Good afternoon. My name is Kelly, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Q1 2017 Integer Holdings Corporation Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Amy Wakeham, Vice President of Investor Relations, you may begin your conference.

Great. Thank you, Kelly. Good afternoon, everyone. Thanks for joining us and welcome to Integer’s first quarter 2017 conference call. This call is being webcast live and together with our earnings release and conference call presentation are available on the Investor Relations section of our corporate website. The results and data 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 most directly comparable 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, statements about expected future events and financial results are forward-looking and subject to risks and uncertainties. Our actual results may differ. Please refer to the risk factors detailed in our SEC filings for further discussion. For anyone listening to a taped or website replay or reviewing a written transcript of this conference call, please note that all information presented is current only as of today’s date, May 8, 2017. The Company disclaims any duty or obligation to update any forward-looking information whether as a result of new information, future events or otherwise. On the call today to discuss our quarterly results and to update you on our business outlook and strategic initiatives are Joe Dziedzic, Interim President and Chief Executive Officer; and Gary Haire, Executive Vice President and Chief Financial Officer. Tom Mazza, Corporate Controller and Treasurer will join us for the Q&A portion of the call. Following our prepared remarks, the call operator will come back on the line for Q&A. I would now like to turn the call over to Joe.

Thank you, Amy. Welcome to everyone on the call, and thank you for joining us this afternoon. We are glad you’re on the call to hear about our first quarter because we think we are off to a really good start in 2017. We're going to cover the usual topics today but before we get started, I want to welcome Gary Haire, who joined Integer a week ago as Executive Vice President and CFO. We are pleased to have Gary on the Integer team. His extensive financial and operational experience with several large, multinational companies will benefit us as we continue to execute our growth strategy and optimize our operations. I’m confident, you’ll enjoying interacting with Gary and be as impressed with him as we have been. And we have Tom Mazza on the call with us as well. You may know Tom from his previous days as CFO of Greatbatch and he is currently Integer’s Treasurer and Corporate Controller. Tom had been our acting CFO over the past few months during the CFO transition. I’d like to thank Tom again for stepping up one more time for the Company. We appreciate and value your leadership, Tom. Before I address the first quarter, I think we can all reflect back on 2016 and acknowledge that it was a challenging year for Integer. But, it was a tale of two halves. In the first half, we declined nearly double digits on the top-line and in the second half, we stopped the revenue erosion. However, revenue wasn’t growing; it was felt. Now, we’re at another inflection point for the business, one that points to growth. We delivered 5% organic revenue growth in the first quarter. Our intense focus on customers since the acquisition has really begun to pay dividends. Some of those…

Thanks, Joe, and good afternoon, everyone. I’m excited to finally be on board and a part of the Integer team. And I look forward to meeting with many of you in the near future. Today, I will take you through our first quarter financial results and also review our 2017 full year guidance. As I review our results, any reference to organic excludes the impact of foreign exchange and M&A activity for sales. And as we talk about adjusted EBITDA, adjusted net income and adjusted EPS, it excludes the impact of foreign exchange that is a non-operating other income or expense. Turning to slide eight. Here is a quick snapshot of our key financial results. Revenue increased 4% year-over-year on a reported basis and 5% organically as we continue to see stabilization in our product lines, demonstrating we have transitioned the business back to growth. Joe will cover each of the product lines later in this call. Adjusted EBITDA declined 2% year-over-year on a reported basis but increased 4% on an organic basis. Similarly, adjusted net income and adjusted EPS were essentially flat year-over-year on a reported basis but organically increased 26% and 24%, respectively. I will discuss these changes in more detail on the next few slides. Taking a closer look at the revenue trends for each of our product lines, you can clearly see the improvement and how this translates to total Company growth, returning to positive year-over-year growth for the first time in five quarters. We are benefiting from enhanced customer relationships, which is allowing us to deepen our partnerships and win new and expanded business opportunities. Additionally, we are seeing improvement for certain product lines such as Electrochem and are benefiting from the return to normalized volumes in certain product categories as product transfer activities are…

Thanks, Gary. Now, I’ll provide an overview of each of our product lines. Starting with Advanced Surgical, Orthopedics & Portable Medical product line, which represents about one-third of our 2016 revenues. The chart on the left highlights the improved of the product line, primarily due to a return to normalized Portable Medical volume as we move beyond the temporary disruption caused by product refers to our facility in Tijuana. As we expected and communicated last quarter, volumes are normalizing as the transfer product line becomes fully qualified, and this is reflected in the strong growth this quarter. This product line’s revenues can by lumpy due to product launches and this year, we are benefiting from several launches in orthopedics and arthroscopic. Looking ahead, we expect to see revenue growth for the full year as new product launches reach expected volumes and we continue to drive market share growth within our existing products despite the impact of unfavorable currency changes and historical level of price reductions. We are focused on growing the already strong relationships and the high levels of collaboration with our top customers in this product line. We continue to partner with our customers to support the cost management programs and to collaborate on internal continuous improvement and productivity initiatives to optimize our own cost. We continue to see significant opportunities to invest in technology and innovation with the focus on wireless technology and single use orthopedic instrumentation. The Cardio & Vascular product line had another strong quarter with year-over-year growth of 10%, driven by strong demand for existing OEM product lines and contract components. We saw particular strength in our vascular access and electrophysiology products. In addition, we benefited from customer restocking activities and expect a return to more normalized demand patterns. Our outlook for 2017 remains positive…

[Operator Instructions] Our first question comes from Matt Mishan from KeyBanc. Please go ahead.

