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Integer Holdings Corporation Reports Results for Fourth Quarter and Full Year 2020

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Integer Holdings Corporation
·27 min read
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~ Strong 4Q sequential sales and profit increase ~
~ 4Q sales at the high end of guidance, profit above guidance ~
~ Strong cash management … reduced net total debt by $123 million in 2020 ~

PLANO, Texas, Feb. 18, 2021 (GLOBE NEWSWIRE) -- Integer Holdings Corporation (NYSE:ITGR), a leading medical device outsource manufacturer, today announced results for the three and twelve months ended December 31, 2020. Unless otherwise stated, all results and comparisons are from continuing operations.

Executing strategy through the COVID-19 pandemic

  • Throughout the pandemic, Integer associates continue to deliver critical products that customers and patients rely on every day.

  • Integer’s Manufacturing Excellence strategic imperative delivered strong operational results in 2020, delivering productivity and continued improvements in safety, quality and on-time delivery.

  • Integer continues to invest in its product line and operational strategy to create long-term value, including manufacturing capabilities, R&D resources and talent additions to execute the strategic imperatives.

Fourth Quarter 2020 Financial Results (compared to fourth quarter 2019, except as noted)

  • Integer delivered fourth quarter sales at the high end of guidance and profit above guidance.

  • Strong sequential improvement versus the third quarter including margin expansion on sales recovery and continued operating efficiencies.

  • Sales declined 17% to $269 million.

  • GAAP net income grew $4 million to $15 million, an increase of 40%. Adjusted net income declined $18 million to $23 million, a decrease of 43%.

  • Adjusted EBITDA declined $24 million to $49 million, a decrease of 33%.

  • GAAP diluted EPS grew $0.14 per share to $0.47 per share, an increase of 42%. Adjusted EPS declined $0.54 per share to $0.71 per share, a decrease of 43%.

  • Net total debt decreased $59 million from the end of the third quarter 2020 to $689 million.

Full Year 2020 Financial Results (compared to full year 2019)

  • Sales declined 15% to $1.073 billion.

  • GAAP net income declined $14 million to $77 million, a decrease of 15%. Adjusted net income declined $63 million to $92 million, a decrease of 41%.

  • GAAP diluted EPS declined $0.43 per share to $2.33 per share, a decrease of 16%. Adjusted EPS declined $1.91 per share to $2.77 per share, a decrease of 41%.

  • Adjusted EBITDA declined $94 million to $190 million, a decrease of 33%.

  • Generated $181 million of cash flow from operating activities.

  • Reduced net total debt by $123 million.

“Our fourth quarter results reflect the beginning of the recovery from the pandemic as both sales and profit improved significantly from the third quarter,” said Joseph Dziedzic, Integer’s president and CEO. “Integer’s dedicated associates continued to deliver for our customers and their patients while executing our strategy to achieve excellence in everything we do. Our strong operational performance and continued strong cash generation last year enabled Integer to increase investments in our strategy versus 2019. During 2020, Integer improved our manufacturing processes, enhanced our customer relationships, built and added leadership capability and strengthened our culture, positioning 2021 to be a return to profitable growth on our Journey to Excellence.”

Discussion of Product Line Fourth Quarter and Full Year Sales

  • Cardio & Vascular sales declined 14% in the fourth quarter and full year sales declined 7%. Sales were negatively impacted by the COVID-19 pandemic and a blend of our customers’ responses across nearly all C&V markets.

  • Cardiac & Neuromodulation sales declined 21% in the fourth quarter and full year sales declined 24%. CRM and Neuromodulation declined due to the COVID-19 pandemic impact and a blend of our customers’ responses. Additionally, the fourth quarter 2019 Nuvectra bankruptcy created a $17 million headwind for the full year.

  • 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 declined 12% and full year sales decreased 8%, driven by the COVID-19 pandemic impact and a blend of our customers’ responses.

  • Electrochem sales declined 41% in the fourth quarter and full year sales declined 39% driven by a severe decline in the energy market and demand fall-out from the COVID-19 pandemic.

