & Vascular sales increased 23% in the third quarter
2023 compared to the third quarter 2022, driven by continued strong
demand across all markets, growth in key products such as
guidewires, new product ramps in electrophysiology and structural
heart, and supply chain improvements.
- Cardiac Rhythm Management & Neuromodulation sales increased
22% in the third quarter 2023 compared to the third quarter 2022,
with double-digit growth in both CRM and Neuromodulation, driven by
strong demand, including double-digit growth from emerging
customers with PMA (pre-market approval) products, and supply chain
improvements.
- Advanced Surgical, Orthopedics & Portable Medical sales
declined 13% in the third quarter 2023 compared to the third
quarter 2022, driven by execution of the planned multi-year
Portable Medical exit announced in 2022, and low double-digit
decline of Advanced Surgical and Orthopedics.
- Electrochem sales decreased 25% in the third quarter 2023
compared to the third quarter 2022, returning to a normalized
run-rate after previously higher sales from the supply chain
recovery.
2023
Outlook(a)(dollars in millions, except
per share amounts) |
|
|
|
GAAP |
|
Non-GAAP(b) |
|
|
As Reported |
|
Change from Prior Year |
|
Adjusted |
|
Change from Prior Year |
Sales |
|
$1,575 to $1,595 |
|
14% to 16% |
|
N/A |
|
N/A |
Operating income |
|
$166 to $174 |
|
36% to 43% |
|
$235 to $243 |
|
22% to 27% |
EBITDA |
|
N/A |
|
N/A |
|
$302 to $310 |
|
18% to 21% |
Net income |
|
$90 to $96 |
|
37% to 48% |
|
$151 to $157 |
|
16% to 22% |
Diluted earnings per
share |
|
$2.66 to $2.86 |
|
36% to 46% |
|
$4.47 to $4.67 |
|
15% to 20% |
Cash flow from operating
activities |
|
$185 to $205 |
|
59% to 76% |
|
N/A |
|
N/A |
(a) |
Except as described below, further reconciliations by line item to
the closest corresponding GAAP financial measure for Adjusted
operating income, Adjusted EBITDA, Adjusted net income and Adjusted
Earnings per Share (“EPS”) included in our “2023 Outlook” above,
and Adjusted total interest expense, Adjusted effective tax rate
and Leverage ratio in “Supplemental Financial Information” below,
are not available without unreasonable efforts on a forward-looking
basis due to the high variability, complexity and visibility of the
charges excluded from these non-GAAP financial measures. |
|
|
(b) |
Adjusted operating income for 2023 consists of GAAP operating
income, excluding items such as amortization of intangible assets,
restructuring and restructuring-related charges, and acquisition
and integration costs, totaling approximately $70 million, pre-tax.
Adjusted net income and Adjusted EPS for 2023 consist of GAAP net
income and diluted EPS, excluding items such as amortization of
intangible assets, restructuring and restructuring-related charges,
acquisition and integration costs, and gain or loss on equity
investments totaling approximately $78 million, pre-tax. The
after-tax impact of these items is estimated to be approximately
$61 million, or approximately $1.81 per diluted share. |
|
|
|
Adjusted EBITDA is expected to consist of Adjusted net income,
excluding items such as depreciation, interest, stock-based
compensation and taxes totaling approximately $151 million to $153
million. |
|
|
Supplemental Financial Information
(dollars in millions) |
2023Outlook |
|
2022Actual |
Depreciation and
amortization |
$98 to $102 |
|
$92 |
Adjusted total interest
expense(a) |
$47 to $50 |
|
$39 |
Stock-based compensation |
$22 to $23 |
|
$21 |
Restructuring, acquisition and
other charges(b) |
$15 to $18 |
|
$22 |
Adjusted effective tax
rate(c) |
17.5% to 18.5% |
|
16.1% |
Leverage ratio(d) |
2.5x to 3.5x |
|
3.5x |
Capital expenditures(d) |
$100 to $120 |
|
$74 |
Cash income tax payments |
$29 to $33 |
|
$11 |
(a) |
Adjusted total interest expense refers to our expected full-year
GAAP total interest expense, expected to range from $52 million to
$55 million for 2023, adjusted to remove the full-year impact of
charges associated with the accelerated write-off of deferred
issuance costs and unamortized discounts (loss on extinguishment of
debt) included in GAAP total interest expense, if any. |
|
|
(b) |
Restructuring, acquisition and other charges consists of
restructuring and restructuring-related charges, acquisition and
integration costs, other general expenses, and incremental costs of
complying with the new European Union medical device
regulations. |
|
|
(c) |
