Integer Holdings Corp 10-Q for FY2020 Q2

Integer Holdings Corp (ITGR)

10-Q 2020-07-30 For: 2020-07-03

Added on April 07, 2026

About this 10-Q

Integer Holdings Corp filed this 10-Q on July 30, 2020, covering the quarter ended July 3, 2020 (FY2020 Q2).

Headline figures

Quarter ended July 3, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $240.12M; down 23.6% from $314.19M a year earlier
Net income: $389K; down 98.8% from net income of $33.06M a year earlier
Diluted EPS: $0.01; down 99.0% from $1.00 a year earlier

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Delaware						16-1531026
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


(in thousands except share and per share data)	July 3, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	206,244	$	13,535
Accounts receivable, net of provision for credit losses of $2.2 million and allowance for doubtful accounts of $2.4 million, respectively	147,751		191,985
Inventories	172,458		167,256
Contract assets	37,389		24,767


Prepaid expenses and other current assets	15,660		17,852

Total current assets	579,502		415,395
Property, plant and equipment, net	247,646		246,185
Goodwill	844,972		839,617
Other intangible assets, net	762,434		775,784
Deferred income taxes	5,152		4,438
Operating lease assets	47,327		42,379
Other long-term assets	36,422		29,295

Total assets	$	2,523,455	$	2,353,093
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	37,500	$	37,500
Accounts payable	54,000		64,975
Income taxes payable	4,760		3,023

Operating lease liabilities	8,102		7,507
Accrued expenses and other current liabilities	49,286		66,073

Total current liabilities	153,648		179,078
Long-term debt	930,385		777,272
Deferred income taxes	187,300		187,978
Operating lease liabilities	40,552		37,114
Other long-term liabilities	30,169		19,163

Total liabilities	1,342,054		1,200,605
Commitments and contingencies (Note 10)
Stockholders’ equity:

Common stock, $0.001 par value; 100,000,000 shares authorized; 32,847,017 shares issued; 32,838,552 and 32,700,471 shares outstanding, respectively	33		33
Additional paid-in capital	695,651		701,018
Treasury stock, at cost, 8,465 and 146,546 shares, respectively	(509)		(8,809)
Retained earnings	471,747		440,258
Accumulated other comprehensive income	14,479		19,988
Total stockholders’ equity	1,181,401		1,152,488
Total liabilities and stockholders’ equity	$	2,523,455	$	2,353,093


	Three Months Ended						Six Months Ended
(in thousands except per share data)	July 3, 2020		June 28, 2019		July 3, 2020		June 28, 2019
Sales	$	240,115	$	314,194	$	568,541	$	628,870
Cost of sales	182,252		217,210		413,976		443,276
Gross profit	57,863		96,984		154,565		185,594
Operating expenses:
Selling, general and administrative expenses	33,903		33,143		70,360		68,099
Research, development and engineering costs	12,746		11,396		25,987		22,991
Other operating expenses	2,029		3,108		4,957		5,998
Total operating expenses	48,678		47,647		101,304		97,088
Operating income	9,185		49,337		53,261		88,506
Interest expense, net	9,273		13,612		19,634		27,442
(Gain) loss on equity investments, net	205		1,611		(1,720)		1,652
Other income, net	(458)		(718)		(1,457)		(552)
Income from continuing operations before taxes	165		34,832		36,804		59,964
Provision (benefit) for income taxes	(224)		6,610		5,315		10,376
Income from continuing operations	$	389	$	28,222	$	31,489	$	49,588

Discontinued operations:
Income from discontinued operations before taxes	—		4,930		—		5,316
Provision for income taxes	—		95		—		178
Income from discontinued operations	$	—	$	4,835	$	—	$	5,138

Net income	$	389	$	33,057	$	31,489	$	54,726

Basic earnings per share:
Income from continuing operations	$	0.01	$	0.87	$	0.96	$	1.52
Income from discontinued operations	—		0.15		—		0.16
Basic earnings per share	0.01		1.01		0.96		1.68

Diluted earnings per share:
Income from continuing operations	$	0.01	$	0.85	$	0.95	$	1.50
Income from discontinued operations	—		0.15		—		0.16
Diluted earnings per share	0.01		1.00		0.95		1.66

Weighted average shares outstanding:
Basic	32,834		32,621		32,820		32,579
Diluted	33,129		33,009		33,123		32,995


	Three Months Ended						Six Months Ended
(in thousands)	July 3, 2020		June 28, 2019		July 3, 2020		June 28, 2019








































Comprehensive Income
Net income	$	389	$	33,057	$	31,489	$	54,726
Other comprehensive income (loss):
Foreign currency translation gain (loss)	12,948		4,510		916		(2,328)
Change in fair value of cash flow hedges, net of tax	2,204		(4,043)		(6,425)		(4,745)