2021 Outlook

Our full year 2021 financial outlook reflects an expected recovery of the industry with year-over-year sales growth projected to be 8% to 12%. Integer’s first quarter sales are projected to be sequentially better than the fourth quarter of 2020 and we believe the second quarter should be similar or slightly better than the first quarter. We expect the improvement in the second half of 2021 to be determined by the pace of COVID-19 recovery.

We expect our operating income to reflect the increase in sales and the continued execution of our manufacturing excellence strategic imperative. We project to generate $90 to $110 of free cash flow, with an equivalent amount of net total debt reduction.

2021 Outlook(a)
(dollars in millions, except per share amounts)

First Quarter 2021

GAAP

Non-GAAP(b)

As Reported

Change

Adjusted

Change

Sales

$280 to $290

(15)% to (12)%

$280 to $290

(15)% to (12)%

Operating income

$29 to $34

(34)% to (23)%

$42 to $47

(29)% to (20)%

Full Year 2021

GAAP

Non-GAAP(b)

As Reported

Change

Adjusted

Change

Sales

$1,160 to $1,200

8% to 12%

$1,160 to $1,200

8% to 12%

Operating income

$116 to $136

(4)% to 13%

$170 to $190

18% to 32%

EBITDA

N/A

N/A

$230 to $250

21% to 32%

Net income

$74 to $91

(4)% to 18%

$113 to $130

23% to 41%

Earnings per Diluted Share

$2.24 to $2.74

(4)% to 17%

$3.40 to $3.90

23% to 41%


(a)

Except as described below, further reconciliations by line item to the closest corresponding GAAP financial measure for Adjusted operating income, Adjusted EBITDA, Adjusted net income, and Adjusted Earnings per Share (“EPS”), all from continuing operations, included in our “2021 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 operating income for 2021 is expected to consist of GAAP operating income, excluding items such as intangible amortization, certain legal expenses, reorganization and realignment costs, asset dispositions and severance, totaling approximately $54 million ($13 million for first quarter), pre-tax. Adjusted net income and Adjusted EPS for 2021 are expected to consist of GAAP net income and diluted EPS, 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 $49 million, pre-tax. The after-tax impact of these items is estimated to be approximately $39 million, or approximately $1.16 per diluted share.

Adjusted EBITDA is expected to consist of Adjusted net income, excluding items such as depreciation, interest, stock-based compensation and taxes totaling approximately $116 million to $120 million.

Supplemental Financial Information

2021
Outlook

2020
Actual

Capital Expenditures, Net

$50 - $60

$47

Depreciation and Amortization

$80 - $90

$79

Stock-Based Compensation

$17 - $19

$9

Other Operating Expense

$8 - $12

$8

Adjusted Effective Tax Rate

15.5% - 17.5%

12.2%

Cash Tax Payments

$20 - $27

$18

Summary of Financial and Product Line Results from Continuing Operations

(dollars in thousands, except per share data)

Three Months Ended

GAAP

December 31,
2020

December 31,
2019

Change

Organic Change(a)

Medical Sales

Cardio & Vascular

$

137,063

$

158,504

(13.5

)

%

(14.3

)

%

Cardiac & Neuromodulation

93,838

119,262

(21.3

)

%

(21.3

)

%

Advanced Surgical, Orthopedics & Portable Medical

29,747

33,885

(12.2

)

%

(12.2

)

%

Total Medical Sales

260,648

311,651

(16.4

)

%

(16.7

)

%

Non-Medical Sales

8,311

13,986

(40.6

)

%

(40.6

)

%

Total Sales

$

268,959

$

325,637

(17.4

)

%

(17.8

)

%

Income from continuing operations

$

15,427

$

11,044

39.7

%

Diluted EPS from continuing operations

$

0.47

$

0.33

42.4

%

Year Ended

GAAP

December 31,
2020

December 31,
2019

Change

Organic Change(a)

Medical Sales

Cardio & Vascular

$

569,948

$

610,056

(6.6

)

%

(7.7

)

%

Cardiac & Neuromodulation

346,242

457,194

(24.3

)

%

(24.3

)

