Integer Holdings Corp
For the period ended Sep 27, 2024. Filed Oct 24, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 27, 2024 · Filed Oct 24, 2024
ITGR$126.56-0.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-28; filed 2024-07-25.
0001114483-24-000114
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-27; filed 2024-10-24.
0001114483-24-000127
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 111 previous paragraphs and 120 current paragraphs.
64 unchanged; 39 reworded; 16 added; 7 removed; 1 previous and 1 current paragraphs rearranged.
Tables are not compared: 10 previous and 10 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (16)
Current report
•the timing for the consummation of the sale of the Electrochem business; and
Current report
Divestiture and Discontinued Operations
Current report
On September 27, 2024, we entered into a stock purchase agreement with Ultralife Corporation (“Ultralife”), pursuant to which we agreed to sell 100% of the issued and outstanding shares of common stock of Electrochem Solutions, Inc. (“Electrochem”) for $50 million in cash, subject to customary working capital adjustments. The consummation of the sale is expected to occur by the end of October 2024.
Current report
The Electrochem business represented substantially all of the assets and operations in our previously reported Non-Medical reporting segment The pending divestiture of Electrochem represents a strategic shift in our business. Consequently, the Electrochem business has been reclassified as a discontinued operation. For all periods presented, the assets and liabilities that will be transferred in the Electrochem divestiture (the “disposal group”) are presented as held for sale in our Condensed Consolidated Balance Sheets (unaudited), and operating results related to the Electrochem business are reflected as discontinued operations in our Condensed Consolidated Statements of Operations and Comprehensive Income (unaudited).
Current report
Prior period amounts have been reclassified to conform to the continuing operations reporting presentation. All results and information presented exclude the Electrochem business unless otherwise noted specifically as discontinued operations.
Current report
Refer to Note 3, “Discontinued Operations” of the Notes to Condensed Consolidated Financial Statements contained in Item 1 of this report for more information regarding the presentation of the disposal group in our financial statements.
Current report
The divestiture of Electrochem also represents a sale of the Non-Medical segment as the Electrochem business constituted substantially all of the assets and liabilities and operations reported in the Non-Medical segment. Under the new organizational and reporting structure, the Company has one reportable segment. Consequently, segment reporting previously disclosed is no longer applicable.
Current report
NM - Calculated change not meaningful.
Current report
(b)The changes in depreciation and amortization expense for the three and nine month periods were due to the mix and timing of depreciation and amortization of certain property, plant and equipment and intangible assets.
Current report
(c)Professional fees increased primarily due to higher legal expense related to general corporate matters.
Current report
During the third quarters of 2024 and 2023, we determined that, based upon available information, certain of our investments in non-marketable equity securities were impaired and determined the fair value to be zero. As a result, during the third quarters of 2024 and 2023 we recorded impairment charges of $0.3 million and $3.3 million, respectively. As of September 27, 2024 and December 31, 2023, the carrying value of our non-marketable equity securities was $0.2 million and $0.4 million, respectively.
Current report
Other Loss, Net
Current report
Income (loss) from discontinued operations
Current report
For the third quarter and first nine months of 2024, we recognized losses from discontinued operations, net of income taxes, of $0.8 million and $0.9 million, respectively, compared to a loss of $0.9 million for the third quarter of 2023 and income of $2.0 million for the first nine months of 2023. Discontinued operations consists of the results of operations of the Electrochem business, the sale of which is expected to be completed by the end of October 2024.
Current report
(a)Excludes current assets and liabilities held for sale at September 27, 2024 and December 31, 2023.
Current report
The following cash flow summary information includes cash flows related to discontinued operations.
Removed paragraphs (7)
Previous report
•whether the fair value of the Non-Medical reporting unit has been reduced below its carrying value; and
Previous report
We organize our business into two reportable segments, Medical and Non-Medical, and derive our revenues from four principal product lines. The Medical segment includes the Cardio & Vascular, Cardiac Rhythm Management & Neuromodulation and Advanced Surgical, Orthopedics & Portable Medical product lines and the Non-Medical segment comprises the Electrochem product line. For more information on our segments, please refer to Note 14 “Segment Information” of the Notes to Condensed Consolidated Financial Statements contained in Item 1 of this report.