Adjusted effective tax rate refers to our full-year GAAP effective
tax rate, expected to range from 15.0% to 16.0% for 2023, adjusted
to reflect the full-year impact of the items that are excluded in
providing adjusted net income and certain other identified
items. |
|
|
(d) |
Please see “Notes Regarding Non-GAAP Financial Information” for
additional information regarding leverage ratio and capital
expenditures. |
|
|
Summary
Financial Results(dollars in thousands, except per share
data) |
|
|
Three Months Ended |
|
Nine Months Ended |
|
September 29,2023 |
|
September 30,2022 |
|
QTD Change |
|
September 29,2023 |
|
September 30,2022 |
|
YTD Change |
Operating income |
$ |
48,075 |
|
$ |
29,258 |
|
64.3 |
% |
|
$ |
123,817 |
|
$ |
84,462 |
|
46.6 |
% |
Net income |
$ |
27,257 |
|
$ |
16,057 |
|
69.8 |
% |
|
$ |
64,293 |
|
$ |
48,260 |
|
33.2 |
% |
Diluted EPS |
$ |
0.81 |
|
$ |
0.48 |
|
68.8 |
% |
|
$ |
1.91 |
|
$ |
1.45 |
|
31.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(a) |
$ |
68,591 |
|
$ |
50,563 |
|
35.7 |
% |
|
$ |
191,762 |
|
$ |
148,428 |
|
29.2 |
% |
Adjusted
EBITDA(a) |
$ |
80,556 |
|
$ |
62,917 |
|
28.0 |
% |
|
$ |
223,201 |
|
$ |
183,019 |
|
22.0 |
% |
Adjusted operating
income(a) |
$ |
64,212 |
|
$ |
46,183 |
|
39.0 |
% |
|
$ |
173,898 |
|
$ |
134,667 |
|
29.1 |
% |
Adjusted net
income(a) |
$ |
42,971 |
|
$ |
31,788 |
|
35.2 |
% |
|
$ |
110,403 |
|
$ |
92,518 |
|
19.3 |
% |
Adjusted
EPS(a) |
$ |
1.27 |
|
$ |
0.95 |
|
33.7 |
% |
|
$ |
3.28 |
|
$ |
2.78 |
|
18.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
EBITDA, Adjusted EBITDA, Adjusted operating income, Adjusted net
income, and Adjusted EPS are non-GAAP financial measures. Please
see “Notes Regarding Non-GAAP Financial Information” for additional
information regarding our use of non-GAAP financial measures. Refer
to Tables A and B at the end of this release for reconciliations of
adjusted amounts to the closest corresponding GAAP financial
measures. |
|
|
Summary
Product Line Results(dollars in thousands) |
|
|
Three Months Ended |
|
September 29,2023 |
|
September 30,2022 |
|
QTD Change |
|
Organic Change(a) |
Medical Sales |
|
|
|
|
|
|
|
Cardio & Vascular |
$ |
214,003 |
|
$ |
174,131 |
|
22.9 |
% |
|
22.2 |
% |
Cardiac Rhythm Management & Neuromodulation |
|
159,221 |
|
|
130,631 |
|
21.9 |
% |
|
21.9 |
% |
Advanced Surgical, Orthopedics & Portable Medical |
|
22,678 |
|
|
26,150 |
|
(13.3 |
)% |
|
(13.3 |
)% |
Total Medical Sales |
|
395,902 |
|
|
330,912 |
|
19.6 |
% |
|
19.3 |
% |
Non-Medical Sales |
|
8,791 |
|
|
11,768 |
|
(25.3 |
)% |
|
(25.3 |
)% |
Total Sales |
$ |
404,693 |
|
$ |
342,680 |
|
18.1 |
% |
|
17.8 |
% |
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
September 29,2023 |
|
September 30,2022 |
|
YTD Change |
|
Organic Change(a) |
Medical Sales |
|
|
|
|
|
|
|
Cardio & Vascular |
$ |
613,700 |
|
$ |
513,772 |
|
19.4 |
% |
|
18.4 |
% |
Cardiac Rhythm Management & Neuromodulation |
|
457,771 |
|
|
389,900 |
|
17.4 |
% |
|
17.4 |
% |
Advanced Surgical, Orthopedics & Portable Medical |
|
77,808 |
|
|
69,101 |
|
12.6 |
% |
|
12.6 |
% |
Total Medical Sales |
|
1,149,279 |
|
|
972,773 |
|
18.1 |
% |
|
17.6 |
% |
Non-Medical Sales |
|
34,243 |
|
|
30,900 |
|
10.8 |
% |
|
10.8 |
% |
Total Sales |
$ |
1,183,522 |
|
$ |
1,003,673 |
|
17.9 |
% |
|
17.4 |
% |
|
(a) |
Organic sales change is a non-GAAP financial measure. Please see
“Notes Regarding Non-GAAP Financial Information” for additional
information regarding our use of non-GAAP financial measures and
refer to Table D at the end of this release for a reconciliation of
these amounts. |
|
|
Conference Call Information
The Company will host a conference call on Thursday,
October 26, 2023, at 8 a.m. CT / 9 a.m. ET to discuss these
results. The scheduled conference call will be webcast live and is
accessible through our website at investor.integer.net or by
dialing (888) 330-3567 (U.S.) or (646) 960-0842 (outside U.S.) and
the conference ID is 9252310. The call will be archived on the
Company’s website. An earnings call slide presentation containing
supplemental information about the Company’s results will be posted
to our website at investor.integer.net prior to the conference call
and will be referenced during the conference call.
From time to time, the Company posts information that may be of
interest to investors on its website at investor.integer.net. To
automatically receive Integer financial news by email, please visit
investor.integer.net and subscribe to email alerts.