Other comprehensive income (loss), net of tax	15,152		467		(5,509)		(7,073)
Comprehensive income, net of tax	$	15,541	$	33,524	$	25,980	$	47,653


	Six Months Ended
(in thousands)	July 3, 2020		June 28, 2019
Cash flows from operating activities:
Net income	$	31,489	$	54,726
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	39,074		38,535
Debt related charges included in interest expense	2,045		3,676
Stock-based compensation	3,242		5,433
Non-cash charges related to customer bankruptcy	567		—
Non-cash lease expense	3,875		3,750
Non-cash (gain) loss on equity investments	(1,720)		1,652
Other non-cash (gains) losses	39		(311)
Deferred income taxes	39		(1,126)
Gain on sale of discontinued operations	—		(4,974)
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable	44,115		(30,545)
Inventories	(5,933)		2,846
Prepaid expenses and other assets	(16,564)		(16,692)
Accounts payable	(5,854)		16,289
Accrued expenses and other liabilities	(18,195)		(8,593)
Income taxes payable	1,735		2,884
Net cash provided by operating activities	77,954		67,550
Cash flows from investing activities:
Acquisition of property, plant and equipment	(26,680)		(15,506)
Purchase of intangible asset	(4,107)		—
Proceeds from sale of property, plant and equipment	52		5
Purchase of equity investments	—		(327)
Acquisitions, net	(5,219)		—
Proceeds from sale of discontinued operations	—		4,734

Net cash used in investing activities	(35,954)		(11,094)
Cash flows from financing activities:
Principal payments of long-term debt	(18,750)		(70,750)

Proceeds from senior secured revolving line of credit	185,000		15,000
Payments of senior secured revolving line of credit	(15,000)		(10,000)

Proceeds from the exercise of stock options	2,474		1,600

Tax withholdings related to net share settlements of restricted stock unit awards	(2,779)		(2,123)



Net cash provided by (used in) financing activities	150,945		(66,273)
Effect of foreign currency exchange rates on cash and cash equivalents	(236)		170
Net increase (decrease) in cash and cash equivalents	192,709		(9,647)
Cash and cash equivalents, beginning of period	13,535		25,569
Cash and cash equivalents, end of period	$	206,244	$	15,922


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	July 3, 2020		December 31, 2019
Raw materials	$	83,666	$	79,742
Work-in-process	59,899		60,042
Finished goods	28,893		27,472
Total	$	172,458	$	167,256


	Medical		Non- Medical		Total
December 31, 2019	$	822,617	$	17,000	$	839,617


Foreign currency translation	640		—		640
Acquisitions and related adjustments (Note 2)	4,715		—		4,715

July 3, 2020	$	827,972	$	17,000	$	844,972


	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
July 3, 2020
Definite-lived:
Purchased technology and patents	$	253,740	$	(144,969)	$	108,771
Customer lists	708,284		(145,379)		562,905
Other	4,099		(3,629)		470
Total	$	966,123	$	(293,977)	$	672,146
Indefinite-lived:
Trademarks and tradenames					$	90,288

December 31, 2019
Definite-lived:
Purchased technology and patents	$	248,264	$	(138,435)	$	109,829
Customer lists	706,852		(131,185)		575,667
Other	3,503		(3,503)		—
Total	$	958,619	$	(273,123)	$	685,496
Indefinite-lived:
Trademarks and tradenames					$	90,288


	Remainder of 2020		2021	2022	2023	2024	After 2024
Amortization Expense	$	20,289	40,766	39,727	38,320	37,378	495,666


	July 3, 2020		December 31, 2019
Senior secured term loan A	$	248,437	$	267,188
Senior secured term loan B	558,286		558,286
Revolving line of credit	170,000		—
Unamortized discount on term loan B and debt issuance costs	(8,838)		(10,702)
Total debt	967,885		814,772
Current portion of long-term debt	(37,500)		(37,500)
Total long-term debt	$	930,385	$	777,272


	2020		2021	2022
Future minimum principal payments	$	18,750	37,500	920,473


	Number of Stock Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (In Years)	Aggregate Intrinsic Value (In Millions)
Outstanding at December 31, 2019	384,013	$	34.96

Exercised	(66,131)	37.41

Outstanding at July 3, 2020	317,882	$	34.45	4.8	$	12.0
Exercisable at July 3, 2020	315,332	$	34.36	4.7	$	12.0


	Time-Vested Activity	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2019	205,223	$	64.75
Granted	140,121	84.26
Vested	(70,955)	56.60
Forfeited	(11,827)	74.76
Nonvested at July 3, 2020	262,562	$	76.91


