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Edited Transcript of ITGR earnings conference call or presentation 26-Oct-17 9:00pm GMT

Thomson Reuters StreetEvents

Q3 2017 Integer Holdings Corp Earnings Call

CLARENCE Nov 7, 2017 (Thomson StreetEvents) -- Edited Transcript of Integer Holdings Corp earnings conference call or presentation Thursday, October 26, 2017 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Amy Wakeham

Integer Holdings Corporation - VP, IR

* Gary J. Haire

Integer Holdings Corporation - Executive VP & CFO

* Joseph W. Dziedzic

Integer Holdings Corporation - President, CEO & Director

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Conference Call Participants

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* James Philip Sidoti

Sidoti & Company, LLC - Research Analyst

* Lucas Baranowski

Craig-Hallum Capital - Analyst

* Matthew Ian Mishan

KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst

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Presentation

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Operator [1]

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Good afternoon. My name is Sheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2017 Integer Holdings Corporation Earnings Conference Call. (Operator Instructions) Thank you. Amy Wakeham, VP, Investor Relations, you may begin your conference.

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Amy Wakeham, Integer Holdings Corporation - VP, IR [2]

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Great. Thank you, Sheryl. Good afternoon, everyone. Thanks for joining us, and welcome to Integer's Third Quarter Conference Call. This call is being webcast live, and the webcast replay along with a copy of the press release and the earnings presentation are available on the Investor Relations section of our corporate website. The results and data today -- we discuss today reflect the consolidated results of Integer for the periods indicated.

During our call, we will discuss certain non-GAAP measures. For a reconciliation of the non-GAAP measures, please see the appendix of today's presentation and the notes to the financial statements in today's earnings release. As a reminder, today's presentation includes forward-looking statements. Please refer to the company's SEC filings for a discussion of the risk factors that could cause our actual results to differ materially.

On the call today to discuss our quarterly results and to update you on our business are Joe Dziedzic, President and Chief Executive Officer; and Gary Haire, Executive Vice President and Chief Financial Officer. Following their prepared remarks, Sheryl will come back on the line for Q&A.

I would now like to turn the call over to Joe.

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Joseph W. Dziedzic, Integer Holdings Corporation - President, CEO & Director [3]

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Thanks, Amy. Welcome, everyone. Thank you for joining to hear about our third quarter results. I'm happy to share with you what I consider our third quarter in a row of continued improvement, but before we get into the results of the quarter, I want to start by thanking all of our Integer associates for delivering another quarter of strong top line and net income growth in addition to generating strong cash flow. The team clearly has Integer on a positive trajectory, and I'm grateful to have joined Integer at such an exciting inflection point.

I spent my first full quarter as CEO meeting with customers, visiting some of our manufacturing plants and getting to know our management team at all levels more deeply. We've been reviewing the markets we compete in to ensure we're focused on the segments that will enable us to accelerate our growth and capitalize on our differentiated technology and manufacturing capability.

We've been evaluating the current market dynamics for both customers and competitors as well as technology trends to ensure we are allocating our resources in the areas that will deliver on our objectives. I've been reviewing our strategies across our various product lines to understand where we are achieving our objectives and where we have opportunities to improve. The results of these discussions will become part of our 2018 operating plan, which will be reflected in our 2018 guidance that will be communicated when we report our fourth quarter 2017 results next February.

It continues to be clear to me, Integer has innovative design and manufacturing capabilities, a global footprint with scalability, high quality and a customer focus that enables us to do more for our customers than anyone else in our space. I continue to be impressed by the passion, commitment, talent and capability within Integer and the opportunities for us to serve our customers even better.

Let's review our third quarter results. Our third quarter results are consistent with our full year guidance and reflect continued solid revenue growth. Once again, we generated solid cash flow that enabled accelerated debt repayment.

Our full year outlook has been revised to reflect the year-to-date impact of changes in foreign currency. Gary will take you through these details and highlight that after adjusting for foreign currency, our current guidance is within the range of the original guidance provided at the beginning of 2017. We recognize that to rebuild our credibility with you, our owners, we must deliver on our guidance.

With 3 quarters of actuals, we have narrowed the range of our guidance to reflect our current revenue mix and the operational performance of our business. We expect 2.5% to 3.5% sales growth and 9% to 16% adjusted EPS organic growth, demonstrating strong net income leverage on sales growth.

