Good afternoon. My name is Chris, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Integer Holdings Corporation Q1 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions]Thank you. Ms. Amy Wakeham, Vice President of Investor Relations, you may begin the conference.

Great. Thank you, Chris. Good afternoon, everyone. Thanks for joining us, and welcome to Integer's first quarter 2018 Conference Call. The call is being webcast live, and the replay, along with the copy of the press release and the earnings presentation will be 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 some non-GAAP measures. For reconciliation of these 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 our SEC filings for a discussion of the risk factors that could cause our actual results to differ materially. Unless otherwise noted, our commentary today refers to our organic results, which adjusts for the impact of foreign exchange and any M&A activity during the relevant period.Additionally, our full year 2018 outlook discussion does not reflect the potential impact of today's announcement regarding the planned divestiture of our Advanced Surgical and Orthopedic product line.Joining me on the call today to discuss our quarterly results are President and Chief Executive Officer, Joe Dziedzic; and our Executive Vice President and Chief Financial Officer, Gary Haire. Following our prepared remarks, the call operator will come back on the line for Q&A.I'd like to turn the call now over to Joe.

Thank you, Amy. Welcome, everyone, and thank you for joining to hear about our first quarter results. We've continued the strong momentum from last year, and 2018 is off to a really good start. I am pleased to report on another quarter of nearly double-digit sales growth.But first, I want to thank all of our Integer associates who make this happen. The teams and the manufacturing plants and everyone supporting them built on the strong four quarter results from last year and delivered another quarter of significant growth.Now let's review our first quarter results. Our first quarter results demonstrate strong revenue growth of 9% and net income growth of 48%. We continued to generate strong cash flow from operations and paid down $50 million of debt during the quarter. Our highest quarter of debt pay down since Integer was formed.The strength of our first quarter gives us the confidence to increase our full year outlook for sales, earnings and cash flow. We are now projecting sales growth of 3% to 6%, and adjusted EBITDA growth of 9% to 12%, about double the sales growth, which is one of our financial goals.Today, we also announced an important move to create significant value for Integer and position Integer for even faster growth going forward. We are selling our Advanced Surgical and Orthopedics product lines to MedPlast, LLC for $600 million in cash.During the strategic review process we undertook last year, we identified opportunity to unlock value much faster for Integer through the sale of our AS&O product line to an industry market leader.I'll review the transaction in more detail later on in the presentation. But I want to highlight, we expect this transaction to result in improved profitability for Integer, reduced leverage and a similar cash flow profile.After the planned sale of AS&O, Integer will maintain clear market leadership positions with our remaining product lines and will have increased financial flexibility to more aggressively invest for growth.Gary will now provide more discussion regarding our financial results for the quarter.

Thanks, Joe, and good afternoon. I will start by taking you through our first quarter financial results, and then I will also take you through a few pages on cash flow as well as our updated 2018 full year outlook.Turning to slide seven. Here is a quick look at our results for the first quarter. For sales, we had a really strong quarter to start the year, continuing with our momentum from the fourth quarter last year.Sales increased 9% organically, and we saw growth continue to accelerate in our Medical product lines, while we continued double-digit growth in our Electrochem business, but at a more modest rate.Adjusted EBITDA increased 7% year-over-year. And during the quarter, the FX impact was comparable to the prior year Q1 results at just around $1 million.Adjusted net income increased 48% organically when you exclude the impact of FX losses in both the prior year and the current year. Adjusted EPS was $0.61 on a reported basis and includes $0.03 related to FX.Now moving to slide eight. You can see that the first quarter adjusted EBITDA increased about $5 million or 7% versus last year. However, we had approximately $4 million of higher incentive compensation in Q1 this year versus last year. Excluding this impact, adjusted EBITDA would have increased 13%.Now looking at the right side of the page. Adjusted net income was up 53% versus last year and adjusted EPS was up 49%. And then breaking down to pieces, the impact of the incentive comp that I mentioned is about $3 million on adjusted net income and about $0.08 on adjusted EPS.To be clear about incentive compensation, we do not expect this to be a material impact on our full year earnings versus last year, but it will be slightly higher in the first half…

Thanks, Gary. We introduced our strategy to drive long-term growth last quarter, and it doesn't change with the planned divestiture of the AS&O product lines.I'm not going to cover the strategy slide in detail this quarter, but I will highlight that we are executing our portfolio strategy, which includes specific product line strategies to invest to grow, protect and preserve as well as to improve profitability.On the operational strategy, we are also developing and implementing the multi-year plans with a strategic comparatives to achieve excellence in each of the focused areas.We are defining excellent with clarity and aligning compensation to incentivize and reward achievement. Our portfolio and operational strategy is how we are running the company, and we will update you on our progress on future calls.Now let's cover the planned AS&O divestiture. Before I get into the details of this slide, I want to explain how we came to the decision to divest the AS&O product line. The strategic review we performed last year evaluated the markets we serve and assess the competitive and commercial environments. We evaluated our competitive position and compared it to the overall trends in each of these markets. Our realization for AS&O was that the high fragmentation of the suppliers and the high customer concentration would lead to continued supplier consolidation.We concluded if we didn't participate in this trend either as a buyer or a seller that we would risk losing ground and our business could be disadvantaged.We assess the benefits of selling, given the consolidation trend, our current debt leverage and the potential for a significant value-creating transaction. It was clear we should divest if we could find a buyer with complementary capabilities and enough synergies to support a strong valuation.We believe we accomplished this and have unlocked significant value. After the sale,…

[Operator Instructions] Your first question comes from Matthew Mishan with KeyBanc. Your line is open.

Great. Thank you for taking my question. And congratulations on the deal.

Thank you.

Thanks, Matt.

