itgr-20220701

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________________________

FORM 10-Q

_____________________________________________________________


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 1, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number 1-16137

_____________________________________________________________

INTEGER HOLDINGS CORPORATION

(Exact name of Registrant as specified in its charter)

_____________________________________________________________


Delaware						16-1531026
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

5830 Granite Parkway,

Suite 1150

Plano,

Texas

75024

(Address of principal executive offices)

(Zip Code)

(214) 618-5243

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value per share

ITGR

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the Company’s common stock, $0.001 par value per share, as of July 22, 2022 was: 33,122,853 shares.

INTEGER HOLDINGS CORPORATION

Form 10-Q

For the Quarterly Period Ended July 1, 2022

TABLE OF CONTENTS


		Page
PART I—FINANCIAL INFORMATION

ITEM 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets (Unaudited)	3

	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)	4



	Condensed Consolidated Statements of Cash Flows (Unaudited)	5

	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)	6

	Notes to Condensed Consolidated Financial Statements (Unaudited)	7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	41

ITEM 4.	Controls and Procedures	41

PART II—OTHER INFORMATION

ITEM 1.	Legal Proceedings	42

ITEM 1A.	Risk Factors	42

ITEM 6.	Exhibits	42

SIGNATURES		43

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PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INTEGER HOLDINGS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)


(in thousands except share and per share data)	July 1, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	15,593	$	17,885
Accounts receivable, net of provision for credit losses of $0.2 million and $0.1 million, respectively	221,939		182,310
Inventories	194,458		155,699
Refundable income taxes	4,627		4,735
Contract assets	70,408		64,743


Prepaid expenses and other current assets	25,988		27,610

Total current assets	533,013		452,982
Property, plant and equipment, net	280,461		277,099
Goodwill	978,559		924,704
Other intangible assets, net	841,122		807,810
Deferred income taxes	6,149		5,711
Operating lease assets	75,777		70,053
Other long-term assets	43,006		43,856

Total assets	$	2,758,087	$	2,582,215
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	15,250	$	15,250
Accounts payable	103,111		76,859
Income taxes payable	259		725

Operating lease liabilities	10,762		9,862
Accrued expenses and other current liabilities	68,344		56,933

Total current liabilities	197,726		159,629
Long-term debt	931,889		812,876
Deferred income taxes	178,695		171,505
Operating lease liabilities	64,436		59,767
Other long-term liabilities	21,890		23,741

Total liabilities	1,394,636		1,227,518
Commitments and contingencies (Note 10)
Stockholders’ equity:

Common stock, $0.001 par value; 100,000,000 shares authorized; 33,121,833 and 33,063,336 shares issued and outstanding, respectively	33		33
Additional paid-in capital	722,175		713,150

Retained earnings	646,527		614,324
Accumulated other comprehensive income (loss)	(5,284)		27,190
Total stockholders’ equity	1,363,451		1,354,697
Total liabilities and stockholders’ equity	$	2,758,087	$	2,582,215

The accompanying notes are an integral part of these condensed consolidated financial statements.

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INTEGER HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS) (Unaudited)


	Three Months Ended				Six Months Ended
(in thousands except per share data)	July 1, 2022		July 2, 2021		July 1, 2022		July 2, 2021
Sales	$	350,081	$	312,023	$	660,993	$	602,490
Cost of sales	257,184		223,277		486,621		429,258
Gross profit	92,897		88,746		174,372		173,232
Operating expenses:
Selling, general and administrative	41,786		35,379		81,346		70,881
Research, development and engineering	14,871		13,738		30,954		27,199
Restructuring and other charges	3,533		279		6,868		1,194
Total operating expenses	60,190		49,396		119,168		99,274
Operating income	32,707		39,350		55,204		73,958
Interest expense	7,773		7,532		13,741		16,064
Loss on equity investments	320		684		2,724		2,019
Other loss, net	191		356		368		119
Income before taxes	24,423		30,778		38,371		55,756
Provision for income taxes	3,587		1,345		6,168		4,803







Net income	$	20,836	$	29,433	$	32,203	$	50,953

Earnings per share:
Basic	$	0.63	$	0.89	$	0.97	$	1.55
Diluted	$	0.62	$	0.89	$	0.97	$	1.53