	Six Months Ended
	July 3, 2020			June 28, 2019
Weighted average fair value	$	107.27		$	117.03
Risk-free interest rate	1.29		%	2.46		%
Expected volatility	30		%	40		%
Expected life (in years)	2.9			2.8
Expected dividend yield	—		%	—		%


	Severance and Retention		Other		Total
December 31, 2019	$	1,389	$	596	$	1,985
Restructuring charges	1,637		654		2,291

Cash payments	(2,466)		(1,248)		(3,714)
July 3, 2020	$	560	$	2	$	562


December 31, 2019	$	1,933
Additions to warranty reserve, net of reversals	(117)
Adjustments to pre-existing warranties	(66)
Warranty claims settled	(997)
July 3, 2020	$	753


	Defined Benefit Plan Liability		Cash Flow Hedges		Foreign Currency Translation Adjustment		Total Pre-Tax Amount		Tax		Net-of-Tax Amount
April 3, 2020	$	(912)	$	(13,281)	$	10,607	$	(3,586)	$	2,913	$	(673)
Unrealized gain on cash flow hedges	—		1,493		—		1,493		(314)		1,179
Realized loss on foreign currency hedges	—		680		—		680		(142)		538
Realized loss on interest rate swap hedge	—		617		—		617		(130)		487
Foreign currency translation gain	—		—		12,948		12,948		—		12,948

July 3, 2020	$	(912)	$	(10,491)	$	23,555	$	12,152	$	2,327	$	14,479

December 31, 2019	$	(912)	$	(2,358)	$	22,639	$	19,369	$	619	$	19,988
Unrealized loss on cash flow hedges	—		(9,981)		—		(9,981)		2,096		(7,885)
Realized loss on foreign currency hedges	—		483		—		483		(101)		382
Realized loss on interest rate swap hedges	—		1,365		—		1,365		(287)		1,078
Foreign currency translation gain	—		—		916		916		—		916

July 3, 2020	$	(912)	$	(10,491)	$	23,555	$	12,152	$	2,327	$	14,479


	Performance- Vested Activity	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2019	191,592	$	56.30
Granted	67,268	95.06
Vested	(35,363)	31.17
Forfeited	(4,106)	51.54
Nonvested at July 3, 2020	219,391	$	72.33


	Six Months Ended July 3, 2020					Six Months Ended June 28, 2019
	Issued	Treasury Stock	Outstanding	Issued	Treasury Stock	Outstanding
Balance, beginning of period	32,847,017	(146,546)	32,700,471	32,624,494	(151,327)	32,473,167
Stock options exercised	—	66,131	66,131	93,472	—	93,472



RSAs issued, net of forfeitures, and vesting of RSUs	—	71,950	71,950	98,656	(24,681)	73,975
Balance, end of period	32,847,017	(8,465)	32,838,552	32,816,622	(176,008)	32,640,614



March 29, 2019	$	(295)	$	2,551	$	23,701	$	25,957	$	(493)	$	25,464
Unrealized loss on cash flow hedges	—		(4,415)		—		(4,415)		927		(3,488)
Realized loss on foreign currency hedges	—		11		—		11		(2)		9
Realized gain on interest rate swap hedges	—		(714)		—		(714)		150		(564)
Foreign currency translation gain	—		—		4,510		4,510		—		4,510

June 28, 2019	$	(295)	$	(2,567)	$	28,211	$	25,349	$	582	$	25,931

December 28, 2018	$	(295)	$	3,439	$	30,539	$	33,683	$	(679)	$	33,004
Unrealized loss on cash flow hedges	—		(4,569)		—		(4,569)		959		(3,610)
Realized gain on foreign currency hedges	—		(34)		—		(34)		7		(27)
Realized gain on interest rate swap hedge	—		(1,403)		—		(1,403)		295		(1,108)
Foreign currency translation loss	—		—		(2,328)		(2,328)		—		(2,328)

June 28, 2019	$	(295)	$	(2,567)	$	28,211	$	25,349	$	582	$	25,931


	Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
July 3, 2020


Liabilities: Foreign currency contracts	$	1,398	$	—	$	1,398	$	—
Liabilities: Interest rate swaps	9,093		—		9,093		—
Liabilities: Contingent consideration (Note 2)	5,387		—		—		5,387
Liabilities: Contingent consideration (Note 5)	500		—		—		500

December 31, 2019
Assets: Foreign currency contracts	$	710	$	—	$	710	$	—
Liabilities: Interest rate swaps	3,068		—		3,068		—
Liabilities: Contingent consideration (Note 2)	4,200		—		—		4,200


Notional Amount		Start Date	End Date	Pay Fixed Rate		Receive Current Floating Rate		Fair Value		Balance Sheet Location

$	45,000	Jul 2019	Jul 2020	1.8900	%	0.1836	%	$	(51)	Accrued expenses and other current liabilities

