Integer Holdings Corporation (NYSE:ITGR), a leading medical device
outsource manufacturer, today announced results for the fourth
quarter and fiscal year ended December 31, 2019. Unless
otherwise stated, all results and comparisons are from continuing
operations.
Fourth Quarter 2019 Highlights
- Sales increased 7% to $326 million.
- GAAP income decreased $8 million to $11 million, down
42%. Adjusted income increased $7 million to $41 million, up
20%.
- GAAP diluted EPS decreased $0.25 per share to $0.33 per share,
down 43%. Adjusted diluted EPS increased $0.21 per share to
$1.25 per share, up 20%.
- Adjusted EBITDA increased $6 million to $73 million, up
8%.
- Completed the bolt-on acquisition of certain assets of US
BioDesign, adding complex braiding capability to the Cardio &
Vascular portfolio.
- Paid down $14 million of debt, reducing total debt to $815
million.
Full Year 2019 Highlights
- Sales increased 4% to $1.258 billion.
- GAAP income increased $44 million to $91 million, up 94%.
Adjusted income increased $30 million to $154 million, up 24%.
- GAAP diluted EPS increased $1.32 per share to $2.76 per share,
up 92%. Adjusted diluted EPS increased $0.88 per share to
$4.68 per share, up 23%.
- Adjusted EBITDA increased $24 million to $284 million, up
9%.
- Generated $165 million of cash flow from operating
activities.
- Paid down $117 million of debt, resulting in a leverage ratio
of 2.9 times adjusted EBITDA at year-end versus 3.5 times at the
beginning of the year.
“Integer delivered strong earnings growth in 2019 as our
Manufacturing Excellence strategic imperative is delivering
operational and financial improvements. We exceeded our
original 2019 adjusted profit guidance as we continue to deliver on
our commitments to investors. We further strengthened our
leadership team to enable us to accelerate the execution of our
strategy and deliver for our customers,” said Joseph Dziedzic,
Integer’s president and chief executive officer. “Yesterday
we completed a bolt-on acquisition, which further strengthens our
R&D capabilities and expands our global footprint into Israel,
which is widely recognized as a leading innovation center.
Our 2020 financial guidance delivers on our commitment to grow
profit at least twice as fast as our sales growth rate, while
making investments to execute our remaining strategic financial
objective to deliver above market revenue growth.”
Discussion of Product Line Fourth
Quarter and Full Year Sales
- Cardio & Vascular sales increased 6% in the fourth quarter
led by a strong increase in peripheral vascular demand from a
customer launching an existing program into a new geography and
market growth. Incremental sales from the signing of a
customer contract on existing business fully offset the impact of
an end of life electrophysiology program. Full year sales
increased 4% with the strong growth of peripheral vascular and
structural heart, overcoming an approximate 200 basis point
headwind from the aforementioned end of life electrophysiology
program.
- Cardiac & Neuromodulation sales increased 10% in the fourth
quarter as new and next generation product launches, underlying
strength in existing cardiac rhythm management (“CRM”) programs,
and a new customer agreement on existing business was partially
offset by lost sales due to the impact of Nuvectra Chapter 11
bankruptcy filing. Full year sales increased 3% as CRM growth
was partially offset by slight neuromodulation decline.
Higher market demand and the new customer agreement on existing
business drove the CRM increase, whereas neuromodulation sales
declined as a result of the Nuvectra Chapter 11 bankruptcy filing
and market contraction.
- Advanced Surgical, Orthopedics & Portable Medical includes
sales to the acquirer of our AS&O product line, Viant, under
supply agreements associated with the divestiture. Fourth quarter
sales increased 7% driven by increased end-market demand for
advanced surgical and orthopedic products. Full year sales
decreased 1%.
- Electrochem sales increased 9% in the fourth quarter driven by
increased military market demand and growth in the energy
market. Full year sales increased 10% driven by strong demand
in the military market and high-single-digit growth with energy
customers.
2020 Outlook (adjusted
basis)
Our 2020 financial guidance delivers on our commitment to grow
profit at least twice as fast as our sales growth rate. Sales
growth in 2020 is projected to be 3% to 4%. This growth
includes approximately 2% year-over-year headwinds from the loss of
sales due to the impact of the Nuvectra Chapter 11 bankruptcy
filing and fewer days in our 2020 fiscal year versus 2019.
Adjusted income growth is projected to be even faster at 9% to 14%
from lower interest expense.
2020 Outlook(a)(dollars in millions, except per
share amounts)
|
|
GAAP |
|
Non-GAAP(b) |
|
|
As Reported |
|
Growth |
|
Adjusted |
|
Growth |
Sales |
|
$1,290 to $1,310 |
|
3% to 4% |
|
$1,290 to $1,310 |
|
3% to 4% |
Income |
|
$127 to $134 |
|
39% to 47% |
|
$169 to $176 |
|
9% to 14% |
EBITDA |
|
N/A |
|
N/A |
|
$300 to $307 |
|
6% to 8% |
Earnings per Diluted
Share |
|
$3.83 to $4.03 |
|
39% to 46% |
|
$5.10 to $5.30 |
|
9% to 13% |
(a) Except as described below, further
reconciliations by line item to the closest corresponding GAAP
financial measure for Adjusted Income, Adjusted EBITDA, and
Adjusted Earnings per Diluted Share (“EPS”), all from continuing
operations, included in our “2020 Outlook” above, 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 Income and Adjusted Diluted
EPS, both from continuing operations, for 2020 are expected to
consist of GAAP income from continuing operations and diluted EPS
from continuing operations, excluding items such as intangible
amortization, certain legal expenses, reorganization and
realignment costs, asset dispositions, severance, gains and losses
on equity investments and loss on extinguishment of debt totaling
approximately $52 million, pre-tax. The after-tax impact of these
items is estimated to be approximately $42 million, or
approximately $1.27 per diluted share.