Weighted average shares outstanding:
Basic	33,111		32,982		33,101		32,970
Diluted	33,350		33,254		33,326		33,221

Comprehensive Income (Loss)
Net income	$	20,836	$	29,433	$	32,203	$	50,953
Other comprehensive income (loss):
Foreign currency translation gain (loss)	(27,274)		2,484		(35,161)		(13,880)
Change in fair value of cash flow hedges, net of tax	(47)		845		2,687		139

Other comprehensive income (loss), net of tax	(27,321)		3,329		(32,474)		(13,741)
Comprehensive income (loss), net of tax	$	(6,485)	$	32,762	$	(271)	$	37,212

The accompanying notes are an integral part of these condensed consolidated financial statements.

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INTEGER HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Six Months Ended
(in thousands)	July 1, 2022		July 2, 2021
Cash flows from operating activities:
Net income	$	32,203	$	50,953
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	45,753		40,419
Debt related charges included in interest expense	962		2,446
Inventory step-up amortization	798		—
Stock-based compensation	10,951		8,953

Non-cash lease expense	5,344		3,947
Non-cash loss on equity investments	2,724		2,019

Other non-cash losses	7,510		29
Deferred income taxes	(969)		(242)

Changes in operating assets and liabilities, net of acquisition:
Accounts receivable	(37,642)		(19,141)
Inventories	(41,471)		898
Prepaid expenses and other assets	(783)		(2,604)
Contract assets	(6,189)		(16,792)
Accounts payable	25,554		16,937
Accrued expenses and other liabilities	(7,295)		(13,737)
Income taxes	(439)		(5,298)
Net cash provided by operating activities	37,011		68,787
Cash flows from investing activities:
Acquisition of property, plant and equipment	(22,610)		(18,416)

Proceeds from sale of property, plant and equipment	587		15

Acquisitions, net	(126,636)		—


Net cash used in investing activities	(148,659)		(18,401)
Cash flows from financing activities:
Principal payments of term loans	(7,625)		(64,750)

Proceeds from revolving credit facility	160,000		—
Payments of revolving credit facility	(34,000)		—

Proceeds from the exercise of stock options	—		340
Payment of debt issuance costs	—		(141)
Tax withholdings related to net share settlements of restricted stock unit awards	(1,926)		(2,988)


Contingent consideration payments	(493)		(1,621)
Principal payments on finance leases	(353)		(24)

Net cash provided by (used in) financing activities	115,603		(69,184)
Effect of foreign currency exchange rates on cash and cash equivalents	(6,247)		173
Net decrease in cash and cash equivalents	(2,292)		(18,625)
Cash and cash equivalents, beginning of period	17,885		49,206
Cash and cash equivalents, end of period	$	15,593	$	30,581

The accompanying notes are an integral part of these condensed consolidated financial statements.

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INTEGER HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)


	Three Months Ended				Six Months Ended
(in thousands)	July 1, 2022		July 2, 2021		July 1, 2022		July 2, 2021
Total stockholders’ equity, beginning balance	$	1,364,350	$	1,277,724	$	1,354,697	$	1,271,055

Common stock and additional paid-in capital
Balance, beginning of period	716,622		703,066		713,183		700,847
Stock awards exercised or vested	(370)		(163)		(1,926)		(2,648)
Stock-based compensation	5,956		4,249		10,951		8,953
Balance, end of period	722,208		707,152		722,208		707,152





Retained earnings
Balance, beginning of period	625,691		539,036		614,324		517,516

Net income	20,836		29,433		32,203		50,953
Balance, end of period	646,527		568,469		646,527		568,469
Accumulated other comprehensive income (loss)
Balance, beginning of period	22,037		35,622		27,190		52,692
Other comprehensive income (loss)	(27,321)		3,329		(32,474)		(13,741)

Balance, end of period	(5,284)		38,951		(5,284)		38,951

Total stockholders’ equity, ending balance	$	1,363,451	$	1,314,572	$	1,363,451	$	1,314,572

The accompanying notes are an integral part of these condensed consolidated financial statements.

