Good morning. My name is Joseph. And I'll be your conference operator today. At this time, I would like to welcome to everyone to the Integer Holdings Corporation Q4 2021 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a question-and-answer session. Thank you. I would like to now turn the conference over to Senior Vice President of Investor Relations, Anthony Borowicz. Please go ahead, sir.

Good morning, everyone. Thank you for joining us, and welcome to Integer's fourth quarter 2021 earnings conference call. With me today are Joe Dziedzic, President and Chief Executive Officer; and Jason Garland, Executive Vice President and Chief Financial Officer. As a reminder, 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 a reconciliation of these non-GAAP measures, please refer to the appendix of today's presentation, today's earnings press release and the trending schedules, which are available on our website at integer.net. Please note that 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 today's call, Joe will provide his opening comments and a timely update to Integer's portfolio and product line strategies, along with our progress towards achieving above market sales growth. Jason will then review our adjusted financial results for the fourth quarter, and total year 2021, provide additional insight on our product line performance and share our full year 2022 guidance. Joe, come back to provide his closing remarks. And then we'll open up the call for your questions. With that I'll turn the call over to Joe.

Thank you, Tony. And thanks to everyone for joining the call today, especially the Integer associates who have continued to develop and manufacture products for our customers, so they can provide life-saving and life-enhancing products for patients around the globe during these challenging times. Integer delivered strong fourth quarter and full year results. Sales grew 16% in the quarter and 14% for the full year. Earnings per share grew 39% in the quarter and 47% for the full year. Even with these strong results, we experienced about 200 basis points of unfavorable gross margin impact from the labor and supply chain environment, most of which we believe are temporary. We closed the acquisition of Oscor in December and are well underway with integrating our businesses to deliver a broader and deeper product offering to our customers. We have continued to execute our structured and disciplined process to accelerate top line growth and drive bottom line outperformance. Today, I will share a detailed review of our portfolio and product line strategies and provide an update on the great progress we are making. In 2022, we expect to deliver double-digit sales and profit growth at the midpoint of our guidance, despite the continuation of a challenging labor and supply chain environment. The Integer investment thesis summarizes why we believe Integer is executing a clear and compelling strategy to sustainably outperform. Our portfolio strategy and product line strategies define how we win in the markets we serve. Our operational strategy defines how we achieve excellence in everything we do, and our values define how we engage with each other. The bottom of this slide articulates the industry and Integer fundamentals that create a resilient business model. The elements of our strategy to generate sales growth and the structured approach we've taken to develop…

Thank you, Joe. Good morning, everyone. And thank you again for joining our call. I'll provide more details on our fourth quarter and full year 2021 adjusted financial results, summarize our product line sales trends and conclude with our expectations for 2022. Starting with our fourth quarter results. At $313 million, our sales delivered strong growth over last year, up $44 million or 16%, and that included $5 million of sales from one month of Oscor. Organic sales growth, which excludes the impact of the acquisition and currency differences, is 15% higher than last year. Our adjusted EBITDA was $58 million, up $9 million compared to last year, an increase of 19%, and adjusted operating income was up 16% versus prior year. With adjusted net income of $33 million, we delivered $0.99 of adjusted diluted earnings per share, up $0.28 or 39% from the fourth quarter of 2020. Our fourth quarter results represent another quarter of strong financial performance versus last year. Again, our 2021 reported financial results include one month of Oscor. Our full year sales were $1.221 billion, an increase of $148 million compared to the prior year, which is a strong increase of 14% or 13% organically. Adjusted EBITDA was $243 million, up 28% versus last year, and adjusted operating income was $187 million, up $43 million compared to the prior year, an increase of 30%. Our adjusted net income was $136 million, and we delivered $4.08 of adjusted diluted earnings per share of $1.31 from prior year. These strong year-over-year results were achieved while overcoming an extremely difficult labor and supply chain environment. As Joe mentioned, we have been committed to delivering the products needed by our customers and ultimately the patients they serve. This has required the team is working a great deal of overtime…

Thank you, Jason. We delivered a strong 2021 coming off the depths of the pandemic. We expect to grow our 2022 revenues and profit, low double digits at the midpoint of our guidance as we manage through both labor and supply chain constraints. Integer is uniquely positioned to serve our customers across all phases of their product life cycles. Through the execution of our product line strategies, we have demonstrated progress by increasing customer development program revenue by 150% and shifting the mix of these programs to 80% higher growth markets. We have a strong pipeline of emerging customers with PMA products that is expected to go from $20 million in 2020 to $40 million this year and to between $60 million and $80 million in 2024. I remain confident in our strategy and our associates and our ability to earn a valuation premium for our shareholders. Thank you for joining our call this morning. I will now turn the call back to our moderator for the Q&A portion of our call.

Your first question comes from the line of Matt Mishan. Your line is now open.