Can you help me better understand some of the -- I guess the moving pieces of -- felt like the FX hit in the quarter and what drove that? It looked like only about on sales, there's only like 1.4 million but what drove the excess hit to EPS? And then talk a little bit if you can and try quantify some of the reasons, why I guess the increased sales didn't flow through and what do you think the impact of that was to the P&L, if possible?

Sure. Hey Matt, this is Gary. So, I'll take the first question on the FX, and you brought up both the revenue piece and then what was the impact on earnings. So, not to confuse the pieces, the topline part is you're right; it's just over $1 million and that's a translation on revenue. On the unrealized FX piece, as you know, now we have a much larger and more global business and there's several intercompany loans that we're utilizing for a cash tax efficiency play. And because of this, we have some swings from quarter-to-quarter that are non-cash FX gains or losses on the intercompany loans. And you know as -- we’re focused as always on our economic structure and on the cash perspective of the company, and we'll keep looking at this going forward and we just may have some of these swings positive or negative quarter to quarter that again they're unrealized non-cash items, and it’s pretty normal for a global company.

And then, just your general thoughts, if you could quantify sort of the delays in Plymouth and increased demand with the higher revenue parts that put some pressure on your gross margins, if possible?

So, Matt, 5% organic revenue is a good result for the quarter. And I think we're all happy with that. I'll point a couple of things. First, first quarter last year was the lightest out of the four quarters; we’re about $20 million higher per quarter in the last three quarters. But, we also -- we saw growth in the quarter and it didn't fall through the leverage that we expect, only 4% on the EBITDA. And Gary referenced two things, one is the plant transfer that we had that is causing us to have not only higher cost because we're operating out of a facility in Plymouth versus a facility in Tijuana. So, there's higher cost but we also had some redundant cost in our operation. So, as we finish that transition and that transfer which will happen later this year then we'll start to see the benefits of that and we'll get back to a more normal level of margin profit that we would expect. The another thing was we did have a particular customer that unexpectedly ramped volumes on us and it affected about four of our facilities and so, we had some inefficiency as we hired people. We had to train them, we had some overtime work in order to meet the demands for that customer. And it’s important customer. So, we wanted to make sure that we were able to serve them and deliver on their surprise need from us. So, that caused some extra cost in the quarter as well that prevented leverage from falling through to the profit. Those are the two biggest items. Every quarter has some moving parts but those are the two biggest items.

And then last question. Did you see an outsized benefit from a major product launch from one of your customers in the quarter in the CRM field?

We have launches and customer product introductions that affect us every quarter up and down, and this quarter was no different.

Your next question comes from Charles Haff from Craig-Hallum. Please go ahead.

So, the EPS guidance of $2.70 to $3.10 for 2017. I’m kind of scratching my head over this a little bit, because you got a $7 million interest savings, which would translate to about $0.17. And you didn’t raise the guidance. Am I right to be confused by that. Is this just lower profitability or am I missing something here?

Hey, Charles. This is Gary. So, you are correct on the $7 million; that’s exactly what we said back when we did the transaction and when we closed it on March 17th. And so, that’s a correct number on an annual basis. The number in 2017 is somewhere between $5 million and $6 million since we did it in the middle of March. So, that’s one thing. The second thing to clarify is that’s a pre-tax number. So, you have to remember, that has we tax effective to look at it on an EPS. And then, what I’d say qualitatively around that is, the guidance was given on February 27th, back when we did our guidance call with our fourth quarter earnings. And at that time, of course, we would have already been working on the pipeline of that transaction for the debt. And as we thought about our guidance at the time, we’re clearly considering it and it’s a broad range of $0.40, $2.70 to $3.10. And we’re still within that range even with the debt change.

Okay. Thanks for the clarification there. And then on the last page of the press release, you have other operating expense add backs or adjustments of about $25 million to $30 million and previous guidance was for $18 million to $22 million for that. So are these higher add backs included in your guidance of $2.70 to $3.10? Because if you take $7 million to $8 million of add back, additional add backs here, that’s about $0.18 using the 25% tax rate?

Yes. It’s Gary again, Charles. So, you’re exactly correct. Our previous guidance was 18 to 22 on other operating expenses and now it’s 25 to 30. Clearly, we did not have the full costs of a CEO transition included when the guidance would have been provided at February 27th. That is the largest item for the change.

Okay. And what were those transition costs for the CEO?

They're footnoted, they're approximately $5 million that we incurred in the first quarter, but remember those are non-GAAP. So, we're excluding -- those will be excluded and that's why that's noted that way.

