INTEGER HOLDINGS CORP
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________
FORM
10-Q
_____________________________________________________________
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(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
March 28, 2025
or
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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
_____________________________________________________________
(Exact name of Registrant as specified in its charter)
_____________________________________________________________
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
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| (Address of principal executive offices) | (Zip Code) | ||||||||||||||||
(
214
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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 | ||||||||||||
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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.
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☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | ||||||||||||||||||
| Smaller reporting company |
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Emerging growth company |
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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 April 18, 2025 was:
34,891,995
shares.
INTEGER HOLDINGS CORPORATION
Form 10-Q
For the Quarterly Period Ended March 28, 2025
TABLE OF CONTENTS
| Page | |||||||||||
| ITEM 1. | |||||||||||
| ITEM 2. | |||||||||||
| ITEM 3. | |||||||||||
| ITEM 4. | |||||||||||
| ITEM 1. | |||||||||||
| ITEM 1A. | |||||||||||
| ITEM 5. | |||||||||||
| ITEM 6. | |||||||||||
- 2 -
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTEGER HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
| (in thousands except share and per share data) |
March 28,
2025 |
December 31,
2024 |
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| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ |
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$ |
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Accounts receivable, net of provision for credit losses of $
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| Inventories |
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| Contract assets |
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| Prepaid expenses and other current assets |
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| Total current assets |
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| Property, plant and equipment, net |
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| Goodwill |
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| Other intangible assets, net |
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| Deferred income taxes |
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| Operating lease assets |
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| Financing lease assets |
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| Other long-term assets |
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| Total assets | $ |
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$ |
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| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of long-term debt | $ |
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$ |
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| Accounts payable |
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| Operating lease liabilities |
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| Accrued expenses and other current liabilities |
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| Total current liabilities |
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| Long-term debt |
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| Deferred income taxes |
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| Operating lease liabilities |
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| Financing lease liabilities |
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| Other long-term liabilities |
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| Total liabilities |
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| Stockholders’ equity: | |||||||||||
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Common stock, $
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| Additional paid-in capital |
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Treasury stock, at cost;
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(
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| Retained earnings |
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| Accumulated other comprehensive income (loss) |
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(
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| Total stockholders’ equity |
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| Total liabilities and stockholders’ equity | $ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 3 -
INTEGER HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (Unaudited)
| Three Months Ended | |||||||||||
| (in thousands except per share data) |
March 28,
2025 |
March 29,
2024 |
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| Sales | $ |
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$ |
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| Cost of sales |
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| Gross profit |
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| Operating expenses: | |||||||||||
| Selling, general and administrative |
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| Research, development and engineering |
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| Restructuring and other charges |
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| Total operating expenses |
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| Operating income |
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| Interest expense |
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| Gain on equity investments |
(
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(
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| Other loss, net (see Note 7) |
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| Income (loss) from continuing operations before taxes |
(
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| Provision for income taxes |
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| Income (loss) from continuing operations |
(
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| Loss from discontinued operations, net of tax |
(
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(
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| Net income (loss) | $ |
(
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$ |
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| Basic earnings (loss) per share: | |||||||||||
| Income (loss) from continuing operations | $ |
(
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$ |
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| Loss from discontinued operations |
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| Basic earnings (loss) per share |
(
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| Diluted earnings (loss) per share: | |||||||||||
| Income (loss) from continuing operations | $ |
(
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$ |
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| Loss from discontinued operations |
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| Diluted earnings (loss) per share |
(
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| Weighted average shares outstanding: | |||||||||||
| Basic |
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| Diluted |
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| Comprehensive Income | |||||||||||
| Net income (loss) | $ |
(
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$ |
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| Other comprehensive income (loss): | |||||||||||
| Foreign currency translation gain (loss) |
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(
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| Change in fair value of cash flow hedges, net of tax |
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| Other comprehensive income (loss) |
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(
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| Comprehensive income | $ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 4 -
INTEGER HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| Three Months Ended | |||||||||||
| (in thousands) |
March 28,
2025 |
March 29,
2024 |
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| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ |
(
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$ |
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| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization |
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| Debt related charges included in interest expense |
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| Debt conversion inducement expense |
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| Inventory step-up amortization |
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| Stock-based compensation |
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| Non-cash lease expense |
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| Non-cash gain on equity investments |
(
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(
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| Other non-cash losses |
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| Deferred income taxes |
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| Gain on sale of discontinued operations |
(
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| Changes in operating assets and liabilities, net of acquisitions: | |||||||||||
| Accounts receivable |
(
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| Inventories |
(
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(
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| Prepaid expenses and other assets |
(
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(
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| Contract assets |
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(
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| Accounts payable |
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| Accrued expenses and other liabilities |
(
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(
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| Income taxes |
(
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| Net cash provided by operating activities |
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| Cash flows from investing activities: | |||||||||||
| Acquisition of property, plant and equipment |
(
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(
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| Proceeds from sale of property, plant and equipment |
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| Acquisitions, net of cash acquired |
(
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(
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| Net cash used in investing activities |
(
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(
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| Cash flows from financing activities: | |||||||||||
| Principal payments of long-term debt |
(
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| Proceeds from issuance of convertible notes, net of discount |
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| Proceeds from revolving credit facility |
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| Payments of revolving credit facility |
(
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(
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| Purchase of capped calls |
(
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| Proceeds from the exercise of stock options |
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| Tax withholdings related to net share settlements of restricted stock unit awards |
(
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(
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| Principal payments on finance leases |
(
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(
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| Other financing activities |
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| Net cash provided by financing activities |
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| Effect of foreign currency exchange rates on cash and cash equivalents |
(
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| Net increase (decrease) in cash and cash equivalents |
(
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| Cash and cash equivalents, beginning of period |
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| Cash and cash equivalents, end of period | $ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 5 -
INTEGER HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
| Three Months Ended | |||||||||||
| (in thousands) |
March 28,
2025 |
March 29,
2024 |
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| Total stockholders’ equity, beginning balance | $ |
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$ |
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| Common stock and additional paid-in capital | |||||||||||
| Balance, beginning of period |
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| Stock awards exercised or vested |
(
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(
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| Stock-based compensation |
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| Capped calls related to the issuance of 2030 Convertible Notes, net of tax |
(
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| Partial conversion of convertible notes due 2028 and partial unwind of related capped calls, net of tax |
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| Issuance of common stock for acquisition |
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| Balance, end of period |
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| Treasury stock | |||||||||||
| Balance, beginning of period |
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| Treasury shares purchased |
(
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| Balance, end of period |
(
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| Retained earnings | |||||||||||
| Balance, beginning of period |
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| Net income (loss) |
(
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| Balance, end of period |
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| Accumulated other comprehensive income (loss) | |||||||||||
| Balance, beginning of period |
(
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| Other comprehensive income (loss) |
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(
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| Balance, end of period |
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| Total stockholders’ equity, ending balance | $ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 6 -
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 contract development and manufacturing organization primarily serving the cardiac rhythm management, neuromodulation, and cardio and vascular markets. Integer is committed to enhancing the lives of patients worldwide by providing innovative, high-quality products and solutions. The Company’s customers include large multi-national original equipment manufacturers (“OEMs”) and their affiliated subsidiaries.
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 year ended
December 31, 2024
.
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
requires 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 first quarters of 2025 and 2024 ended on March 28, 2025 and March 29, 2024, respectively, and consisted of 87 days and 89 days, respectively.
Discontinued Operations
As discussed in Note 3, “Discontinued Operations,” during 2024 the Company sold Electrochem Solutions, Inc. (“Electrochem”). Electrochem met the criteria to be reported as held for sale and discontinued operations. The results of operations of the Electrochem business are classified as discontinued operations and are excluded from continuing operations for all periods presented. Intersegment sales to Electrochem that were previously eliminated in consolidation have been treated as third party sales and are included in sales from continuing operations as the Company will continue to supply the Electrochem business with certain specified products following its divestiture. The Condensed Consolidated Statements of Cash Flows include cash flows related to the discontinued operations due to Integer’s (parent) centralized treasury and cash management processes. All results and information in the consolidated financial statements, including the notes to the consolidated financial statements, have been updated for all periods presented to exclude information pertaining to discontinued operations, unless otherwise noted specifically as discontinued operations, and reflect only the continuing operations of the Company.
Factoring Arrangements
Supplier Financing Arrangements
- 7 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(1.) BASIS OF PRESENTATION (Continued)
Recent Accounting Pronouncements
In the normal course of business, management evaluates all new Accounting Standards Updates (“ASU”) and other accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”), SEC, or other authoritative accounting bodies to determine the potential impact they may have on the financial position, results of operations or cash flows of the Company. Other than those discussed below, management does not expect any of the recently issued accounting pronouncements, which have not already been adopted, to have a material effect on the financial position, results of operations or cash flows of the Company.
Accounting Guidance Adopted During the Period
In November 2024, the FASB issued ASU 2024-04,
Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments
. The ASU clarifies the assessment of whether certain settlements of convertible debt instruments should be accounted for as an inducement conversion or extinguishment of convertible debt. The ASU is effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods, with early adoption permitted. The Company adopted this ASU as of January 1, 2025. At adoption, there were no impacts to the condensed consolidated financial statements.
Accounting Guidance to be Adopted in Future Periods
In December 2023, the FASB issued ASU 2023-09,
Income Taxes (Topic 740)-Improvements to Income Tax Disclosures.
The ASU requires additional quantitative and qualitative income tax disclosures to allow readers of the condensed consolidated financial statements to assess how the Company’s operations, related tax risks and tax planning affect its tax rate and prospects for future cash flows. For public business entities, the ASU is effective for annual periods beginning after December 15, 2024.
The Company is currently evaluating the impact that the adoption of this ASU will have on its condensed consolidated financial statements.
(2.)
BUSINESS ACQUISITIONS
2025 Acquisitions
Precision Coating LLC Acquisition
On January 7, 2025, the Company acquired substantially all of the assets and assumed certain liabilities of certain subsidiaries of Katahdin Industries, Inc., including its main operating subsidiary, Precision Coating LLC (collectively “Precision”). Prior to the acquisition, Precision was a privately-held manufacturer specializing in high value surface coating technology platforms, including fluoropolymer, anodic coatings, ion treatment solutions and laser processing. Based in Massachusetts, Precision has additional locations in the New England area and an additional facility in Costa Rica.
The total consideration transferred was $
153.5
million, including contingent consideration, working capital and other purchase price adjustments. The Company recorded contingent consideration with an estimated acquisition date fair value of $
1.4
million, representing the Company’s obligation, under the purchase agreement, to make an additional payment of up to $
5.0
million based on a specified revenue growth milestone being met in 2025. The Company funded the purchase price with borrowings under its Revolving Credit Facility (as defined below).
VSi Parylene Acquisition
On February 28, 2025, the Company acquired substantially all of the assets and assumed certain liabilities of Vertical Solutions, Inc., d/b/a VSi Parylene (“VSi”). Headquartered in Colorado, prior to the acquisition VSi was a privately-held full-service provider of parylene coating solutions, primarily focused on complex medical device applications.
The total consideration transferred was $
24.0
million, including shares of Integer’s common stock (“Common Stock”) with a fair value of $
4.0
million, contingent consideration, working capital and other purchase price adjustments. The Company recorded contingent consideration with an estimated acquisition date fair value of $
1.1
million, representing the Company’s obligation, under the purchase agreement, to make additional payments of up to $
4.0
million, in the aggregate, based on specified annual revenue growth milestones being met through 2028. The Company funded the cash portion of the purchase price with borrowings under its Revolving Credit Facility.
Consistent with the Company’s tuck-in acquisition strategy, the acquisitions of Precision and VSi further increase the Company’s service offerings to include differentiated and proprietary coatings capabilities that position the Company to better meet customers’ evolving needs.
- 8 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(2.) BUSINESS ACQUISITIONS (Continued)
The Company has preliminarily estimated fair values for the assets purchased and liabilities assumed as of the date of the acquisitions. The determination of estimated fair value required management to make significant estimates and assumptions based on information that was available at the time that the condensed 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 prices in areas such as property and equipment, intangible assets, liabilities and goodwill. As a result, the preliminary allocation of the purchase price may change in the future, including in ways which could be material.
The following table summarizes the preliminary purchase price allocations (in thousands):
| Precision | VSi | Total | |||||||||||||||
| Fair value of net assets acquired | |||||||||||||||||
| Current assets (excluding inventory) | $ |
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$ |
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| Inventory |
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| Property, plant and equipment |
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| Goodwill |
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| Definite-lived intangible assets |
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| Operating lease assets |
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| Other noncurrent assets |
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| Current liabilities (including current operating lease liabilities) |
(
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(
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(
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| Operating lease liabilities (noncurrent) |
(
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(
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(
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| Fair value of net assets acquired | $ |
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$ |
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$ |
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Intangible Assets
The preliminary fair values of the assets acquired were determined using one of three valuation approaches: market, income or cost. The selection of a particular method for a given asset depended on the reliability of available data and the nature of the asset, among other considerations.
Current Assets and Liabilities
The fair value of current assets and liabilities was assumed to approximate their carrying value as of the acquisition date due to the short-term nature of these assets and liabilities.
Property, Plant and Equipment
The fair value of Property, Plant and Equipment acquired was estimated by applying the cost approach for personal property and leasehold improvements. The cost approach was applied by developing a replacement cost and adjusting for economic depreciation and obsolescence.
Leases
The Company recognized operating lease liabilities and right-of-use assets for manufacturing facilities and equipment in accordance with ASC 842,
Lease
s. Additionally, the Company recorded favorable lease terms associated with Precision for operating leases in the U.S. in the amount of $
4.2
million. The favorable lease terms were recorded as an increase to the ROU lease assets
.
Goodwill
The excess of the purchase price over the fair value of net tangible and intangible assets acquired and liabilities assumed was allocated to goodwill. 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 Precision and VSi acquisitions is deductible for tax purposes.
- 9 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(2.) BUSINESS ACQUISITIONS (Continued)
Intangible Assets
The purchase price for each of Precision and VSi was allocated to definite-lived intangible assets as follows (dollars in thousands):
| Fair Value Assigned |
Weighted Average Amortization Period
(Years) |
Weighted Average Discount Rate | ||||||||||||||||||
| Precision | ||||||||||||||||||||
| Customer lists | $ |
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| Technology |
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| $ |
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| VSi | ||||||||||||||||||||
| Customer lists | $ |
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| Technology |
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| $ |
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Customer Lists -
Customer lists represent the estimated fair value of contractual and non-contractual customer relationships Precision and VSi each had as of the acquisition date. These relationships were valued separately from goodwill at the amount that an independent third party would be willing to pay for these relationships. The fair value of customer lists was determined using the multi-period excess-earnings method, a form of the income approach. For both acquisitions, the estimated useful life of the existing customer base was based upon the historical customer annual attrition rate of
5.0
%, as well as management’s understanding of the industry and product life cycles.