Previous report
For the second quarter and first six months of 2024, Non-Medical sales decreased $2.1 million, or 19%, and $9.0 million, or 36%, respectively, versus the comparable 2023 periods, returning to a normalized run-rate after previously higher sales from the supply chain recovery. Foreign currency exchange rate fluctuations did not have a material impact on Non-Medical sales during the second quarter and first six months of 2024 in comparison to the 2023 periods.
Previous report
(b)Depreciation and amortization expense increased due to amortization of customer list intangible assets related to recent acquisitions.
Previous report
Other (Gain) Loss, Net
Previous report
Refer to Note 6, “Debt” of the Notes to Condensed Consolidated Financial Statements contained in Item 1 of this report for information regarding the Third Amendment to the 2021 Credit Agreement, entered into on July 1, 2024, which increased the maximum borrowing capacity under the Revolving Credit Facility by $300 million from $500 million to $800 million.
Previous report
As part of our 2023 annual goodwill impairment testing for our Non-Medical reporting unit, we performed a quantitative analysis and determined that the fair value exceeded the carrying value of the Non-Medical reporting unit by approximately 11%. We continue to monitor the performance of the Non-Medical reporting unit, as benchmarked against its long-term financial plan, and evaluate industry and Company-specific circumstances which affect the financial results of this reporting unit. At June 28, 2024, we do not believe that any events or changes in circumstances have occurred which would indicate that the fair value of the Non-Medical reporting unit has more likely than not been reduced below its carrying amount. However, changes to the factors considered above could affect the estimated fair value of one or more of our reporting units and could result in a goodwill impairment charge in a future period. We may be unaware of one or more significant factors that, if we had been aware of, would cause our conclusion to change, which could result in a goodwill impairment charge in a future period.
Reworded paragraphs (39)
Previous wording
Integer Holdings Corporation is a leading medical device contract development and manufacturing organization primarily serving the cardiac rhythm management, neuromodulation, and cardio and vascular markets. As a strategic partner of choice to medical device companies and OEMs, we are committed to enhancing the lives of patients worldwide by providing innovative, high-quality products and solutions. We also develop custom power solutions for high-end niche applications in energy, military, and environmental markets.
Current wording
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 OEMs, we are committed to enhancing the lives of patients worldwide by providing innovative, high-quality products and solutions.
Previous wording
The second quarter and first six months of 2024 ended on June 28, 2024 and consisted of 91 days and 180 days, respectively. The second quarter and first six months of 2023 ended on June 30, 2023 and consisted of 91 days and 181 days, respectively.
Current wording
The third quarter and first nine months of 2024 ended on September 27, 2024 and consisted of 91 days and 271 days, respectively. The third quarter and first nine months of 2023 ended on September 29, 2023 and consisted of 91 days and 272 days, respectively.
Previous wording
Global economic challenges, including the impact of military conflicts, severe and sustained inflation, a rising interest rate environment, fluctuations in global currencies, and supply chain disruptions may continue to cause economic uncertainty and volatility. 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, and delays in shipments to and from certain countries. We monitor economic conditions closely. In response to potential 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.
Current wording
Global economic challenges, including the impact of military conflicts, severe and sustained inflation, fluctuations in global currencies, and supply chain disruptions may continue to cause economic uncertainty and volatility. 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, and delays in shipments to and from certain countries. We monitor economic conditions closely. In response to potential 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.