Hey, guys. This is Brett Fishbin on today for Matt. Just wanted to start off on the supply chain issues. Can you provide some more color from a revenue perspective on how the current situation is impacting trends just given lower than ideal inventory levels at some of your customers? And then as a follow-up, does this dynamic add to a potential backlog into 2H22 and '23? Thank you.

Thanks, Brett. Thanks for the question. So what we're seeing in supply chain is really our Tier 2, 3 and 4 suppliers who are seeing the ripple effect of whether it's force majeures or labor shortages or tools they break or them just trying to deal with the volumes and then having struggles. And we - I think our supply teams have done a phenomenal job of managing that and working to be as far advance of that as we can. We're doing things to help our suppliers be able to supply us and ultimately enable us to continue to meet the needs of our customers, so that they can serve patients. And the feedback we're getting from our customers is we're meeting patient needs. But we do believe that there is some inventory that's been depleted at our customers that's in the supply chain. So we do think there's order of magnitude, it's hard to estimate, but maybe it's in the $10 million to $15 million range worth of sales that maybe have been inventory depletion. And so we would expect to see some increase in future sales as that inventory gets replenished. Whether that gets replenished in the second quarter or second half is hard to tell. It will likely be dependent upon the labor environment and the supply chain environment. But we have already incorporated that order of magnitude for inventory replenishment in our future guidance. So that's been factored into the outlook that you see, and we provided a qualitative assessment of the quarterly profile for the year where, look, we expect first quarter 2022 to look a lot like the fourth quarter of 2021, and that's really a function of the COVID surge. We saw pretty significant absenteeism, particularly in Europe, in our Ireland facilities in the fourth quarter. But we saw a much, much more dramatic impact from absenteeism in January from the Covid surge. I think we've heard that and seeing that across all of our customers, as well as our suppliers. That was a pretty significant impact in January, which is why we think there's at least this $10 million to $15 million worth of inventory depletion that's occurred in the system. So that's really our outlook. We would expect second quarter to get progressively or on a sequential basis, better than first quarter. And in the second half, we really expect the volume to begin to accelerate because there's very strong demand, very strong demand. And as you can imagine, with that level of absenteeism and the supply chain challenges, we but that's also driving cost. And you see that reflected in the margins, both in the - particularly in the fourth quarter. But also, I would expect to see that similar impact in the first quarter. And that will get progressively better as we get into the second quarter and second half of the year.

All right. Thanks for that color. And then I just wanted to move on to some of the longer-term elements. Given the starting point for guidance of 5% to 7% was a little bit above your traditional starting points for a year. Is it fair to think of that as kind of the sustainable go-forward organic growth rate for Integer and would that kind of imply that you're about halfway to your goal of market growth plus two?

It's great question, Brett. And the short answer is yes to both of those. But I would add to it and say, we set our goal, which we think at the time four years ago was ambitious to say 200 basis points above the markets we serve, the growth rate. But we think that's at least was the goal, right. That we want to get it leased. We want to be sustainably - we want to grow sustainably faster than our markets. We picked 200 basis points because we do that, when we do that consistently sustainably, we believe we'll be viewed it as an outperformer in a consistent, sustainable basis that ultimately should lead to a valuation premium. The reason we took the time today to go through our product line strategies, give you overview of our strategy journey is we wanted to frame for investors what our journey has been. In 2017, we build the portfolio - we did a portfolio analysis. 2018, we started recruiting the leaders and developing the elements and the specific actions of the strategy. It was really the end of '18, beginning of '19 that we - I would say we got into full execution mode. And so if we're in full execution mode for '19, '20, '21, we're really three years into our strategy, and we thought it was important to share with investors how to think about the revenue generation cycle times. We shared that on one of the slides because it gives you some perspective on the business that we're seeing show up in sales in 2022, the new business, new product introduction that's driving the slightly faster growth, the 100 basis points faster than where we've been historically. That was business that we targeted and won back in '18 and '19, and then it took us '19, 2021 to go through the process or product development cycle, marketed regulatory, market introduction and ramp. And so we're starting to see some of those strategies begin to deliver and show in our sales acceleration. And so we thought it was important to see kind of the journey to understand where we are in that journey. And yes, seeing the 5% to 7% growth is a step up from 4% to 6% and it's because we have in-process metrics that we're monitoring to track our progress, and we think it's demonstrating that our sales are growing employees to continue growing at a faster rate.