Technology -
Technology consists of technical processes, patented and unpatented technology, manufacturing know-how, trade secrets and the understanding with respect to products or processes that have been developed by Precision and VSi and that will be leveraged in current and future products. The fair value of technology acquired was determined utilizing the relief from royalty method, a form of the income approach, with royalty rates ranging from
5.0
% to
8.0
%. The estimated useful life of the technology is based upon management’s estimate of the product life cycle associated with the technology before it will be replaced by new technologies
.
Contingent Consideration (Earnouts) -
As part of the Precision and VSi acquisitions, the Company may be required to pay additional consideration based on a specified revenue growth milestones. For Precision, the Company may be required to pay up to additional $
5.0
million of consideration based on a specified revenue growth milestone being met in 2025. For VSi, the Company may be required to pay up to additional $
4.0
million of consideration, in the aggregate, based on specified annual revenue growth milestones being met through 2028. Any amounts earned under the Precision or VSi earnouts will be paid in cash following the conclusion of each respective period. The contingent consideration is classified as Level 3 in the fair value hierarchy and the fair value is measured based on a probability-weighted discounted cash flow analysis.
2024 Acquisition
On January 5, 2024, the Company acquired
100
% of the outstanding capital stock of Pulse Technologies, Inc. (“Pulse”), a privately-held technology, engineering and contract manufacturing company focused on complex micro machining of medical device components for high growth structural heart, heart pump, electrophysiology, leadless pacing, and neuromodulation markets. Based in Pennsylvania, Pulse also provides proprietary advanced technologies, including hierarchical surface restructuring (HSR
TM
), scratch-free surface finishes, and titanium nitride coatings. Consistent with the Company’s tuck-in acquisition strategy, the acquisition of Pulse further increases the Company’s end-to-end development capabilities and manufacturing footprint in targeted growth markets and provides customers with expanded capabilities, capacity and resources to accelerate the time to market for customer products. The Company funded the purchase price with borrowings under its Revolving Credit Facility.
The total consideration transferred was $
142.3
million, including contingent consideration, working capital and other purchase price adjustments. The Company recorded contingent consideration with an estimated acquisition date fair value of $
3.6
million, representing the Company’s obligation, under the purchase agreement, to make an additional payment of up to $
20.0
million based on a specified revenue growth milestone being met in 2025.
- 10 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(2.) BUSINESS ACQUISITIONS (Continued)
The final purchase price allocation was as follows (in thousands):
| Fair value of net assets acquired | |||||||||||
| Current assets (excluding inventory) | $ |
|
|||||||||
| Inventory |
|
||||||||||
| Property, plant and equipment |
|
||||||||||
| Goodwill |
|
||||||||||
| Definite-lived intangible assets |
|
||||||||||
| Finance lease assets |
|
||||||||||
| Current liabilities |
(
|
||||||||||
| Finance lease liabilities |
(
|
||||||||||
| Fair value of net assets acquired | $ |
|
|||||||||
Intangible Assets
The purchase price was allocated to intangible assets as follows (dollars in thousands):
| Definite-lived Intangible Assets | Fair Value Assigned | |||||||
| Customer lists | $ |
|
||||||
| Technology |
|
|||||||
| $ |
|
|||||||
Actual and Pro Forma disclosures
The following table presents (in thousands) pro forma results of operations for the three months ended March 29, 2024 as if Precision had been included in the Company’s financial results as of the beginning of fiscal year 2024. Pro forma results for VSi have not been presented as the results of VSi are not material in relation to the condensed consolidated financial statements of the Company.
Actual results for each acquired business are included in the Company’s consolidated results subsequent to the date of their acquisition (in thousands):
| Sales | $ |
|
|||||||||
| Income from continuing operations |
|
||||||||||
The unaudited pro forma results are presented for illustrative purposes only and do not reflect the realization of potential cost savings, and any related integration costs. Certain costs savings may result from the acquisition; however, there can be no assurance that these cost savings will be achieved. These unaudited pro forma results do not purport to be indicative of the results that would have been obtained or a projection of results that may be obtained in the future. These unaudited pro forma results include certain adjustments, primarily due to increases in amortization expense due to the fair value adjustments of intangible assets, the increases to interest expense reflecting the amount borrowed in connection with the acquisition, acquisition related costs and the impact of income taxes on the pro forma adjustments.
From the date of acquisition through the quarter ended March 28, 2025, sales related to Precision and VSi were $
13.3
million in the aggregate and earnings were
no
t material.
Acquisition costs
Direct acquisition costs are expensed as incurred and included in Restructuring and other charges in the Condensed Consolidated Statements of Operations and Comprehensive Income. During the three months ended March 28, 2025, direct costs of the Precision and VSi acquisitions were $
2.8
million. Direct costs of the Pulse acquisition during the three months ended March 29, 2024 were $
5.5
million.
- 11 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(3.)
DISCONTINUED OPERATIONS
On October 31, 2024, the Company completed the sale of Electrochem, collecting cash proceeds of $
48.7
million, which is net of transaction costs and adjustments set forth in the stock purchase agreement.
The Electrochem business
focused on non-medical applications for the energy, military and environmental sectors. Upon the signing of the stock purchase agreement on September 27. 2024, the
Electrochem business
qualified as a discontinued operation. In connection with the sale, the Company entered into a transition services agreement with the purchaser whereby the Company will perform certain support functions for a period of up to nine months from the date of the closing.
In connection with the closing of the transaction, the Company recognized a pre-tax gain on sale of discontinued operations of $
0.9
million, of which $
0.8
million was recorded during the year ended December 31, 2024. The Company is in the process of finalizing the net working capital adjustment with the purchaser as provided for in the stock purchase agreement. The final net working capital adjustment, as determined through the established process outlined in the stock purchase agreement, may be different from the Company’s estimates. The impact of any changes in the net working capital adjustment and associated income taxes will be recorded as an adjustment to the gain on sale from discontinued operations in the period such change occurs and may be materially different from the Company’s estimates.
Selected financial information of the
Electrochem business
included in discontinued operations is below.
Loss from discontinued operations, net of tax, were as follows (in thousands):
| Three Months Ended | |||||||||||
|
March 28,
2025 |
March 29,
2024 |
||||||||||
| Sales | $ |
|
$ |
|
|||||||
| Cost of sales |
|
|
|||||||||
| Gross profit |
(
|
|
|||||||||
| Selling, general and administrative expenses |
|
|
|||||||||
| Research, development and engineering costs |
|
|
|||||||||
| Restructuring and other charges |
|
|
|||||||||
| Interest expense |
|
|
|||||||||
| Gain on sale of discontinued operations |
(
|
|
|||||||||
| Loss from discontinued operations before taxes |
(
|
(
|
|||||||||
| Income tax benefit |
|
(
|
|||||||||
| Loss from discontinued operations, net of tax | $ |
(
|
$ |
(
|
|||||||
Cash flow information from discontinued operations for the three months ended March 29, 2024 was as follows (in thousands):
| Cash used in operating activities | $ |
|
|||
| Cash used in investing activities (all capital expenditures) |
|
||||
| Depreciation and amortization |
|
||||
- 12 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(4.)
SUPPLEMENTAL CASH FLOW INFORMATION
The following is supplemental information, including discontinued operations, relating to the Condensed Consolidated Statements of Cash Flows (in thousands):
| Three Months Ended | |||||||||||
|
March 28,
2025 |
March 29,
2024 |
||||||||||
| Noncash investing and financing activities: | |||||||||||
| Property, plant and equipment purchases included in accounts payable | $ |
|
$ |
|
|||||||
| Common stock issued for conversion of debt |
|
|
|||||||||
| Common stock received under capped call upon conversion of debt |
|
|
|||||||||
|
Write-off of unamortized deferred costs and original issued discount upon conversion of
debt included in Additional paid in capital |
|
|
|||||||||
| Common stock issued for acquisition |
|
|
|||||||||
| Debt issuance costs incurred but not yet paid |
|
|
|||||||||
| Supplemental lease disclosures: | |||||||||||
| Assets acquired under operating leases |
|
|
|||||||||
| Assets acquired under finance leases |
|
|
|||||||||
(5.)
INVENTORIES
Inventories comprise the following (in thousands):
|
March 28,
2025 |
December 31,
2024 |
||||||||||
| Raw materials | $ |
|
$ |
|
|||||||
| Work-in-process |
|
|
|||||||||
| Finished goods |
|
|
|||||||||
| Total | $ |
|
$ |
|
|||||||
- 13 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(6.)
GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill
The changes in the carrying amount of goodwill for the three months ended March 28, 2025 were as follows (in thousands):
| December 31, 2024 | $ |
|
|||
| Precision and VSi acquisitions (Note 2) |
|
||||
| Foreign currency translation |
|
||||
| March 28, 2025 | $ |
|
|||
Intangible Assets
See Note 2, “Business Acquisitions” for additional details regarding intangible assets acquired during 2025.
Intangible assets comprise the following (in thousands):
|
Gross
Carrying Amount |
Accumulated
Amortization |
Net
Carrying Amount |
|||||||||||||||
| March 28, 2025 | |||||||||||||||||
| Definite-lived: | |||||||||||||||||
| Purchased technology and patents | $ |
|
$ |
(
|
$ |
|
|||||||||||
| Customer lists |
|
(
|
|
||||||||||||||
| Amortizing tradenames and other |
|
(
|
|
||||||||||||||
| Total amortizing intangible assets | $ |
|
$ |
(
|
$ |
|
|||||||||||
| Indefinite-lived: | |||||||||||||||||
| Trademarks and tradenames | $ |
|
|||||||||||||||
| December 31, 2024 | |||||||||||||||||
| Definite-lived: | |||||||||||||||||
| Purchased technology and patents | $ |
|
$ |
(
|
$ |
|
|||||||||||
| Customer lists |
|
(
|
|
||||||||||||||
| Amortizing tradenames and other |
|
(
|
|
||||||||||||||
| Total amortizing intangible assets | $ |
|
$ |
(
|
$ |
|
|||||||||||
| Indefinite-lived: | |||||||||||||||||
| Trademarks and tradenames | $ |
|
|||||||||||||||
Aggregate intangible asset amortization expense comprises the following (in thousands):
| Three Months Ended | |||||||||||
|
March 28,
2025 |
March 29,
2024 |
||||||||||
| Cost of sales | $ |
|
$ |
|
|||||||
| Selling, general and administrative expenses |
|
|
|||||||||
| Total intangible asset amortization expense | $ |
|
$ |
|
|||||||
Estimated future intangible asset amortization expense based on the carrying value as of March 28, 2025 is as follows (in thousands):
| Remainder of 2025 | 2026 | 2027 | 2028 | 2029 | After 2029 | ||||||||||||||||||||||||||||||
| Amortization Expense | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
- 14 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(7.)
DEBT
Long-term debt comprises the following (in thousands):
| March 28, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||||||||
| Principal Amount | Unamortized Discounts and Issuance Costs | Net Carrying Amount | Principal Amount | Unamortized Discounts and Issuance Costs | Net Carrying Amount | ||||||||||||||||||||||||||||||
| Senior Secured Credit Facilities: | |||||||||||||||||||||||||||||||||||
| Revolving credit facilities | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Term loan A |
|
(
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| 2028 Convertible Notes |
|
(
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| 2030 Convertible Notes |
|
(
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total | $ |
|
$ |
(
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||
| Current portion of long-term debt |
(
|
(
|
|||||||||||||||||||||||||||||||||
| Long-term debt | $ |
|
$ |
|
|||||||||||||||||||||||||||||||
In September 2021, the Company entered into a credit agreement (the “2021 Credit Agreement”), governing the Company’s senior secured credit facilities (the “Senior Secured Credit Facilities”). In February 2023, the Company issued $
500.0
million aggregate principal amount of
2.125
% Convertible Senior Notes due in 2028 (the “2028 Convertible Notes”). In March 2025, the Company issued $
1.0
billion aggregate principal amount of
1.875
% Convertible Senior Notes due in 2030 (the “2030 Convertible Notes”). For additional details about the Senior Secured Credit Facilities, the 2028 Convertible Notes and the Capped Call Transactions as defined below, refer to Note 8, “Debt” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
Fourth Amendment to the 2021 Credit Agreement
On March 12, 2025, the Company entered into a fourth amendment (the “Fourth Amendment”) to the 2021 Credit Agreement. The Fourth Amendment amended the terms of the 2021 Credit Agreement to, among other things, permit the Company to issue the 2030 Convertible Notes and incur other convertible note indebtedness in an aggregate principal amount of up to $
1.5
billion at any time outstanding.
Senior Secured Credit Facilities
As of March 28, 2025, the Company maintained Senior Secured Credit Facilities consisting of a
five-year
$
800
million revolving credit facility (the “Revolving Credit Facility”) and a
five-year
“term A” loan (the “TLA Facility”).
Revolving Credit Facility
The Revolving Credit Facility matures on
February
15
, 2028
. As of March 28, 2025, the Company had available borrowing capacity on the Revolving Credit Facility of $
794.7
million after giving effect to $
5.3
million of outstanding standby letters of credit. Borrowings under the Revolving Credit Facility bear interest at a rate based on the secured overnight financing rate for the applicable interest period plus an adjustment of
0.10
% per annum, in relation to any loan in U.S. dollars, and the Euro Interbank Offered Rate, in relation to any loan in Euros, plus a margin based on the Company’s Secured Net Leverage Ratio (as defined in the 2021 Credit Agreement). In addition, the Company is required to pay a commitment fee on the unused portion of the Revolving Credit Facility, which ranges between
0.15
% and
0.25
%, depending on the Company’s Secured Net Leverage Ratio. As of March 28, 2025, the weighted average interest rate on outstanding borrowings under the Revolving Credit Facility was
5.93
% and the commitment fee on the unused portion of the Revolving Credit Facility was
0.18
%.
TLA Facility
The TLA Facility matures on
February
15
, 2028
. In March 2025, the Company used a portion of the proceeds from its offering of the 2030 Convertible Notes to prepay the required quarterly principal installments under the TLA Facility through maturity. The interest rate terms for the TLA Facility are the same as those described above for the Revolving Credit Facility borrowings in U.S. dollars. Additionally, in connection with the partial repayment of the TLA Facility, the Company incurred a $
0.7
million loss on extinguishment of debt from the write-off of a portion of the remaining deferred debt issuance costs and original issue discount, which were expensed and included in Interest expense during the three months ended March 28, 2025. As of March 28, 2025, the interest rate on the TLA Facility was
5.93
%.
- 15 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(7.) DEBT (Continued)
Covenants
The 2021 Credit 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 the Company
not to exceed a specified maximum
Total Net Leverage Ratio (as defined in the 2021 Credit Agreement) and an interest coverage ratio
as of the end of each fiscal quarter.