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INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(1.) BASIS OF PRESENTATION

Integer Holdings Corporation (together with its consolidated subsidiaries, “Integer” or the “Company”) is a publicly-traded corporation listed on the New York Stock Exchange under the symbol “ITGR.” Integer is a medical device outsource manufacturer serving the cardiac, neuromodulation, vascular, orthopedics, advanced surgical and portable medical markets. The Company provides innovative, high-quality medical technologies that enhance the lives of patients worldwide. In addition, it develops batteries for high-end niche applications in the energy, military, and environmental markets.

The accompanying condensed consolidated financial statements are presented in accordance with the rules and regulations of the United States ("U.S.") Securities and Exchange Commission ("SEC") and do not include all of the disclosures normally required by U.S. generally accepted accounting principles (“U.S. GAAP”) as contained in the Company’s Annual Report on Form 10-K. Accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of the Company for the periods presented. The results for interim periods are not necessarily indicative of results or trends that may be expected for the fiscal year as a whole. The condensed consolidated financial statements were prepared using U.S. GAAP, which require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, certain components of equity, sales, expenses, and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ materially from these estimates.

The second quarter and first six months of 2022 ended on July 1 and consisted of 91 days and 182 days, respectively. The second quarter and first six months of 2021 ended on July 2 and consisted of 91 days and 183 days, respectively.

Reclassifications

Certain prior period amounts have been reclassified to conform to current year presentation. Refer to Note 5, “Goodwill and Other Intangibles, Net,” for a description of the changes made to the Company’s prior period definite-lived asset classification to reflect the current year presentation. Refer to Note 14, “Segment Information,” for a description of the changes made to the Company’s prior period product line sales classification to reflect the current year presentation.

Risks and Uncertainties

Significant uncertainty remains as to the potential impact of the COVID-19 pandemic on the Company’s operations, and on the global economy. Specific impacts to the Company’s business included and continue to include labor shortages, disruptions in the supply chain, delayed or reduced customer orders and sales, restrictions on associates’ ability to travel or work, and delays in shipments to and from certain countries. The Company is uncertain of the future impact of the ongoing COVID-19 pandemic or recovery of prior deterioration in economic conditions to its sales channels, supply chain, manufacturing, and distribution. Additionally, the current conflict between Russia and Ukraine and the related sanctions and other penalties imposed by countries across the globe against Russia are creating substantial uncertainty in the global economy. While the Company does not have operations in Russia or Ukraine and does not have significant direct exposure to customers and vendors in those countries, it is unable to predict the impact that these actions will have on the global economy or on the Company’s financial condition, results of operations, and cash flows as of the date of these financial statements.

Recent Accounting Pronouncements

The Company considers the applicability and impact of all Accounting Standard Updates (“ASU”) issued by the Financial Accounting Standards Board (“FASB”). The Company evaluated all recent accounting pronouncements issued, including those that are currently effective, and determined that the adoption of these pronouncements would not have a material effect on the financial position, results of operations or cash flows of the Company. There have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, that are of significance, or potential significance, to the Company.

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INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(2.) BUSINESS ACQUISITIONS

2022 Acquisition

On April 6, 2022, the Company acquired 100% of the equity interests of Connemara Biomedical Holdings Teoranta, including its operating subsidiaries Aran Biomedical and Proxy Biomedical (collectively “Aran”), a recognized leader in proprietary medical textiles, high precision biomaterial coverings and coatings as well as advanced metal and polymer braiding. Aran delivers development and manufacturing solutions for implantable medical devices. Consistent with the Company’s strategy, the combination with Aran further increases Integer’s ability to offer complete solutions for complex delivery and therapeutic devices in high growth cardiovascular markets such as structural heart, neurovascular, peripheral vascular, and endovascular as well as general surgery. The Company funded the purchase price with borrowings under its Revolving Credit Facility. Aran is included in the Company’s Medical segment. The total consideration transferred was $141.3 million, which includes an initial cash payment of $133.9 million ($129.3 million net of cash acquired) and $7.4 million in estimated fair value of contingent consideration. The contingent consideration represents the estimated fair value of the Company’s obligation, under the purchase agreement, to make additional payments of up to €10 million ($10.9 million at the exchange rate as of April 6, 2022) based on Aran’s achievement of 2022 revenue growth milestones. The contingent consideration will be paid after completion of the earn-out period ending December 31, 2022, in accordance with the terms of the share purchase agreement. See Note 13 “Financial Instruments and Fair Value Measurements” for additional information related to the fair value measurement of the contingent consideration.