Okay, great. And then, you mentioned the $50 million of synergies cumulatively for 2017, what were the synergies for this quarter?

The synergies for this quarter were about 3 or $4 million. This is Tom by the way. For the year, we're anticipating about $15 million; we had about 35 run rate and we're going to push to get to $50 million by the end of this year on a cumulative basis.

Okay. And then, my last question here is on CRM neuro. That came in better than I was expecting. And I know CRM neuro has the highest operating margins of your different businesses. So, I'm just wondering, since you had higher CRM neuro revenues than I think you and I were expecting, I'm just scratching my head on why that didn't drop through on the margins. I understand the reasons that you gave about the demand from one product and the delays for Plymouth. But it seems like you had a substantial mix benefit versus your original expectations. Am I missing something there on the mix benefit?

Well, we did have some delayed shipments in the quarter in that product line that offset some of the other growth that we experienced. And at least versus what we were tracking towards internally for the quarter, we were actually pretty much right on in that product line. Obviously there's variability, every year, every quarter but internally our first quarter for CRM N was very close. But there was growth in one area and a drag in another. But, the good news is the area we had the drag is timing; so, it'll help us in the second quarter.

Your next question comes from Jim Sidoti from Sidoti and Company. Please go ahead.

Can you just give a little more color on SG&A in the quarter, was up pretty significantly from the fourth quarter when actual revenue was down?

I'm sorry. Did you ask about energy?

No. SG&A.

Oh SG&A, sorry. When I look at SG&A -- this is Gary, when look at, it's pretty flat Q4 to Q1, Q4 2016 and Q1 around $32 million. So, it's pretty flat as a percentage of revenue. Clearly, you had a higher revenue in fourth quarter; so, it's going to look a little bit higher, but there are some costs that come through in the first quarter that would have not been incurred in the fourth quarter just as we start the year, but it's pretty flat fourth quarter to first quarter.

Are you looking on it at a GAAP basis?

Yes.

Okay. Intangible asset amortization increased about $1.6 million in the quarter over last year, and that’s due to the way the economy requires you to do the amortization in accordance with the expected cash flows. So, amortization -- and that's why I was asking because on an adjusted basis it’s not in there.

Okay.

I was speaking specifically on an adjusted basis, which you can see in the back in the appendix in the schedule, if you wanted to clarify that later.

Okay. And then in general, would you consider the EPS in the first quarter in line with where you thought it would be probably six weeks ago when you did the quarter?

In the context of our internal targets, thinking about the full year, yes. The one thing was the currency. Obviously we don’t predict currency rates and that did move against us. I’ll reinforce what Gary said; it’s non-cash, it’s internal loan structures that are there to be cash tax efficient. And so there could be more of that. But we’re looking at the economics of it; we don’t plan to hedge something that’s non-cash. Excluding the currency, our first quarter is very much in line with how we view the year and our guidance is very much intact.

So, based on that, you’re looking for a nice pick-up in EPS over the next three quarters. Should we assume that it will be primarily in the back half of the year or do you think you’ll see it -- that pick-up in the second and third quarter as well?

So, couple of things to highlight. Last year, the fourth quarter was the strongest quarter of the year from a top-line standpoint. There is a schedule, I think it’s the first page in the appendix just so you can see that easily. So, fourth quarter was the strongest. We are seeing really good strength in the middle quarters of this year. Just because, last year was the strongest, I wouldn’t expect the year-over-year comps to be a little tougher as we get to the end. So, we do expect middle of the year to be stronger, thinking about the quarter splits. We also would expect to get more of the benefits from the synergies that Tom Mazza answered about, the integration synergies, those would ramp and we get a bigger portion of those realized in the second half. And then, as we finish the facility transfer that Gary talked about that will also bring more benefits in the second half of the year. So, there is a balancing act believe volumes will be stronger in the middle, so what we’re anticipating; and then profitability could improve later in the year as we get some of the benefits from facility transfer and integration synergies.

And where would you say you are in terms of integration at this point, seventh or eighth inning at this point, or you still have…?

So, there is a couple of different ways to think about it. The way, I’d propose is, when we have the original acquisition assumptions, we had a certain number of things we were going to do for integration. The team has done a really good job of executing on those and it’s taken an unbelievable amount of effort across a huge number of people inside the company. And we’re getting ready to wind down that initial plan. That doesn’t mean that there aren’t still significant number of things to be done and there are. But we’re going to transition from calling it integration, because we’ve gotten over the hump of the bulk of it, we’ve put it a lot of processes together. And now, we’re going to focus on optimizing those newly combined processes, and there is a lot of opportunity for the optimization. And we think that has the opportunity to bring a lot of productivity. And not only is it going to bring productivity in savings, it’s going to bring better customer service; it’s going to allow us to serve our customers even better as we run our plans even more efficiently. So, the term integration, we’re going to move on from and we’re going to start talking about optimizing the newly combined company, because today we’re one Integer, we’re ne Company.

That’s all the time we have for questions today. Thank you for joining. This concludes today’s conference call. You may now disconnect.