Turning to Slide 6. Sales growth on a trailing 4-quarter basis continues to improve, reflecting the progress the business has made to change the trajectory of our sales back to growth. The trailing 4-quarter growth is at 3% compared to our revised guidance of 2.5% to 3.5%. It is worth highlighting again that the fourth quarter of 2016 is the most difficult comparison this year since it was the highest sales quarter of last year.

Slide 7 shows the rolling 4-quarter picture for all of our product lines. With the exception of Cardiac & Neuro, all of our product lines remain on an upward sales trajectory. The value of this slide is to demonstrate the trajectory of the business, which is very positive for 3 of our product lines. The Cardiac & Neuro product line is reflecting the current market realities of the cardiac rhythm management market, where market declines and some customer inventory adjustments are offsetting growth in neuromodulation.

Gary is now going to provide more insight into our financial results for the quarter.

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Gary J. Haire, Integer Holdings Corporation - Executive VP & CFO [4]

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Thanks, Joe, and good afternoon. I'm going to take you through our third quarter financial results, and then I'll walk you through our updated 2017 full year outlook.

As a reminder, any reference to organic when we are referring to sales excludes the impact of foreign exchange and M&A activity. Any reference to organic as we talk about adjusted EBITDA, adjusted net income and adjusted EPS excludes the impact of foreign currency gains and losses that are reported in non-operating other income or expense.

Turning to Slide 9. Here's a quick look at our results for the third quarter. Sales increased 4.8% year-over-year on a reported basis and 4.4% organically, our third quarter in a row of solid growth.

To specifically address the impact related to shipments into Puerto Rico, we do have customers with operations in Puerto Rico. However, the impact of Hurricane Maria did not have a significant impact on our results in the quarter. We will continue to ensure that we are supporting our customers in Puerto Rico, and it's too early to say if there would be any impact in Q4. I will cover sales trends by product line in more detail on the next slide.

Adjusted EBITDA declined 3% year-over-year on a reported basis. During the quarter, we incurred $2 million of losses due to foreign exchange, primarily related to intercompany loans impacted by the strengthening of the euro versus the dollar. Excluding this FX impact, adjusted EBITDA would have been about flat compared to last year. Our adjusted net income improved 2% year-over-year on a reported basis and increased 8% organically when you exclude the impact of the FX losses I just mentioned.

Adjusted earnings per share was $0.82 on a reported basis, but this included $0.05 related to FX. Also worth noting is that our EPS was impacted by about $0.03 from share dilution year-over-year for a total of about $0.08 from just these 2 items.

Now regarding the FX impact, you will remember that last quarter I discussed that we would be evaluating opportunities to mitigate the impact of our non-cash FX exposure. I'm happy to tell you that we recently completed actions to restructure several of our intercompany loans, and this will significantly reduce the impact of FX on our results going forward starting in Q4.

On the next slide, you can see the sales growth rate trends for each of our product lines over the last 7 quarters, specifically comparing the year-over-year performance. You can see the positive growth that we saw in the quarter in all of our product lines with the exception of Cardiac & Neuro. Cardiac & Neuro has been challenged due to broader market weakness, specifically in CRM, and this has had a direct impact on this business.

At the total Integer level, we have seen solid growth overall, putting us at a growth rate of between 4% and 5% in each of the last 4 quarters -- last 3 quarters. We are very pleased with this performance, and we are also pleased that our medical business has returned to growth over the past 5 quarters after decreases in the first half of 2016.

I wanted to highlight that we added a new line to the graph on the right side of this page, which shows the Medical business growth rate for the last 7 quarters. There are 2 points worth noting. One, the medical business has had 2 notable step-ups, the first getting back to flat growth in the second half of 2016 and the second in 2017, where we have shown solid growth of around 3% the last couple quarters. The second point is the strength in the Non-Medical business, which is evident in the total Integer revenue growth in the last 2 quarters, which is around 4.5% compared to the Medical growth being closer to 3%.

Now moving to Slide 11. You can see that our third quarter adjusted EBITDA and adjusted diluted EPS declined slightly on a year-over-year basis. When we exclude the impact of foreign exchange, which is included in non-operating other income and expenses, adjusted EBITDA was essentially flat year-over-year and adjusted EPS improved approximately 5%.

In the quarter, our profitability was impacted by higher incentive compensation costs versus the prior year quarter, which was almost a $4 million headwind in the quarter versus last year's Q3 as well as the timing of research and development spend and the unfavorable foreign currency impacts I already mentioned. In regards to research and development, while we had a slightly higher spend in Q3 versus last year, we expect this spend to be about flat to last year on a full year basis.