%

Advanced Surgical, Orthopedics & Portable Medical

121,788

132,429

(8.0

)

%

(8.0

)

%

Total Medical Sales

1,037,978

1,199,679

(13.5

)

%

(14.0

)

%

Non-Medical Sales

35,464

58,415

(39.3

)

%

(39.3

)

%

Total Sales

$

1,073,442

$

1,258,094

(14.7

)

%

(15.2

)

%

Income from continuing operations

$

77,258

$

91,218

(15.3

)

%

Diluted EPS from continuing operations

$

2.33

$

2.76

(15.6

)

%


(a)

Organic sales change 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,
2020

December 31,
2019

Change

Organic Change(b)

Adjusted EBITDA

$

49,236

$

73,273

(32.8

)

%

(30.6

)

%

Adjusted net income

$

23,424

$

41,421

(43.4

)

%

(40.4

)

%

Adjusted EPS

$

0.71

$

1.25

(43.2

)

%

(40.5

)

%

Year Ended

Non-GAAP(a)

December 31,
2020

December 31,
2019

Change

Organic Change(b)

Adjusted EBITDA

$

189,616

$

283,770

(33.2

)

%

(32.9

)

%

Adjusted net income

$

91,849

$

154,468

(40.5

)

%

(39.8

)

%

Adjusted EPS

$

2.77

$

4.68

(40.8

)

%

(40.0

)

%


(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 change rates for Adjusted EBITDA from continuing operations, Adjusted net income, and Adjusted EPS 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 Information
The Company will host a conference call on Thursday, February 18, 2021, at 9:00 a.m. EDT / 8:00 a.m. CDT 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) 714-0898 (U.S.) or (778) 560-2691 (outside U.S.) and the conference ID is 1898248. The call will be archived on the Company’s website. An earnings call slide presentation containing supplemental information about the Company’s results will be posted to our website at investor.integer.net prior to the conference call and will be referenced during the conference call.

From time to time, the Company posts information that may be of interest to investors on its website at investor.integer.net. To automatically receive Integer financial news by email, please visit investor.integer.net and subscribe to email alerts.

About Integer®
Integer Holdings Corporation (NYSE: ITGR) is one of the largest medical device outsource (MDO) manufacturers in the world serving the cardiac, neuromodulation, vascular, portable medical and orthopedics markets. The Company provides innovative, high-quality medical technologies that enhance the lives of patients worldwide. In addition, the Company develops batteries for high-end niche applications in energy, military, and environmental markets. The Company's brands include Greatbatch Medical®, Lake Region Medical® and Electrochem®. Additional information is available at www.integer.net.

Contact Information
Tony Borowicz
SVP, Strategy, Business Development & Investor Relations
716.759.5809
tony.borowicz@integer.net

Notes Regarding Non-GAAP Financial Information

In addition to our results reported in accordance with generally accepted accounting principles in the United States of America (“GAAP”), we provide adjusted net income, adjusted EPS, earnings before interest, taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA, adjusted EBITDA margin, adjusted operating income, adjusted operating income margin, and organic change rates, all from continuing operations. Adjusted net income and adjusted EPS consist of GAAP amounts from continuing operations adjusted for the following to the extent occurring during the period: (i) acquisition and integration related expenses, including fair value adjustments to contingent consideration resulting from acquisitions, (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 income tax provision (benefit) related to these adjustments and (xi) certain tax items that are outside the normal tax provision for the period. Adjusted EPS is calculated by dividing adjusted income from continuing operations by diluted weighted average shares outstanding. EBITDA 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 consists of EBITDA plus GAAP stock-based compensation and the same adjustments as listed above except for items (ii), (ix), (x) and (xi).

Adjusted operating income consists of operating income from continuing operations adjusted for the same items listed above except for items (viii), (ix), (x) and (xi). Adjusted operating income margin is adjusted operating income as a percentage of sales.

Adjusted EBITDA margin is adjusted EBITDA as a percentage of sales. Organic sales change is reported sales growth adjusted for the impact of foreign currency and the contribution of acquisitions. To calculate the impact of foreign currency on sales growth rates, we convert any sale made in a foreign currency by converting current period sales into prior period sales using the exchange rate in effect at that time and then compare the two, negating any effect foreign currency had on our transactional revenue, and exclude the amount of sales acquired or divested during the period from the current/previous period amounts, respectively.