About
Integer®
Integer Holdings Corporation (NYSE: ITGR) is one of the
largest medical device outsource (MDO) manufacturers in the world
serving the cardiac, neuromodulation, vascular, portable medical
and orthopedics markets. The Company provides innovative,
high-quality medical technologies that enhance the lives of
patients worldwide. In addition, the Company develops batteries for
high-end niche applications in energy, military, and environmental
markets. The Company's brands include Greatbatch
Medical®, Lake Region Medical®
and Electrochem®. Additional information is
available at www.integer.net.
Investor Relations:
Andrew
Senn763.951.8312andrew.senn@integer.net
Notes Regarding Non-GAAP Financial
Information
In addition to our results reported in accordance with generally
accepted accounting principles in the United States of America
(“GAAP”), we provide adjusted net income, adjusted EPS, earnings
before interest, taxes, depreciation and amortization (“EBITDA”),
adjusted EBITDA, adjusted operating income, and organic sales
change rates.
Adjusted net income and adjusted EPS consist of GAAP amounts
adjusted for the following to the extent occurring during the
period: (i) amortization of intangible assets, (ii) certain legal
expenses, (iii) restructuring and restructuring-related charges;
(iv) acquisition and integration related costs; (v) other general
expenses; (vi) (gain) loss on equity investments; (vii)
extinguishment of debt charges; (viii) European Union medical
device regulation incremental charges, (ix) inventory step-up
amortization; (x) unusual, or infrequently occurring items; (xi)
the income tax provision (benefit) related to these adjustments and
(xii) certain tax items that are outside the normal tax provision
for the period. Adjusted EPS is calculated by dividing adjusted net
income by diluted weighted average shares outstanding.
EBITDA is calculated by adding back interest expense, provision
(benefit) for income taxes, depreciation expense, and amortization
expense from intangible assets and financing leases, to net income,
which is the most directly comparable GAAP financial measure.
Adjusted EBITDA consists of EBITDA plus adding back stock-based
compensation and the same adjustments as listed above except for
items (i), (vii), (xi) and (xii). Adjusted operating income
consists of operating income adjusted for the same items listed
above except for items (vi), (vii), (xi) and (xii).
Organic sales change is reported sales growth adjusted for the
impact of foreign currency and the contribution of acquisitions. To
calculate the impact of foreign currency on sales growth rates, we
convert any sale made in a foreign currency by converting current
period sales into prior period sales using the exchange rate in
effect at that time and then compare the two, negating any effect
foreign currency had on our transactional revenue, and exclude the
amount of sales acquired or divested during the period from the
current/previous period amounts, respectively.
We believe that the presentation of adjusted net income,
adjusted EPS, EBITDA, adjusted EBITDA, adjusted operating income,
and organic sales change rates, provides important supplemental
information to management and investors seeking to understand the
financial and business trends relating to our financial condition
and results of operations. In addition to the performance measures
identified above, we believe that net total debt and leverage ratio
provide meaningful measures of liquidity and a useful basis for
assessing our ability to fund our activities, including the
financing of acquisitions and debt repayments. Net total debt is
calculated as total principal amount of debt outstanding less cash
and cash equivalents. We calculate leverage ratio as net total debt
divided by adjusted EBITDA for the trailing 4 quarters. Free cash
flow is defined as Net cash provided by operating activities (as
stated in our Condensed Consolidated Statements of Cash Flows)
reduced by capital expenditures (acquisition of property, plant,
and equipment (PP&E), net of proceeds from the sale of
PP&E).
Forward-Looking Statements
Some of the statements contained in this press release are
“forward-looking statements” within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended, including 2023
financial results and guidance; statements relating to future
sales, expenses, and profitability; customer demand; supplier
performance (including delivery delays); costs (including wages,
staffing levels and freight); future development and expected
growth of our business and industry, including expansion of our
manufacturing capacity; our ability to execute our business model
and our business strategy, including completion and integration of
current or future acquisition targets; having available sufficient
cash and borrowing capacity to meet working capital, debt service
and capital expenditure requirements for the next twelve months;
projected capital spending; and other events, conditions or
developments that will or may occur in the future. You can identify
forward-looking statements by terminology such as “outlook,”
“projected,” “may,” “will,” “should,” “could,” “expect,” “intends,”
“plans,” “anticipates,” “believes,” “estimates,” “predicts,”
“potential,” “project,” or “continue” or variations or the negative
of these terms or other comparable terminology. These statements
are only predictions. Actual events or results may differ
materially from those stated or implied by these forward-looking
statements. In evaluating these statements and our prospects, you
should carefully consider the factors set forth below.
