Slide 1: 2016 Second Quarter Earnings Call
2016 Second Quarter Earnings Call July 28, 2016 Integer Confidential / July 28, 2016 / Page 1
Slide 2: Forward-Looking Statement
Forward-Looking Statement Some of the statements made in the 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 r
Slide 3: Q2 Earnings Call Presenters
Q2 Earnings Call Presenters Thomas J. Hook Michael Dinkins President & CEO Executive Vice President & Chief Financial Officer Integer Confidential / July 28, 2016 / Page 3
Slide 4: Agenda
Agenda • CEO Commentary • Financial Review • Guidance Update • CEO Summary • Questions and Answers Integer Confidential / July 28, 2016 / Page 4
Slide 5: CEO Commentary
CEO Commentary Integer Confidential / July 28, 2016 / Page 5
Slide 6: Opening Remarks
Opening Remarks • Focused on cost reduction and improved cash flow to “We are operate our company at this lower revenue level lowering our 2016 full year • See upside to our synergy plans for 2016 as the revenue integration of the two companies continues to go well guidance to a • Continued investme
Slide 7: What We Are Doing to Address the Challenges
What We Are Doing to Address the Challenges • Implementing company-wide cost reduction “We are taking programs appropriate action to • Accelerating integration synergies operate our ̶ Recorded $13M of synergy savings in the first company at this half and expect 2016 annual savings of lower revenue a
Slide 8: Factors Influencing Revenue Growth
Factors Influencing Revenue Growth • CRM sales YTD declined by 18% compared to last year “We expect our due to a limited number of discrete programs second half quarterly • YTD Electrochem sales declined 37% versus last year due to continued weakness in the Energy markets revenue run rate to be $350
Slide 9: Synergies Update
Synergies Update • Will achieve approximately $30 million in savings “Our synergy in 2016, well ahead of original plan of $25 million plan continues to proceed • Line of sight to significantly exceed longer-term ahead of synergy target schedule.” • Majority of organizational changes have been implem
Slide 10: Addition of Lake Region Medical
Addition of Lake Region Medical Diversified production capabilities offer additional labor cost advantages and broaden customer reach • Significantly expands domestic presence in major med tech Customer Reach & markets Market Presence • Expands production to Asia and further penetrates Europe Attrac
Slide 11: Financial Review
Financial Review Integer Confidential / July 28, 2016 / Page 11
Slide 12: Revenue
Revenue Revenue* 377 360 “Our first half 358 348 348 revenue is down in $ Millions 8% when 331 compared to last year.” Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 % Growth 0% 0% (7)% (3)% (7)% (8)% • CRM revenue down 16% for the quarter, driven by both internal and external delays in product launches, custo
Slide 13: Adjusted EBITDA
Adjusted EBITDA Adjusted EBITDA* 80 79 72 73 69 “Achieved 65 adjusted diluted in $ Millions EBITDA of $69M or 19.8% of revenue.” Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 % of Sales 20% 21% 21% 22% 20% 20% • Decline compared to prior year driven primarily by lower revenue partially offset by lower perform
Slide 14: Margin Improvement Remains a Focus