The Company has preliminarily estimated fair values for the assets purchased, liabilities assumed and purchase consideration as of the date of the acquisition. The determination of estimated fair value required management to make significant estimates and assumptions based on information that was available at the time the consolidated financial statements were prepared. The amounts reported are considered preliminary as the Company is completing the valuations that are required to allocate the purchase price in areas such as property and equipment, intangible assets, liabilities and goodwill. As a result, the allocation of the preliminary purchase price may change in the future, which could be material.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed (in thousands):








Fair value of net assets acquired

Current assets	$	9,319
Property, plant and equipment	4,151
Goodwill	68,460
Definite-lived intangible assets	71,485
Operating lease assets	3,505
Other noncurrent assets	1,354
Current liabilities	(4,370)
Operating lease liabilities	(3,258)
Other noncurrent liabilities	(9,377)
Fair value of net assets acquired	$	141,269

The goodwill resulting from the transaction is primarily attributable to future customer relationships and the assembled workforce of the acquired business. The goodwill acquired in connection with the Aran acquisition was allocated to the Medical segment and is not deductible for tax purposes.

The breakout of definite-lived intangible assets acquired was as follows (dollars in thousands):


Definite-lived Intangible Assets	Fair Value Assigned		Weighted Average Amortization Period (Years)	Weighted Average Discount Rate
Customer lists	$	53,395	26.0	9.5%
Technology	17,435		12.0	9.5%
Tradenames	655		1.5	9.5%
	$	71,485

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INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(2.) BUSINESS ACQUISITIONS (Continued)

To determine the acquisition date estimated fair value of intangible assets acquired, the Company applied the income approach, specifically the multi-period excess earnings method for customer lists and the relief-from-royalty method for technology and tradenames. The significant assumptions used in these approaches include revenue growth rates and profit margins, terminal values, weighted-average cost of capital used to discount future cash flows, and a customer attrition rate for customer relationships and royalty rates for technology and tradenames. For additional information, see the Company’s most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for the methods and assumptions used to estimate the fair value of each class of net assets acquired.

For segment reporting purposes, the results of operations from Aran have been included in the Company’s Medical segment since the acquisition date. Sales and earnings related to the operations of Aran for the three and six months ended July 1, 2022 were not material.

2021 Acquisition

On December 1, 2021, the Company acquired 100% of the equity interests of Oscor Inc., Oscor Caribe, LLC and Oscor Europe GmbH (collectively “Oscor”), privately-held companies with operations in Florida, the Dominican Republic and Germany that design, develop, manufacture and market a comprehensive portfolio of highly specialized medical devices, venous access systems and diagnostic catheters and implantable devices. Serving the Company’s current markets, Oscor broadens the Company’s product portfolio, expands its research and development capabilities, and adds low-cost manufacturing capacity. The preliminary purchase price of Oscor is $215.2 million, including working capital and other closing adjustments of $5.2 million, which were settled in the second quarter of 2022. The Company used proceeds from its Senior Secured Credit Facilities to fund the acquisition. Oscor is included in the Company’s Medical segment. The goodwill is primarily associated with future customer relationships and an acquired assembled work force.

The Company preliminarily estimated fair values for the assets purchased, liabilities assumed and purchase consideration as of the date of the acquisition. The determination of estimated fair value requires management to make significant estimates and assumptions based on information that is available at the time the consolidated financial statements are prepared. The Company recorded the preliminary purchase price allocation in the fourth quarter of 2021. During the first six months of 2022, the Company recorded measurement period adjustments, inclusive of working capital and other closing adjustments, resulting in increases to goodwill and current liabilities of $0.4 million and $2.3 million, respectively, and decreases to current assets (excluding inventory) and inventory of $2.5 million and $0.8 million, respectively. The preliminary purchase price allocation remains subject to measurement period adjustments. As a result, the allocation of the preliminary purchase price may change in the future.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed (in thousands):








Fair value of net assets acquired

Current assets (excluding inventory)	$	9,621
Inventory	11,360
Property, plant and equipment	17,977
Goodwill	78,302
Intangible assets	105,300
Operating lease assets	15,142
Other noncurrent assets	695
Current liabilities	(11,143)
Operating lease liabilities	(12,044)
Fair value of net assets acquired	$	215,210