Although it is not possible to create a comprehensive list of
all factors that may cause actual results to differ from the
results expressed or implied by our forward-looking statements or
that may affect our future results, some of these factors and other
risks and uncertainties that arise from time to time are described
in Item 1A “Risk Factors” of our Annual Report on Form 10-K and in
our other periodic filings with the SEC and include the
following:
- operational risks, such as the
duration, scope and impact of global supply chain issues and the
military conflicts between Russia and Ukraine and between Israel
and Hamas, including the evolving economic, social and governmental
environments and their effects on our associates, suppliers and
customers as well as the global economy; our dependence upon a
limited number of customers; pricing pressures that we face from
customers; our reliance on third party suppliers for raw materials,
key products and subcomponents; the competitive labor market and
our ability to attract, train and retain a sufficient number of
qualified associates; the potential for harm to our reputation
caused by quality problems related to our products; the dependence
of our energy market-related revenues on the conditions in the oil
and natural gas industry; interruptions in our manufacturing
operations; our dependence upon our information technology systems
and our ability to prevent cyber-attacks and other failures; and
our dependence upon our senior management team and technical
personnel;
- strategic risks, such as the intense
competition we face and our ability to successfully market our
products; our ability to respond to changes in technology; our
ability to develop new products and expand into new geographic and
product markets; and our ability to successfully identify, make and
integrate acquisitions to expand and develop our business in
accordance with expectations;
- financial risks, such as our
significant amount of outstanding indebtedness and our ability to
remain in compliance with financial and other covenants under our
senior secured credit facilities; economic and credit market
uncertainties that could interrupt our access to capital markets,
borrowings or financial transactions; financial and market risks
related to our international operations and sales; our complex
international tax profile; and our ability to realize the full
value of our intangible assets; and
- legal and compliance risks, such as regulatory issues resulting
from product complaints, recalls or regulatory audits; the
potential of becoming subject to product liability or intellectual
property claims; our ability to protect our intellectual property
and proprietary rights; our ability and the cost to comply with
environmental regulations; our ability to comply with
customer-driven policies and third party standards or certification
requirements; our ability to obtain necessary licenses for new
technologies; legal and regulatory risks from our international
operations, including trade regulation; and the fact that the
healthcare industry is highly regulated and subject to various
regulatory changes.
Except as may be required by law, we assume no obligation to
update forward-looking statements in this press release whether to
reflect changed assumptions, the occurrence of unanticipated events
or changes in future operating results, financial conditions or
prospects, or otherwise.
Condensed
Consolidated Balance Sheets - Unaudited |
(in
thousands) |
|
|
|
September 29, 2023 |
|
December 31, 2022 |
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
32,142 |
|
|
$ |
24,272 |
Accounts receivable, net |
|
226,327 |
|
|
|
224,325 |
Inventories |
|
232,158 |
|
|
|
208,766 |
Refundable income taxes |
|
4,832 |
|
|
|
2,003 |
Contract assets |
|
86,637 |
|
|
|
71,927 |
Prepaid expenses and other current assets |
|
27,248 |
|
|
|
27,005 |
Total current assets |
|
609,344 |
|
|
|
558,298 |
Property, plant and equipment,
net |
|
364,283 |
|
|
|
317,243 |
Goodwill |
|
979,886 |
|
|
|
982,192 |
Other intangible assets,
net |
|
779,115 |
|
|
|
819,889 |
Deferred income taxes |
|
6,398 |
|
|
|
6,247 |
Operating lease assets |
|
67,418 |
|
|
|
74,809 |
Financing lease assets |
|
8,352 |
|
|
|
8,852 |
Other long-term assets |
|
24,553 |
|
|
|
26,856 |
Total assets |
$ |
2,839,349 |
|
|
$ |
2,794,386 |
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
Current liabilities: |
|
|
|
Current portion of long-term debt |
$ |
— |
|
|
$ |
18,188 |
Accounts payable |
|
108,351 |