Adjusted EBITDA from continuing operations is
expected to consist of Adjusted income from continuing operations,
excluding items such as depreciation, interest, stock-based
compensation and taxes totaling approximately $131 million.
Supplemental Financial Information
|
2020Outlook |
|
2019Actual |
|
Capital Expenditures, Net |
$60 - $70 |
|
$48 |
|
Depreciation and
Amortization |
$75 - $85 |
|
$78 |
|
Stock-Based Compensation |
$13 - $15 |
|
$9 |
|
Other Operating Expense |
$8 - $12 |
|
$12 |
|
Adjusted Effective Tax Rate |
16.5% - 18.5% |
|
17.3% |
|
Cash Tax Payments |
$30 - $35 |
|
$30 |
|
|
|
|
|
|
Summary of Financial and Product Line Results from
Continuing Operations(dollars in thousands, except per
share data)
|
Three Months Ended |
GAAP |
December 31, 2019 |
|
December 28, 2018 |
|
Change |
|
OrganicGrowth(a) |
Medical Sales |
|
|
|
|
|
|
|
Cardio & Vascular |
$ |
158,504 |
|
|
$ |
149,605 |
|
|
5.9 |
% |
|
5.6 |
% |
Cardiac & Neuromodulation |
119,262 |
|
|
108,876 |
|
|
9.5 |
% |
|
9.5 |
% |
Advanced Surgical, Orthopedics & Portable Medical |
33,885 |
|
|
31,744 |
|
|
6.7 |
% |
|
6.8 |
% |
Total Medical Sales |
311,651 |
|
|
290,225 |
|
|
7.4 |
% |
|
7.2 |
% |
Non-Medical Sales |
13,986 |
|
|
12,809 |
|
|
9.2 |
% |
|
9.2 |
% |
Total Sales |
$ |
325,637 |
|
|
$ |
303,034 |
|
|
7.5 |
% |
|
7.3 |
% |
|
|
|
|
|
|
|
|
Income from continuing
operations |
$ |
11,044 |
|
|
$ |
19,196 |
|
|
(42.5 |
)% |
|
|
Diluted EPS from continuing
operations |
$ |
0.33 |
|
|
$ |
0.58 |
|
|
(43.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
GAAP |
December 31, 2019 |
|
December 28, 2018 |
|
Change |
|
OrganicGrowth(a) |
Medical Sales |
|
|
|
|
|
|
|
Cardio & Vascular |
$ |
610,056 |
|
|
$ |
585,464 |
|
|
4.2 |
% |
|
4.5 |
% |
Cardiac & Neuromodulation |
457,194 |
|
|
443,347 |
|
|
3.1 |
% |
|
3.1 |
% |
Advanced Surgical, Orthopedics & Portable Medical |
132,429 |
|
|
133,225 |
|
|
(0.6 |
)% |
|
1.0 |
% |
Total Medical Sales |
1,199,679 |
|
|
1,162,036 |
|
|
3.2 |
% |
|
3.6 |
% |
Non-Medical Sales |
58,415 |
|
|
52,976 |
|
|
10.3 |
% |
|
10.3 |
% |
Total Sales |
$ |
1,258,094 |
|
|
$ |
1,215,012 |
|
|
3.5 |
% |
|
3.9 |
% |
|
|
|
|
|
|
|
|
Income from continuing
operations |
$ |
91,218 |
|
|
$ |
47,033 |
|
|
93.9 |
% |
|
|
Diluted EPS from continuing
operations |
$ |
2.76 |
|
|
$ |
1.44 |
|
|
91.7 |
% |
|
|
(a) Organic Growth for sales is a Non-GAAP
measure. Please see “Notes Regarding Non-GAAP Financial
Information” for additional information regarding our use of
non-GAAP financial measures and refer to Table C at the end of this
release for a reconciliation of these amounts.
|
Three Months Ended |
Non-GAAP(a) |
December 31, 2019 |
|
December 28, 2018 |
|
Change |
|
OrganicGrowth(b) |
Adjusted EBITDA from continuing operations |
$ |
73,273 |
|
|
$ |
67,534 |
|
|
8.5 |
% |
|
8.8 |
% |
Adjusted income from
continuing operations |
$ |
41,421 |
|
|
$ |
34,378 |
|
|
20.5 |
% |
|
20.6 |
% |
Adjusted diluted EPS from
continuing operations |
$ |
1.25 |
|
|
$ |
1.04 |
|
|
20.2 |
% |
|
21.2 |
% |
|
|
|
|
|
|
|
|
|
Year Ended |
Non-GAAP(a) |
December 31, 2019 |
|
December 28, 2018 |
|
Change |
|
OrganicGrowth(b) |
Adjusted EBITDA from
continuing operations |
$ |
283,770 |
|
|
$ |
259,441 |
|
|
9.4 |
% |
|
9.0 |
% |
Adjusted income from
continuing operations |
$ |
154,468 |
|
|
$ |
124,391 |
|
|
24.2 |
% |
|
23.2 |
% |
Adjusted diluted EPS from
continuing operations |
$ |
4.68 |
|
|
$ |
3.80 |
|
|
23.2 |
% |
|
22.3 |
% |
(a) Refer to Tables A and B at the end of
this release for reconciliations of adjusted amounts to the closest
corresponding GAAP financial measures.