Previous wording
Net income for the second quarter and first six months of 2024 was $31.2 million, or $0.88 per diluted share, and $51.8 million, or $1.47 per diluted share, respectively, compared to $24.0 million, or $0.71 per diluted share, and $37.0 million, or $1.10 per diluted share for the second quarter and first six months of 2023, respectively. These variances are primarily the result of the following:
Current wording
Income from continuing operations for the third quarter and first nine months of 2024 was $36.3 million, or $1.01 per diluted share, and $88.1 million, or $2.49 per diluted share, respectively, compared to $28.2 million, or $0.83 per diluted share, and $62.3 million, or $1.85 per diluted share for the third quarter and first nine months of 2023, respectively. These variances are primarily the result of the following:
Previous wording
•Sales for the second quarter and first six months of 2024 increased $36.2 million and $72.2 million, respectively, when compared to the same periods in 2023, driven by our Medical product lines with strong demand, new product ramps, growth from emerging customers with PMA (premarket approval) products and contributions from our recent acquisitions.
Current wording
•Sales for the third quarter and first nine months of 2024 increased $34.6 million and $115.9 million, respectively, when compared to the same periods in 2023, driven by strong demand, new product ramps, growth from emerging customers with PMA (premarket approval) products and contributions from our recent acquisitions.
Previous wording
•Gross profit for the second quarter and first six months of 2024 increased $13.6 million and $26.8 million, respectively, primarily from higher sales volume leverage, efficiencies gained from the continued improvement in the supply chain and contributions from our recent acquisitions.
Current wording
•Gross profit for the third quarter and first nine months of 2024 increased $11.6 million and $41.9 million, respectively, primarily from higher sales volume leverage, efficiencies gained from the continued improvement in the supply chain and contributions from our recent acquisitions.
Previous wording
•Operating expenses for the second quarter of 2024 were flat compared to the second quarter of 2023 and increased $8.0 million for the first six months of 2024 when compared to the same period in 2023, primarily due to higher SG&A and acquisition and integration costs, partially offset by lower RD&E costs.
Current wording
•Operating expenses for the third quarter and first nine months of 2024 increased $2.3 million and $10.5 million, respectively, when compared to the same periods in 2023, due to higher SG&A and Restructuring and other charges, partially offset by lower RD&E costs.
Previous wording
•Interest expense for the second quarter and first six months of 2024 increased $3.8 million and $1.2 million, respectively, compared to the same periods in 2023, primarily due to higher average debt outstanding, partially offset by a decrease in losses from extinguishment of debt.
Current wording
•Interest expense for the third quarter and first nine months of 2024 increased $3.1 million and $3.9 million, respectively, compared to the same periods in 2023, primarily due to higher average debt outstanding, partially offset by a decrease in losses from extinguishment of debt.
Previous wording
•During the first six months of 2024, we recognized gains on equity investments of $1.1 million, compared to negligible losses for the first six months of 2023. Gains and losses on equity investments are generally unpredictable in nature.
Current wording
•During the third quarter and first nine months of 2024, we recognized gains on equity investments of $0.9 million and $2.0 million, respectively, compared to losses of $3.5 million for the third quarter and first nine months of 2023. Gains and losses on equity investments are generally unpredictable in nature.
Previous wording
•Other (gain) loss, net for the second quarter and first six months of 2024 were net gains of $0.1 million and net losses of $0.9 million, respectively, compared to losses of $0.4 million and $1.1 million, respectively, for the second quarter and first six months of 2023, primarily due to fluctuations in foreign currency gains and losses in the respective periods.
Current wording
•Other loss, net for the third quarter and first nine months of 2024 were net losses of $0.9 million and $1.8 million, respectively, compared to net losses of $0.6 million and $1.7 million, respectively, for the third quarter and first nine months of 2023, primarily due to fluctuations in foreign currency gains and losses in the respective periods.
Previous wording
•We recorded provisions for income taxes for the second quarter and first six months of 2024 of $8.8 million and $13.0 million, respectively, compared with provisions for income taxes of $5.9 million and $8.9 million, respectively, for the second quarter and first six months of 2023. The changes in income tax expense were primarily due to relative changes in pre-tax income and the impact of discrete tax items.
Current wording
•We recorded provisions for income taxes for the third quarter and first nine months of 2024 of $7.1 million and $20.2 million, respectively, compared with provisions for income taxes of $5.1 million and $13.1 million, respectively, for the third quarter and first nine months of 2023. The changes in income tax expense were primarily due to relative changes in pre-tax income and the impact of discrete tax items.