Organic change rates for adjusted EBITDA, adjusted net income and adjusted EPS exclude the impact of foreign currency exchange gains and losses included in other (income) loss, net, and the contribution of acquisitions. Contribution 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 net income, adjusted EPS, EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted operating income, adjusted operating income margin, and organic change rates, provides important supplemental information to management and investors seeking to understand the financial and business trends relating to our financial condition and results of operations. In addition to the performance measures identified above, we believe that net total debt and leverage ratio provide meaningful measures of liquidity and a useful basis for assessing our ability to fund our activities, including the financing of acquisitions and debt repayments. Net total debt is calculated as total principal amount of debt outstanding less cash and cash equivalents. We calculate leverage ratio as net total debt divided by adjusted EBITDA for the trailing 4 quarters.

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 the impact of the COVID-19 global pandemic; future sales, expenses, and profitability; future development and expected growth of our business and industry; our ability to execute our business model and our business strategy; having available sufficient cash and borrowing capacity to meet working capital, debt service and capital expenditure requirements for the next twelve months; and projected capital spending. 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. 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: the duration, scope and impact of the COVID-19 pandemic, including government, social, business and other actions taken in response to the pandemic and the effect of the pandemic on our associates, suppliers and customers as well as the global economy; our dependence upon a limited number of customers; pricing pressures that we face from customers; our 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; 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 product 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 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 integrate acquisitions and operate acquired businesses in accordance with expectations; our dependence upon our senior management team and technical personnel; our ability to realize the benefits from cost savings and consolidation initiatives; 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,
2020

December 31,
2019

December 31,
2020

December 31,
2019

Sales

$

268,959

$

325,637

$

1,073,442

$

1,258,094

Cost of sales

195,750

249,607

787,735

903,084

Gross profit

73,209

76,030

285,707

355,010

Operating expenses:

Selling, general and administrative (SG&A)

35,037

37,661

109,006

138,695

Research, development and engineering

10,589

11,809

48,468

46,529

Other operating expenses (OOE)

(10

)

3,912

7,621

12,151

Total operating expenses

45,616

53,382

165,095

197,375

Operating income

27,593

22,648

120,612

157,635

Interest expense

9,218

12,766

38,220

52,545

(Gain) loss on equity investments, net

(1,383

)

(191

)

(5,337

)

475

Other (income) loss, net

1,755

343

1,522

(578

)

Income from continuing operations before income taxes

18,003

9,730

86,207

105,193

Provision (benefit) for income taxes

2,576

(1,314

)

8,949

13,975

Income from continuing operations

$

15,427

$

11,044

$

77,258

$

91,218

Discontinued operations:

Income (loss) from discontinued operations before taxes

(20

)

5,296

Provision for income taxes

178

Income (loss) from discontinued operations

$

$

(20

)

$

$

5,118

Net income

$

15,427

$

11,024

$

77,258

$

96,336

Basic earnings per share:

Income from continuing operations

$

0.47

$

0.34

$

2.35

$

2.80

Income from discontinued operations

$

$

$

$

0.16

Basic earnings per share

$

0.47

$

0.34

$

2.35

$

2.95

Diluted earnings per share:

Income from continuing operations

$

0.47

$

0.33

$

2.33

$

2.76

Income from discontinued operations

$

$

$

$

0.15

Diluted earnings per share

$

0.47

$

0.33

$

2.33

$

2.92

Weighted average shares outstanding:

Basic

32,880

32,688

32,845

32,627

Diluted

33,129

33,089

33,113

33,037


Condensed Consolidated Balance Sheets - Unaudited

(in thousands)

December 31,
2020

December 31,
2019

ASSETS

Current assets:

Cash and cash equivalents

$

49,206

$

13,535

Accounts receivable, net

156,207

191,985

Inventories

149,323

167,256

Refundable income taxes

2,087

Contract assets

40,218

24,767

Prepaid expenses and other current assets

15,896

17,852

Total current assets

412,937

415,395

Property, plant and equipment, net

253,964

246,185

Goodwill

859,442

839,617

Other intangible assets, net

757,224

775,784

Deferred income taxes

4,398

4,438

Operating lease assets

45,153

42,379

Other long-term assets

38,739

29,295

Total assets

$

2,371,857

$

2,353,093

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current portion of long-term debt

$

37,500

$

37,500

Accounts payable

51,570

64,975

Income taxes payable

1,847

3,023

Current portion of lease liabilities

8,431

7,507

Accrued expenses and other current liabilities

56,843

66,073

Total current liabilities

156,191

179,078

Long-term debt

693,758

777,272

Deferred income taxes

182,304

187,978

Operating lease liabilities

37,861

37,114

Other long-term liabilities

30,688

19,163

Total liabilities

1,100,802

1,200,605

Stockholders’ equity:

Common stock

33

33

Additional paid-in capital

700,814

701,018

Treasury stock

(8,809

)

Retained earnings

517,516

440,258

Accumulated other comprehensive income

52,692

19,988

Total stockholders’ equity

1,271,055

1,152,488

Total liabilities and stockholders’ equity

$

2,371,857

$

2,353,093


Condensed Consolidated Statements of Cash Flows(a) - Unaudited

(in thousands)

Year Ended

December 31,
2020

December 31,
2019

Cash flows from operating activities:

Net income

$

77,258

$

96,336

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

79,324

77,895

Debt related charges included in interest expense

4,774

7,772

Stock-based compensation

9,163

9,294

Non-cash charges related to customer bankruptcy

554

21,695

Non-cash lease expense

7,810

7,443

Non-cash (gain) loss on equity investments

(5,337

)

475

Contingent consideration fair value adjustment

(2,000

)

Other non-cash (gains) losses

600

(162

)

Deferred income taxes

(6,966

)

(10,285

)

Gain on sale of discontinued operations

(4,974

)

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable

38,153

(6,976

)

Inventories

18,441

3,724

Prepaid expenses and other assets

(864

)

(6,293

)

Contract assets

(15,451

)

(24,767

)

Accounts payable

(9,055

)

1,887

Accrued expenses and other liabilities

(10,721

)

(2,744

)

Income taxes

(4,342

)

(4,962

)

Net cash provided by operating activities

181,341

165,358

Cash flows from investing activities:

Acquisition of property, plant and equipment

(46,832

)

(48,198

)

Purchase of intangible asset

(4,607

)

Proceeds from sale of property, plant and equipment

82

28

Purchase of equity investments

(417

)

Proceeds from sale of discontinued operations

4,734

Acquisitions, net

(5,219

)

(15,009

)

Net cash used in investing activities

(56,576

)

(58,862

)

Cash flows from financing activities:

Principal payments of long-term debt

(87,500

)

(111,500

)

Proceeds from senior secured revolving line of credit

185,000

34,000

Payments of senior secured revolving line of credit

(185,000

)

(39,000

)

Proceeds from the exercise of stock options

3,263

3,242

Payment of debt issuance costs

(515

)

(1,385

)

Tax withholdings related to net share settlements of restricted stock unit awards

(3,820

)

(3,283

)

Principal payments on finance leases

(6

)

Net cash used in financing activities

(88,578

)

(117,926

)

Effect of foreign currency exchange rates on cash and cash equivalents

(516

)

(604

)

Net increase (decrease) in cash and cash equivalents

35,671

(12,034

)

Cash and cash equivalents, beginning of year

13,535

25,569

Cash and cash equivalents, end of year

$

49,206

$

13,535


(a)

The Condensed Consolidated Statements of Cash Flows - Unaudited includes cash flows related to discontinued operations.