(b) Organic Growth for Adjusted EBITDA from
continuing operations, Adjusted income from continuing operations,
and Adjusted diluted EPS from continuing operations are Non-GAAP
measures. 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 InformationThe
Company will host a conference call on Thursday, February 20, 2020,
at 9:00 a.m. ET / 8:00 a.m. CT 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 (833)
236-5762 (U.S.) or (647) 689-4190 (outside U.S.) and the conference
ID is 8069250. 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.
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 MedicalTM and ElectrochemTM. Additional information is
available at www.integer.net.
Contact InformationTony
BorowiczSVP, Strategy, Business Development & Investor
Relations716.759.5809tony.borowicz@integer.net
Notes Regarding Non-GAAP Financial
Information
In addition to our results reported in
accordance with generally accepted accounting principles (“GAAP”),
we provide adjusted sales, adjusted income, adjusted diluted EPS,
earnings before interest, taxes, depreciation and amortization
(“EBITDA”), adjusted EBITDA, adjusted EBITDA margin, and organic
growth rates, all from continuing operations. Adjusted income
and adjusted diluted EPS from continuing operations consist of GAAP
amounts adjusted for the following to the extent occurring during
the period: (i) acquisition and integration related expenses, (ii)
amortization of intangible assets, (iii) facility consolidation,
optimization, manufacturing transfer and system integration
charges, (iv) asset write-down and disposition charges, (v) charges
in connection with corporate realignments or a reduction in force,
(vi) certain legal expenses, charges and gains, (vii) unusual or
infrequently occurring items, (viii) gain (loss) on equity
investments, (ix) extinguishment of debt charges, (x) the net
impact of the long-term supply agreements (“LSAs”) entered into as
of the closing of the divestiture of the AS&O product line,
(xi) the income tax provision (benefit) related to these
adjustments and (xii) certain tax items that are outside the normal
provision for the period. Adjusted diluted EPS from
continuing operations are calculated by dividing adjusted income
from continuing operations by diluted weighted average shares
outstanding. EBITDA from continuing operations is calculated
by adding back interest expense, GAAP provision (benefit) for
income taxes, depreciation and amortization expense, to income from
continuing operations, which is the most directly comparable GAAP
measure. Adjusted EBITDA from continuing operations consists
of EBITDA from continuing operations plus GAAP stock-based
compensation and the same adjustments as listed above except for
items (ii), (ix), (xi) and (xii).
Adjusted EBITDA margin is adjusted EBITDA as a
percentage of adjusted sales, all from continuing operations.
Organic sales growth is reported sales growth adjusted for item (x)
above, the impact of foreign currency, and the contribution of
acquisitions. To calculate the impact of foreign currency on
sales growth rates, we convert current period sales from local
currency to U.S. dollars using the previous period’s foreign
currency exchange rates and exclude the amount of sales
acquired/divested during the period from the current/previous
period amounts, respectively. Adjusted sales from continuing
operations consist of GAAP sales adjusted for item (x) above.
Organic growth rates for adjusted EBITDA from continuing
operations, adjusted income from continuing operations and adjusted
diluted EPS from continuing operations exclude the impact of
foreign currency exchange gains and losses included in other
(income) loss, net, and the contribution of acquisitions.
Contributions of acquisitions represents results, based on the
growth rate being presented, attributable to acquired entities for
the first four full quarters plus any partial period since the
entities' acquisition date. After the completion of four full
fiscal quarters, results of the acquired entity are treated as
organic for current and comparable historical periods.
We believe that the presentation of adjusted
sales, adjusted income, adjusted diluted EPS, EBITDA, adjusted
EBITDA, adjusted EBITDA margin, and organic growth rates, all from
continuing operations, 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 leverage ratio provides a
meaningful measure of liquidity and a useful basis for assessing
our ability to fund our activities, including the financing of
acquisitions and debt repayments. We calculate leverage ratio
as total principal amount of debt outstanding less cash and cash
equivalents divided by trailing 4 quarters adjusted EBITDA.