|
|
|
110,780 |
Income taxes payable |
|
2,282 |
|
|
|
10,923 |
Operating lease liabilities |
|
9,977 |
|
|
|
10,362 |
Accrued expenses and other current liabilities |
|
82,491 |
|
|
|
73,499 |
Total current liabilities |
|
203,101 |
|
|
|
223,752 |
Long-term debt |
|
941,383 |
|
|
|
907,073 |
Deferred income taxes |
|
151,386 |
|
|
|
160,671 |
Operating lease
liabilities |
|
57,325 |
|
|
|
64,049 |
Financing lease
liabilities |
|
7,488 |
|
|
|
8,006 |
Other long-term
liabilities |
|
15,317 |
|
|
|
13,379 |
Total liabilities |
|
1,376,000 |
|
|
|
1,376,930 |
Stockholders’ equity: |
|
|
|
Common stock |
|
33 |
|
|
|
33 |
Additional paid-in capital |
|
721,283 |
|
|
|
731,393 |
Retained earnings |
|
744,994 |
|
|
|
680,701 |
Accumulated other comprehensive income |
|
(2,961 |
) |
|
|
5,329 |
Total stockholders’ equity |
|
1,463,349 |
|
|
|
1,417,456 |
Total liabilities and stockholders’ equity |
$ |
2,839,349 |
|
|
$ |
2,794,386 |
|
Condensed
Consolidated Statements of Operations - Unaudited |
|
|
|
|
(in thousands, except per
share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
September 29,2023 |
|
September 30,2022 |
|
September 29,2023 |
|
September 30,2022 |
Sales |
$ |
404,693 |
|
$ |
342,680 |
|
|
$ |
1,183,522 |
|
$ |
1,003,673 |
|
Cost of sales (COS) |
|
299,137 |
|
|
255,962 |
|
|
|
875,489 |
|
|
742,583 |
|
Gross profit |
|
105,556 |
|
|
86,718 |
|
|
|
308,033 |
|
|
261,090 |
|
Operating expenses: |
|
|
|
|
|
|
|
Selling, general and administrative (SG&A) |
|
42,102 |
|
|
38,195 |
|
|
|
129,815 |
|
|
119,541 |
|
Research, development and engineering (RD&E) |
|
14,539 |
|
|
16,123 |
|
|
|
50,514 |
|
|
47,077 |
|
Restructuring and other charges (R&O) |
|
840 |
|
|
3,142 |
|
|
|
3,887 |
|
|
10,010 |
|
Total operating expenses |
|
57,481 |
|
|
57,460 |
|
|
|
184,216 |
|
|
176,628 |
|
Operating income |
|
48,075 |
|
|
29,258 |
|
|
|
123,817 |
|
|
84,462 |
|
Interest expense |
|
11,967 |
|
|
10,676 |
|
|
|
40,680 |
|
|
24,417 |
|
Loss on equity
investments |
|
3,451 |
|
|
2,887 |
|
|
|
3,472 |
|
|
5,611 |
|
Other (gain) loss, net |
|
580 |
|
|
(1,300 |
) |
|
|
1,699 |
|
|
(932 |
) |
Income before taxes |
|
32,077 |
|
|
16,995 |
|
|
|
77,966 |
|
|
55,366 |
|
Provision for income
taxes |
|
4,820 |
|
|
938 |
|
|
|
13,673 |
|
|
7,106 |
|
Net income |
$ |
27,257 |
|
$ |
16,057 |
|
|
$ |
64,293 |
|
$ |
48,260 |
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
Basic |
$ |
0.82 |
|
$ |
0.48 |
|
|
$ |
1.93 |
|
$ |
1.46 |
|
Diluted |
$ |
0.81 |
|
$ |
0.48 |
|
|
$ |
1.91 |
|
$ |
1.45 |
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding: |
|
|
|
|
|
|
|
Basic |
|
33,346 |
|
|
33,145 |
|
|
|
33,305 |
|
|
33,116 |
|
Diluted |
|
33,774 |
|
|
33,336 |
|
|
|
33,679 |
|
|
33,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows - Unaudited |
(in
thousands) |
|
|
|
Nine Months Ended |
|
September 29,2023 |
|
September 30,2022 |
Cash flows from
operating activities: |
|
|
|
Net income |
$ |
64,293 |
|
|
$ |
48,260 |
|
Adjustments to reconcile net
income to net cash provided by operating activities: |
|
|
|
Depreciation and amortization |
|
73,116 |
|
|
|
68,645 |
|
Debt related charges included in interest expense |
|
7,126 |
|
|
|
1,445 |
|
Inventory step-up amortization |
|
— |
|
|
|
798 |
|
Stock-based compensation |
|
17,099 |
|
|
|
15,973 |
|
Non-cash lease expense |
|
8,124 |
|
|
|
8,179 |
|
Non-cash loss on equity investments |
|
3,472 |
|
|
|
5,611 |
|
Contingent consideration fair value adjustment |
|
(526 |
) |
|
|
— |
|
Other non-cash (gains) losses |
|
(734 |
) |
|
|
3,373 |
|
Deferred income taxes |
|
(5 |
) |
|
|
(969 |
) |
Changes in operating assets
and liabilities, net of acquisition: |
|
|
|
Accounts receivable |
|
(58 |
) |
|
|
(33,496 |
) |
Inventories |
|
(25,785 |
) |
|
|
(59,036 |
) |
Prepaid expenses and other assets |
|
(1,473 |
) |
|
|
(1,255 |
) |
Contract assets |
|
(14,863 |
) |
|
|
(7,698 |
) |
Accounts payable |
|
(869 |
) |
|
|
25,524 |
|
Accrued expenses and other liabilities |
|
7,401 |
|
|
|
(6,012 |
) |
Income taxes payable |
|
(11,692 |
) |
|
|
(4,563 |
) |
Net cash provided by operating activities |
|
124,626 |
|
|
|
64,779 |
|
Cash flows from
investing activities: |
|
|
|
Acquisition of property, plant
and equipment |
|
(82,885 |
) |
|
|
(43,098 |
) |
Proceeds from sale of
property, plant and equipment |
|
100 |
|
|
|
636 |
|
Acquisitions, net |
|
— |
|
|
|
(126,636 |
) |
Net cash used in investing activities |
|
(82,785 |
) |
|
|
(169,098 |
) |
Cash flows from
financing activities: |
|
|
|
Principal payments of term