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INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(2.) BUSINESS ACQUISITIONS (Continued)

Pro Forma (unaudited) disclosures

The following table presents (in thousands) unaudited pro forma financial information as if Aran and Oscor had been included in the Company’s financial results as of the beginning of fiscal year 2021 and 2020, respectively, through the date of acquisition. The pro forma results include the historical results of operations of the Company, Aran and Oscor, as well as adjustments for additional amortization of the assets acquired, additional interest expense related to the financing of the transaction and other transactional adjustments. The pro forma results do not include efficiencies, cost reductions or synergies expected to result from the acquisition. These pro forma results do not purport to be indicative of the results that would have been obtained, or to be a projection of results that may be obtained in the future.


	Six Months Ended July 1, 2022		Three Months Ended July 2, 2021		Six Months Ended July 2, 2021
Sales	$	666,356	$	332,360	$	639,966
Net income	45,357		27,693		44,452

Acquisition costs

During the three and six months ended July 1, 2022, direct costs of these acquisitions of $1.6 million and $2.8 million, respectively, were expensed as incurred and included in Restructuring and other charges in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

(3.) SUPPLEMENTAL CASH FLOW INFORMATION

The following is supplemental information relating to the Condensed Consolidated Statements of Cash Flows (in thousands):


	Six Months Ended
	July 1, 2022		July 2, 2021
Noncash investing and financing activities:
Property, plant and equipment purchases included in accounts payable	$	6,373	$	4,364


Supplemental lease disclosures:
Assets acquired under operating leases	11,265		7,435

(4.) INVENTORIES

Inventories comprise the following (in thousands):


	July 1, 2022		December 31, 2021
Raw materials	$	91,328	$	70,956
Work-in-process	90,886		74,152
Finished goods	12,244		10,591
Total	$	194,458	$	155,699

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INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(5.) GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill

The changes in the carrying amount of goodwill by reportable segment for the six months ended July 1, 2022 were as follows (in thousands):


	Medical		Non- Medical		Total
December 31, 2021	$	907,704	$	17,000	$	924,704
Acquisition (Note 2)	68,460		—		68,460
Acquisition-related adjustments (Note 2)	414				414
Foreign currency translation	(15,019)		—		(15,019)

July 1, 2022	$	961,559	$	17,000	$	978,559

Intangible Assets

The Company reclassified purchased tradenames with a net carrying value of $16.2 million from Purchased technology and patents as of December 31, 2021 to Amortizing tradenames and other to conform to the current period presentation. The Company made this reclassification to better align with the classification of amortization expense for similar assets. See Note 2 “Business Acquisitions” for additional details regarding intangible assets acquired during 2022. Intangible assets comprise the following (in thousands):


	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
July 1, 2022
Definite-lived:
Purchased technology and patents	$	283,022	$	(170,380)	$	112,642
Customer lists	822,121		(200,119)		622,002
Amortizing tradenames and other	21,021		(4,831)		16,190
Total amortizing intangible assets	$	1,126,164	$	(375,330)	$	750,834
Indefinite-lived:
Trademarks and tradenames					$	90,288

December 31, 2021
Definite-lived:
Purchased technology and patents	$	269,359	$	(164,298)	$	105,061
Customer lists	783,618		(187,412)		596,206
Amortizing tradenames and other	20,462		(4,207)		16,255
Total amortizing intangible assets	$	1,073,439	$	(355,917)	$	717,522
Indefinite-lived:
Trademarks and tradenames					$	90,288

Aggregate intangible asset amortization expense comprises the following (in thousands):


	Three Months Ended				Six Months Ended
	July 1, 2022		July 2, 2021		July 1, 2022		July 2, 2021
Cost of sales	$	4,037	$	3,233	$	7,682	$	6,501
Selling, general and administrative expenses	8,248		7,106		16,207		14,288



Total intangible asset amortization expense	$	12,285	$	10,339	$	23,889	$	20,789

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INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(5.) GOODWILL AND OTHER INTANGIBLE ASSETS, NET (Continued)

Estimated future intangible asset amortization expense based on the carrying value as of July 1, 2022 is as follows (in thousands):


	Remainder of 2022		2023	2024	2025	2026	After 2026
Amortization Expense	$	24,618	51,982	51,352	50,542	48,709	523,631

(6.) DEBT

The Company has senior secured credit facilities (the “Senior Secured Credit Facilities”), which consist of a five-year $400 million revolving credit facility (the “Revolving Credit Facility”), a five-year “term A” loan (the “TLA Facility”) and a seven-year “term B” loan (the “TLB Facility” and, together with the TLA Facility, the “Term Loan Facilities”). The TLB Facility was issued at a 0.50% discount.