As of March 28, 2025, the Company was in compliance with these financial covenants.
Contractual principal maturities under the Senior Secured Credit Facilities as of March 28, 2025, are as follows (in thousands):
| Remainder of 2025 | 2026 | 2027 | 2028 | |||||||||||||||||||||||
| Future minimum principal payments | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
2030 Convertible Notes Issuance and 2028 Convertible Notes Exchange Transactions
On March 18, 2025, the Company issued $
1.0
billion in aggregate principal amount of 2030 Convertible Notes due 2030 that bear interest at a fixed rate of
1.875
% per annum by private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), which included the exercise in full of the initial purchasers’ option to purchase up to an additional $
125.0
million principal amount of the 2030 Convertible Notes. The 2030 Convertible Notes were issued pursuant to an indenture dated as of March 18, 2025, by and between the Company and Wilmington Trust, National Association, as trustee (the “2030 Convertible Notes Indenture”).
The 2030 Convertible Notes are senior unsecured obligations of the Company. The Company used a portion of the proceeds from the issuance of the 2030 Convertible Notes to exchange $
383.7
million in aggregate principal amount of the 2028 Convertible Notes in privately-negotiated transactions for an aggregate cash exchange consideration of $
384.4
million in cash and
1,553,806
shares of Common Stock (the “Note Exchange Transactions”).
The Company determined that the exchange of the 2028 Convertible Notes in the Note Exchange Transactions met the criteria to be accounted as an induced conversion in accordance with Accounting Standards Codification 470-20, Debt with Conversion and Other Options (ASC 470-20). As a result of the induced conversion, in March 2025 the Company recorded $
46.7
million in induced conversion expense within Other loss, net in the Condensed Consolidated Statements of Operations and Comprehensive Income. The induced conversion expense represents the fair value of the consideration issued in the Note Exchange Transactions upon conversion in excess of the fair value of the securities issuable under the original terms of the 2028 Convertible Notes.
Contemporaneously with the Note Exchange Transactions, the Company and the financial institutions party to the 2028 Capped Calls agreed to terminate a portion of the 2028 Capped Calls (as defined below) in a notional amount corresponding to the amount of 2028 Convertible Notes exchanged in the Note Exchange Transactions. In connection herewith, the Company received
436,963
shares of Common Stock, the fair value of the terminated portion of the 2028 Capped Calls, upon settlement. The terms of the remaining 2028 Capped Calls remain unchanged.
2030 Convertible Notes
The issuance of the 2030 Convertible Notes resulted in $
976.3
million in net proceeds to the Company after deducting initial purchasers’ discounts and issuance costs.
The 2030 Convertible Notes bear interest at a fixed rate of
1.875
% per annum, payable semiannually in arrears on March 15 and September 15 of each year, beginning on September 15, 2025. The 2030 Convertible Notes will mature on March 15, 2030, unless earlier repurchased, redeemed or converted in accordance with their terms.
Debt discount and issuance costs related to the 2030 Convertible Notes were $
23.7
million, including $
22.5
million of discount and $
1.2
million of new debt issuance costs related to the 2030 Convertible Notes. The debt discount and issuance costs are amortized as interest expense using the effective interest method over the term of the 2030 Convertible Notes. The effective interest rate of the 2030 Convertible Notes was
2.38
% as of March 28, 2025.
- 16 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(7.) DEBT (Continued)
Holders of the 2030 Convertible Notes may convert all or a portion of their 2030 Convertible Notes at their option prior to December 15, 2029, in multiples of $1,000 principal amounts, only under the following circumstances:
•
during any calendar quarter commencing after the calendar quarter ended on June 30, 2025 (and only during such calendar quarter), if the last reported sale price of the Common Stock for at least
20
trading days (whether or not consecutive) during a period of
30
consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to
150
% of the conversion price on each applicable trading day;
•
during the
five
business day period after any
ten
consecutive trading day period (the “Measurement Period”) in which the trading price (as defined in the 2030 Convertible Notes Indenture) per $1,000 principal amount of the 2030 Convertible Notes for each trading day of the Measurement Period was less than
98
% of the product of the last reported sale price of the Common Stock and the conversion rate in effect on each such trading day;
•
if the Company calls any or all of the 2030 Convertible Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or
•
upon the occurrence of specified corporate events.
On or after December 15, 2029, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the 2030 Convertible Notes may convert all or any portion of the 2030 Convertible Notes at their option at the conversion rate then in effect, irrespective of these conditions. The Company will settle conversions of the 2030 Convertible Notes by paying cash up to the aggregate principal amount of the 2030 Convertible Notes to be converted and cash, shares of Common Stock or a combination of cash and shares of Common Stock, at the Company’s election, in respect of the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount of the 2030 Convertible Notes being converted. The conversion rate will initially be 6.6243 shares of Common Stock per $1,000 principal amount of 2030 Convertible Notes (equivalent to an initial conversion price of approximately $
150.96
per share of Common Stock). The conversion rate is subject to customary adjustments upon the occurrence of certain events. If the Company undergoes a fundamental change (as defined in the 2030 Convertible Notes Indenture), subject to certain conditions, holders may require the Company to repurchase for cash all or any portion of their 2030 Convertible Notes, in principal amounts of $1,000 or a multiple thereof, at a fundamental change repurchase price equal to
100
% of the principal amount of the 2030 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. In addition, following certain corporate events or if the Company issues a notice of redemption, it will, under certain circumstances, increase the conversion rate for holders who elect to convert their 2030 Convertible Note in connection with such corporate event or during the relevant redemption period.
The Company may not redeem the 2030 Convertible Notes prior to March 20, 2028. The Company may redeem for cash all or part of the 2030 Convertible Notes, at its option, on or after March 20, 2028, if the last reported sale price of its Common Stock has been at least
140
% of the conversion price then in effect for at least
20
trading days (whether or not consecutive) during any
30
consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to
100
% of the principal amount of the 2030 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date (as defined in the 2030 Convertible Notes Indenture).
The 2030 Convertible Notes Indenture provides for customary events of default, which include (subject in certain cases to grace and cure periods), among others: nonpayment of principal or interest; failure by the Company to comply with its conversion obligations upon exercise of a holder’s conversion right under the 2030 Convertible Notes Indenture; breach of covenants or other agreements in the 2030 Convertible Notes Indenture; defaults by the Company or any significant subsidiary (as defined in the 2030 Convertible Notes Indenture) with respect to other indebtedness in excess of a threshold amount; failure by the Company or any significant subsidiary to pay final judgments in excess of a threshold amount; and the occurrence of certain events of bankruptcy, insolvency or reorganization with respect to the Company or any significant subsidiary. Generally, if an event of default occurs and is continuing under the 2030 Convertible Notes Indenture, either the trustee or the holders of at least
25
% in aggregate principal amount of the 2030 Convertible Notes then outstanding may declare the principal amount plus accrued and unpaid interest on the 2030 Convertible Notes to be immediately due and payable.
- 17 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(7.) DEBT (Continued)
2028 Convertible Notes
In February 2023, the Company issued the 2028 Convertible Notes with an aggregate principal amount of $
500.0
million in a private offering, which aggregate principal amount included the exercise in full of the initial purchasers’ option to purchase up to an additional $
65.0
million principal amount of the 2028 Convertible Notes. The 2028 Convertible Notes were issued pursuant to an indenture dated as of February 3, 2023, by and between the Company and Wilmington Trust, National Association, as trustee. On March 18, 2025, in connection with the issuance of the 2030 Convertible Notes, the Company used part of the net proceeds therefrom to exchange $
383.7
million in aggregate principal amount of the 2028 Convertible Notes in privately-negotiated transactions. Subsequent to exchange, the remaining aggregate principal amount of the 2028 Convertible Notes was $
116.3
million. For additional information, refer to “2030 Convertible Notes Issuance and 2028 Convertible Notes Exchange Transactions” above.
The 2028 Convertible Notes are senior unsecured obligations of the Company, which bear interest at a fixed rate of
2.125
% per annum, payable semiannually in arrears on February 15 and August 15 of each year. The 2028 Convertible Notes will mature on February 15, 2028 unless repurchased, redeemed, or converted in accordance with their terms prior to such date and do not contain financial maintenance covenants. The 2028 Convertible Notes are convertible at an initial conversion rate of 11.4681 shares of the Company’s common stock per $1,000 principal amount of the 2028 Convertible Notes, which is equivalent to an initial conversion price of approximately $
87.20
per share of Common Stock. The conversion rate is subject to standard anti-dilutive adjustments and adjustments upon the occurrence of specified events.
The Company may not redeem the 2028 Convertible Notes prior to February 20, 2026. The Company may redeem for cash all or any portion of the 2028 Convertible Notes, at its option, on or after February 20, 2026 and prior to February 15, 2028, if the last reported sale price of its Common Stock has been at least
130
% of the conversion price then in effect for at least
20
trading days (whether or not consecutive) during any
30
consecutive trading day period (including the last trading day of such period) ending not more than
trading days immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to
100
% of the principal amount of the 2028 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
Holders of the 2028 Convertible Notes may convert all or a portion of their 2028 Convertible Notes at their option prior to November 15, 2027, in multiples of $1,000 principal amounts, only under the following circumstances:
•
during any calendar quarter commencing after the calendar quarter ended on March 31, 2023 (and only during such calendar quarter), if the last reported sale price of the Common Stock for at least
20
trading days (whether or not consecutive) during a period of
30
consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to
130
% of the conversion price on each applicable trading day;
•
during the
five
business day period after any
ten
consecutive trading day period (the “Measurement Period”) in which the trading price (as defined in the indenture governing the 2028 Convertible Notes) per $1,000 principal amount of the 2028 Convertible Notes for each trading day of the Measurement Period was less than
98
% of the product of the last reported sale price of the Common Stock and the conversion rate in effect on each such trading day;
•
if the Company calls any or all of the 2028 Convertible Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or
•
upon the occurrence of specified corporate events.
On or after November 15, 2027 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2028 Convertible Notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.
- 18 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(7.) DEBT (Continued)
Upon conversion, the 2028 Convertible Notes will be settled in cash up to the aggregate principal amount of the 2028 Convertible Notes to be converted, and in cash, shares of the Common Stock or a combination thereof, at the Company’s option, in respect of the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount of the 2028 Convertible Notes being converted. If the Company undergoes a fundamental change (as defined in the indenture governing the 2028 Convertible Notes), subject to certain conditions, holders may require the Company to repurchase for cash all or any portion of their 2028 Convertible Notes, in principal amounts of $1,000 or a multiple thereof, at a fundamental change repurchase price equal to
100
% of the principal amount of the 2028 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. In addition, following certain corporate events or if the Company issues a notice of redemption, it will, under certain circumstances, increase the conversion rate for holders who elect to convert their 2028 Convertible Note in connection with such corporate event or during the relevant redemption period.
As of March 28, 2025, the conditions allowing holders of the 2028 Convertible Notes to convert had been met and, therefore, the 2028 Convertible Notes became eligible for conversion at the option of the holders beginning on January 1, 2025 and ending at the close of business on March 31, 2025. Subsequent to March 28, 2025, the sale price of the Common Stock for conversion was satisfied as of April 1, 2025 and as a result, the 2028 Convertible Notes will continue to be eligible for optional conversion during the second quarter of 2025. Any determination regarding the convertibility of the 2028 Convertible Notes during future periods will be made in accordance with the terms of the indenture governing the 2028 Convertible Notes. If a conversion request occurs, the Company has the intent and ability to refinance the amounts that may become due with respect to the 2028 Convertible Notes using the available borrowing capacity under the Revolving Credit Facility. As such, the obligations associated with the 2028 Convertible Notes continue to be classified as a long-term liability on the Condensed Consolidated Balance Sheet at March 28, 2025.
The 2028 Convertible Notes are accounted for as a single liability measured at amortized cost. The discount and issuance costs related to the 2028 Convertible Notes are being amortized to interest expense over the contractual term of the 2028 Convertible Notes. As of March 28, 2025, the 2028 Convertible Notes had an effective interest rate of
2.76
%.
Capped Call Transactions
2028 Capped Calls
In connection with the issuance of the 2028 Convertible Notes, the Company entered into privately negotiated capped call transactions (the “2028 Capped Calls”) with certain financial institutions. The 2028 Capped Calls are expected generally to reduce the potential dilution to the Common Stock in connection with any conversion of the 2028 Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted 2028 Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap based on the strike price of written warrants. The initial upper strike price of the 2028 Capped Calls is $
108.59
per share and is subject to certain adjustments under the terms of the 2028 Capped Calls.
2030 Capped Calls
In connection with the issuance of the 2030 Convertible Notes, the Company entered into privately negotiated capped calls (the “2030 Capped Calls”) with certain financial institutions. The Company used $
71.0
million of the net proceeds from the offering of the 2030 Convertible Notes to pay for the cost of the 2030 Capped Calls.
The 2030 Capped Calls are expected generally to reduce the potential dilution to the Common Stock upon any conversion of the 2030 Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted 2030 Convertible Notes, as the case may be, in the event that the market price per share of the Common Stock, as measured under the terms of the 2030 Capped Calls, is greater than the strike price of the 2030 Capped Calls, which initially corresponds to the conversion price of the 2030 Convertible Notes and is subject to customary anti-dilution adjustments.
The initial upper strike price of the 2030 Capped Calls is $
189.44
per share and is subject to customary anti-dilution adjustments under the terms of the 2030 Capped Calls.
- 19 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(8.)
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 (the “Compensation Committee”) of the Board. The stock-based compensation plans provide for the granting of stock options, restricted stock awards, performance awards, time-based restricted stock units (“RSUs”), performance-based RSUs (“PRSUs”), stock appreciation rights and stock bonuses to employees, non-employee directors, consultants, and service providers.
Stock-based Compensation Expense
The classification of stock-based compensation expense was as follows (in thousands):
| Three Months Ended | |||||||||||
|
March 28,
2025 |
March 29,
2024 |
||||||||||
| RSUs and PRSUs | $ |
|
$ |
|
|||||||
| Discontinued operations |
|
|
|||||||||
| Total stock-based compensation expense | $ |
|
$ |
|
|||||||
| Cost of sales | $ |
|
$ |
|
|||||||
| Selling, general and administrative |
|
|
|||||||||
| Research, development and engineering |
|
|
|||||||||
| Restructuring and other charges |
|
|
|||||||||
| Discontinued operations |
|
|
|||||||||
| Total stock-based compensation expense | $ |
|
$ |
|
|||||||
Stock Options
The following table summarizes the Company’s stock option activity for the three month period ended March 28, 2025:
|
Number of
Stock Options |
Weighted
Average Exercise Price |
Weighted
Average Remaining Contractual Life (In Years) |
Aggregate
Intrinsic Value (In Millions) |
||||||||||||||||||||
| Outstanding at December 31, 2024 |
|
$ |
|
||||||||||||||||||||
| Exercised |
(
|
|
|||||||||||||||||||||
| Outstanding and exercisable at March 28, 2025 |
|
$ |
|
|
$ |
|
|||||||||||||||||
Time-Based Restricted Stock Units
Most RSUs granted to employees during the three months ended March 28, 2025 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 period of
one year
. The grant-date fair value of all RSUs is equal to the closing market price of Integer common stock on the date of grant.