Reconciliations of Non-GAAP Measures from Continuing Operations
Table A: Income from Continuing Operations and Diluted EPS Reconciliations
(dollars in thousands, except per share data)

Three Months Ended

December 31, 2020

December 31, 2019

Pre-Tax

Net of
Tax

Per
Diluted
Share

Pre-Tax

Net of
Tax

Per
Diluted
Share

Income from continuing operations (GAAP)

$

18,003

$

15,427

$

0.47

$

9,730

$

11,044

$

0.33

Adjustments(a):

Amortization of intangibles

10,237

8,095

0.24

10,609

8,310

0.25

Certain legal expenses (SG&A)(b)

139

111

402

318

0.01

Other operating expenses (OOE)(c)

(10

)

235

0.01

3,912

3,020

0.09

Gain on equity investments, net

(1,383

)

(1,093

)

(0.03

)

(191

)

(150

)

Loss on extinguishment of debt

550

435

0.01

1,280

1,012

0.03

Customer bankruptcy (excluding OOE)(d)

16

13

23,827

18,823

0.57

Tax adjustments

201

0.01

(956

)

(0.03

)

Adjusted net income (Non-GAAP)

$

27,552

$

23,424

$

0.71

$

49,569

$

41,421

$

1.25

Diluted weighted average shares for adjusted EPS

33,129

33,089

Year Ended

December 31, 2020

December 31, 2019

Pre-Tax

Net of
Tax

Per
Diluted
Share

Pre-Tax

Net of
Tax

Per
Diluted
Share

Income from continuing operations (GAAP)

$

86,207

$

77,258

$

2.33

$

105,193

$

91,218

$

2.76

Adjustments(a):

Amortization of intangibles

41,131

32,520

0.98

40,076

31,634

0.96

Certain legal expenses (gains) (SG&A)(b)

(26,811

)

(21,180

)

(0.64

)

2,577

2,036

0.06

Other operating expenses (OOE)(c)

7,621

6,177

0.19

12,151

9,326

0.28

(Gain) loss on equity investments, net

(5,337

)

(4,216

)

(0.13

)

475

376

0.01

Loss on extinguishment of debt

550

435

0.01

2,545

2,011

0.06

Customer bankruptcy (excluding OOE)(d)

1,229

971

0.03

23,827

18,823

0.57

Tax adjustments

(116

)

(956

)

(0.03

)

Adjusted net income (Non-GAAP)

$

104,590

$

91,849

$

2.77

$

186,844

$

154,468

$

4.68

Diluted weighted average shares for adjusted EPS(l)

33,113

33,037


(a)

The difference between pre-tax and net of tax amounts is the estimated tax impact related to the respective adjustment. Net of tax amounts are computed using a 21% U.S. tax rate, and the statutory tax rates applicable in foreign tax jurisdictions, as adjusted for the existence of net operating losses (“NOLs”). Expenses that are not deductible for tax purposes (i.e. permanent tax differences) are added back at 100%.

(b)

Represents the net gain of $28.2 million, recorded during the third quarter of 2020 and received in the fourth quarter of 2020, in connection with the resolution of the AVX Corporation patent litigation matter, as well as expenses associated with non-ordinary course legal matters.

(c)

Other operating expenses includes acquisition and integration related expenses, facility consolidation, optimization, manufacturing transfer and system integration charges, asset write-down and disposition charges, charges in connection with corporate realignments or a reduction in force, unusual or infrequently occurring items. Other operating expenses for the fourth quarter of 2020 includes a $1.5 million adjustment to reduce the the fair value of acquisition-related contingent consideration liabilities.

(d)

In November 2019, one of our customers, Nuvectra Corporation, 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. During 2020, we incurred costs and recorded charges associated with the Customer Bankruptcy, primarily consisting of charges related to inventory recorded in cost of sales in our consolidated statement of operations.

Please see “Notes Regarding Non-GAAP Financial Information” for additional information regarding our use of non-GAAP financial measures.