loans |
|
(415,938 |
) |
|
|
(11,437 |
) |
Proceeds from issuance of
convertible notes, net of discount |
|
486,250 |
|
|
|
— |
|
Proceeds from revolving credit
facility |
|
294,603 |
|
|
|
160,000 |
|
Payments of revolving credit
facility |
|
(353,993 |
) |
|
|
(39,000 |
) |
Purchase of capped calls |
|
(35,000 |
) |
|
|
— |
|
Payment of debt issuance
costs |
|
(2,181 |
) |
|
|
— |
|
Proceeds from the exercise of
stock options |
|
2,303 |
|
|
|
— |
|
Tax withholdings related to
net share settlements of restricted stock unit awards |
|
(3,067 |
) |
|
|
(2,073 |
) |
Contingent consideration
payments |
|
(7,660 |
) |
|
|
(493 |
) |
Principal payments on finance
leases |
|
(854 |
) |
|
|
(585 |
) |
Net cash (used in) provided by financing activities |
|
(35,537 |
) |
|
|
106,412 |
|
Effect of foreign currency
exchange rates on cash and cash equivalents |
|
1,566 |
|
|
|
209 |
|
Net increase in cash and cash
equivalents |
|
7,870 |
|
|
|
2,302 |
|
Cash and cash equivalents,
beginning of period |
|
24,272 |
|
|
|
17,885 |
|
Cash and cash equivalents, end
of period |
$ |
32,142 |
|
|
$ |
20,187 |
|
|
Table A:
Net Income and Diluted EPS Reconciliations(in thousands,
except per share amounts) |
|
|
Three Months Ended |
|
September 29, 2023 |
|
September 30, 2022 |
|
Pre-Tax |
|
Net of Tax |
|
PerDilutedShare |
|
Pre-Tax |
|
Net of Tax |
|
PerDilutedShare |
Net income (GAAP) |
$ |
32,077 |
|
$ |
27,257 |
|
$ |
0.81 |
|
$ |
16,995 |
|
|
$ |
16,057 |
|
|
$ |
0.48 |
Adjustments(a): |
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets |
|
13,105 |
|
|
10,358 |
|
|
0.31 |
|
|
12,126 |
|
|
|
9,583 |
|
|
|
0.29 |
Restructuring and restructuring-related charges(b) |
|
703 |
|
|
628 |
|
|
0.02 |
|
|
3,258 |
|
|
|
2,529 |
|
|
|
0.08 |
Acquisition and integration costs(c) |
|
777 |
|
|
580 |
|
|
0.02 |
|
|
597 |
|
|
|
505 |
|
|
|
0.02 |
Other general expenses(d) |
|
28 |
|
|
28 |
|
|
— |
|
|
626 |
|
|
|
465 |
|
|
|
0.01 |
Loss on equity investments(e) |
|
3,451 |
|
|
2,726 |
|
|
0.08 |
|
|
2,887 |
|
|
|
2,281 |
|
|
|
0.07 |
Loss on extinguishment of debt(f) |
|
87 |
|
|
68 |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
Medical device regulations(g) |
|
205 |
|
|
164 |
|
|
— |
|
|
320 |
|
|
|
254 |
|
|
|
0.01 |
Other adjustments(h) |
|
1,319 |
|
|
1,042 |
|
|
0.03 |
|
|
(2 |
) |
|
|
(1 |
) |
|
|
— |
Tax adjustments(i) |
|
— |
|
|
120 |
|
|
— |
|
|
— |
|
|
|
115 |
|
|
|
— |
Adjusted net income
(non-GAAP) |
$ |
51,752 |
|
$ |
42,971 |
|
|
1.27 |
|
$ |
36,807 |
|
|
$ |
31,788 |
|
|
|
0.95 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for
adjusted diluted EPS |
|
|
|
33,774 |
|
|
|
|
|
|
33,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
September 29, 2023 |
|
September 30, 2022 |
|
Pre-Tax |
|
Net of Tax |
|
PerDilutedShare |
|
Pre-Tax |
|
Net of Tax |
|
PerDilutedShare |
Net income (GAAP) |
$ |
77,966 |
|
$ |
64,293 |
|
$ |
1.91 |
|
$ |
55,366 |
|
|
$ |
48,260 |
|
|
$ |
1.45 |
Adjustments(a): |
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets |
|
39,136 |
|
|
30,934 |
|
|
0.92 |
|
|
36,015 |
|
|
|
28,465 |
|
|
|
0.85 |
Restructuring and restructuring-related charges(b) |
|
5,624 |
|
|
4,485 |
|
|
0.13 |
|
|
5,895 |
|
|
|
4,604 |
|
|
|
0.14 |
Acquisition and integration costs(c) |
|
1,715 |
|
|
1,282 |
|
|
0.04 |
|
|
5,866 |
|
|
|
4,654 |
|
|
|
0.14 |
Other general expenses(d) |
|
137 |
|
|
107 |
|
|
— |
|
|
1,127 |
|
|
|
861 |
|
|
|
0.03 |
Loss on equity investments(e) |
|
3,472 |
|
|
2,743 |
|
|
0.08 |
|
|
5,611 |
|
|
|
4,433 |
|
|
|
0.13 |
Loss on extinguishment of debt(f) |
|
4,518 |
|
|
3,569 |
|
|
0.11 |
|
|
— |
|
|
|
— |
|
|
|
— |
Medical device regulations(g) |
|
1,241 |
|
|
981 |
|
|
0.03 |
|
|
612 |
|
|
|
484 |
|
|
|
0.01 |
Other adjustments(h) |
|
2,228 |
|
|
1,760 |
|
|
0.05 |
|
|
(108 |
) |
|
|
(84 |
) |
|
|
— |
Inventory step-up amortization (COS)(j) |
|
— |
|
|
— |
|
|
— |
|
|
798 |
|
|
|
630 |
|
|
|
0.02 |
Tax adjustments(i) |
|
— |
|
|
249 |
|
|
0.01 |
|
|
— |
|
|
|
211 |
|
|
|
0.01 |
Adjusted net income
(Non-GAAP) |
$ |
136,037 |
|
$ |
110,403 |
|
$ |
3.28 |
|
$ |
111,182 |
|
|
$ |
92,518 |
|
|
$ |
2.78 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for
adjusted diluted EPS |
|
|
|
33,679 |
|
|
|
|
|
|
33,329 |
|
|
|
(a) |
The difference between pre-tax and net of tax amounts is the
estimated tax impact related to the respective adjustment. Net of
tax amounts are computed using a 21% U.S. tax rate, and the
statutory tax rates applicable in foreign tax jurisdictions, as
adjusted for the existence of net operating losses (“NOLs”).