- 20 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(8.) STOCK-BASED COMPENSATION (Continued)
The following table summarizes RSU activity for the three month period ended March 28, 2025:
|
Time-Vested
Activity |
Weighted
Average Grant Date Fair Value |
||||||||||
| Nonvested at December 31, 2024 |
|
$ |
|
||||||||
| Granted |
|
|
|||||||||
| Vested |
(
|
|
|||||||||
| Forfeited |
(
|
|
|||||||||
| Nonvested at March 28, 2025 |
|
$ |
|
||||||||
Performance-Based Restricted Stock Units
For the Company’s PRSUs, in addition to service conditions, the ultimate number of shares to be earned (
0
% to
200
% of the target award) depends on the achievement of financial and market-based performance conditions. The financial performance conditions are based on the Company’s sales targets over a
three year
performance period. The market-based performance conditions are based on the Company’s achievement of a relative total shareholder return performance requirement, on a percentile basis, compared to a defined group of peer companies over a
three year
performance period.
The following table summarizes PRSU activity for the three month period ended March 28, 2025:
|
Performance-
Vested Activity |
Weighted
Average Grant Date Fair Value |
||||||||||
| Nonvested at December 31, 2024 |
|
$ |
|
||||||||
| Granted |
|
|
|||||||||
|
Performance adjustment
(a)
|
|
|
|||||||||
| Vested |
(
|
|
|||||||||
| Nonvested at March 28, 2025 |
|
$ |
|
||||||||
__________
(a)
Represents additional PRSUs earned related to above-target achievement of performance conditions, the achievement of which was based upon predefined performance targets established by the Compensation Committee at the initial grant date.
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 the 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:
| Three Months Ended | |||||||||||
|
March 28,
2025 |
March 29,
2024 |
||||||||||
| Weighted average fair value | $ |
|
$ |
|
|||||||
| Risk-free interest rate |
|
% |
|
% | |||||||
| Expected volatility |
|
% |
|
% | |||||||
| Expected life (in years) |
|
|
|||||||||
| Expected dividend yield |
|
% |
|
% | |||||||
The valuation of the market-based PRSUs granted during 2025 and 2024 also reflects a weighted average illiquidity discount of
8.78
% and
8.00
%, respectively, related to the
one-year
and
six-month
period, respectively, that recipients are restricted from selling, transferring, pledging or assigning the underlying shares, in the event of vesting.
- 21 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(9.)
RESTRUCTURING AND OTHER CHARGES
Restructuring and other charges comprise the following (in thousands):
| Three Months Ended | |||||||||||
|
March 28,
2025 |
March 29,
2024 |
||||||||||
| Restructuring charges | $ |
|
$ |
|
|||||||
|
Acquisition and integration costs
|
|
|
|||||||||
| Other general expenses |
(
|
|
|||||||||
|
Total restructuring and other charges
|
$ |
|
$ |
|
|||||||
Restructuring programs
Operational excellence
The Company’s operational excellence 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.
Strategic reorganization and alignment
The Company’s strategic reorganization and alignment 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.
Manufacturing alignment to support growth
The Company’s manufacturing alignment to support growth initiatives are designed to reduce costs, improve operating efficiencies or increase capacity to accommodate growth, which may involve relocation or consolidation of manufacturing operations.
The following table comprises restructuring and restructuring-related charges (gains) by classification in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (in thousands):
| Three Months Ended | |||||||||||
|
March 28,
2025 |
March 29,
2024 |
||||||||||
| Restructuring charges: | |||||||||||
|
Restructuring and other charges
|
$ |
|
$ |
|
|||||||
|
Restructuring-related expenses
(a)
:
|
|||||||||||
| Cost of sales |
|
|
|||||||||
| Selling, general and administrative |
|
|
|||||||||
| Research, development and engineering |
(
|
|
|||||||||
|
Total restructuring and restructuring-related charges
|
$ |
|
$ |
|
|||||||
__________
(a)
Restructuring-related expenses primarily include retention bonuses, consulting expenses and professional fees.
- 22 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(9.) RESTRUCTURING AND OTHER CHARGES (Continued)
The following table summarizes the activity for restructuring reserves (in thousands):
|
Operational
excellence |
Strategic reorganization and alignment | Manufacturing alignment to support growth | Total | ||||||||||||||||||||
| December 31, 2024 | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Charges incurred, net of reversals |
|
|
|
|
|||||||||||||||||||
| Cash payments |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Non-cash adjustments |
|
|
|
|
|||||||||||||||||||
| March 28, 2025 | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
Acquisition and integration costs
Acquisition and integration costs primarily consist of professional fees directly related to business acquisitions and costs to integrate the systems, processes and organizations acquired. During the three months ended March 28, 2025, acquisition and integration costs primarily related to the Precision and VSi acquisitions.
During the three months ended March 29, 2024, acquisition and integration costs primarily related to the Pulse and InNeuroCo acquisitions.
Other general expenses
During the three months ended March 28, 2025 and March 29, 2024, the Company recorded expenses related to other initiatives not described above, which primarily include gains and losses in connection with the disposal of property, plant and equipment.
(10.)
INCOME TAXES
The income tax provision for interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. There is a potential for volatility of the effective tax rate due to several factors, including discrete items, changes in the mix and amount of pre-tax income and the jurisdictions to which it relates, changes in tax laws and foreign tax holidays, business reorganizations, settlements with taxing authorities and foreign currency fluctuations. In addition, the Company continues to explore tax planning opportunities that may have a material impact on its effective tax rate.
| Three Months Ended | |||||||||||
|
March 28,
2025 |
March 29,
2024 |
||||||||||
| Income from continuing operations before taxes | $ |
(
|
$ |
|
|||||||
| Provision for income taxes |
|
|
|||||||||
| Effective tax rate |
(
|
% |
|
% | |||||||
The difference between the Company’s effective tax rates and the U.S. federal statutory income tax rate of 21% for the first quarter of 2025 is due principally to the impact of the 2028 Convertible Notes Exchange Transactions, including the nondeductible induced conversion expense and reduction of future original issue discount amortization for U.S. income tax purposes. To a lesser extent, the remaining difference between the Company’s effective tax rate and the U.S. federal statutory income tax rate are consistent with the differences recognized in the first quarter of 2024 and consist of the net impact of the Company’s earnings outside the U.S., which are generally taxed at rates that differ from the U.S. federal rate, the Global Intangible Low-Taxed Income (“GILTI”) tax, the Foreign Derived Intangible Income (“FDII”) deduction, the availability of tax credits and the recognition of certain discrete tax items.
For the first quarter of 2025, the Company recorded a discrete tax benefit of $
1.5
million, compared to a discrete tax benefit of $
0.8
million for the first quarter of 2024. The discrete tax benefits for the first quarter of 2025 and 2024 are predominately related to excess tax benefits, net of deductibility limitations, recognized upon vesting of RSUs.
- 23 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(10.) INCOME TAXES (Continued)
On December 15, 2022, the European Union (“EU”) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development (“OECD”) Pillar Two Framework. The effective dates are January 1, 2024 and January 1, 2025, for different aspects of the directive. A significant number of other countries are expected to also implement similar legislation with varying effective dates in the future. The Company is continuing to evaluate the potential impact on future periods of the Pillar Two Framework, pending legislative adoption by additional individual countries. The Company’s 2025 provision for income taxes includes the impact of the Pillar Two 15% Global Minimum Tax.
Unrecognized tax benefits reflect the difference between positions taken or expected to be taken on income tax returns and the amounts reflected in the financial statements. As of March 28, 2025, the Company had unrecognized tax benefits of approximately $
6.3
million, substantially all of which would favorably impact the effective tax rate, net of federal benefit on state issues, if recognized. As of March 28, 2025, the Company believes it is reasonably possible that a reduction of approximately $
4.0
million of the balance of unrecognized tax benefits may occur within the next 12 months as a result of various statute expirations, audit closures, and/or tax settlements.
(11.)
COMMITMENTS AND CONTINGENCIES
Contingent Consideration Arrangements
The Company records contingent consideration liabilities related to the earn-out provisions for certain acquisitions. See Note 14, “Financial Instruments and Fair Value Measurements” for additional information.
Litigation
The Company is subject to litigation arising from time to time in the ordinary course of its business. The Company does not expect that the ultimate resolution of any pending legal actions will have a material effect on its consolidated results of operations, financial position, or cash flows. However, litigation is subject to inherent uncertainties. As such, there can be no assurance that any pending legal action, which the Company currently believes to be immaterial, will not become material in the future.
- 24 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(12.)
EARNINGS (LOSS) PER SHARE (“EPS”)
The following table sets forth a reconciliation of the information used in computing basic and diluted EPS (in thousands, except per share amounts):
| Three Months Ended | |||||||||||
|
March 28,
2025 |
March 29,
2024 |
||||||||||
| Numerator for basic and diluted EPS: | |||||||||||
| Income (loss) from continuing operations | $ |
(
|
$ |
|
|||||||
| Loss from discontinued operations |
(
|
(
|
|||||||||
| Net income (loss) | $ |
(
|
$ |
|
|||||||
| Denominator for basic and diluted EPS: | |||||||||||
| Weighted average shares outstanding - Basic |
|
|
|||||||||
| Dilutive effect of share-based awards |
|
|
|||||||||
| Dilutive impact of Convertible Notes |
|
|
|||||||||
| Weighted average shares outstanding - Diluted |
|
|
|||||||||
| Basic earnings (loss) per share: | |||||||||||
| Income (loss) from continuing operations | $ |
(
|
$ |
|
|||||||
| Income (loss) from discontinued operations |
|
|
|||||||||
| Basic earnings (loss) per share | $ |
(
|
$ |
|
|||||||
| Diluted earnings (loss) per share: | |||||||||||
| Income (loss) from continuing operations | $ |
(
|
$ |
|
|||||||
| Income (loss) from discontinued operations | $ |
|
$ |
|
|||||||
| Diluted earnings (loss) per share | $ |
(
|
$ |
|
|||||||
For periods in which the Company has reported a loss from continuing operations, diluted earnings (loss) per share is the same as basic earnings (loss) per share, as the effects of common stock equivalents outstanding and shares issuable upon conversion of convertible debt instruments are antidilutive and, therefore, excluded from the calculation of diluted earnings (loss) per share.
The following table sets forth potential shares of Common Stock that are not included in the diluted earnings (loss) per share calculation above because to do so would be anti-dilutive for the periods indicated (in thousands):
| Three Months Ended | |||||||||||
|
March 28,
2025 |
March 29,
2024 |
||||||||||
| Stock options |
|
|
|||||||||
| RSUs |
|
|
|||||||||
| PRSUs |
|
|
|||||||||
| Common Stock issuable upon conversion of the 2028 Convertible Notes |
|
|
|||||||||
The dilutive effect for the Company's 2028 Convertible Notes and 2030 Convertible Notes (collectively, “Convertible Notes”) is calculated using the if-converted method. The Company is required, pursuant to the indentures governing the Convertible Notes, to settle the principal amount of the Convertible Notes in cash and may elect to settle the remaining conversion obligation (
the in-the-money portion
) in cash, shares of the Common Stock, or a combination thereof.
Because the principal amount of the
Convertible Notes
must be settled in cash, the dilutive impact of applying the if-converted method is limited to the in-the-money portion, if any, of the
Convertible Notes
. During the
three months
ended
March 28, 2025
, the potential conversion of the
2030 Convertible Notes
was not included in the diluted earnings (loss) per share calculation because the 2030
Convertible Notes are not potentially eligible for
conversion until the quarter beginning on July 1, 2025.
- 25 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(13.)
STOCKHOLDERS’ EQUITY
Common Stock
The following is a summary of the number of shares of Common Stock issued and outstanding for the three month periods ended March 28, 2025 and March 29, 2024:
| Issued | Treasury Stock | Outstanding | |||||||||||||||
| Beginning balance at December 31, 2024 |
|
(
|
|
||||||||||||||
| Stock options exercised |
|
— |
|
||||||||||||||
| Vested and settled RSUs and PRSUs, net of shares withheld to cover taxes |
|
— |
|
||||||||||||||
| Stock issued upon conversion of convertible debt |
|
— |
|
||||||||||||||
| Exercise of capped call upon conversion of convertible debt | — |
(
|
(
|
||||||||||||||
| Stock issued for acquisition |
|
— |
|
||||||||||||||
| Ending balance at March 28, 2025 |
|
(
|
|
||||||||||||||
| Beginning balance at December 31, 2023 |
|
|
|
||||||||||||||
| Stock options exercised |
|
— |
|
||||||||||||||
| Vested and settled RSUs and PRSUs, net of shares withheld to cover taxes |
|
— |
|
||||||||||||||
| Ending balance at March 29, 2024 |
|
|
|
||||||||||||||
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) (“AOCI”) comprises the following (in thousands):
|
Defined
Benefit Plan Liability |
Cash
Flow Hedges |
Foreign
Currency Translation Adjustment |
Total
Pre-Tax Amount |
Tax |
Net-of-Tax
Amount |
||||||||||||||||||||||||||||||
| December 31, 2024 | $ |
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
(
|
|||||||||||||||||||||||
| Unrealized gain on cash flow hedges | — |
|
— |
|
(
|
|
|||||||||||||||||||||||||||||
| Realized loss on foreign currency hedges | — |
|
— |
|
(
|
|
|||||||||||||||||||||||||||||
| Foreign currency translation gain | — | — |
|
|
|
|
|||||||||||||||||||||||||||||
| March 28, 2025 | $ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| December 31, 2023 | $ |
(
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||
| Unrealized gain on cash flow hedges | — |
|
— |
|
(
|
|
|||||||||||||||||||||||||||||
| Realized gain on foreign currency hedges | — |
(
|
— |
(
|
|
(
|
|||||||||||||||||||||||||||||
| Foreign currency translation loss | — | — |
(
|
(
|
|
(
|
|||||||||||||||||||||||||||||
| March 29, 2024 | $ |
(
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||
- 26 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(14.)
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Fair value measurement standards apply to certain financial assets and liabilities that are measured at fair value on a recurring basis (each reporting period). For the Company, these financial assets and liabilities include its derivative instruments and contingent consideration. The Company does not have any nonfinancial assets or liabilities that are measured at fair value on a recurring basis.