200,000		Jun 2020	Jun 2023	2.1785		0.1803		(9,042)		Other long-term liabilities


December 31, 2019	$	4,200
Contingent consideration liabilities recorded for acquisitions	2,700
Fair value adjustment included in Other operating expenses	(500)
Settlements	(500)
Foreign currency translation	(13)
July 3, 2020	$	5,887


	Unrealized Gain (Loss) Recognized in OCI					Realized Gain (Loss) Reclassified from AOCI
	Three months ended,					Location in Statement of Operations			Three months ended,
	July 3, 2020		June 28, 2019					July 3, 2020			June 28, 2019
Interest rate swap	$	(1,003)	$	(5,151)	Interest expense	$	(617)		$	714
Foreign exchange forwards	483		1		Sales	87			(473)
Foreign exchange forwards	2,085		735		Cost of sales	(733)			462
Foreign exchange forwards	(72)		—		Operating expenses	(34)			—


	July 3, 2020		December 31, 2019
Equity method investment	$	17,888	$	16,167
Non-marketable equity securities	6,092		6,092
Total equity investments	$	23,980	$	22,259


	Three Months Ended
	July 3,			June 28,			Change
	2020			2019			$		%
Medical Sales:
Cardio & Vascular	129,084			$	150,397		$	(21,313)	(14.2)	%
Cardiac & Neuromodulation	71,675			114,488			(42,813)		(37.4)	%
Advanced Surgical, Orthopedics & Portable Medical	30,625			32,646			(2,021)		(6.2)	%

Total Medical Sales	231,384			297,531			(66,147)		(22.2)	%
Non-Medical	8,731			16,663			(7,932)		(47.6)	%
Sales	240,115			314,194			(74,079)		(23.6)	%
Cost of sales	182,252			217,210			(34,958)		(16.1)	%
Gross profit	57,863			96,984			(39,121)		(40.3)	%
Gross profit as a % of sales	24.1		%	30.9		%
Selling, general and administrative expenses (“SG&A”)	33,903			33,143			760		2.3	%
SG&A as a % of sales	14.1		%	10.5		%
Research, development and engineering costs (“RD&E”)	12,746			11,396			1,350		11.8	%
RD&E as a % of sales	5.3		%	3.6		%
Other operating expenses	2,029			3,108			(1,079)		(34.7)	%
Operating income	9,185			49,337			(40,152)		(81.4)	%
Operating margin	3.8		%	15.7		%
Interest expense	9,273			13,612			(4,339)		(31.9)	%
Loss on equity investments, net	205			1,611			(1,406)		(87.3)	%
Other income, net	(458)			(718)			260		(36.2)	%
Income from continuing operations before taxes	165			34,832			(34,667)		(99.5)	%
Provision (benefit) for income taxes	(224)			6,610			(6,834)		(103.4)	%
Effective tax rate	(135.8)		%	19.0		%
Income from continuing operations	$	389		$	28,222		$	(27,833)	(98.6)	%
Income from continuing operations as a % of sales	0.2		%	9.0		%
Diluted earnings per share from continuing operations	$	0.01		$	0.85		$	(0.84)	(98.8)	%


	Change From Prior Year
	Three Months		Six Months
Price^(a)	(2.1)	%	(1.7)	%
Mix^(b)	(1.1)		(0.7)
Volume Leverage^(c)	(3.6)		0.2

Nuvectra Bankruptcy^(d)	—		(0.1)

Total percentage point change to gross profit as a percentage of sales	(6.8)	%	(2.3)	%


(dollars in thousands)	July 3, 2020		December 31, 2019
Cash and cash equivalents	$	206,244	$	13,535
Working capital	425,854		236,317
Current ratio	3.77		2.32


Exhibit Number						Description

10.1#*						Employment Offer Letter, dated February 6, 2018, between Integer Holdings Corporation and Payman Khales.

10.2#*						Employment Offer Letter, dated April 16, 2019, between Integer Holdings Corporation and Carter Houghton.



31.1*						Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act.

31.2*						Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act.

32.1**						Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*						XBRL Extension Schema Document

101.CAL*						XBRL Extension Calculation Linkbase Document

101.LAB*						XBRL Extension Label Linkbase Document

101.PRE*						XBRL Extension Presentation Linkbase Document

101.DEF*						XBRL Extension Definition Linkbase Document

104						Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101).


*			Filed herewith.
**			Furnished herewith.
#			Indicates exhibits that are management contracts or compensation plans or arrangements.



/s/ Joseph W. Dziedzic
Joseph W. Dziedzic
President & Chief Executive Officer


1.			I have reviewed this quarterly report on Form 10-Q for the fiscal quarter ended July 3, 2020 of Integer Holdings Corporation;


2.			Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report;


3.			Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.			The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


			a.			Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


			b.			Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;