Long-term debt related to the Senior Secured Credit Facilities as of July 1, 2022 and December 31, 2021, respectively, comprises the following (in thousands):


	July 1, 2022		December 31, 2021
Senior secured term loan A	$	461,188	$	467,062
Senior secured term loan B	347,375		349,125
Senior secured revolving credit facility	145,300		19,300
Unamortized discount on term loan B and deferred debt issuance costs	(6,724)		(7,361)
Total debt	947,139		828,126
Current portion of long-term debt	(15,250)		(15,250)
Total long-term debt	$	931,889	$	812,876

Revolving Credit Facility

The Revolving Credit Facility matures on September 2, 2026 and includes a $40 million sublimit for swingline loans and standby letters of credit. As of July 1, 2022, the Company had available borrowing capacity on the Revolving Credit Facility of $249.2 million after giving effect to $145.3 million of outstanding borrowings and $5.5 million of outstanding standby letters of credit.

Interest rates on the Revolving Credit Facility are at the Company’s option, either at: (i) the applicable LIBOR (or an applicable benchmark replacement) plus the applicable margin, which will range between 1.25% and 2.25%, based on the Company’s Total Net Leverage Ratio (as defined in the Senior Secured Credit Facilities agreement), or (ii) the Base Rate (as defined below) plus the applicable margin, which will range between 0.25% and 1.25%, based on the Company’s Total Net Leverage Ratio. The Base Rate is defined, for any day, as the per annum rate equal to the highest of (i) the prime rate (as defined in the Senior Secured Credit Facilities agreement), (ii) the Federal Funds Rate, as published by the Federal Reserve Bank of New York, plus 0.50%, and (iii) one-month LIBOR plus 1.00%. As of July 1, 2022, the interest rate on outstanding borrowings under the Revolving Credit Facility was 3.21%.

The Company is required to pay a commitment fee on the unused portion of the Revolving Credit Facility, which will range between 0.15% and 0.25%, depending on the Company’s Total Net Leverage Ratio. As of July 1, 2022, the commitment fee on the unused portion of the Revolving Credit Facility was 0.18%.

Term Loan Facilities

The TLA Facility and TLB Facility mature on September 2, 2026 and September 2, 2028, respectively, and require quarterly installments. The quarterly principal installments under the TLA Facility increase over the term of the loan. The interest rate terms for the TLA Facility are the same as those outlined above for the Revolving Credit Facility. Interest rates on the TLB Facility are, at the Company’s option, either at: (i) the applicable LIBOR rate plus 2.50%, with LIBOR subject to a 0.50% floor, or (ii) the Base Rate plus 1.50%. As of July 1, 2022, the interest rates on the TLA Facility and TLB Facility were 3.17% and 4.17%, respectively.

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INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(6.) DEBT (Continued)

Covenants

The Senior Secured Credit Facilities agreement contains customary terms and conditions, including representations and warranties and affirmative and negative covenants, as well as financial covenants for the benefit of the lenders under the Revolving Credit Facility and the TLA Facility, which require that (i) the Company maintain a Total Net Leverage Ratio not to exceed 5.50:1.00 (stepping down to 5.00:1.00 for the third fiscal quarter of 2023 through maturity and subject to increase in certain circumstances following qualified acquisitions, but shall not exceed 5.50:1.00) and (ii) the Company maintain an interest coverage ratio of at least 2.50:1.00. The TLB Facility does not contain any financial maintenance covenants. As of July 1, 2022, the Company was in compliance with these financial covenants.