The Company is exposed to global market risks, including the effect of changes in interest rates and foreign currency exchange rates, and may use derivatives to manage these exposures that occur in the normal course of business. The Company does not hold or issue derivatives for trading or speculative purposes. All derivatives are recorded at fair value on the Condensed Consolidated Balance Sheets.
The following tables provide information regarding assets and liabilities recorded at fair value on a recurring basis (in thousands):
| Fair Value |
Quoted
Prices in Active Markets (Level 1) |
Significant
Other Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
||||||||||||||||||||
| March 28, 2025 | |||||||||||||||||||||||
| Assets: Foreign currency hedging contracts | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Liabilities: Foreign currency hedging contracts |
|
|
|
|
|||||||||||||||||||
| Liabilities: Contingent consideration |
|
|
|
|
|||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Liabilities: Foreign currency hedging contracts | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Liabilities: Contingent consideration |
|
|
|
|
|||||||||||||||||||
Derivatives Designated as Hedging Instruments
Foreign Currency Contracts
The Company periodically enters into foreign currency forward contracts to hedge its exposure to foreign currency exchange rate fluctuations in its international operations. The Company has designated these foreign currency forward contracts as cash flow hedges.
Information regarding outstanding foreign currency forward contracts as of March 28, 2025 is as follows (dollars in thousands):
| Notional Amount | Maturity Date | $/Foreign Currency | Fair Value | Balance Sheet Location | ||||||||||||||||||||||||||||
| $ |
|
Dec 2025 |
|
Euro | $ |
|
Prepaid expenses and other current assets | |||||||||||||||||||||||||
|
|
Dec 2025 |
|
UYU Peso |
|
Prepaid expenses and other current assets | |||||||||||||||||||||||||||
|
|
Dec 2025 |
|
MYR Ringgit | $ |
|
Prepaid expenses and other current assets | ||||||||||||||||||||||||||
|
|
Dec 2025 |
|
MXN Peso | $ |
(
|
Accrued expenses and other current liabilities | ||||||||||||||||||||||||||
|
|
Jul 2026 |
|
MXN Peso |
|
Other long-term assets | |||||||||||||||||||||||||||
Information regarding outstanding foreign currency forward contracts as of December 31, 2024 is as follows (dollars in thousands):
| Notional Amount | Maturity Date | $/Foreign Currency | Fair Value | Balance Sheet Location | ||||||||||||||||||||||||||||
| $ |
|
Dec 2025 |
|
Euro | $ |
|
Accrued expenses and other current liabilities | |||||||||||||||||||||||||
|
|
Dec 2025 |
|
UYU Peso |
|
Accrued expenses and other current liabilities | |||||||||||||||||||||||||||
|
|
Dec 2025 |
|
MXN Peso |
|
Accrued expenses and other current liabilities | |||||||||||||||||||||||||||
|
|
Jul 2026 |
|
MXN Peso |
|
Other long-term liabilities | |||||||||||||||||||||||||||
- 27 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(14.) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
The following tables present the effect of cash flow hedge derivative instruments on the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income for the three and three months ended March 28, 2025 and March 29, 2024 (in thousands):
| Three Months Ended | ||||||||||||||||||||||||||
| March 28, 2025 | March 29, 2024 | |||||||||||||||||||||||||
| Total | Amount of Gain (Loss) on Cash Flow Hedge Activity | Total | Amount of Gain (Loss) on Cash Flow Hedge Activity | |||||||||||||||||||||||
| Sales | $ |
|
$ |
(
|
$ |
|
$ |
|
||||||||||||||||||
| Cost of sales |
|
(
|
|
|
||||||||||||||||||||||
| Operating expenses |
|
(
|
|
|
||||||||||||||||||||||
| Unrealized Gain (Loss) Recognized in OCI | Realized Gain (Loss) Reclassified from AOCI | |||||||||||||||||||||||||||||||
| Three Months Ended |
Location in Statements of Operations and Comprehensive
Income
|
Three Months Ended | ||||||||||||||||||||||||||||||
|
March 28,
2025 |
March 29,
2024 |
March 28,
2025 |
March 29,
2024 |
|||||||||||||||||||||||||||||
| Foreign exchange contracts | $ |
|
$ |
(
|
Sales | $ |
(
|
$ |
|
|||||||||||||||||||||||
| Foreign exchange contracts |
|
|
Cost of sales |
(
|
|
|||||||||||||||||||||||||||
| Foreign exchange contracts |
|
|
Operating expenses |
(
|
|
|||||||||||||||||||||||||||
The Company expects to reclassify net losses totaling $
0.8
million related to its cash flow hedges from AOCI into earnings during the next twelve months.
Derivatives Not Designated as Hedging Instruments
The Company also has foreign currency exposure on balances, primarily intercompany, that are denominated in a foreign currency and are adjusted to current values using period-end exchange rates. To minimize foreign currency exposure, the Company enters into foreign currency contracts with a one month maturity. At March 28, 2025 and December 31, 2024, the Company had total gross notional amounts of $
22.0
million and $
33.0
million, respectively, of foreign currency contracts outstanding that were not designated as hedges. The fair value of derivatives not designated as hedges was not material for any period presented. Gains/losses on foreign currency contracts not designated as hedging instruments are included in Other loss, net on the Condensed Consolidated Statements of Operations and Comprehensive Income. The Company recorded gains of $
0.6
million for the three months ended March 28, 2025, compared to net losses of $
0.9
million for the three months ended March 29, 2024. Each of the foreign currency contracts not designated as hedging instruments will have approximately offsetting effects from the underlying intercompany loans subject to foreign exchange remeasurement.
Contingent Consideration
The following table presents the changes in the estimated fair values of the Company’s liabilities for contingent consideration measured using significant unobservable inputs (Level 3) for the three months ended March 28, 2025 and March 29, 2024 (in thousands):
| Three Months Ended | |||||||||||
|
March 28,
2025 |
March 29,
2024 |
||||||||||
| Fair value measurement at beginning of period | $ |
|
$ |
|
|||||||
|
Amount recorded for current year acquisitions
|
|
|
|||||||||
| Fair value measurement at end of period | $ |
|
$ |
|
|||||||
As of March 28, 2025 and December 31, 2024, the contingent consideration liability of $
3.4
million and $
0.9
million, respectively, was non-current and included in Other long-term liabilities on the Condensed Consolidated Balance Sheets.
- 28 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(14.) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
The contingent consideration at March 28, 2025 is the estimated fair value of the Company’s remaining obligations, under the purchase agreements for Precision, VSi, Pulse and InNeuroCo, to make additional payments if certain revenue goals are met. The fair value of the contingent consideration liability relating to the acquisitions of Precision and VSi was $
1.4
million and $
1.1
million, respectively, at the date of acquisition and at March 28, 2025. See Note 2, “Business Acquisitions,” for additional information about the Precision, VSi and Pulse acquisitions and related contingent consideration.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Fair value standards also apply to certain assets and liabilities that are measured at fair value on a nonrecurring basis. The carrying amounts of cash, accounts receivable, accounts payable, and accrued expenses approximate fair value because of the short-term nature of these items.
Borrowings under the Company’s Revolving Credit Facility and TLA Facility accrue interest at a floating rate tied to a standard short-term borrowing index, selected at the Company’s option, plus an applicable margin. The carrying amount of this floating rate debt approximates fair value based upon the respective interest rates adjusting with market rate adjustments.
As of March 28, 2025 and December 31, 2024, the estimated fair value of the 2028 Convertible Notes was approximately $
170
million and $
635
million, respectively. As of March 28, 2025, the estimated fair value of the 2030 Convertible Notes was approximately $
1,004
million.
The estimated fair value of the Convertible Notes was determined through consideration of quoted market prices. The fair value of the Convertible Notes is categorized in Level 2 of the fair value hierarchy.
Equity Investments
The Company holds long-term, strategic investments in companies to promote business and strategic objectives. These investments are included in Other long-term assets on the Condensed Consolidated Balance Sheets.
Equity investments comprise the following (in thousands):
|
March 28,
2025 |
December 31,
2024 |
||||||||||||||||||||||
| Equity method investment | $ |
|
$ |
|
|||||||||||||||||||
| Non-marketable equity securities |
|
|
|||||||||||||||||||||
|
Total equity investments
|
$ |
|
$ |
|
|||||||||||||||||||
The components of Gain on equity investments for each period were as follows (in thousands):
| Three Months Ended | |||||||||||
|
March 28,
2025 |
March 29,
2024 |
||||||||||
| Equity method investment gain | $ |
(
|
$ |
(
|
|||||||
The Company’s equity method investment is in a venture capital fund focused on investing in life sciences companies. As of March 28, 2025, the Company owned
7.6
% of this fund.
- 29 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(15.)
SEGMENTS AND DISAGGREGATED REVENUE
The Company operates as
one
operating segment. The Company's chief operating decision maker ("CODM") is its Chief Executive Officer, who reviews financial information presented on a consolidated basis. The CODM uses consolidated income from continuing operations to make key operating decisions, including resource allocations and performance assessments. Refer to the Condensed Consolidated Statement of Operations and Comprehensive Income for financial results of the Company’s operating segment.
The following table presents Property, Plant and Equipment (“PP&E”) by geographic area. In these tables, PP&E is aggregated based on the physical location of the tangible long-lived assets (in thousands):
|
March 28,
2025 |
March 29,
2024 |
||||||||||
| Long-lived tangible assets by geographic area: | |||||||||||
| United States | $ |
|
$ |
|
|||||||
| Ireland |
|
|
|||||||||
| Mexico |
|
|
|||||||||
| Rest of world |
|
|
|||||||||
| Total | $ |
|
$ |
|
|||||||
The following table presents sales by product line (in thousands):
| Three Months Ended | |||||||||||
|
March 28,
2025 |
March 29,
2024 |
||||||||||
| Cardio & Vascular | $ |
|
$ |
|
|||||||
|
Cardiac Rhythm Management & Neuromodulation
|
|
|
|||||||||
| Other Markets |
|
|
|||||||||
| Total sales | $ |
|
$ |
|
|||||||
Revenue recognized from products and services transferred to customers over time represented
33
% of total revenue for both the three months ended March 28, 2025 and March 29, 2024.
The following tables present revenues by significant customers, which are defined as any customer who individually represents 10% or more of total revenues.
| Three Months Ended | ||||||||||||||
| March 28, 2025 | March 29, 2024 | |||||||||||||
| Customer A |
|
|
||||||||||||
| Customer B |
|
|
||||||||||||
| Customer C |
|
|
||||||||||||
| All other customers |
|
|
||||||||||||
The following tables present revenues by significant ship to location, which is defined as any country where 10% or more of total revenues are shipped.
| Three Months Ended | ||||||||||||||
| March 28, 2025 | March 29, 2024 | |||||||||||||
| United States |
|
|
||||||||||||
| All other countries |
|
|
||||||||||||
- 30 -
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(15.) SEGMENTS AND DISAGGREGATED REVENUE (Continued)
Contract Balances
The opening and closing balances of the Company’s contract assets and contract liabilities are as follows (in thousands):
|
March 28,
2025 |
December 31,
2024 |
||||||||||
| Contract assets | $ |
|
$ |
|
|||||||
| Contract liabilities (included in Accrued expenses and other current liabilities) |
|
|
|||||||||
| Contract liabilities (included in Other long-term liabilities) |
|
|
|||||||||
During the three months ended March 28, 2025, the Company recognized $
1.2
million
of revenue that was included in the contract liability balance as of December 31, 2024. During the three months ended March 29, 2024, the Company recognized $
1.5
million of revenue that was included in the contract liability balance as of December 31, 2023.
- 31 -
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q should be read in conjunction with the disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2024. In addition, please read this section in conjunction with our Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements contained herein.
Cautionary Note Regarding Forward-Looking Statements
Some statements contained in this report and other written and oral statements made from time to time by us and our representatives are not statements of historical or current fact. As such, they are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created thereby under the Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current expectations, and these statements are subject to known and unknown risks, uncertainties and assumptions. Forward-looking statements include, but are not limited to, statements relating to:
•
our ability to execute our business model and our business strategy;
•
the timing for final sales of our Portable Medical products;
•
having available sufficient cash and borrowing capacity to meet working capital, debt service and capital expenditure requirements for the next twelve months; and
•
projected contractual debt service obligations.
You can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “forecast,” “outlook,” “assume,” “potential” or “continue” or variations or the negative counterparts of these terms or other comparable terminology. These statements are only predictions and are not guarantees of future performance, and investors should not place undue reliance on forward-looking statements as predictive of future results. Actual events or results may differ materially from those stated or implied by these forward-looking statements. In evaluating these statements and our prospects, you should carefully consider the factors set forth below. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary factors and to others contained throughout this report.
Although it is not possible to create a comprehensive list of all factors that may cause actual results to differ from the results expressed or implied by our forward-looking statements or that may affect our future results, some of these factors and other risks and uncertainties that arise from time to time are described in Item 1A “Risk Factors” of our Annual Report on Form 10-K and in our other periodic filings with the SEC and include the following:
•
operational risks, such as our dependence upon a limited number of customers; pricing pressures and contractual pricing restraints we face from customers; our reliance on third-party suppliers for raw materials, key products and subcomponents; interruptions in our manufacturing operations; our ability to attract, train and retain a sufficient number of qualified associates to maintain and grow our business; the potential for harm to our reputation and competitive advantage caused by quality problems related to our products; our dependence upon our information technology systems and our ability to prevent cyber-attacks and other failures; global climate change and the emphasis on Environmental, Social and Governance matters by various stakeholders; our dependence upon our senior management team and key technical personnel; and consolidation in the healthcare industry resulting in greater competition;
•
strategic risks, such as the intense competition we face and our ability to successfully market our products; our ability to respond to changes in technology; our ability to develop new products and expand into new geographic and product markets; and our ability to successfully identify, make and integrate acquisitions to expand and develop our business in accordance with expectations;
•
financial and indebtedness risks, such as our ability to accurately forecast future performance based on operating results that often fluctuate; our significant amount of outstanding indebtedness and our ability to remain in compliance with financial and other covenants under the credit agreement governing our senior secured credit facilities (“Senior Secured Credit Facilities”); economic and credit market uncertainties that could interrupt our access to capital markets, borrowings or financial transactions; the conditional conversion feature of the 2028 Convertible Notes (as defined below) and the 2030 Convertible Notes (as defined below), adversely impacting our liquidity; the conversion of our 2028 Convertible Notes, diluting ownership interests of existing holders of our common stock; the counterparty risk associated with our capped call transactions; the financial and market risks related to our international sales and operations; our complex international tax profile; and our ability to realize the full value of our intangible assets;
•
legal and compliance risks, such as regulatory issues resulting from product complaints, recalls or regulatory audits; the potential of becoming subject to product liability or intellectual property claims; our ability to protect our intellectual
- 32 -
property and proprietary rights; our ability to comply with customer-driven policies and third-party standards or certification requirements; our ability to obtain and/or retain necessary licenses from third parties for new technologies; our ability and the cost to comply with environmental regulations; legal and regulatory risks from our international operations; the fact that the healthcare industry is highly regulated and subject to various regulatory changes; and our business being indirectly subject to healthcare industry cost containment measures that could result in reduced sales of our products; and
•
other risks and uncertainties that arise from time to time.