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
statements relating to future sales, expenses, profitability and
cash flows; our ability to execute our business model and our
business strategy; projected capital expenditures; and other
events, conditions or developments that will or may occur in the
future. You can identify forward-looking statements 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 only
predictions and 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 include
the following: our dependence upon a limited number of customers;
our ability to respond to changes in technology; the intense
competition we face and our ability to successfully market our
products; our ability to develop new products and expand into new
geographic and product markets; pricing pressures that we face from
customers; our reliance on third party suppliers for raw materials,
key products and subcomponents; the potential for harm to our
reputation caused by quality problems related to our products;
regulatory issues resulting from products complaints, recalls or
regulatory audits; the potential of becoming subject to product
liability claims; our ability to protect our intellectual property
and proprietary rights; our dependence upon our senior management
team and technical personnel; our significant amount of outstanding
indebtedness and our ability to remain in compliance with financial
and other covenants under our senior secured credit facilities; our
ability to realize the benefits from cost savings and consolidation
initiatives; our ability to integrate acquisitions and operate
acquired businesses in accordance with expectations; interruptions
in our manufacturing operations; our ability to comply with
environmental regulations; our complex international tax profile;
our dependence upon our information technology systems and our
ability to prevent cyber-attacks and other failures; market,
financial and other risks related to our international operations
and sales; global economic factors, including currency exchange
rates and interest rates; the fact that the healthcare industry is
highly regulated and subject to various regulatory changes; the
dependence of our energy market-related revenues on the conditions
in the oil and natural gas industry; and other risks and
uncertainties that arise from time to time and are described in
Item 1A “Risk Factors” of our Annual Report on Form 10-K and
in our other periodic filings with the SEC. 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 Statements of Operations - Unaudited |
|
|
|
|
(in thousands except per share
data) |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Year Ended |
|
December 31, 2019 |
|
December 28, 2018 |
|
December 31, 2019 |
|
December 28, 2018 |
Sales |
$ |
325,637 |
|
|
$ |
303,034 |
|
|
$ |
1,258,094 |
|
|
$ |
1,215,012 |
|
Cost of sales |
249,607 |
|
|
214,589 |
|
|
903,084 |
|
|
852,347 |
|
Gross profit |
76,030 |
|
|
88,445 |
|
|
355,010 |
|
|
362,665 |
|
Operating expenses: |
|
|
|
|
|
|
|
Selling, general and administrative expenses (SG&A) |
37,661 |
|
|
35,141 |
|
|
138,695 |
|
|
142,441 |
|
Research, development and engineering costs (RD&E) |
11,809 |
|
|
10,159 |
|
|
46,529 |
|
|
48,604 |
|
Other operating expenses (OOE) |
3,912 |
|
|
3,450 |
|
|
12,151 |
|
|
16,065 |
|
Total operating expenses |
53,382 |
|
|
48,750 |
|
|
197,375 |
|
|
207,110 |
|
Operating income |
22,648 |
|
|
39,695 |
|
|
157,635 |
|
|
155,555 |
|
Interest expense |
12,766 |
|
|
13,955 |
|
|
52,545 |
|
|
99,310 |
|
(Gain) loss on equity
investments, net |
(191 |
) |
|
(78 |
) |
|
475 |
|
|
(5,623 |
) |
Other (income) loss, net |
343 |
|
|
495 |
|
|
(578 |
) |
|
752 |
|
Income from continuing operations before income taxes |
9,730 |
|
|
25,323 |
|
|
105,193 |
|
|
61,116 |
|
Provision (benefit) for income
taxes |
(1,314 |
) |
|
6,127 |
|
|
13,975 |
|
|
14,083 |
|
Income from continuing operations |
$ |
11,044 |
|
|
$ |
19,196 |
|
|
$ |
91,218 |
|
|
$ |
47,033 |
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
Income (loss) from
discontinued operations before taxes |
(20 |
) |
|
62 |
|
|
5,296 |
|
|
188,313 |
|
Provision (benefit) for income
taxes |
— |
|
|
(6,487 |
) |
|
178 |
|
|
67,382 |
|
Income (loss) from discontinued operations |
$ |
(20 |
) |
|
$ |
6,549 |
|
|
$ |
5,118 |
|
|
$ |
120,931 |
|
|
|
|
|
|
|
|
|
Net income |
$ |
11,024 |
|
|
$ |
25,745 |
|
|
$ |
96,336 |
|
|
$ |
167,964 |
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
Income from continuing operations |
$ |
0.34 |
|
|
$ |
0.59 |
|
|
$ |
2.80 |
|
|
$ |
1.46 |
|
Income from discontinued operations |
$ |
— |
|
|
$ |
0.20 |
|
|
$ |
0.16 |
|
|
$ |
3.76 |
|
Basic earnings per share |
$ |
0.34 |
|
|
$ |
0.79 |
|
|
$ |
2.95 |
|
|
$ |
5.23 |
|
|
|
|
|
|
|
|
|
Diluted earnings per
share: |
|
|
|
|
|
|
|
Income from continuing operations |
$ |
0.33 |
|
|
$ |
0.58 |
|
|
$ |
2.76 |
|
|
$ |
1.44 |
|
Income from discontinued operations |
$ |
— |