If you look to the bottom of this page, you can see that on a year-to-date basis through 9 months, we have shown nice growth in our non-GAAP adjusted performance, excluding FX. Comparing to the same 9-month period of 2016, our organic adjusted EBITDA is up about 4%, while our organic adjusted net income is up 20%, and organic adjusted EPS is up over 17%.

Now turning to cash flow. Consistent with our comments from prior quarters, we have remained focused on generating continued and sustainable operating cash flow as well as reducing leverage while continuing to invest for growth. We delivered $38 million of cash flow from operations in the third quarter, our fifth quarter in a row of strong cash flow. Once again, our cash flow allowed us to accelerate debt payment. We repaid $38 million of debt in the quarter, consisting of $33 million in accelerated payments. This now brings our total debt repayments to $107 million for the year.

With our strong cash flow generation and our efforts to effectively manage working capital, our near-term debt and interest payments are very manageable. We will continue to monitor markets on a regular basis and evaluate additional opportunities as appropriate.

Now turning to our full year outlook for 2017. We are updating our sales and adjusted EPS outlook to reflect our progress through the first 3 quarters of 2017. With sales, we are raising the low end of our outlook range by $20 million and raising the top end by $5 million, therefore updating the range to be 2.5% to 3.5% growth for the year. We had another solid quarter of growth in the third quarter. However, as we mentioned previously, we had much tougher comparisons in the fourth quarter as the fourth quarter last year was our strongest quarter in 2016.

From a profitability perspective, we are tightening our adjusted EPS outlook. As I mentioned, we had an additional $0.05 of FX impact in Q3 that was not in our previous guidance. However, we are not reducing the bottom end of our range. We are reducing the top end of our range given the impact of the FX as well as our current revenue mix and our expected operational performance. After adjusting for the impact of FX, this is still well within our original guidance range that we gave at the beginning of the year, and I will show this to you on the next slide.

For cash flow, we are reiterating our outlook of approximately $150 million of cash flow from operations. We continue to generate solid cash flow, and it remains a priority with a focus on working capital management as well as ensuring that our capital spending has appropriate returns.

On Slide 14, I want to come back and compare our revised outlook to the original outlook that we provided at the beginning of the year, starting with sales. We originally said we would have sales growth of between 0 and 3%, and today, we are updating our outlook to 2.5% to 3.5%. So we are now estimating to be between the high end of that range or above it.

In regards to EPS, our original guidance was to be between $2.70 and $3.10 per share. As we mentioned last quarter, this guidance did not anticipate the large FX impact that we have incurred during the year. That impact has been $0.22 through 9 months of the year. When we adjust for the FX only, the original range would have been $2.48 to $2.88, and today, we are updating our outlook to be between $2.55 and $2.75, which is right in the middle of the original outlook after adjusting for the FX.

I will now turn the call back to Joe.

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Joseph W. Dziedzic, Integer Holdings Corporation - President, CEO & Director [5]

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Thanks, Gary. I'll cover our product line sales results and then close with a brief discussion about our current vision and strategy and what we believe it can deliver.

Turning to the Advanced Surgical, Orthopedics & Portable Medical product line. Sales growth year-over-year improved in the third quarter, driven by the ramping up of new products, further stabilization now that plant transfer activity is complete as well as tailwind from one customer's inventory management related to one of their initiatives. We expect that we will see higher sales activity continue into the fourth quarter as a result of the same factors driving the third quarter. However, we anticipate an offsetting impact in 2018 from the one specific customer's inventory management, which we expect will lead to more modest overall growth rate next year.

The trailing 4-quarter sales trend improvement is primarily from the completion of the plant transfer activities and new product launches. The large and growing orthopedic and advanced surgical market provides us with significant opportunities to leverage our capabilities in implants, instruments and arthroscopy in particular.

The Cardio & Vascular product line continues to drive strong year-over-year sales growth with growth of 7% in the quarter, driven by strong demand for existing Integer-owned products and contract manufactured components, particularly in vascular access and peripheral vascular. The rolling 4-quarter sales trajectory continues to accelerate, up to 9% this quarter, driven by the overall strength of the Cardio & Vascular product offering, especially in vascular access, peripheral vascular and electrophysiology.

Additionally, some of the growth has come from customers rebuilding inventory. We continue to have success with both large, well-established customers as well as emerging and fast growth customers. We are investing in the faster growing higher-value segments like structural heart, peripheral vascular and electrophysiology. In addition, we are developing faster prototyping turnaround capabilities with the goal of accelerating our customers' speed to market and overall success. We expect continued solid growth in the fourth quarter and potentially more from customer inventory rebuilding.