Table B: EBITDA and Sales Reconciliations
(in thousands)

Three Months Ended

Year Ended

December 31,
2020

December 31,
2019

December 31,
2020

December 31,
2019

Income from continuing operations (GAAP)

$

15,427

$

11,044

$

77,258

$

91,218

Interest expense

9,218

12,766

38,220

52,545

Provision (benefit) for income taxes

2,576

(1,314

)

8,949

13,975

Depreciation

10,082

9,889

38,193

37,819

Amortization of intangibles

10,237

10,609

41,131

40,076

EBITDA from continuing operations (Non-GAAP)

47,540

42,994

203,751

235,633

Certain legal expenses (gains)

139

402

(26,811

)

2,577

Stock-based compensation (excluding OOE)

2,934

2,329

9,163

9,107

Other operating expenses (OOE)

(10

)

3,912

7,621

12,151

(Gain) loss on equity investments, net

(1,383

)

(191

)

(5,337

)

475

Customer bankruptcy (excluding amounts in OOE)

16

23,827

1,229

23,827

Adjusted EBITDA (Non-GAAP)

$

49,236

$

73,273

$

189,616

$

283,770

Total sales (GAAP)

$

268,959

$

325,637

$

1,073,442

$

1,258,094

Adjusted EBITDA margin

18.3

%

22.5

%

17.7

%

22.6

%

Table C: Organic Sales from Continuing Operations Change Reconciliation (% Change)

GAAP
Reported
Growth

Impact of
Acquisitions
and Foreign
Currency
(a)

Non-GAAP
Organic
Change

Quarter over Quarter Change (4Q 2020 vs. 4Q 2019)

Medical Sales

Cardio & Vascular

(13.5)%

(0.8)%

(14.3)%

Cardiac & Neuromodulation

(21.3)%

(21.3)%

Advanced Surgical, Orthopedics & Portable Medical

(12.2)%

(12.2)%

Total Medical Sales

(16.4)%

(0.3)%

(16.7)%

Non-Medical Sales

(40.6)%

(40.6)%

Total Sales

(17.4)%

(0.4)%

(17.8)%

Year over Year Change (2020 vs. 2019)

Medical Sales

Cardio & Vascular

(6.6)%

(1.1)%

(7.7)%

Cardiac & Neuromodulation

(24.3)%

(24.3)%

Advanced Surgical, Orthopedics & Portable Medical

(8.0)%

(8.0)%

Total Medical Sales

(13.5)%

(0.5)%

(14.0)%

Non-Medical Sales

(39.3)%

(39.3)%

Total Sales

(14.7)%

(0.5)%

(15.2)%


(a)

Fourth quarter and full year 2020 and 2019 sales have been adjusted to exclude the contribution of business acquisitions and foreign currency exchange rate fluctuations.

Table D: Non-GAAP Organic Change Reconciliation (% Change)

GAAP
Reported
Growth
(a)

Impact of
Non-GAAP
Adjustments
(b)

Impact of
Acquisitions
and Foreign
Currency
(c)

Non-GAAP
Organic
Change

Quarter over Quarter Change (4Q 2020 vs. 4Q 2019)

EBITDA from continuing operations

10.6%

(43.4)%

2.2%

(30.6)%

Income from continuing operations

39.7%

(83.1)%

3.0%

(40.4)%

Diluted EPS from continuing operations

42.4%

(85.6)%

2.7%

(40.5)%

Year over Year Change (2020 vs. 2019)

EBITDA from continuing operations

(13.5)%

(19.7)%

0.3%

(32.9)%

Income from continuing operations

(15.3)%

(25.2)%

0.7%

(39.8)%

Diluted EPS from continuing operations

(15.6)%

(25.2)%

0.8%

(40.0)%


(a)

EBITDA is a non-GAAP financial measure. See Table B for a reconciliation to the most comparable GAAP measure.

(b)

Represents the impact to our growth rate from our Non-GAAP adjustments. See Tables A and B for further detail on these items.

(c)

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 when applicable.

Table E: Net Total Debt Reconciliation
(in thousands)

December 31,
2020

December 31,
2019

Current portion of long-term debt

$

37,500

$

37,500

Long-term debt

693,758

777,272

Total debt

731,258

814,772

Add: Unamortized discount and debt issuance costs

6,715

10,702

Total principal amount of debt outstanding

737,973

825,474

LESS: Cash and cash equivalents

49,206

13,535

Net Total Debt (Non-GAAP)

$

688,767

$

811,939