|
|
$ |
0.20 |
|
|
$ |
0.15 |
|
|
$ |
3.71 |
|
Diluted earnings per share |
$ |
0.33 |
|
|
$ |
0.78 |
|
|
$ |
2.92 |
|
|
$ |
5.15 |
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding: |
|
|
|
|
|
|
|
Basic |
32,688 |
|
|
32,392 |
|
|
32,627 |
|
|
32,136 |
|
Diluted |
33,089 |
|
|
33,029 |
|
|
33,037 |
|
|
32,596 |
|
Condensed
Consolidated Balance Sheets - Unaudited |
(in
thousands) |
|
|
|
December 31, 2019 |
|
December 28, 2018 |
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
13,535 |
|
|
$ |
25,569 |
|
Accounts receivable, net |
191,985 |
|
|
185,501 |
|
Inventories |
167,256 |
|
|
190,076 |
|
Contract assets |
24,767 |
|
|
— |
|
Prepaid expenses and other current assets |
17,852 |
|
|
15,104 |
|
Total current assets |
415,395 |
|
|
416,250 |
|
Property, plant and equipment,
net |
246,185 |
|
|
231,269 |
|
Goodwill |
839,617 |
|
|
832,338 |
|
Other intangible assets,
net |
775,784 |
|
|
812,338 |
|
Deferred income taxes |
4,438 |
|
|
3,937 |
|
Operating lease assets |
42,379 |
|
|
— |
|
Other assets |
29,295 |
|
|
30,549 |
|
Total assets |
$ |
2,353,093 |
|
|
$ |
2,326,681 |
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
Current liabilities: |
|
|
|
Current portion of long-term debt |
$ |
37,500 |
|
|
$ |
37,500 |
|
Accounts payable |
64,975 |
|
|
57,187 |
|
Income taxes payable |
3,023 |
|
|
9,393 |
|
Operating lease liabilities |
7,507 |
|
|
— |
|
Accrued expenses |
66,073 |
|
|
60,490 |
|
Total current liabilities |
179,078 |
|
|
164,570 |
|
Long-term debt |
777,272 |
|
|
888,007 |
|
Deferred income taxes |
187,978 |
|
|
203,910 |
|
Operating lease
liabilities |
37,114 |
|
|
— |
|
Other long-term
liabilities |
19,163 |
|
|
9,701 |
|
Total liabilities |
1,200,605 |
|
|
1,266,188 |
|
Stockholders’ equity: |
|
|
|
Common stock |
33 |
|
|
33 |
|
Additional paid-in capital |
701,018 |
|
|
691,083 |
|
Treasury stock |
(8,809 |
) |
|
(8,125 |
) |
Retained earnings |
440,258 |
|
|
344,498 |
|
Accumulated other comprehensive income |
19,988 |
|
|
33,004 |
|
Total stockholders’ equity |
1,152,488 |
|
|
1,060,493 |
|
Total liabilities and stockholders’ equity |
$ |
2,353,093 |
|
|
$ |
2,326,681 |
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows - Unaudited (a) |
(in
thousands) |
|
|
|
Year Ended |
|
December 31, 2019 |
|
December 28, 2018 |
Cash flows from
operating activities: |
|
|
|
Net income |
$ |
96,336 |
|
|
$ |
167,964 |
|
Adjustments to reconcile net
income to net cash provided by operating activities: |
|
|
|
Depreciation and amortization |
77,895 |
|
|
88,988 |
|
Debt related charges included in interest expense |
7,772 |
|
|
49,110 |
|
Stock-based compensation |
9,294 |
|
|
10,470 |
|
Non-cash charges related to customer bankruptcy |
21,695 |
|
|
— |
|
Non-cash lease expense |
7,443 |
|
|
— |
|
Non-cash (gain) loss on equity investments |
475 |
|
|
(5,623 |
) |
Other non-cash (gains) losses |
(162 |
) |
|
148 |
|
Deferred income taxes |
(10,285 |
) |
|
61,126 |
|
Gain on sale of discontinued operations |
(4,974 |
) |
|
(194,965 |
) |
Changes in operating assets
and liabilities, net of acquisition: |
|
|
|
Accounts receivable |
(6,976 |
) |
|
9,289 |
|
Inventories |
3,724 |
|
|
(16,094 |
) |
Prepaid expenses and other assets |
(31,060 |
) |
|
8,527 |
|
Accounts payable |
1,887 |
|
|
(94 |
) |
Accrued expenses |
(2,744 |
) |
|
(11,756 |
) |
Income taxes payable |
(4,962 |
) |
|
209 |
|
Net cash provided by operating activities |
165,358 |
|
|
167,299 |
|
Cash flows from
investing activities: |
|
|
|
Acquisition of property, plant
and equipment |
(48,198 |
) |
|
(44,908 |
) |
Proceeds from sale of
property, plant and equipment |
28 |
|
|
1,379 |
|
Purchase of equity
investments |
(417 |
) |
|
(1,230 |
) |
Proceeds from sale of
discontinued operations |
4,734 |
|
|
581,429 |
|
Acquisition |
(15,009 |
) |
|
— |
|
Net cash (used in) provided by investing activities |
(58,862 |
) |
|
536,670 |
|
Cash flows from
financing activities: |
|
|
|
Principal payments of
long-term debt |
(111,500 |
) |
|
(631,469 |
) |
Proceeds from senior secured
revolving line of credit |
34,000 |
|
|
5,000 |
|
Payments of senior secured
revolving line of credit |
(39,000 |
) |
|
(74,000 |
) |
Proceeds from the exercise of
stock options |
3,242 |
|
|
12,409 |
|
Payment of debt issuance and
redemption costs |
(1,385 |
) |
|
(31,991 |
) |
Tax withholdings related to
net share settlements of restricted stock unit awards |
(3,283 |
) |
|
(5,029 |
) |
Net cash used in financing activities |
(117,926 |
) |
|
(725,080 |
) |
Effect of foreign currency
exchange rates on cash and cash equivalents |
(604 |
) |
|
2,584 |
|
Net decrease in cash and cash
equivalents |
(12,034 |
) |
|
(18,527 |
) |
Cash and cash equivalents,
beginning of year |
25,569 |
|
|
44,096 |
|
Cash and cash equivalents, end
of year |
$ |
13,535 |
|
|
$ |
25,569 |
|
|
|
|
|
|
|
|
|
(a) The Condensed Consolidated Statements
of Cash Flows - Unaudited includes cash flows related to
discontinued operations.