We are a clear market leader in this product line and continue to have a wide range of opportunities to leverage our broad capabilities and investments in this large and fast-growing market. Customer relationships remain strong, and our partnership approach is resonating well with new and existing customers, enabling deeper penetration and increased opportunities for future revenue.

Sales growth in the Cardiac & Neuromodulation product line declined in the third quarter. The overall decline in the CRM market and customer inventory management headwinds is resulting in lower sales for Integer that were not offset by the smaller but growing neuromodulation product line. The rolling 4-quarter sales trend reflects this trend over the last year. We continue to execute on our strategy in cardiac rhythm management of providing full component design, development and manufacturing capability to our customers. We anticipate no growth in the fourth quarter this year against the fourth quarter of 2016 sales that were the highest of the year.

Although a smaller component of the overall product line, the neuromodulation market remains a key driver of long-term growth for this product line. We have the market-leading MDO and are focused on accelerating growth through the active support of neuromodulation customers of all sizes in the design, development and manufacture of everything from components to full systems for customer applications.

Our strategy in Cardiac & Neuro is clear. It is to partner with CRM and neuro customers to enable their success and to facilitate our own growth in order to outpace the market realities in the cardiac rhythm management market.

Electrochem delivered another outstanding quarter of growth on a year-over-year basis, up 71%, and the rolling 4-quarter growth rate reached 23%. The combination of a recovering market and share gains during the downturn have enabled Electrochem to deliver significant growth. Electrochem managed the downturn very effectively by not only reducing costs but also implementing efficiencies that are enabling them to capitalize on the improvement in the energy market on top of share gains. The outlook for the fourth quarter is positive, but since the third quarter of 2016 was the low point of the energy market downturn for Electrochem, we do not expect the same level of growth after 2 quarters of 60% plus growth.

Turning to review our vision and strategy. We are pleased to see sustained quarterly growth demonstrating our progress and transitioning our business back to a long-term growth trajectory. As we look forward, we believe we have significant opportunities to further expand and grow our business.

As the market leader in medical device outsource manufacturing, we have a unique breadth of capability to serve our customers across the entire product continuum and across multiple product lines. Whether our customer needs an engineered component or a complete device that we've developed or anything in between, we can deliver. Our innovative design and manufacturing capabilities, our global footprint and scalability, our high quality and our customer focus enable us to deliver more for our customers than anyone else in our space.

As we continue to execute our strategy to realize our vision, we expect to deliver long-term sales growth that is above the market growth rate. We expect to accelerate our EBITDA and cash flow growth, and we desire to earn a valuation premium from our shareholders.

We recognize we earn credibility by consistently delivering on our commitments to our customers, to each other and to our shareholders. We are excited about the future and remain focused on delivering on the remainder of 2017. It is truly an exciting time to be part of Integer.

Sheryl, we will now open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Matthew Mishan of KeyBanc.

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Matthew Ian Mishan, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [2]

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I think it's been really just a similar story for the last 3 quarters. You've generated really solid revenue growth. Free cash flow has been positive, and all that's good. But I think there's -- for me, I've been looking to see whether or not you can generate more leverage, more operating leverage. And I'm just curious, like you've mentioned mix and operational performance, but what -- you had some -- you had certain factors driving the flattish EBITDA in the first half. What -- and you had thought that you were going to correct that in the second half. What's -- why are we not seeing more leverage in the business?

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Gary J. Haire, Integer Holdings Corporation - Executive VP & CFO [3]

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Hey, Matt, it's Gary. Great question. And you're absolutely right that we are definitely looking to drive more leverage in the business. On a quarter-to-quarter basis, there are going to be certain items that happened that don't make that drop-through look as good as what it should. This particular quarter, I'll just point you to a couple items. The first one is incentive compensation. Year-over-year, that was a $4 million headwind, so -- and in particular, part of that goes through gross profit, so it's a 60 basis point year-over-year headwind just on the gross profit margin. I think we like that because the business is performing better within targets than -- in meeting their targets than it did last year. So I don't like the drop-through, but I like the reason why that one is there.

The second one is just some timing around our research and development. It's a $2 million headwind year-over-year in the quarter, but on a full year basis, it's going to be about flat. But those 2 items alone would be $6 million and would have showed our drop-through as much more improved than it actually was.

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Matthew Ian Mishan, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [4]

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Okay. And on your guidance, I think the share comp is similar to the range you had forecast in the beginning for the full year, but you have actually outperformed on the revenue side. But you're not able to like -- not able to raise the EPS, and I'm just curious as what's driving that.