Except as may be required by applicable law, we disclaim any obligation to update forward-looking statements in this Form 10-Q whether to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial conditions or prospects, or otherwise.
In this Form 10-Q, references to “Integer,” “we,” “us,” “our” and the “Company” mean Integer Holdings Corporation and its subsidiaries, unless the context indicates otherwise.
Our Business
Integer Holdings Corporation is one of the largest medical device contract development and manufacturing organizations in the world, serving the cardiac rhythm management, neuromodulation, and cardio and vascular markets. As a strategic partner of choice to medical device companies and original equipment manufacturers (“OEMs”), we are committed to enhancing the lives of patients worldwide by providing innovative, high-quality products and solutions.
We operate our business in one segment and derive our revenues from three product lines: Cardio & Vascular, Cardiac Rhythm Management & Neuromodulation and Other Markets.
The first quarters of 2025 and 2024 ended on March 28, 2025 and March 29, 2024, respectively, and consisted of 87 days and 89 days, respectively.
Impact of Global Events
Our future results of operations and liquidity could be materially adversely affected by uncertainty surrounding macroeconomic and geopolitical factors in the U.S. and globally characterized by the supply chain environment, inflationary pressure, elevated interest rates, disruptions in the commodities’ markets as a result of the conflict between Russia and Ukraine and conflicts in the Middle East, including Israel and Iran, and the introduction of or changes in tariffs or trade barriers. The impact of these issues on our business will vary by geographic market and product line, but specific impacts to our business include increased borrowing costs, labor shortages, disruptions in the supply chain, delayed or reduced customer orders and sales, delays in shipments to and from certain countries and potential increased expenses resulting from tariffs or other trade barriers. We monitor economic conditions closely. In response to reductions in revenue, we can take actions to align our cost structure with changes in demand and manage our working capital. However, there can be no assurance as to the effectiveness of our efforts to mitigate any impact of the current and future adverse economic conditions and other developments.
2030 Convertible Notes Issuance and 2028 Convertible Notes Exchange Transactions
On March 18, 2025, we issued $1.0 billion in aggregate principal amount of 1.875% Convertible Senior Notes due in 2030 (the “2030 Convertible Notes”). The total net proceeds from the issuance of the 2030 Convertible Notes, after deducting initial purchasers' discounts and commissions and debt issuance costs, were $976.3 million. We used $71.0 million of the net proceeds from the offering to fund the cost of entering into capped call transactions relating to the 2030 Convertible Notes.
We used a portion of the remaining net proceeds from the issuance of the 2030 Convertible Notes to exchange $383.7 million in aggregate principal amount of our outstanding 2.125% Convertible Senior Notes due in 2028 (the “2028 Convertible Notes”) for an aggregate cash exchange consideration of $384.4 million in cash and 1,553,806 shares of Common Stock (the “Note Exchange Transactions”). The Note Exchange Transactions were considered an induced conversion and, as a result, we recorded $46.7 million during the three months ended March 28, 2025 in induced conversion expense within Other loss, net in the Condensed Consolidated Statements of Operations and Comprehensive Income. Contemporaneously with the Note Exchange Transactions, we terminated a portion of the capped call transactions related to the 2028 Convertible Notes and received 436,963 shares of Common Stock. We allotted the remainder of the net proceeds to pay the down our revolving credit facility (the “Revolving Credit Facility”) and five-year “term A” loan (the “TLA Facility”).
See Note 7, “Debt,” of the Notes to the Consolidated Financial Statements contained in Item 1 of this report for additional information about these transactions.
- 33 -
Business Acquisitions
We selectively evaluate acquisitions as a means to acquire additional technology or manufacturing capabilities to expand our product offering in our key existing growth markets.
On January 7, 2025, we acquired substantially all of the assets and assumed certain liabilities of certain subsidiaries of Katahdin Industries, Inc., including its main operating subsidiary, Precision Coating LLC (collectively “Precision”). Prior to the acquisition, Precision was a privately-held manufacturer specializing in high value surface coating technology platforms, including fluoropolymer, anodic coatings, ion treatment solutions and laser processing. Based in Massachusetts, Precision has additional locations in the New England area and an additional facility in Costa Rica.
On February 28, 2025, we acquired substantially all of the assets and assumed certain liabilities of Vertical Solutions, Inc., d/b/a VSi Parylene (“VSi”). Headquartered in Colorado, prior to the acquisition, VSi was a privately-held full-service provider of parylene coating solutions, primarily focused on complex medical device applications.
Consistent with our tuck-in acquisition strategy, the acquisitions of Precision and VSi further increase our service offerings to include differentiated and proprietary coatings capabilities that position us to better meet customers’ evolving needs. Refer to Note 2, “Business Acquisitions” of the Notes to Condensed Consolidated Financial Statements contained in Item 1 of this report for additional information about these acquisitions.
Market Exit
During 2022, we announced plans to exit our portable medical market (the “Portable Medical Exit”) to enhance profitability and reallocate manufacturing capacity to support growth. Since that time, we have been working closely with impacted customers to support the transition of these products to other suppliers. Due to quality and regulatory requirements, we expected it would take three to four years to complete this transition. We currently expect Portable Medical sales to begin to wind down with the final sales and market exit occurring in 2025. Portable Medical sales are included in our Other Markets product line sales.
Discontinued Operations
On October 31, 2024, we completed the sale of our wholly-owned subsidiary Electrochem Solutions, Inc. (“Electrochem”), which focused on nonmedical applications for the energy, military and environmental sectors. As a result of the Electrochem divestiture, the results of operations of the Electrochem business have been classified as discontinued operations for all periods presented. Loss from discontinued operations for the first quarters of 2025 and 2024 were not material.
All results and information presented exclude discontinued operations unless otherwise noted. Refer to Note 3, “Discontinued Operations” of the Notes to Condensed Consolidated Financial Statements contained in Item 1 of this report for additional information on the divestiture of Electrochem and discontinued operations.
- 34 -
Financial Overview
Income (loss) from continuing operations for the first quarter of 2025 was a loss of $22.5 million, or $0.66 per diluted share, compared to income of $20.6 million, or $0.59 per diluted share, for the first quarter of 2024. These variances are primarily the result of the following:
•
Sales for the first quarter of 2025 increased $29.6 million when compared to the same period in 2024, driven by strong demand, new product ramps, growth from emerging customers with PMA (premarket approval) products and contributions from our recent acquisitions.
•
Gross profit for the first quarter of 2025 increased $12.0 million, primarily from higher sales volume leverage, efficiencies gained from the continued improvement in the supply chain and contributions from our recent acquisitions.
•
Operating expenses for the first quarter of 2025 increased $1.2 million when compared to the same period in 2024, primarily due to higher SG&A, partially offset by lower RD&E costs and Restructuring and other charges. Operating expenses as a percentage of sales improved to 16.2% for the first quarter of 2025 compared to 17.1% or the first quarter of 2024.
•
Interest expense for the first quarter of 2025 increased $0.8 million compared to the same period in 2024, primarily due to $0.7 million of losses from early extinguishment of debt.
•
During the first quarters of 2025 and 2024, we recognized gains on equity investments of $0.2 million and $1.1 million, respectively. Gains and losses on equity investments are generally unpredictable in nature.
•
Other loss, net for the first quarter of 2025 was $47.9 million compared to $1.0 million for the first quarter of 2024, primarily due to $46.7 million of debt conversion inducement expense related to the partial exchange of our outstanding 2028 Convertible Notes that was completed during the first quarter of 2025.
•
We recorded provisions for income taxes for the first quarters of 2025 and 2024 of $9.5 million and $4.2 million, respectively. The change in income tax expense was primarily due to relative changes in pre-tax income and the impact of discrete tax items.
- 35 -
Our Financial Results
The following table presents selected financial information derived from our Condensed Consolidated Financial Statements, contained in Item 1 of this report, for the periods presented (dollars in thousands, except per share).
| Three Months Ended | |||||||||||||||||||||||
| March 28, | March 29, | Change | |||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| Product Line Sales: | |||||||||||||||||||||||
| Cardio & Vascular | $ | 258,871 | $ | 221,851 | $ | 37,020 | 16.7 | % | |||||||||||||||
|
Cardiac Rhythm Management & Neuromodulation
|
160,345 | 156,931 | 3,414 | 2.2 | % | ||||||||||||||||||
| Other Markets | 18,176 | 29,014 | (10,838) | (37.4) | % | ||||||||||||||||||
| Total sales | 437,392 | 407,796 | 29,596 | 7.3 | % | ||||||||||||||||||
| Cost of sales | 317,074 | 299,523 | 17,551 | 5.9 | % | ||||||||||||||||||
| Gross profit | 120,318 | 108,273 | 12,045 | 11.1 | % | ||||||||||||||||||
| Gross profit as a % of sales | 27.5 | % | 26.6 | % | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Selling, general and administrative (“SG&A”) | 51,160 | 46,435 | 4,725 | 10.2 | % | ||||||||||||||||||
| SG&A as a % of sales | 11.7 | % | 11.4 | % | |||||||||||||||||||
| Research, development and engineering (“RD&E”) | 14,201 | 15,274 | (1,073) | (7.0) | % | ||||||||||||||||||
| RD&E as a % of sales | 3.2 | % | 3.7 | % | |||||||||||||||||||
| Restructuring and other charges | 5,405 | 7,863 | (2,458) | (31.3) | % | ||||||||||||||||||
| Total operating expenses | 70,766 | 69,572 | 1,194 | 1.7 | % | ||||||||||||||||||
| Operating income | 49,552 | 38,701 | 10,851 | 28.0 | % | ||||||||||||||||||
| Operating expense as a % of sales | 16.2 | % | 17.1 | % | |||||||||||||||||||
| Operating income as a % of sales | 11.3 | % | 9.5 | % | |||||||||||||||||||
| Interest expense | 14,805 | 13,991 | 814 | 5.8 | % | ||||||||||||||||||
| Gain on equity investments | (181) | (1,136) | 955 | (84.1) | % | ||||||||||||||||||
| Other loss, net | 47,927 | 1,007 | 46,920 | NM | |||||||||||||||||||
| Income (loss) from continuing operations before taxes | (12,999) | 24,839 | (37,838) | NM | |||||||||||||||||||
| Provision for income taxes | 9,466 | 4,248 | 5,218 | 122.8 | % | ||||||||||||||||||
| Effective tax rate | (72.8) | % | 17.1 | % | |||||||||||||||||||
| Income (loss) from continuing operations | $ | (22,465) | $ | 20,591 | $ | (43,056) | NM | ||||||||||||||||
| Income (loss) from continuing operations as a % of sales | (5.1) | % | 5.0 | % | |||||||||||||||||||
| Diluted earnings (loss) per share from continuing operations | $ | (0.66) | $ | 0.59 | $ | (1.25) | NM | ||||||||||||||||
NM - Calculated change not meaningful.
- 36 -
Product Line Sales
For the first quarter of 2025, Cardio & Vascular (“C&V”) sales increased $37.0 million, or 17%, versus the comparable 2024 period. The increase in C&V sales was driven by new product ramps in electrophysiology and acquisitions, partially offset by the impact of fewer shipping days in the first quarter 2025 versus the first quarter 2024. C&V sales for the first quarter of 2025 included $13.3 million of aggregate sales from the recent Precision and VSi acquisitions. Foreign currency exchange rate fluctuations decreased C&V sales for the first quarter of 2025 by $0.4 million in comparison to the 2024 period, primarily due to U.S. dollar fluctuations relative to the Euro.
For the first quarter of 2025, Cardiac Rhythm Management & Neuromodulation (“CRM&N”) sales increased $3.4 million, or 2%, versus the comparable 2024 period, driven by strong growth in emerging neuromodulation customers with PMA (pre-market approval) products and normalized cardiac rhythm management growth, offset by the impact of fewer shipping days in the first quarter 2025 versus the first quarter 2024. Foreign currency exchange rate fluctuations did not have a material impact on CRM&N sales during the first quarter of 2025 in comparison to 2024.
Other Markets sales for the first quarter of 2025 decreased $10.8 million, or 37%, versus the comparable 2024 period, primarily driven by the planned multi-year Portable Medical Exit. Foreign currency exchange rate fluctuations did not have a material impact on Other Markets sales during the first quarter of 2025 in comparison to the 2024 period.
Gross Profit
| Three Months Ended | |||||||||||
|
March 28,
2025 |
March 29,
2024 |
||||||||||
| Gross profit (in thousands) | $ | 120,318 | $ | 108,273 | |||||||
| Gross margin | 27.5 | % | 26.6 | % | |||||||
Gross margin for the first quarter of 2025 increased 90 basis points compared to the comparable 2024 period, primarily driven by higher sales volume leverage and efficiencies realized through our manufacturing excellence initiatives.
SG&A Expenses
Changes to SG&A expenses from the prior year period were due to the following (in thousands):
| Three Months Ended | |||||||||||||||||
|
March 28,
2025 |
March 29,
2024 |
Change | |||||||||||||||
|
Compensation and benefits
(a)
|
$ | 27,563 | $ | 24,273 | $ | 3,290 | |||||||||||
|
Depreciation and amortization expense
(b)
|
11,439 | 10,276 | 1,163 | ||||||||||||||
|
Professional fees
(c)
|
3,340 | 3,873 | (533) | ||||||||||||||
|
Contract services
(d)
|
3,979 | 3,445 | 534 | ||||||||||||||
| Bank fees and charges | 832 | 831 | 1 | ||||||||||||||
| All other SG&A | 4,007 | 3,737 | 270 | ||||||||||||||
| Total SG&A expense | $ | 51,160 | $ | 46,435 | $ | 4,725 | |||||||||||
__________
(a)
Compensation and benefits increased primarily due to annual merit increases and an increase in headcount related to the recent Precision and VSi acquisitions.
(b)
Depreciation and amortization expense increased due to amortization of customer list intangible assets related to recent acquisitions.
(c)
Professional fees decreased primarily due to lower audit and tax expense.
(d)
Contract services expense increased primarily due to higher software costs from information technology enhancements.
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RD&E
RD&E expense for the first quarter of 2025 was $14.2 million, compared to $15.3 million for the first quarter of 2024. The decrease in RD&E expense for 2025 compared to 2024 was primarily due to lower labor costs and the timing of program milestone achievements for customer funded programs. RD&E expenses are influenced by the number and timing of in-process projects and labor hours and other costs associated with these projects. Our research and development initiatives continue to emphasize new product development, product improvements, and the development of new technological platform innovations.