Excellent. And then lastly from me, can you just provide an update on how you're seeing the M&A pipeline at this point where you might be seeing some more opportunities? And then just your overall level of optimism around the ability to deploy $200 million to $250 million this year just based on the current landscape? Thank you very much…

Certainly, thank you. We've had a robust pipeline from a number of years. Throughout the pandemic, we were - the team was vigilant and diligent in continuing to assess opportunities. We love the Oscor acquisition. The integration process is going incredibly well. We're more excited today than we've ever been now that we've gotten a chance to work more closely with our new associates and colleagues, and we see tremendous growth potential and synergies from working together. We believe we are stronger together. When we look at the pipeline of opportunities, it's robust. Unfortunately, deals have a life of their own and the timing of their own that the sellers in more control of than the buyer, but we like the opportunities we have in the pipeline. And I'll just reiterate, what we're looking for is very specific capabilities that fill out our portfolio that complete our ability to vertically integrate. We are very focused and targeted on the faster growing end markets. You've heard us say this. We went through it on the growth curves, whether it's structural heart, electrophysiology or neurovascular or neuromodulation. Those are the faster-growing end markets where there's unmet patient need where our customers are disproportionately investing. And so those are the types of companies and capabilities we're looking to acquire. We feel like there's a very strong pipeline of those, and we're confident we can deploy that capital in a prudent, cost-effective way that help to accelerate our growth and generate returns. So we're confident that we can execute on our capital deployment strategy. Thanks for the questions, Brett.

Thank you.

Our next question comes from the line of Jim Sidoti. Your line is open.

Hi, good morning. And thanks for taking the questions.

Good morning, Jim.

Good morning. So you talked about the decision to exit some of the Portable Medical business, and it seems to make a lot of sense from a margin and growth point of view. But can you just give us a little more color on why it will take four years to exit that business?

Jim, it's a great question. And I would simply say it's the stickiness of medical device highly regulated medical device products. I'd also emphasize, it's a partial exit. So of the 70%, we're exiting 40%, retaining 30%. And so summary is, it's $40 million of products that are largely undifferentiated from a technology standpoint. We went to our customers and said, this business isn't profitable enough. We would rather redeploy all of the resources supporting this business, including freeing up manufacturing space for more profitable growth in a low-cost country. And those customers came back to us and said, it's going to take a while to move that business, you know, two, three, in some cases, four years. And so we would look at - we look at this and say, this is how all of our products are with the distinction being this is undifferentiated from a technology standpoint. And now when you think about most of our business that has Integer proprietary technologies or manufacturing processes, the stickiness is even higher. And so we look at this and say this is indicative or representative of the industry. We're going to support these customers. We absolutely are, we've accepted the time lines that they've given us. We're getting paid for it because we're raising the prices to make sure that it's profitable and worth spending the resources on doing, but it's going to take four years. And so when you look at that $40 million, it's going to be there for another four years. It will be 2025 or 2026 before you begin to see any decline in those sales. And quite frankly, it will also be dependent upon the ability and the effectiveness of the transfers to those suppliers. So it's out there, but the good news - in the short term, we're going to support them, serve them and ensure that they can meet patient needs. But we're also going to make this more profitable for us through the price increases and the overhead reductions. And that gives us the ability to now start planning to move business into that low cost manufacturing location and take advantage of the growth we see elsewhere, more profitable growth in that location without any meaningful capital investment in the facility.

All right. And then the other thing we spent a lot of time today talking about was the product development cycle. And you pointed out how some of these cycles can be up to five years long. So when you're in the early part of that process, how do you measure your progress? How are you sure you're on time, when it's such a long development process?

Yes, great question, Jim. We tried to highlight a few of those in terms of the amount of product development revenue we're generating. So what we're getting paid to do development. And then we showed how we've shifted the mix to be 80% the faster growing end markets. So we've been very targeted at which - what business we're winning. We've been very targeted what business we're going after. And in fact oftentimes, it's saying no, it's a business that's in the maybe more mature, less differentiated, less attractive markets in order to shift that mix. So we've been able to grow the volume of development work by 150%, while shifting the mix to faster growth, the 80% is in the faster growing end markets that we've been targeting. Those are our in-process metrics. We monitor the development and the time line of these development programs. The good news is, particularly on the PMA customers, our PMA products with the longest cycle. We've been at this a long time, particularly in the emerging customer space, and we've got a robust pipeline. We updated the slide we shared in third quarter of 2020, and you see we've seen progression of more customers moving into product introduction and launched. You see the progression of the sales, the $10 million in '18 to $20 million in 2020, $40 million in 2022, we added a new 2024 going to 60% to 80% or even higher depending upon introduction. So these are the in-process metrics that we're monitoring. It also - the new product introductions that are happening in 2022 from business that we won in '18, '19, and we spent the last three years doing the development and transfer to production. That's what's giving us the confidence. These are organic growth of 5% to 7%. But it's what gives us confidence in our ability to hit our third financial objective of at least 200 basis points above the markets.

Great, thank you.

Thanks for the question, Jim.

There are no further questions at this time. Mr. Borowicz, I turn the call back over to you.

Great. I know we presented a lot of content today for everyone to absorb. So I remind you that you can find the audio replay in today's slides on our website at integer.net. So thank you for your interest in Integer. And that concludes the call for today.