Reconciliations of Non-GAAP Measures from Continuing
OperationsTable A: Income from Continuing
Operations and Diluted EPS Reconciliations(dollars in
thousands, except per share data)
|
Three Months Ended |
|
December 31, 2019 |
|
December 28, 2018 |
|
Pre-Tax |
|
Net ofTax |
|
PerDilutedShare |
|
Pre-Tax |
|
Net ofTax |
|
PerDilutedShare |
As reported income from continuing operations (GAAP) |
$ |
9,730 |
|
|
$ |
11,044 |
|
|
$ |
0.33 |
|
|
$ |
25,323 |
|
|
$ |
19,196 |
|
|
$ |
0.58 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles (excluding amounts in OOE)(a) |
10,609 |
|
|
8,310 |
|
|
0.25 |
|
|
9,878 |
|
|
7,815 |
|
|
0.24 |
|
Certain legal expenses (SG&A)(a)(b) |
402 |
|
|
318 |
|
|
0.01 |
|
|
1,274 |
|
|
1,007 |
|
|
0.03 |
|
Strategic reorganization and alignment (OOE)(a)(c) |
1,460 |
|
|
1,127 |
|
|
0.03 |
|
|
2,200 |
|
|
1,728 |
|
|
0.05 |
|
Manufacturing alignment to support growth (OOE)(a)(d) |
484 |
|
|
326 |
|
|
0.01 |
|
|
596 |
|
|
416 |
|
|
0.01 |
|
Consolidation and optimization expenses (OOE)(a)(e) |
— |
|
|
— |
|
|
— |
|
|
146 |
|
|
117 |
|
|
— |
|
Acquisition and integration expenses (OOE)(a)(f) |
225 |
|
|
178 |
|
|
0.01 |
|
|
— |
|
|
— |
|
|
— |
|
Other general expenses (OOE)(a)(g) |
1,743 |
|
|
1,389 |
|
|
0.04 |
|
|
508 |
|
|
402 |
|
|
0.01 |
|
Gain on equity investments, net(a) |
(191 |
) |
|
(150 |
) |
|
— |
|
|
(78 |
) |
|
(61 |
) |
|
— |
|
Loss on extinguishment of debt(a)(h) |
1,280 |
|
|
1,012 |
|
|
0.03 |
|
|
546 |
|
|
431 |
|
|
0.01 |
|
Customer bankruptcy (excluding amounts in OOE)(a)(i) |
23,827 |
|
|
18,823 |
|
|
0.57 |
|
|
— |
|
|
— |
|
|
— |
|
LSA and other non-recurring adjustments(a)(j) |
— |
|
|
— |
|
|
— |
|
|
797 |
|
|
630 |
|
|
0.02 |
|
Tax adjustments(k) |
— |
|
|
(956 |
) |
|
(0.03 |
) |
|
— |
|
|
2,697 |
|
|
0.08 |
|
Adjusted income from
continuing operations (Non-GAAP) |
$ |
49,569 |
|
|
$ |
41,421 |
|
|
$ |
1.25 |
|
|
$ |
41,190 |
|
|
$ |
34,378 |
|
|
$ |
1.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average
shares for adjusted EPS |
|
|
33,089 |
|
|
|
|
|
|
33,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
December 31, 2019 |
|
December 28, 2018 |
|
Pre-Tax |
|
Net ofTax |
|
PerDilutedShare |
|
Pre-Tax |
|
Net ofTax |
|
PerDilutedShare |
As reported income from
continuing operations (GAAP) |
$ |
105,193 |
|
|
$ |
91,218 |
|
|
$ |
2.76 |
|
|
$ |
61,116 |
|
|
$ |
47,033 |
|
|
$ |
1.44 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles (excluding amounts in OOE)(a) |
40,076 |
|
|
31,634 |
|
|
0.96 |
|
|
40,946 |
|
|
32,338 |
|
|
0.99 |
|
Certain legal expenses (SG&A)(a)(b) |
2,577 |
|
|
2,036 |
|
|
0.06 |
|
|
2,820 |
|
|
2,228 |
|
|
0.07 |
|
Strategic reorganization and alignment (OOE)(a)(c) |
5,812 |
|
|
4,504 |
|
|
0.14 |
|
|
10,624 |
|
|
8,390 |
|
|
0.26 |
|
Manufacturing alignment to support growth (OOE)(a)(d) |
2,145 |
|
|
1,499 |
|
|
0.05 |
|
|
3,089 |
|
|
2,257 |
|
|
0.07 |
|
Consolidation and optimization expenses (OOE)(a)(e) |
— |
|
|
— |
|
|
— |
|
|
844 |
|
|
670 |
|
|
0.02 |
|
Acquisition and integration expenses (OOE)(a)(f) |
377 |
|
|
298 |
|
|
0.01 |
|
|
— |
|
|
— |
|
|
— |
|
Other general expenses (OOE)(a)(g) |
3,817 |
|
|
3,025 |
|
|
0.09 |
|
|
1,508 |
|
|
1,178 |
|
|
0.04 |
|
(Gain) loss on equity investments, net(a) |
475 |
|
|
376 |
|
|
0.01 |
|
|
(5,623 |
) |
|
(4,442 |
) |
|
(0.14 |
) |
Loss on extinguishment of debt(a)(h) |
2,545 |
|
|
2,011 |
|
|
0.06 |
|
|
42,674 |
|
|
33,712 |
|
|
1.03 |
|
Customer bankruptcy (excluding amounts in OOE)(a)(i) |
23,827 |
|
|
18,823 |
|
|
0.57 |
|
|
— |
|
|
— |
|
|
— |
|
LSA and other non-recurring adjustments(a)(j) |
— |
|
|
— |
|
|
— |
|
|
(5,322 |
) |
|
(4,204 |
) |
|
(0.13 |
) |
Tax adjustments(k) |
— |
|
|
(956 |
) |
|
(0.03 |
) |
|
— |
|
|
5,231 |
|
|
0.16 |
|
Adjusted income from
continuing operations (Non-GAAP) |
$ |
186,844 |
|
|
$ |
154,468 |
|
|
$ |
4.68 |
|
|
$ |
152,676 |
|
|
$ |
124,391 |
|
|
$ |
3.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average
shares for adjusted EPS(l) |
|
|
33,037 |
|
|
|
|
|
|
32,768 |
|
|
|
(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 in Mexico,
Netherlands, Uruguay, Ireland and Switzerland, as adjusted for the
existence of net operating losses (“NOLs”). Amortization of
intangibles and other operating expense for 2018 were adjusted to
reflect the estimated impact relating to our disallowed deduction
of the GILTI tax, as described in footnote (k) below.