Restructuring and Other Charges
We continuously evaluate our business and identify opportunities to realign resources to better serve our customers and markets, improve operational efficiency and capabilities, and lower operating costs. To realize the benefits associated with these opportunities, we undertake restructuring-type activities to transform our business. We incur costs associated with these activities, which primarily include exit and disposal costs and other costs directly related to the restructuring initiative. Restructuring charges include exit and disposal costs from these activities. In addition, from time to time, we incur costs associated with acquiring and integrating businesses, and certain other general expenses, including asset impairments.
Restructuring and other charges comprise the following (in thousands):
| Three Months Ended | |||||||||||
|
March 28,
2025 |
March 29,
2024 |
||||||||||
|
Restructuring charges
(a)
|
$ | 664 | $ | 1,410 | |||||||
|
Acquisition and integration costs
(b)
|
4,742 | 6,335 | |||||||||
|
Other general expenses
(c)
|
(1) | 118 | |||||||||
|
Total restructuring and other charges
|
$ | 5,405 | $ | 7,863 | |||||||
__________
(a)
Restructuring charges for the first quarters of 2025 and 2024 primarily consist of costs associated with our strategic reorganization and alignment and manufacturing alignment to support growth initiatives.
(b)
Amounts for the first quarter of 2025 primarily include acquisition expenses related to the Precision and VSi acquisitions. Amounts for the first quarter of 2024 primarily included acquisition expenses related to the InNeuroCo and Pulse acquisitions.
(c)
Amounts include gains and losses in connection with the disposal of property, plant and equipment.
Refer to Note 9, “Restructuring and Other Charges” of the Notes to Condensed Consolidated Financial Statements contained in Item 1 of this report for additional information regarding these initiatives.
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Interest Expense
Information relating to our interest expense is as follows (dollars in thousands):
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| March 28, 2025 | March 29, 2024 | Change | |||||||||||||||||||||||||||||||||
| Amount | Rate | Amount | Rate | Amount | Rate (bp) | ||||||||||||||||||||||||||||||
| Contractual interest expense | $ | 12,485 | 4.06 | % | $ | 12,915 | 4.81 | % | $ | (430) | (75) | ||||||||||||||||||||||||
| Amortization of deferred debt issuance costs and original issue discount | 1,145 | 0.42 | 931 | 0.39 | 214 | 3 | |||||||||||||||||||||||||||||
|
Losses from extinguishment of debt
|
737 | 0.25 | — | — | 737 | 25 | |||||||||||||||||||||||||||||
| Interest expense on borrowings | 14,367 | 4.73 | % | 13,846 | 5.20 | % | 521 | (47) | |||||||||||||||||||||||||||
| Other interest expense | 438 | 145 | 293 | ||||||||||||||||||||||||||||||||
| Total interest expense | $ | 14,805 | $ | 13,991 | $ | 814 | |||||||||||||||||||||||||||||
During 2025, contractual interest expense has decreased due to a lower combined interest rate, partially offset by higher average debt balance outstanding. The higher average debt balance outstanding is primarily the result of borrowings on our Revolving Credit Facility to fund the Precision and VSi acquisitions.
Other components of interest expense on borrowings include non-cash amortization and write-off (losses from extinguishment of debt) of deferred debt issuance costs and original issue discount. Amortization of deferred debt issuance costs and original issue discount increased during the first quarter of 2025 compared to the same periods in 2024 as a result of higher unamortized balances related to new debt.
The losses from extinguishment of debt during the first quarter of 2025 were related to prepayments of portions of the TLA Facility in connection with issuance by the Company of its 2030 Convertible Notes.
As of March 28, 2025 and December 31, 2024, approximately 89% and 50%, respectively, of our principal amount of debt are fixed rate borrowings.
See Note 7, “Debt,” of the Notes to the Consolidated Financial Statements contained in Item 1 of this report for additional information pertaining to our debt.
Gain on Equity Investments
Gain on equity investments for each period were as follows (in thousands):
| Three Months Ended | |||||||||||
|
March 28,
2025 |
March 29,
2024 |
||||||||||
| Equity method investment gain | $ | (181) | $ | (1,136) | |||||||
During the first quarters of 2025 and 2024, we recognized gains on equity investments of $0.2 million and $1.1 million, respectively. The amounts for both the first quarters of 2025 and 2024 relate to our share of equity method investee losses including unrealized depreciation of the underlying interests of the investee. As of March 28, 2025 and December 31, 2024, the carrying value of our equity investments was $7.6 million and $7.4 million, respectively.
See Note 14, “Financial Instruments and Fair Value Measurements” of the Notes to the Condensed Consolidated Financial Statements contained in Item 1 of this report for further details regarding these investments.
Other Loss, Net
Other loss, net for the first quarter of 2025 was $47.9 million compared to $1.0 million for the first quarter of 2024. Other loss, net for the first quarter of 2025 primarily includes debt conversion inducement expense of $46.7 million related to the partial exchange of $383.7 million in aggregate principal amount of the 2028 Convertible Notes. Other loss, net for the first quarter of 2024 primarily includes gains/losses from the impact of exchange rates on transactions denominated in foreign currencies.
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Our foreign currency transaction gains/losses are based primarily on fluctuations of the U.S. dollar relative to the Euro, Mexican peso, Uruguayan peso, Malaysian ringgits or Dominican peso. The impact of exchange rates on transactions denominated in foreign currencies included in Other loss, net for the first quarters of 2025 and 2024 were net losses of $1.1 million for both periods. We continually monitor our foreign currency exposures and seek to take steps to mitigate these risks. However, fluctuations in exchange rates could have a significant impact, positive or negative, on our financial results in the future.
Provision for Income Taxes
We recognized income tax expense of $9.5 million for the first quarter of 2025 on a loss before taxes of $13.0 million (effective tax rate of (72.8)%), compared to an income tax expense of $4.2 million on $24.8 million of income before taxes (effective tax rate of 17.1%) for the same period of 2024. Income tax expense for the first quarters of 2025 and 2024 included discrete tax benefits of $1.5 million and $0.8 million, respectively. The discrete tax benefits for the first quarter of 2025 and 2024 are predominately related to excess tax benefits, net of deductibility limitations, recognized upon vesting of RSUs.
Our effective tax rate for 2025 differs from the U.S. federal statutory tax rate of 21% due principally to the impact of the 2028 Convertible Notes Exchange Transactions, including the nondeductible induced conversion expense and reduction of future original issue discount amortization for U.S. income tax. Other items impacting the rate include the estimated impact of Federal Tax Credits (including R&D credits and foreign tax credits), stock-based compensation windfalls, and the impact of U.S taxes on foreign earnings, including the GILTI provision which requires us to include foreign subsidiary earnings in excess of a deemed return on a foreign subsidiary’s tangible assets in our U.S. income tax return. The U.S. tax on foreign earnings is reflected net of a statutory deduction of 50% of the GILTI inclusion (subject to limitations based on U.S. taxable income, if any) and net of FDII that provides a 37.5% deduction to domestic companies for certain foreign sales and services income. In addition, our rate is impacted by earnings realized in foreign jurisdictions with statutory rates that are different than the U.S. federal statutory rate. The primary foreign jurisdictions in which we operate and the statutory tax rate for each respective jurisdiction include Switzerland (22%), Mexico (30%), Uruguay (25%), Ireland (12.5%) and Malaysia (24%). Our manufacturing operations in the Dominican Republic operate under a free trade zone agreement through March 2034. In addition, we acquired manufacturing operations in Costa Rica as part of the acquisition of Precision Coating, and are operating under a free trade zone agreement with respect thereto in Costa Rica through April 2031.
On December 15, 2022, the European Union (EU) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development (OECD) Pillar Two Framework. The effective dates are January 1, 2024 and January 1, 2025, for different aspects of the directive. A significant number of other countries are expected to also implement similar legislation with varying effective dates in the future. We continue to evaluate the potential impact on future periods of the Pillar Two Framework, pending legislative adoption by additional individual countries. Our 2025 provision for income taxes includes the impact of the Pillar Two 15% Global Minimum Tax.
There is a potential for volatility of our effective tax rate due to several factors, including changes in the mix of pre-tax income and the jurisdictions to which it relates, business acquisitions, settlements with taxing authorities, changes in tax rates, and foreign currency exchange rate fluctuations. In addition, we continue to explore tax planning opportunities that may have a material impact on our effective tax rate.
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Liquidity and Capital Resources
Sources of Liquidity
| (dollars in thousands) |
March 28,
2025 |
December 31,
2024 |
|||||||||
| Cash and cash equivalents | $ | 31,711 | $ | 46,543 | |||||||
| Working capital from continuing operations | $ | 495,800 | $ | 443,946 | |||||||
| Current ratio from continuing operations | 3.40 | 2.95 | |||||||||
Cash and cash equivalents at March 28, 2025 decreased by $14.8 million from December 31, 2024, primarily as a result of cash generated by operating activities of $31.3 million offset by purchases of property, plant and equipment of $25.2 million and tax withholding payments related to net share settlements of restricted stock unit awards of $14.1 million. The payment of the cash portion of the purchase price payable at closing for acquisitions of each of Precision and VSi were fully funded by borrowings on our Revolving Credit Facility. Net proceeds from the issuance of our 2030 Convertible Notes were utilized to purchase capped call options relating to the 2030 Convertible Notes, exchange of a portion of our 2028 Convertible Notes, and pay down our Revolving Credit Facility and TLA Facility.
Working capital from continuing operations increased by $51.9 million from December 31, 2024, or $66.7 million excluding the increase in cash and cash equivalents. The increase in working capital, exclusive of cash and cash equivalents, primarily relates to positive fluctuations in accounts receivable, inventory and accrued expenses. Inventory increased from higher sales volume and product demand which also contributed to the increase in accounts receivable. Accrued expenses primarily decreased from the payment of our calendar 2024 short-term incentive plan pay-out.
At March 28, 2025, $21.0 million of our cash and cash equivalents were held by foreign subsidiaries. We intend to limit our distributions from foreign subsidiaries to previously taxed income or current period earnings. If distributions are made utilizing current period earnings, we will record foreign withholding taxes in the period of the distribution.
As of March 28, 2025, our capital structure consisted of $1.235 billion of debt, net of deferred debt issuance costs and unamortized discounts and 35 million shares of common stock outstanding. As of March 28, 2025, we had access to $794.7 million of borrowing capacity under our Revolving Credit Facility, available for normal course of business and letters of credit, and are authorized to issue up to 100 million shares of common stock and 100 million shares of preferred stock. As of March 28, 2025, our contractual debt service obligations for the next twelve months, consisting of interest on our outstanding debt, are estimated to be approximately $32 million. As of March 28, 2025, we have prepaid all contractual principal payments on our outstanding indebtedness required in the next twelve months. Actual principal and interest payments may be higher if, for instance, the applicable interest rates on our Senior Secured Credit Facilities increase, we borrow additional amounts on our Revolving Credit Facility, or we pay principal amounts in excess of the required minimums reflected in the contractual debt service obligations above.
Based on current expectations, we believe that our projected cash flows provided by operations, available cash and cash equivalents and borrowings under our Revolving Credit Facility are sufficient to meet our working capital, debt service and capital expenditure requirements for the next twelve months. If our future financing needs increase, we may need to arrange additional debt or equity financing. We continually evaluate and consider various financing alternatives to enhance or supplement our existing financial resources. However, we cannot be assured that we will be able to enter into any such arrangements on acceptable terms or at all.
Credit Facilities and 2028 Convertible Notes
As of March 28, 2025, we had Senior Secured Credit Facilities that consist of an $800 million Revolving Credit Facility, with no outstanding principal balance, and a TLA Facility with an outstanding principal balance of $145 million. The Revolving Credit Facility and TLA Facility mature on
February
15
, 2028
. The Senior Secured Credit Facilities include a mandatory prepayment provision customary for similar credit facilities.
During the first quarter of 2025, we issued $1.0 billion aggregate principal amount of 2030 Convertible Notes, which mature on March 15, 2030 and bear interest at a fixed rate of 1.875% per annum. The total net proceeds from the issuance of the 2030 Convertible Notes, after deducting initial purchasers' discounts and commissions and debt issuance costs, were approximately $976 million. We used the net proceeds from the issuance of the 2030 Convertible Notes to pay down our Revolving Credit Facility and TLA Facility, exchange a portion of our 2028 Convertible Notes and to pay the cost of the capped calls related to the issuance of our 2030 Convertible Notes.
- 41 -
The conditions allowing holders of the 2028 Convertible Notes to convert have been met such that holders have the right to exercise their conversion option through the close of business on June 30, 2025. Any determination regarding the convertibility of the 2028 Convertible Notes during future periods will be made in accordance with the terms of the indenture governing the 2028 Convertible Notes. If a conversion request occurs, we have the intent and ability to refinance the amounts that may become due with respect to the 2028 Convertible Notes using the available borrowing capacity under the Revolving Credit Facility. As such, these obligations with respect to the 2028 Convertible Notes continue to be classified as a long-term liability on the Condensed Consolidated Balance Sheet at March 28, 2025.
The Revolving Credit Facility and TLA Facility contain covenants requiring that we maintain (i) a Total Net Leverage Ratio not to exceed 5.00:1.00, subject to increase in certain circumstances following certain qualified acquisitions and (ii) an interest coverage ratio of at least 2.50:1.00. As of March 28, 2025, we were in compliance with these financial covenants. As of March 28, 2025, our Total Net Leverage Ratio, calculated in accordance with our Senior Secured Credit Facilities agreement, was approximately 2.8:1.0. For the twelve month period ended March 28, 2025, our interest coverage ratio, calculated in accordance with our Senior Secured Credit Facilities agreement, was approximately 8.6:1.0.
Failure to comply with these financial covenants would result in an event of default as defined under the Revolving Credit Facility and TLA Facility unless waived by the lenders. An event of default may result in the acceleration of our indebtedness. As a result, management believes that compliance with these covenants is material to us.
See Note 7, “Debt” of the Notes to the Condensed Consolidated Financial Statements contained in Item 1 of this report for a further information on the Company’s outstanding debt.
Factoring Arrangements
We utilize accounts receivable factoring arrangements with financial institutions to accelerate the timing of cash receipts and enhance our cash position. These arrangements, in all cases, do not contain recourse provisions, which would obligate us in the event of our customers’ failure to pay. During the first three months of 2025 and 2024, we sold, without recourse, $58.1 million and $57.6 million of accounts receivable, respectively
.
See Note 1, “Basis of Presentation” of the Notes to the Condensed Consolidated Financial Statements contained in Item 1 of this report for further information regarding our factoring arrangements.