Expenses that are not deductible for tax purposes (i.e. permanent
tax differences) are added back at 100%. |
|
|
(b) |
We initiate discrete restructuring programs primarily to realign
resources to better serve our customers and markets, improve
operational efficiency and capabilities, and lower operating costs
or improve profitability. Depending on the program, restructuring
charges may include termination benefits, contract termination,
facility closure and other exit and disposal costs.
Restructuring-related expenses are directly related to the program
and may include retention bonuses, accelerated depreciation,
consulting expense and costs to transfer manufacturing operations
among our facilities. |
|
|
(c) |
Acquisition and integration costs are incremental costs that are
directly related to a business or asset acquisition. These costs
may include, among other things, professional, consulting and other
fees, system integration costs, and fair value adjustments relating
to contingent consideration. |
|
|
(d) |
Other general expenses are discrete transactions occurring
sporadically and affect period-over-period comparisons. The
expenses for the 2023 and 2022 periods primarily include severance,
information technology systems conversion expenses, and expenses
related to the restructuring of certain legal entities of the
company. |
|
|
(e) |
During the third quarter of 2023, we determined that an investment
in one of our non-marketable equity securities was impaired and
recorded an impairment charge of $3.3 million. The residual
amounts for 2023 and 2022 relate to our share of equity method
investee losses including unrealized appreciation/depreciation of
the underlying interests of the investee. |
|
|
(f) |
Loss on extinguishment of debt consists of accelerated write-offs
of unamortized deferred debt issuance costs and discounts which are
included in interest expense. The 2023 amounts represent a
write-off of unamortized deferred debt issuance costs and discounts
in connection with the amendments to the credit agreement governing
our credit facilities, prepayments of portions of the Term Loan A
facility, and repayment in full of our Term B Loan Facility. |
|
|
(g) |
The charges represent incremental costs of complying with the new
European Union medical device regulations for previously registered
products and primarily include charges for contractors supporting
the project and other direct third-party expenses. |
|
|
(h) |
For the 2023 periods, amounts relate to costs associated with
leadership transitions and certain formal strategic projects.
Leadership transition costs primarily include severance costs
associated with the departure of executives and incremental costs
associated with the related leadership transitions. Strategic
projects primarily involve system reconfiguration to support our
manufacturing excellence operational strategic imperative and
investments in certain technology and platform development to align
our capabilities to meet customer needs. Other adjustments for the
three and nine months ended September 29, 2023 included pre-tax
leadership transition costs of $0.3 million and $1.2 million,
respectively, and pre-tax costs related to strategic projects of
$1.0 million and $1.1 million, respectively. The 2022 amounts
relate to a former customer that filed bankruptcy in November 2019
and are predominantly due to favorable settlements on supplier
purchase order termination clauses and benefits recognized from the
utilization or sale of previously reserved inventory. |
|
|
(i) |
For the 2023 and 2022 periods, tax adjustments predominately relate
to acquired foreign tax credits, including utilization, changes to
uncertain tax benefits and associated interest. For the 2022
periods, tax adjustments also include acquisition costs that are
not deductible for tax purposes. |
|
|
(j) |
The accounting associated with our acquisitions require us to
record inventory at its fair value, which is sometimes greater than
the previous book value of inventory. The increase in inventory
value is amortized to cost of sales over the period that the
related inventory is sold. We exclude inventory step-up
amortization from our non-GAAP financial measures because it is a
non-cash expense that we do not believe is indicative of our
ongoing operating results. |
|
|
Please see “Notes Regarding Non-GAAP Financial
Information” for additional information regarding our use of
non-GAAP financial measures.