Expenses that are not deductible for tax purposes (i.e. permanent
tax differences) are added back at 100%.
(b) In 2013, we filed suit against AVX
Corporation alleging they were infringing our intellectual
property. Given the complexity and significant costs incurred
pursuing this litigation, we are excluding these litigation
expenses from adjusted amounts. This matter proceeded to trial
during the first quarter of 2016 and again in the third quarter of
2017 that resulted in a jury awarding damages in the amount of
$37.5 million. In March 2018, the court vacated that damage
award and ordered a new trial on damages. In the January 2019
retrial on damages, the jury awarded damages in the amount of $22.2
million. To date, no gains have been recognized in connection
with this litigation. During 2019, we also incurred expenses
associated with a legal matter to which we are a non-party witness
and in conjunction with the modification of our credit
facilities.
(c) Amounts include expenses related to
implementing our strategy that is designed to better align our
resources in order to invest to grow, protect, preserve and to
enhance the profitability of our portfolio of products, including
focusing our investment in RD&E and manufacturing, improving
our business processes and redirecting investments away from
projects where the market does not justify the investment.
During 2019 and 2018, we incurred charges related to this strategy,
which primarily consisted of severance costs and fees for
professional services.
(d) Includes expenses related to several
initiatives designed to reduce costs, improve operating
efficiencies and increase manufacturing capacity to accommodate
growth. The plan involves the relocation of certain
manufacturing operations and expansion of certain of our
facilities.
(e During 2018, we incurred costs primarily related to the
closure of our Clarence, NY facility.
(f) Expenses related to the purchase of certain assets from
US BioDesign, LLC.
(g) Amounts include expenses related to
other initiatives not described above, which relate primarily to
integration and operational initiatives to reduce costs and improve
operational efficiencies.
(h) Represents debt extinguishment charges in connection
with pre-payments made on our Term Loan B Facility, which are
included in interest expense.
(i) In November 2019, one of our customers,
Nuvectra Corporation (“Nuvectra”), filed a voluntary Chapter 11
bankruptcy petition (the “Customer Bankruptcy”). During the
fourth quarter of 2019, we recorded pre-tax charges totaling $24.2
million in connection with the Customer Bankruptcy. These
expenses were primarily non-cash and included charges associated
with certain Nuvectra-related assets, primarily consisting of
inventory, accounts receivable, as well as certain non-cancelable
inventory commitments. These charges were included in cost of
sales ($21.4 million), SG&A expenses ($2.4 million) and Other
Operating Expenses ($0.4 million) in our consolidated statement of
operations.
(j) LSA and other non-recurring adjustments
primarily reflects the net impact of the LSAs entered into as of
the closing of the divestiture of the AS&O product line.
These LSAs govern the sale of products supplied by Viant to the
Company for further resale to customers and by the Company to Viant
for further resale to customers.
(k) The 2019 amount represents an
adjustment to the valuation allowance for certain foreign tax
credits. The tax adjustment for 2018 represents the estimated
impact relating to our disallowed deduction of the GILTI tax, as
mandated by the Tax Reform Act. This disallowed deduction of
the GILTI tax (approximately 50% of the total GILTI tax) is due to
the Company making use of its U.S. NOLs during 2018. This
adjustment makes our adjusted diluted EPS from continuing
operations more comparable with other global companies that are not
subject to this disallowed GILTI tax deduction and more comparable
to the Company’s results following the full utilization of its U.S.
NOLs.
(l) The diluted weighted average shares for
adjusted EPS for the year ended December 28, 2018 includes
potentially dilutive shares not included in the computation of
diluted weighted average common shares for GAAP diluted EPS
purposes because their effect would have been anti-dilutive.