Let's just start with the divestiture. If I look at it, and maybe my math is off, so I was just hoping you could help me out. How do you get to EPS accretion from this, because you're losing about $350 million of sales at about - and you said it as 13% EBITDA margin. How are you able to take that back enough - take down enough debt to cover that?

Matt, it's Gary. I'll just give you the big buckets to make it pretty clean. So if you look at the business, you just have $400 million of sales and about 13% EBITDA margin, so you get to around 50, right? And if you think about the interest savings that we're going to have alone on that, we can get there pretty closely, pretty quickly.

Are you including the flexibility you might now have to take down the high yield notes at the end of the quarter at a more reasonable rate as part of that accretion?

We are absolutely considering that in interest savings.

And then on the guidance. First off, congratulations on a great sales quarter. But versus at least our model, EPS and the margins were a little bit off. What's the rational for not only raising the sales guidance, but also bumping up the EBITDA and the EPS guidance, when it looked like it was a little bit of a more challenging quarter as far as margin goes.

Yes. Again, it is Gary, Matt. So I'll cover all the components. So on the sales side, obviously, it's pretty clean. You can see the momentum that we have in the first quarter. It's a little better than we expected and what we can see the foresight to it. On the EBITDA and the earnings on the EPS side, I think, maybe one of the differences is we had higher incentive comp that we have expected ourselves, but maybe wasn't as clear.And when you think about that several million dollars, $4 million of EBITDA and a few million on the bottom line that had pretty significant impact there. But it doesn't really have an impact on the full year. So from what we can see on a full year basis, we feel really good about taking the outlook up.

So it's the timing of when you recognized the incentive comp rather than kind of the year-over-year headwind from having to realize that?

Yes. That's exactly right. It's just - the right incentive comp works is it's - you're doing it based on projected performance. So if you look at our business early in the year, last year, it wasn't performing as well. And therefore, we're incurring more expense right now.But on a full year basis, if you remember the fourth quarter, it was a really big number as a headwind, and we wouldn't expect it to be that big this year. So that - as you get to later in the year, it becomes a tailwind. Joseph Dziedzic\: And just back - the other thing I would add is, although you highlighted the first quarter margin rate on the sales growth that was what we expected when we looked at our budget. We were pretty much right on the profitability. And so as we look at the rest of the year and the sales going up, we do expect the margin to fall through on that.

Okay. Great. And then last question. Joe, what was the initial feedback from your customers as you kind of rolled out your new strategic plan and had initial conversations with them about it? Joseph Dziedzic\: Well, they love the fact that our focus is on them. They love the fact that we're focused on driving more efficiencies and driving quality and on-time delivery, because that's a huge component of our operational efficiency. That's what resonated with them.Obviously, our desire to sell more is something that they support as well, as long as we're bringing value for them. So the feedback thus far has been positive, but they're pretty focused on what impacts them most directly.

Thank you very much. And congrats again. Joseph Dziedzic\: Thank you, Matt.

Thanks, Matt.

Your next question comes from Jim Sidoti with Sidoti & Company. Your line is open.

Good afternoon. Can you hear me? Joseph Dziedzic\: We can Jim.

All right. Can you just make a real simple for me, what debt are you going to pay down with the $600 million or $550 million?

Jim, its Gary. Yes. Sure. As far as the $550 million. So just to be clear, I mean, we're working with our banks now. So we signed the transaction earlier today. So it's all planned transaction. So we're going to align that up, but obviously, the higher notes will be a primary target. And then we're going to look at our other debt, which is pretty much term debt and revolver, right?So we're clearly going to look - and we're going to make a good economic decision as well when we're looking at it. So you, obviously, have some early payment fees and things like that, that we're going to evaluate and make sure we're making good decisions and not just quick decisions.

And how much the debt is high-yield? And what's the rate?

$360 million of debt is high-yield at 9% and an 8%. That's $32 million of interest expense just on those notes.

Okay. All right. Looking at the sales from the Orthopedics, it seemed like they were a little bit more heavily weighted in the fourth quarter over the past couple of years. Is that the way we should think about it as we adjust our models - with that business did a little bit better in the fourth quarter than it did in the first 3?

Jim, its Joe. We got pretty good visibility to second quarter and third quarter. The fourth quarter little bit less visibility. That has absolutely been the historical trend. We are not seeing that exactly this year as we get closer to the fourth quarter and the order start to firm up, we'll have better visibility. But we're not quite seeing that same pronounced fourth quarter growth on a year-over-year basis this year than last year.We can identify a couple of specific things with customer order patterns and year-end shipments that would support like. This year's fourth quarter may not show as the same level of strength as prior years. So at least right now it's understandable to us. But we're not seeing a significant fourth quarter year-over-year growth like we have in the prior years.

Okay. And if you look at the CRM and the neurovascular businesses, that category was up a few percent, a much better performance year-over-year than we've seen in the past than the trend has been. Is the CRM business becoming more stable? Or is the neuro business getting - growing at a better rate - a bigger part of that right now?

The CRM business has been growing at about the same rate that it has over the past three or four quarters. The increase you see in the category is driven by neuromodulator, and it was driven by a particular supply constraint we had in the first half of last year. So we expect the first half of this year to be stronger than the second half because of that. Last year, there were some sales and ended up more heavily in the second half because of the inability to get product in the first half from a particular supplier.

Okay, all right. That's it from me. Thank you.

Great. Thanks, Jim.

This concludes Q&A session for the conference. So now I'd like to turn it back to Amy Wakeham for any closing remarks.

Great. Thanks, Chris. Thanks, everyone, for taking time this evening to join us for our call and for your continued interest in Integer. If you have any follow-up questions, please feel free to reach out to Investor Relations directly. Thank you, and have a great evening.

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