Summary of Cash Flow
The following cash flow summary information includes cash flows related to discontinued operations.
| Three Months Ended | |||||||||||
| (in thousands) |
March 28,
2025 |
March 29,
2024 |
|||||||||
| Cash provided by (used in): | |||||||||||
| Operating activities | $ | 31,276 | $ | 23,239 | |||||||
| Investing activities | (197,167) | (168,198) | |||||||||
| Financing activities | 151,578 | 163,294 | |||||||||
| Effect of foreign currency exchange rates on cash and cash equivalents | (519) | 147 | |||||||||
| Net change in cash and cash equivalents | $ | (14,832) | $ | 18,482 | |||||||
Operating Activities
–
During the first three months of 2025, we generated cash from operations of $31.3 million, compared to $23.2 million for the first three months of 2024. The increase of $8.0 million was the result of a $14.4 million increase in net income (loss) adjusted for non-cash items such as depreciation and amortization, partially offset by a $6.4 million decrease in cash flow provided by changes in operating assets and liabilities.
The increase in net income (loss) adjusted for non-cash items such as depreciation and amortization was primarily from higher sales volume and margin. The decrease associated with changes in operating assets and liabilities is primarily related to an increase in working capital from higher sales volume in the first three months of 2025 as compared to the same prior year period.
Investing Activities
–
The $29.0 million increase in net cash used in investing activities was primarily attributable to greater cash paid for acquisitions offset by a decrease in purchases of property, plant and equipment. Investing activities for the first three months of 2024 included net cash paid of $138.5 million for the Pulse acquisition.
- 42 -
Financing Activities –
Net cash provided by financing activities for the first three months of 2025 was $151.6 million compared to $163.3 million provided by financing activities for the first three months of 2024. Cash provided by financing activities for the first three months of 2025 was primarily the net proceeds from the issuance of our 2030 Convertible Notes of $977.5 million, which was partially offset by a $71.0 million purchase of capped call options associated with the 2030 Convertible Notes, $383.7 million in aggregate principal amount of exchanged 2028 Convertible Notes, $230.0 million of principal payments on our TLA Facility, $126.0 million net payments on our Revolving Credit Facility, and $14.1 million of tax withholdings related to net settlements of vested RSUs. Net cash provided by financing activities for the first three months of 2024 was primarily related to net borrowings on our Revolving Credit Facility of $180.0 million, offset by $9.3 million of tax withholdings related to net settlements of vested RSUs and $8.4 million of principal payments on financing leases.
Off-Balance Sheet Arrangements
We do not currently have off balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our Condensed Consolidated Financial Statements.
Impact of Recently Issued Accounting Standards
In the normal course of business, we evaluate all new accounting pronouncements issued by the FASB, SEC, or other authoritative accounting bodies to determine the potential impact they may have on our Condensed Consolidated Financial Statements. See Note 1, “Basis of Presentation” of the Notes to Condensed Consolidated Financial Statements contained in Item 1 of this report for additional information about these recently issued accounting standards and their potential impact on our financial condition or results of operations.
Critical Accounting Policies and Estimates
The preparation of our Condensed Consolidated Financial Statements in accordance with accounting principles generally accepted in the U.S. requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. Our estimates, assumptions and judgments are based on historical experience and various other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amount of assets and liabilities that are not readily apparent from other sources. Making estimates, assumptions and judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control. Management believes the estimates, assumptions and judgments employed and resulting balances reported in the Condensed Consolidated Financial Statements are reasonable; however, actual results could differ materially.
There have been no significant changes to the critical accounting policies and estimates as compared to those disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024.
- 43 -
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Except as disclosed below, there have been no material changes to the Company’s exposure to market risk during the three
months ended
March 28, 2025.
Refer to Part II, Item 7A, Quantitative and Qualitative Disclosure about Market Risk, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024
for further information about the Company’s exposure to market risk.
As of March 28, 2025, the Company reduced the aggregate principal amount outstanding of its floating-rate debt to $145 million from $501 million at December 31, 2024.
A hypothetical one percentage point (100 basis points) change in SOFR on the $145 million of floating rate debt outstanding as of
March 28, 2025
would increase our interest expense by approximately $1 million.
ITEM 4. CONTROLS AND PROCEDURES
a.
Evaluation of Disclosure Controls and Procedures
Our management, including the principal executive officer and principal financial officer, evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) related to the recording, processing, summarization and reporting of information in our reports that we file with the Securities and Exchange Commission as of March 28, 2025. These disclosure controls and procedures have been designed to provide reasonable assurance that material information relating to us, including our subsidiaries, is made known to our management, including these officers, by our employees, and that this information is recorded, processed, summarized, evaluated and reported, as applicable, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Based on their evaluation, as of March 28, 2025, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective.
b.
Changes in Internal Control Over Financial Reporting
During the Company’s most recent fiscal quarter, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
- 44 -
PART II—OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
There were no new material legal proceedings that are required to be reported in the quarter ended March 28, 2025, and no material developments during the quarter in the Company’s legal proceedings as previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
ITEM 1A.
RISK FACTORS
Except as set forth below, there have been no material changes to the Company’s risk factors as previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
The conditional conversion features of the 2028 Convertible Notes and the 2030 Convertible Notes could adversely affect our financial condition and operating results.
The holders of our 2028 Convertible Notes have had the ability to, and may in the future continue to have the ability to, convert their notes at their option prior to the scheduled maturities and the holders of our 2030 Convertible Notes may in the future have the ability to convert their notes at their option prior the scheduled maturities. One of the conditional conversion features of the 2028 Convertible Notes has been triggered from time and time at the end of calendar quarters, including as of March 31, 2025, due to the trading price of our Common Stock exceeding 130% of the 2028 Convertible Notes conversion price on at least 20 out of the 30 consecutive trading days prior to such date. As a result, the 2028 Convertible Notes are convertible at the option of the holders, in whole or in part, until June 30, 2025. Whether the 2028 Convertible Notes or the 2030 Convertible Notes will be convertible in any future period will depend on the satisfaction, with respect to the 2028 Convertible Notes, of this condition or, with respect to the 2028 Convertible Notes or the 2030 Convertible Notes, another conversion condition at such time. If one or more noteholders elect to convert their 2028 Convertible Notes or, once eligible for conversion, the 2030 Convertible Notes, we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, holders of our 2028 Convertible Notes and our 2030 Convertible Notes will have the right to require us to repurchase their notes upon the occurrence of a fundamental change (as defined in the indenture governing the 2028 Convertible Notes or the indenture governing the 2030 Convertible Notes, as applicable), at a repurchase price equal to the principal amount of the 2028 Convertible Notes or the 2030 Convertible Notes, as applicable, to be repurchased, plus accrued and unpaid special interest, if any, to but not including, the fundamental change repurchase date. We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the 2028 Convertible Notes or the 2030 Convertible Notes or pay the cash amounts due upon conversion of such notes. In addition, applicable law, regulatory authorities and the agreements governing our other indebtedness may restrict our ability to repurchase the 2028 Convertible Notes or the 2030 Convertible Notes or pay the cash amounts due upon conversion of such notes. Our failure to repurchase the 2028 Convertible Notes or the 2030 Convertible Notes or to pay the cash amounts due upon conversion of such notes when required will constitute a default under the indenture governing the 2028 Convertible Notes or the 2030 Convertible Notes, as applicable. A default under the indenture governing the 2028 Convertible Notes or the indenture governing the 2030 Convertible Notes or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, including the 2021 Credit Agreement governing the Senior Secured Credit Facilities, which may result in that other indebtedness becoming immediately payable in full. We may not have sufficient funds to satisfy all amounts due under the other indebtedness, the 2028 Convertible Notes and the 2030 Convertible Notes.
If a conversion request occurs with respect to the 2028 Convertible Notes, we have the intent and ability to refinance the amounts that may become due with respect to the 2028 Convertible Notes using available borrowing capacity under the Revolving Credit Facility. As such, the obligations associated with the 2028 Convertible Notes were classified as a long-term liability on the Consolidated Balance Sheets as of March 28, 2025. As of March 28, 2025, the borrowing capacity under our Revolving Credit Facility was $794.7 million, which substantially exceeded the remaining outstanding principal amount of the 2028 Convertible Notes after the completion of the Note Exchange Transactions. Even if holders of the 2028 Convertible Notes do not elect to convert their notes, or if our available borrowing capacity under our Revolving Credit Facility were to fall below the outstanding principal amount of the 2028 Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the 2028 Convertible Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.
- 45 -
Certain provisions in the 2028 Convertible Notes, the 2030 Convertible Notes, the indenture governing the 2028 Convertible Notes and indenture governing the 2030 Convertible Notes could delay or prevent an otherwise beneficial takeover or takeover attempt of us.
Certain provisions in the 2028 Convertible Notes, the 2030 Convertible Notes, the indenture governing the 2028 Convertible Notes and the indenture governing the 2030 Convertible Notes could make it more difficult or more expensive for a third party to acquire us. For example, if a takeover constitutes a fundamental change, holders of the 2028 Convertible Notes and the 2030 Convertible Notes will have the right to require us to repurchase their notes in cash. In addition, if a takeover constitutes a make-whole fundamental change (as defined in the indenture governing the 2028 Convertible Notes or the indenture governing the 2030 Convertible Notes), we may be required to increase the conversion rate for holders of the 2028 Convertible Notes or the 2030 Convertible Notes, as applicable, who convert their notes in connection with such takeover. In either case, and in other cases, our obligations under the 2028 Convertible Notes, the 2030 Convertible Notes, the indenture governing the 2028 Convertible Notes or indenture governing the 2030 Convertible Notes could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management, including in a transaction that holders of our Common Stock may view as favorable.
Transactions relating to our 2028 Convertible Notes or our 2030 Convertible Notes may affect the market price of our Common Stock.
The conversion of some or all of our 2028 Convertible Notes or our 2030 Convertible Notes would dilute the ownership interests of existing stockholders to the extent we satisfy our conversion obligation by delivering shares of our Common Stock upon any conversion of such 2028 Convertible Notes or 2030 Convertible Notes, as applicable. Our 2028 Convertible Notes have in the past been and currently are through June 30, 2025, and may in the future continue to be, convertible at the option of their holders under certain circumstances. In addition, our 2030 Convertible Notes, once eligible for conversion, will become convertible at the option of their holders under certain circumstances. If holders of our 2028 Convertible Notes or, once eligible for conversion, the 2030 Convertible Notes, elect to convert their notes, we may settle our conversion obligation by delivering to them a significant number of shares of our Common Stock, which would cause dilution to our existing stockholders.
In connection with the pricing of the 2028 Convertible Notes and the 2030 Convertible Notes, we entered into capped call transactions with the option counterparties. The capped call transactions are expected generally to reduce potential dilution to our Common Stock upon conversion of any 2028 Convertible Notes or any 2030 Convertible Notes and/or offset or substantially offset any cash payments we are required to make in excess of the principal amount of converted 2028 Convertible Notes or 2030 Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap.
In addition, the option counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our Common Stock and/or purchasing or selling our Common Stock or other securities of ours in secondary market transactions prior to the maturity of the 2028 Convertible Notes or the 2030 Convertible Notes (and are likely to do so on each exercise date for the capped call transactions or following any termination of any portion of the capped call transactions in connection with any repurchase, redemption or early conversion of the 2028 Convertible Notes or the 2030 Convertible Notes). This activity could cause or avoid an increase or decrease in the market price of our Common Stock.
In addition, if any such capped call transactions fail to become effective, the option counterparties or their respective affiliates may unwind their hedge positions with respect to our Common Stock, which could adversely affect the trading price of our Common Stock.
We are subject to counterparty risk with respect to the capped call transactions for the 2028 Convertible Notes and the 2030 Convertible Notes.
The option counterparties for the capped call transactions for the 2028 Convertible Notes and the 2030 Convertible Notes are financial institutions, and we will be subject to the risk that any or all of them might default with respect to any such capped call transactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. Past global economic conditions have resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the capped call transactions with such option counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market price and in the volatility of our Common Stock. In addition, upon a default by an option counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our Common Stock. We can provide no assurance as to the financial stability or viability of the option counterparties.
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ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On March 18, 2025, the Company issued 1,553,806 shares of its unregistered common stock as a portion of the consideration paid for an exchange of an aggregate of $383.7 million in principal amount of the 2028 Convertible Notes. These shares of the Company’s common stock were issued in a private placement exempt from registration in reliance on Section 4(a)(2) of the Securities Act of 1933. We did not receive any cash proceeds in connection with this exchange of the 2028 Convertible Notes.
In addition, as part of the consideration paid in the acquisition of VSi, on February 28, 2025, the Company issued 32,393 shares of its unregistered common stock to the asset seller in the VSi acquisition. These shares of the Company’s common stock were issued in a private placement exemption from registration in reliance on Section 4(a)(2) of the Securities Act of 1933. We did not receive any cash proceeds from the asset seller in the VSi acquisition in connection with this issuance of shares of common stock.
ITEM 5.
OTHER INFORMATION
During the fiscal quarter ended March 28, 2025, none of the Company’s directors or executive officers
adopted
, modified or
terminated
any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”
ITEM 6.
EXHIBITS
| Exhibit Number | Description | |||||||
| 4.1 | ||||||||
| 4.2 | ||||||||
| 10.1 | ||||||||
| 10.2 | ||||||||
| 10.3 | ||||||||
| 10.4 | ||||||||
| 31.1* | ||||||||
| 31.2* | ||||||||
| 32.1** | ||||||||
| 101.INS* | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH* | XBRL Extension Schema Document | |||||||
| 101.CAL* | XBRL Extension Calculation Linkbase Document | |||||||
| 101.LAB* | XBRL Extension Label Linkbase Document | |||||||
| 101.PRE* | XBRL Extension Presentation Linkbase Document | |||||||
| 101.DEF* | XBRL Extension Definition Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101). | |||||||
| * | Filed herewith. | ||||
| ** | Furnished herewith. | ||||
| # | Indicates exhibits that are management contracts or compensation plans or arrangements. | ||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Dated: | April 24, 2025 | INTEGER HOLDINGS CORPORATION | |||||||||||||||
| By: | /s/ Joseph W. Dziedzic | ||||||||||||||||
| Joseph W. Dziedzic | |||||||||||||||||
| President and Chief Executive Officer | |||||||||||||||||
| (Principal Executive Officer) | |||||||||||||||||
| By: | /s/ Diron Smith | ||||||||||||||||
| Diron Smith | |||||||||||||||||
| Executive Vice President and Chief Financial Officer | |||||||||||||||||
| (Principal Financial Officer) | |||||||||||||||||
| By: | /s/ Tom P. Thomas | ||||||||||||||||
| Tom P. Thomas | |||||||||||||||||
| Vice President, Corporate Controller | |||||||||||||||||
| (Principal Accounting Officer) | |||||||||||||||||
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TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 5. Other InformationItem 6. Exhibits