Margin Improvement Remains a Focus (All in $ millions FY 2014* FY 2015* Q1 2016* Q2 2016 except GM%) Revenue $1,469 $1,443 $331 $348 Gross Profit** $378 $380 $91 $96 Gross Margin 25.7% 26.3% 27.4% 27.6% Integration Synergy $5 $8 (Total Company) • Gross Margin % is the focus of manufacturing team; ma
Slide 15: Cash Generation to Improve Over Next Quarters
Cash Generation to Improve Over Next 2 Quarters Working Capital Cash Flow from Operations 400 and Free Cash Flow 361 35 30 318 317 30 300 25 in $ Millions in $ Millions 20 15 11 200 10 4 5 100 - (5) Q1 FY2016 Q2 FY2016 - (10) (8) FY2015 Q1 FY2016 Q2 FY2016 Cash from Opeartions Free Cash Flow • Incre
Slide 16: Debt Structure & Repayment Schedule
Debt Structure & Repayment Schedule Debt Repayment Schedule Debt Structure Overview 1,200 1,000 964 Loan Interest Rate Maturity Amount 800 in $ Millions Revolver LIBOR + 3.25% $55M 2020 Term Loan A 600 LIBOR + 3.25% $366M 2021 (TLA) Term Loan B LIBOR (1% 400 360 $1,020M 2022 (TLB) Floor)+ 4.25% 240
Slide 17: Guidance Update
Guidance Update Integer Confidential / July 28, 2016 / Page 17
Slide 18: Sales walk from mid point of prior guidance to revised guidance
Sales walk from mid point of prior guidance to mid point of revised guidance range 1,460 1,450 1,440 (26) 1,420 (14) (12) 1,400 (8) (5) 1,385 1,380 1,360 1,340 2016 Previous Customer Major Customer Energy Platinum Price 2016 Revised Guidance Programs Guidance • Reduced orders from the discrete CRM c
Slide 19: Revised Guidance
Revised Guidance* (in $ millions except for EPS) Q1 2016 Q2 2016 H2 2016 FY 2016 Actual Results Actual Results Guidance Guidance Revenue $331 $348 $696 - $716 $1375 - $1395 Adjusted: EBITDA 65 69 161 - 171 295 - 305 NI 13 18 51 - 55 82 - 86 Diluted EPS 0.42 0.56 1.62 - 1.77 2.60 - 2.75 Synergy 5 8 a
Slide 20: Financial Guidance Items Affecting Cash Flow
Financial Guidance Items Affecting Cash Flow • Capital Expenditures to be in the range of $50 million - $60 million per year • Depreciation & Amortization expected to be $100 million - $105 million for 2016 • Stock compensation expense expected to be approximately $9 million for 2016 • Working Capit
Slide 21: CEO Summary
CEO Summary Integer Confidential / July 28, 2016 / Page 21
Slide 22: Summary
Summary • Sales reduction reflects lower shipments in a limited “As we number of CRM customer programs and the energy market decline impact on our non-medical energy category approach one year into our • We are taking appropriate action to operate our company at this lower revenue level and to reduc
Slide 23: Questions and Answers
Questions and Answers Integer Confidential / July 28, 2016 / Page 23
Slide 24: Appendix
Appendix Integer Confidential / July 28, 2016 / Page 24
Slide 25: Path to Profitable Growth
Path to Profitable Growth Opportunities: Integer Positioning • Innovation • Design, development and manufacturing expertise to facilitate customer innovation and speed to market • Product Scope • Full medical device systems capability • MedTech market driven by fewer, larger global players • Efficie
Slide 26: Where Are Our Customers Going?
Where Are Our Customers Going? How We Help Our Customers MedTech Market Driven By Fewer, Larger Global MedTech Players Innovation Outsourcing Penetration By Sector Underpenetrated 95% Accelerate MedTech Scale and Time to Outsourcing with 50% Market Efficiency Significant 25% 30% Opportunity to Drive
Slide 27: What Is The Future of Medical Technology?