Contractual maturities under the Senior Secured Credit Facilities for the remainder of 2022 and through maturity, excluding any discounts or premiums, as of July 1, 2022 are as follows (in thousands):


	Remainder of 2022		2023	2024	2025	2026	After 2026
Future minimum principal payments	$	7,625	18,187	29,938	38,750	527,738	331,625

(7.) STOCK-BASED COMPENSATION

The Company maintains certain stock-based compensation plans that were approved by the Company’s stockholders and are administered by the Board of Directors (the “Board”) or the Compensation and Organization Committee of the Board. The stock-based compensation plans provide for the granting of stock options, restricted stock awards, restricted stock units (“RSUs”), stock appreciation rights and stock bonuses to employees, non-employee directors, consultants, and service providers.

Stock-based Compensation Expense

The components and classification of stock-based compensation expense were as follows (in thousands):


	Three Months Ended				Six Months Ended
	July 1, 2022		July 2, 2021		July 1, 2022		July 2, 2021



RSUs and PRSUs	$	5,956	$	4,249	$	10,951	$	8,953


Total stock-based compensation expense	$	5,956	$	4,249	$	10,951	$	8,953

Cost of sales	$	837	$	823	$	1,606	$	1,937
Selling, general and administrative	4,308		3,215		7,853		6,570
Research, development and engineering	338		211		663		446
Restructuring and other charges	473		—		829		—

Total stock-based compensation expense	$	5,956	$	4,249	$	10,951	$	8,953

Stock Options

The following table summarizes the Company’s stock option activity for the six month period ended July 1, 2022:


	Number of Stock Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (In Years)	Aggregate Intrinsic Value (In Millions)
Outstanding at December 31, 2021	247,640	$	38.03

No activity	—	—

Outstanding and exercisable at July 1, 2022	247,640	$	38.03	3.6	$	8.4

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INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(7.) STOCK-BASED COMPENSATION (Continued)

Restricted Stock Units

During the six months ended July 1, 2022, the Company awarded grants of either time-based RSUs or a mix of time-based RSUs and performance-based RSUs (“PRSUs”) to members of its Board of Directors and certain members of management. Most time-based RSUs granted during the six months ended July 1, 2022 vest over a period of three years from the grant date, subject to the recipient’s continuous service to the Company. RSUs are issued to members of the Board as a portion of their annual retainer and vest quarterly over a one-year vesting term. The grant-date fair value of all time-based RSUs is equal to the closing market price of Integer common stock on the date of grant.

The following table summarizes time-vested RSU activity for the six month period ended July 1, 2022:


	Time-Vested Activity	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2021	248,131	$	81.14
Granted	179,242	78.85
Vested	(81,171)	79.60
Forfeited	(10,997)	79.35
Nonvested at July 1, 2022	335,205	$	80.35

For the Company’s PRSUs, in addition to service conditions, the ultimate number of shares to be earned depends on the achievement of market-based performance conditions. The market-based performance conditions are based on the Company’s achievement of a relative total shareholder return (“TSR”) performance requirement, on a percentile basis, compared to a defined group of peer companies over three year performance periods, or contingent upon achieving specified stock price milestones over a five year performance period.

The following table summarizes PRSU activity for the six month period ended July 1, 2022:


	Performance- Vested Activity	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2021	198,869	$	92.07
Granted	131,393	90.84

Forfeited	(51,375)	99.62
Nonvested at July 1, 2022	278,887	$	90.10

The Company uses a Monte Carlo simulation model to determine the grant-date fair value of awards with market-based performance conditions. The grant-date fair value of all other PRSUs is equal to the closing market price of Integer common stock on the date of grant.

The weighted average fair value and assumptions used to value the PRSU awards granted with market-based performance conditions are as follows:


	Six Months Ended
	July 1, 2022			July 2, 2021
Weighted average fair value	$	97.58		$	85.16
Risk-free interest rate	1.58		%	0.19		%
Expected volatility	42		%	41		%
Expected life (in years)	3.9			3.0
Expected dividend yield	—		%	—		%

The valuation of the market-based PRSUs granted during 2022 and 2021 also reflects a weighted average illiquidity discount of 9.25% and 8.19%, respectively, related to the six-month period that recipients are restricted from selling, transferring, pledging or assigning the underlying shares, in the event of vesting.