Table B:
Adjusted Operating Income Reconciliations(in
thousands) |
|
|
Three Months Ended |
|
Nine Months Ended |
|
September 29,2023 |
|
September 30,2022 |
|
September 29,2023 |
|
September 30,2022 |
Operating income (GAAP) |
$ |
48,075 |
|
$ |
29,258 |
|
|
$ |
123,817 |
|
$ |
84,462 |
|
Adjustments: |
|
|
|
|
|
|
|
Amortization of intangible assets |
|
13,105 |
|
|
12,126 |
|
|
|
39,136 |
|
|
36,015 |
|
Restructuring and restructuring-related charges |
|
703 |
|
|
3,258 |
|
|
|
5,624 |
|
|
5,895 |
|
Acquisition and integration costs |
|
777 |
|
|
597 |
|
|
|
1,715 |
|
|
5,866 |
|
Other general expenses |
|
28 |
|
|
626 |
|
|
|
137 |
|
|
1,127 |
|
Medical device regulations |
|
205 |
|
|
320 |
|
|
|
1,241 |
|
|
612 |
|
Other adjustments |
|
1,319 |
|
|
(2 |
) |
|
|
2,228 |
|
|
(108 |
) |
Inventory step-up amortization |
|
— |
|
|
— |
|
|
|
— |
|
|
798 |
|
Adjusted operating income
(non-GAAP) |
$ |
64,212 |
|
$ |
46,183 |
|
|
$ |
173,898 |
|
$ |
134,667 |
|
|
Table C:
EBITDA Reconciliations(in thousands) |
|
|
Three Months Ended |
|
Nine Months Ended |
|
September 29,2023 |
|
September 30,2022 |
|
September 29,2023 |
|
September 30,2022 |
Net income (GAAP) |
$ |
27,257 |
|
$ |
16,057 |
|
|
$ |
64,293 |
|
$ |
48,260 |
|
|
|
|
|
|
|
|
|
Interest expense |
|
11,967 |
|
|
10,676 |
|
|
|
40,680 |
|
|
24,417 |
|
Provision for income
taxes |
|
4,820 |
|
|
938 |
|
|
|
13,673 |
|
|
7,106 |
|
Depreciation |
|
11,100 |
|
|
10,479 |
|
|
|
32,982 |
|
|
31,881 |
|
Amortization of intangible
assets and financing leases |
|
13,447 |
|
|
12,413 |
|
|
|
40,134 |
|
|
36,764 |
|
EBITDA (non-GAAP) |
|
68,591 |
|
|
50,563 |
|
|
|
191,762 |
|
|
148,428 |
|
Stock-based
compensation(a) |
|
5,482 |
|
|
4,668 |
|
|
|
17,022 |
|
|
14,790 |
|
Restructuring and
restructuring-related charges |
|
703 |
|
|
3,258 |
|
|
|
5,624 |
|
|
5,895 |
|
Acquisition and integration
costs |
|
777 |
|
|
597 |
|
|
|
1,715 |
|
|
5,866 |
|
Other general expenses |
|
28 |
|
|
626 |
|
|
|
137 |
|
|
1,127 |
|
Loss on equity
investments |
|
3,451 |
|
|
2,887 |
|
|
|
3,472 |
|
|
5,611 |
|
Medical device
regulations |
|
205 |
|
|
320 |
|
|
|
1,241 |
|
|
612 |
|
Other adjustments |
|
1,319 |
|
|
(2 |
) |
|
|
2,228 |
|
|
(108 |
) |
Inventory step-up
amortization |
|
— |
|
|
— |
|
|
|
— |
|
|
798 |
|
Adjusted EBITDA
(non-GAAP) |
$ |
80,556 |
|
$ |
62,917 |
|
|
$ |
223,201 |
|
$ |
183,019 |
|
|
(a) |
Total stock-based compensation expense less amounts included in
Restructuring and restructuring-related charges and Acquisition and
integration costs. |
|
|
Table D:
Organic Sales Change Reconciliation (% Change) |
|
|
GAAP Reported Growth |
|
Impact of Acquisitions and Foreign
Currency(a) |
|
Non-GAAP Organic Change |
QTD Change
(3Q 2023 vs. 3Q
2022) |
|
|
|
|
|
Medical Sales |
|
|
|
|
|
Cardio & Vascular |
22.9% |
|
0.7% |
|
22.2% |
Cardiac Rhythm Management & Neuromodulation |
21.9% |
|
—% |
|
21.9% |
Advanced Surgical, Orthopedics & Portable Medical |
(13.3)% |
|
—% |
|
(13.3)% |
Total Medical Sales |
19.6% |
|
0.3% |
|
19.3% |
Non-Medical Sales |
(25.3)% |
|
—% |
|
(25.3)% |
Total Sales |
18.1% |
|
0.3% |
|
17.8% |
|
|
|
|
|
|
YTD Change
(9M 2023 vs. 9M
2022) |
|
|
|
|
|
Medical Sales |
|
|
|
|
|
Cardio & Vascular |
19.4% |
|
1.0% |
|
18.4% |
Cardiac Rhythm Management & Neuromodulation |
17.4% |
|
—% |
|
17.4% |
Advanced Surgical, Orthopedics & Portable Medical |
12.6% |
|
—% |
|
12.6% |
Total Medical Sales |
18.1% |
|
0.5% |
|
17.6% |
Non-Medical Sales |
10.8% |
|
—% |
|
10.8% |
Total Sales |
17.9% |
|
0.5% |
|
17.4% |
(a) |
Sales have been adjusted to exclude the impact of foreign currency
exchange rate fluctuations and acquisitions. |
|
|
Table E:
Net Total Debt Reconciliation(in thousands) |
|
|
September 29,2023 |
|
December 31,2022 |
Total debt |
$ |
941,383 |
|
$ |
925,261 |
Add: Unamortized discount and
deferred debt issuance costs included above |
|
14,864 |
|
|
5,977 |
Total principal amount of debt
outstanding |
|
956,247 |
|
|
931,238 |
Less: Cash and cash
equivalents |
|
32,142 |
|
|
24,272 |
Net Total Debt (non-GAAP) |
$ |
924,105 |
|
$ |
906,966 |
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