Table B: EBITDA and Sales Reconciliations(in
thousands)
|
Three Months Ended |
|
Year Ended |
|
December 31, 2019 |
|
December 28, 2018 |
|
December 31, 2019 |
|
December 28, 2018 |
Income from continuing operations (GAAP) |
$ |
11,044 |
|
|
$ |
19,196 |
|
|
$ |
91,218 |
|
|
$ |
47,033 |
|
|
|
|
|
|
|
|
|
Interest expense |
12,766 |
|
|
13,955 |
|
|
52,545 |
|
|
99,310 |
|
Provision (benefit) for income
taxes |
(1,314 |
) |
|
6,127 |
|
|
13,975 |
|
|
14,083 |
|
Depreciation |
9,889 |
|
|
10,149 |
|
|
37,819 |
|
|
40,078 |
|
Amortization of intangibles
(excluding amounts in OOE) |
10,609 |
|
|
9,878 |
|
|
40,076 |
|
|
40,946 |
|
EBITDA from continuing operations (Non-GAAP) |
42,994 |
|
|
59,305 |
|
|
235,633 |
|
|
241,450 |
|
Certain legal expenses |
402 |
|
|
1,274 |
|
|
2,577 |
|
|
2,820 |
|
Stock-based compensation
(excluding amounts in OOE) |
2,329 |
|
|
2,786 |
|
|
9,107 |
|
|
10,051 |
|
Strategic reorganization and
alignment |
1,460 |
|
|
2,200 |
|
|
5,812 |
|
|
10,624 |
|
Manufacturing alignment to
support growth |
484 |
|
|
596 |
|
|
2,145 |
|
|
3,089 |
|
Consolidation and optimization
expenses |
— |
|
|
146 |
|
|
— |
|
|
844 |
|
Acquisition and integration
expenses |
225 |
|
|
— |
|
|
377 |
|
|
— |
|
Other general expenses
(OOE) |
1,743 |
|
|
508 |
|
|
3,817 |
|
|
1,508 |
|
(Gain) loss on equity
investments, net |
(191 |
) |
|
(78 |
) |
|
475 |
|
|
(5,623 |
) |
Customer bankruptcy (excluding
amounts in OOE) |
23,827 |
|
|
— |
|
|
23,827 |
|
|
— |
|
LSA and other non-recurring
adjustments |
— |
|
|
797 |
|
|
— |
|
|
(5,322 |
) |
Adjusted EBITDA from
continuing operations (Non-GAAP) |
$ |
73,273 |
|
|
$ |
67,534 |
|
|
$ |
283,770 |
|
|
$ |
259,441 |
|
|
|
|
|
|
|
|
|
Total sales (GAAP) |
$ |
325,637 |
|
|
$ |
302,260 |
|
|
$ |
1,258,094 |
|
|
$ |
1,215,012 |
|
LSA adjustments |
— |
|
|
— |
|
|
— |
|
|
(2,003 |
) |
Adjusted sales from continuing
operations (Non-GAAP) |
$ |
325,637 |
|
|
$ |
302,260 |
|
|
$ |
1,258,094 |
|
|
$ |
1,213,009 |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA margin |
22.5 |
% |
|
22.3 |
% |
|
22.6 |
% |
|
21.4 |
% |
Table C: Organic Sales from Continuing Operations Growth
Rate Reconciliation (% Change)
|
GAAPReportedGrowth |
|
Impact ofLSAs(a) |
|
Impact ofAcquisitionand ForeignCurrency(b) |
|
Non-GAAPOrganicGrowth |
Quarter over Quarter
Change (4Q 2019 vs. 4Q 2018) |
|
|
|
|
|
|
|
Medical
Sales |
|
|
|
|
|
|
|
Cardio & Vascular |
5.9% |
|
—% |
|
(0.3)% |
|
5.6% |
Cardiac & Neuromodulation |
9.5% |
|
— |
|
— |
|
9.5% |
Advanced Surgical, Orthopedics & Portable Medical |
6.7% |
|
— |
|
0.1% |
|
6.8% |
Total Medical Sales |
7.4% |
|
—% |
|
(0.2)% |
|
7.2% |
Non-Medical
Sales |
9.2% |
|
— |
|
— |
|
9.2% |
Total Sales |
7.5% |
|
—% |
|
(0.2)% |
|
7.3% |
|
|
|
|
|
|
|
|
Year over Year Change
(2019 vs. 2018) |
|
|
|
|
|
|
|
Medical
Sales |
|
|
|
|
|
|
|
Cardio & Vascular |
4.2% |
|
— |
|
0.3% |
|
4.5% |
Cardiac & Neuromodulation |
3.1% |
|
— |
|
— |
|
3.1% |
Advanced Surgical, Orthopedics & Portable Medical |
(0.6)% |
|
1.5% |
|
0.1% |
|
1.0% |
Total Medical Sales |
3.2% |
|
0.2% |
|
0.2% |
|
3.6% |
Non-Medical
Sales |
10.3% |
|
— |
|
— |
|
10.3% |
Total Sales |
3.5% |
|
0.2% |
|
0.2% |
|
3.9% |
(a) Reflects the net impact of the LSAs
entered into as of the closing of the divestiture of the AS&O
product line.
(b) Fourth quarter and full year 2019 sales
have been adjusted to exclude the contribution of
acquisitions. Fourth quarter and full year 2019 sales were
negatively impacted by $0.4 million and $2.6 million, respectively,
due to foreign currency exchange rate fluctuations, primarily in
our Cardio & Vascular product line.
Table D: Non-GAAP Organic Growth Rate Reconciliation (%
Change)
|
GAAPReportedGrowth |
|
Impact
ofNon-GAAPAdjustments(a) |
|
Impact ofAcquisitionand ForeignCurrency(b) |
|
Non-GAAPOrganicGrowth |
Quarter over Quarter
Change (4Q 2019 vs. 4Q 2018) |
|
|
|
|
|
|
|
EBITDA |
(27.5)% |
|
36.0% |
|
0.3% |
|
8.8% |
Net Income |
(42.5)% |
|
63.0% |
|
0.1% |
|
20.6% |
Diluted EPS |
(43.1)% |
|
63.3% |
|
1.0% |
|
21.2% |
|
|
|
|
|
|
|
|
Year over Year Change
(2019 vs. 2018) |
|
|
|
|
|
|
|
EBITDA |
(2.4)% |
|
11.8% |
|
(0.4)% |
|
9.0% |
Net Income |
93.9% |
|
(69.7)% |
|
(1.0)% |
|
23.2% |
Diluted EPS |
91.7% |
|
(68.5)% |
|
(0.9)% |
|
22.3% |
(a) Represents the impact to our growth rate from our
Non-GAAP adjustments. See Tables A and B for further detail on
these items.
(b) Represents the impact to our growth rate due to changes
in foreign currency exchange rates realized in income and reported
in other (income) loss, net in the consolidated statements of
operations, and the adjustment to exclude the contribution of
acquisitions.
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