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INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(8.) RESTRUCTURING AND OTHER CHARGES

The Company continuously evaluates the business and identifies opportunities to realign its resources to better serve its customers and markets, improve operational efficiency and capabilities, and lower its operating costs or improve profitability. To realize the benefits associated with these opportunities, the Company undertakes restructuring-type activities to transform its business. The Company incurs costs associated with these activities, which primarily include exit and disposal costs and other costs directly related to the restructuring initiative. The Company records exit and disposal costs (“restructuring charges”) as incurred in accordance with ASC 420, Exit or Disposal Cost Obligations, and are classified within Restructuring and other charges, while other costs directly related to the restructuring initiatives (“restructuring-related charges”) are classified within Cost of sales, Selling, general and administrative, and Research, development and engineering expenses in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

In addition, from time to time, the Company incurs costs associated with acquiring and integrating businesses, and certain other general expenses, including asset impairments. The Company classifies costs associated with these items within Restructuring and other charges in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Restructuring and other charges comprise the following (in thousands):


	Three Months Ended				Six Months Ended
	July 1, 2022		July 2, 2021		July 1, 2022		July 2, 2021
Restructuring charges	$	(5)	$	191	$	1,098	$	845
Acquisition and integration costs	3,333		26		5,269		110
Other general expenses	205		62		501		239
Total restructuring and other charges	$	3,533	$	279	$	6,868	$	1,194

Restructuring programs

The following table comprises restructuring and restructuring-related charges by income statement classification for the three and six month periods ended July 1, 2022 (in thousands):


	Three Months Ended		Six Months Ended
	July 1, 2022		July 1, 2022
Restructuring charges:
Restructuring and other charges	$	(5)	$	1,098
Restructuring-related expenses(a):
Cost of sales	179		334
Selling, general and administrative	384		702
Research, development and engineering	326		503
Total restructuring and restructuring-related charges	$	884	$	2,637

__________

(a) Restructuring-related expenses primarily include retention bonuses and consulting expenses. Restructuring related expense for the three and six months ended July 2, 2021 were not material.

Operational excellence initiatives

The Company’s operational excellence (“OE”) initiatives mainly consist of costs associated with executing on its sales force, manufacturing, business process and performance excellence operational strategic imperatives. These projects focus on changing the Company’s organizational structure to match product line growth strategies and customer needs, transitioning its manufacturing process into a competitive advantage and standardizing and optimizing its business processes.

2022 OE Initiatives - Costs related to the Company’s 2022 OE initiatives are primarily recorded within the Medical segment or unallocated operating expenses and mainly include termination benefits. The Company estimates that it will incur aggregate pre-tax charges in connection with the 2022 OE initiatives of between approximately $3 million to $5 million, the majority of which are expected to be cash expenditures. As of July 1, 2022, total restructuring and restructuring-related charges incurred since inception were $0.7 million. These actions are expected to be substantially complete by the end of 2023.

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INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(8.) RESTRUCTURING AND OTHER CHARGES (Continued)

2021 OE Initiatives - Costs related to the Company’s 2021 OE initiatives are primarily recorded within the Medical segment or unallocated operating expenses and mainly include termination benefits. The Company estimates that it will incur aggregate pre-tax charges in connection with the 2021 OE initiatives of between approximately $4 million to $5 million, the majority of which are expected to be cash expenditures. As of July 1, 2022, total restructuring and restructuring-related charges incurred since inception were $4.6 million. These actions are expected to be substantially complete by the end of 2022.

Strategic reorganization and alignment

The Company’s strategic reorganization and alignment (“SRA”) initiatives primarily include those that align resources with market conditions and the Company’s strategic direction in order to enhance the profitability of its portfolio of products.

2021 SRA Initiatives - During the fourth quarter of 2021, the Company initiated plans to exit certain markets served in our Medical segment to enhance profitability and reallocate manufacturing capacity needed to support our overall growth plans. The Company estimates that it will incur a range of pre-tax charges in connection with the 2021 SRA initiatives of approximately $5 million and $8 million, the majority of which are expected to be cash expenditures. Costs related to the Company’s 2021 SRA Initiatives are primarily recorded within the Medical segment and mainly include termination benefits. As of July 1, 2022, total restructuring and restructuring-related charges incurred since inception were $1.9 million. These actions are expected to be completed by the end of 2025.

The following table summarizes the activity for restructuring reserves (in thousands):


	Operational excellence initiatives		Strategic reorganization and alignment		Total
December 31, 2021	$	298	$	134	$	432
Charges incurred, net of reversals	704