What Is The Future of Medical Technology? 1 2 Consistent Stable Core Reemerging Focus Long-Term Growth MedTech on Innovation Trajectory Fundamentals • Tried and True • Neurostimulation MedTech Products to Solve a Diverse $468 that have been the Array of Issues Standard of Care $401 for Decades • Red
Slide 28: Product Category Revenues
Product Category Revenues Three Months Ended July 1, July 3, % Product Line 2016 2015(1) Change Advanced Surgical, Orthopedics, and Portable Medical $ 104,317 $ 108,830 (4)% Cardio and Vascular 144,219 144,710 -% Cardiac/Neuromodulation 91,623 109,157 (16)% Electrochem 9,819 16,545 (41)% Elimination
Slide 29: Advanced Surgical, Orthopedics, and Portable Medical
Advanced Surgical, Orthopedics, and Portable Medical (Sales in $ millions) Q2 R4Q Prior Qtr Sales* $104 $399 $91 % total Company 30% 29% 28% Growth (Comparable Basis) -4% -8% 14% Implant Reamer • Sequential quarterly growth driven by: ̶ Higher volume from major customer after completion of new LTA e
Slide 30: Cardio and Vascular
Cardio and Vascular (Sales in $ millions) Amounts in millions Q2 R4Q Prior Qtr Sales* $144 $557 $134 % total Company 42% 40% 40% Steerable Sheath Growth (Comparable Basis) 0% -3% 8% • Sequential quarterly growth driven by: ̶ Higher volume demands from key customers ̶ Near completion of manufacturing
Slide 31: Cardiac/Neuromodulation
Cardiac/Neuromodulation (Sales in $ millions) Q2 R4Q Prior Qtr Sales* $92 $393 $96 % total Company 26% 28% 29% Growth (Comparable Basis) -16% -3% -6% Battery Feedthrough • Continued YoY growth in Neuromodulation Enclosure • Shipments reduction on a limited number of CRM customer programs • Price con
Slide 32: Electrochem
Electrochem (Sales inAmounts $ thousands) in millions Q2 R4Q Prior Qtr Sales* $10 $47 $12 % total Company 3% 3% 4% Growth (Comparable Basis) -41% -39% -16% Battery Cells • Continued weakness in the global Energy market Battery Packs * Comparable basis amounts for 2016 exclude the results of Nuvectra
Slide 33: GAAP Reconciliation
GAAP Reconciliation Net Income and Diluted EPS Reconciliation Three Months Ended July 1, July 3, 2016 2015 Per Per Net Diluted Net Diluted (in thousands except per share amounts) Pre-Tax Income Share Pre-Tax Income Share Net income (loss) as reported (GAAP) $ 687 $ (770) $ (0.03) $ 11,935 $ 9,283 $
Slide 34: GAAP Reconciliation
GAAP Reconciliation Net Income and Diluted EPS Reconciliation Six Months Ended July 1, July 3, 2016 2015 Per Per Net Diluted Net Diluted (in thousands except per share amounts) Pre-Tax Income Share Pre-Tax Income Share Net income (loss) as reported (GAAP) $ (12,075) $ (13,430) $ (0.44) $ 21,755 $ 17
Slide 35: GAAP Reconciliation
GAAP Reconciliation Adjusted EBITDA reconciliation Three Months Ended Six Months Ended July 1, July 3, July 1, July 3, (dollars in thousands) 2016 2015 2016 2015 Net income (loss) as reported (GAAP) $ (770) $ 9,283 $ (13,430) $ 17,291 Interest expense 27,908 1,206 55,525 2,326 Provision for income t
Slide 36: GAAP Reconciliation
GAAP Reconciliation 2016 Revised Guidance Adjusted Comparable (in millions, except for per share amounts) GAAP Basis High Low High Low Revenue $1,396 $1,376 $1,395 $1,375 Net Income $13 $9 $86 $82 Earnings per Diluted Share $0.42 $0.27 $2.75 $2.60 EBITDA NA NA $305 $295 Comparable basis Adjusted Net
Slide 37: Other Operating Expenses 2016
Other Operating Expenses 2016 (in $ millions) Q1’15 Q2’15 Q3’15 Q4’15 2015 Q1’16 Q2’16 Portable Medical and 2014 Investments in $6.5 $6.3 $5.1 $5.2 $23.0 $4.2 $5.1 Vascular product line Capacity and Capabilities transfers Orthopedic Facilities $0.5 $0.5 $0.4 $1.4 $0.1 $0.2 Optimization Legacy Lake R
Slide 38: Contact Information
Contact Information Tony Borowicz Vice President, Business Development & Investor Relations Integer tborowicz@greatbatch.com Work: 716-759-5809 Mobile: 716-572-9972 www.integer.net Integer Confidential / July 28, 2016 / Page 38