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Gary J. Haire, Integer Holdings Corporation - Executive VP & CFO [5]

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Yes. So another great question, and thank you for that, on the guidance on a full year basis. So if you look back the last quarter, we had a midpoint of $2.75. So we were at $2.55 to $2.95, and the midpoint was $2.75. Now we have our midpoint at $2.65, so we are down $0.10. Half of that's FX because we had another $0.05 of FX in the quarter, which, if I make sure that you heard the comment, we took actions to mitigate that, as I said before, so we will not have that significant impact going forward.

But the other portion is just looking at our gross margins and our revenue mix. We felt like it was appropriate to move the guidance to add that midpoint of $2.65. And if I just kind of left you with the last thing, it's still well within our guidance of what we had provided at the beginning of the year as I outlined on my last slide. And we're really focused on reestablishing our credibility and making sure we deliver within our guidance.

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Matthew Ian Mishan, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [6]

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Okay. And then the fourth quarter -- and this is my last question. In the fourth quarter, if you back into what it implies, it's sort of the midpoint, minus -- like a minus 1% or so on the organic growth side. But it sounded as if Advanced Surgical, Orthopedic, Portable Medical, that should still be positive. Cardio & Vascular should still be positive. Electrochem should still be positive. Is the way we should look at it in the fourth quarter being that those segments are positive, just not as positive as they were previously? And is the headwind in -- you're expecting in Cardiac, Neuromodulation getting worse in the fourth quarter?

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Gary J. Haire, Integer Holdings Corporation - Executive VP & CFO [7]

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Well, yes, I think you're looking at it the right way, Matt. I think that we definitely see the headwind in the CRMN, the Cardiac & Neuro business overall. And the other businesses should be positive. I mean, certainly, Electrochem is not going to be up 70% again, so we won't have that kind of uptick. And that's the reason we are trying to separate that on the slide for you to show that Medical is more like around 3%.

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Joseph W. Dziedzic, Integer Holdings Corporation - President, CEO & Director [8]

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And the other thing is, Matt, when you look at the third -- fourth quarter of last year, the big increase versus the prior quarters was really in CRMN. And so that's why we don't expect growth in CRMN. It was about 7% or 8% higher in the fourth quarter of last year than any of the prior quarters. So that's a big part of why the fourth quarter of last year was the strongest quarter in the year. So you zeroed in on it. That's the product line that is not going to be -- should not be -- we don't expect to see growth on a year-over-year basis due to really tough comps.

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Operator [9]

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Your next question comes from the line of Jim Sidoti of Sidoti & Company.

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Amy Wakeham, Integer Holdings Corporation - VP, IR [10]

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Sheryl, let's move to the next queue, and we'll see if Jim gets back on.

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Operator [11]

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Certainly. Your next question comes from the line of Lucas Baranowski of Craig-Hallum Capital.

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Lucas Baranowski, Craig-Hallum Capital - Analyst [12]

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Yes. This is Lucas Baranowski on for Charles Haff. I just had one quick question here. Abbott recently received a high-voltage MRI safe approval. I believe it was for the Ellipse ICD. And BIOTRONIK as well recently received an MRI safe approval. So with all of these approvals, do you anticipate any impact on your business?

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Joseph W. Dziedzic, Integer Holdings Corporation - President, CEO & Director [13]

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Well, we're always glad to see our customers receive approvals so that they can accelerate their growth so that we could continue to serve them. And as you can imagine, each customer, they plan ahead and expect for -- set expectations or have expectations of their own as to when they'll receive these approvals, and they prepare for that. So as we look at our business, we serve everybody in the industry. And each of those customers, we serve them in different ways with different components for those devices.

And so in aggregate, we like to see all of them growing. That's not the reality of that marketplace as you're looking at their results as well. So we participate with every customer. Obviously, we have some customers with more. But you got to recognize, sometimes those customers plan in advance and they prepare for that, so when they get the approval, that might not actually change our revenues or change our outlook because it's possible that it was already part of our run rate or had already been planned for by the customer. But we're always glad to see them get those approvals and to get the growth of the industry back on track.

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Operator [14]

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Your next question comes from the line of Jim Sidoti of Sidoti & Company.

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James Philip Sidoti, Sidoti & Company, LLC - Research Analyst [15]

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Can you hear me now?

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Joseph W. Dziedzic, Integer Holdings Corporation - President, CEO & Director [16]

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We can hear you great, Jim.

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James Philip Sidoti, Sidoti & Company, LLC - Research Analyst [17]

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All right. Great. You talked a little about the hurricane in Puerto Rico. Just curious, do you think the hurricane's had any impact -- the hurricane in Florida and Texas, if there was any impact from that in the quarter or will there be any in the fourth quarter?

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Gary J. Haire, Integer Holdings Corporation - Executive VP & CFO [18]

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Jim, we don't see any impact [on our] -- let me just say, it's -- if there is any impact, it's not significant from -- we have very few business -- actually very few employees in the Houston area. And Florida, we do have a customer and some employees, but we don't see any impact on our results.

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Joseph W. Dziedzic, Integer Holdings Corporation - President, CEO & Director [19]

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And we -- Jim, we certainly did have customers that had us either redirect shipments or hold shipments, until they could accept them or receive them. But that seemed to either be managed very well by our customers or they were able to redeploy the product to other facilities.

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James Philip Sidoti, Sidoti & Company, LLC - Research Analyst [20]

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Okay. And I just want to be clear on the change to guidance. Are you saying that if you didn't have the FX effect and the impact on the intercompany loans that your guidance would have basically been unchanged from where it was at the beginning of the year?

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Gary J. Haire, Integer Holdings Corporation - Executive VP & CFO [21]

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Not -- I mean, yes and no, Jim. So let me just explain. So original guidance was $2.70 to $3.10. The FX is $0.22 year-to-date through 9 months. That is primarily related to the intercompany loans. It's not all. But if you exclude that FX, it would have been $2.48 to $2.88. And we're just saying that our range now is $2.55 to $2.75, which is right in the middle of that.

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James Philip Sidoti, Sidoti & Company, LLC - Research Analyst [22]

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Okay. So the lion's share of the adjustment is due to the intercompany loans. Is that correct?

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Gary J. Haire, Integer Holdings Corporation - Executive VP & CFO [23]

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That's a correct statement.

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James Philip Sidoti, Sidoti & Company, LLC - Research Analyst [24]

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Okay, right. And then if you look at the CRM, Neuromodulation business, at what point does neuromodulation become a big enough part of that business that the growth in neuromodulation will offset the headwinds from the CRM business? Is that something we should see in '18 -- 2018, 2019? Or is that still 4 or 5 years away?

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Joseph W. Dziedzic, Integer Holdings Corporation - President, CEO & Director [25]

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Yes. It's a great question, Jim, and I wish neuromodulation was even bigger than it is today. We are incredibly well positioned in that space and participating with a lot of emerging companies that when they bring products to market, we'll be able to participate and get significantly -- significant market share and growth from neuromod. When will it be big enough to compensate for the market realities in CRM? I wish I had a clear answer. It's really dependent upon how quickly some of these emerging neuromod companies can bring products to market. The neuromod company and customers we're serving today are doing extremely well. They continue to grow. But we are fighting the realities in the CRM market. We participate with everybody in CRM somewhere, and we see opportunity to grow, particularly in leads and lead components. We're investing to make sure we're participating in the next generation for batteries and feed-throughs and capacitors. We think we're really well positioned there. And we continue to work towards growth in CRM, but there is that market headwind that we're facing. So I don't have a clear answer for you, but you should know, we're doing everything we can to accelerate that time line.

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James Philip Sidoti, Sidoti & Company, LLC - Research Analyst [26]

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Okay. And then the last one from me, cash flow has definitely been ticked up the past couple of quarters. It sounds like you're expecting another good quarter in December. Is the primary use of cash flow going to continue to be to pay down debt? Or do you see other opportunities?

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Gary J. Haire, Integer Holdings Corporation - Executive VP & CFO [27]

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Jim, it's Gary. I'd say that the primary use of our excess cash is going to be to -- to definitely going to be to pay down debt at this point, like definitely the next several quarters. Obviously, we're going to reinvest in the business and things that are going to help us grow on an appropriate level as well as long as they have really good returns. But those are going to be the primary uses of cash in the near term.

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Operator [28]

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That concludes the question-and-answer session. I will turn the call back over to the presenters.

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Amy Wakeham, Integer Holdings Corporation - VP, IR [29]

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Thanks, Sheryl, and thank you, everyone, for taking the time to join our call and for your continued interest in Integer. If you have any follow-up questions, please feel free to contact me, Investor Relations directly. We look forward to updating you on our full year results and fiscal '18 outlook in February. Have a great evening.

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Operator [30]

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This concludes today's conference call. You may now disconnect.