Previous wording
For the second quarter and first six months of 2024, Cardio & Vascular (“C&V”) sales increased $22.8 million, or 11%, and $53.5 million, or 13%, respectively, versus the comparable 2023 periods. The increase in C&V sales was driven by continued strong demand across most markets, new product ramps in electrophysiology and structural heart, and the InNeuroCo and Pulse acquisitions. C&V sales for the second quarter and first six months of 2024 included $14.2 million and $26.9 million, respectively, of sales from the recent Pulse and InNeuroCo acquisitions. Foreign currency exchange rate fluctuations did not have a material impact on C&V sales during the second quarter and first six months of 2024 in comparison to 2023.
Current wording
For the third quarter and first nine months of 2024, Cardio & Vascular (“C&V”) sales increased $27.0 million, or 13%, and $80.6 million, or 13%, respectively, versus the comparable 2023 periods. The increase in C&V sales was driven by new product ramps in electrophysiology and structural heart, and the InNeuroCo and Pulse acquisitions. C&V sales for the third quarter and first nine months of 2024 included $13.5 million and $40.3 million, respectively, of sales from the recent Pulse and InNeuroCo acquisitions. Foreign currency exchange rate fluctuations did not have a material impact on C&V sales during the third quarter and first nine months of 2024 in comparison to 2023.
Previous wording
For the second quarter and first six months of 2024, Cardiac Rhythm Management & Neuromodulation (“CRM&N”) sales increased $14.2 million, or 9%, and $25.3 million, or 8%, respectively, versus the comparable 2023 periods, driven by strong growth in emerging neuromodulation customers with PMA (premarket approval) products. Foreign currency exchange rate fluctuations did not have a material impact on CRM&N sales during the second quarter and first six months of 2024 in comparison to 2023.
Current wording
For the third quarter and first nine months of 2024, Cardiac Rhythm Management & Neuromodulation (“CRM&N”) sales increased $5.0 million, or 3%, and $30.4 million, or 7%, respectively, versus the comparable 2023 periods, driven by strong growth in emerging neuromodulation customers with PMA (premarket approval) products, and the Pulse acquisition. Foreign currency exchange rate fluctuations did not have a material impact on CRM&N sales during the third quarter and first nine months of 2024 in comparison to 2023.
Previous wording
Advanced Surgical, Orthopedic & Portable Medical (“AS&O”) sales for the second quarter and first six months of 2024 increased $1.2 million, or 4%, and $2.4 million, or 4%, respectively, versus the comparable 2023 periods, driven by growth of Advanced Surgical and Orthopedics, partially offset by a decline in Portable Medical from execution of the planned multi-year exit announced in 2022. Foreign currency exchange rate fluctuations did not have a material impact on AS&O sales during the second quarter and first six months of 2024 in comparison to the 2023 periods.
Current wording
Advanced Surgical, Orthopedic & Portable Medical (“AS&O”) sales for the third quarter and first nine months of 2024 increased $2.6 million, or 12%, and $4.9 million, or 6%, respectively, versus the comparable 2023 periods, primarily driven by fulfillment timing of last-time-buy orders related to the planned multi-year Portable Medical exit announced in 2022. Foreign currency exchange rate fluctuations did not have a material impact on AS&O sales during the third quarter and first nine months of 2024 in comparison to the 2023 periods.
Previous wording
Gross margin for the second quarter and first six months of 2024 increased 100 basis points and 90 basis points, respectively, compared to the comparable 2023 periods, primarily driven by higher sales volume leverage and efficiencies realized through our manufacturing excellence initiatives.
Current wording
Gross margin for the third quarter and first nine months of 2024 increased 50 basis points and 90 basis points, respectively, compared to the comparable 2023 periods, primarily driven by higher sales volume leverage and efficiencies realized through our manufacturing excellence initiatives.
Previous wording
(c)Contract services expense increased primarily due to higher software costs from information technology enhancements.
Current wording
(d)Contract services expense increased primarily due to higher software costs from information technology enhancements.
Previous wording
(d)The increase in bank fees and charges was driven by increased accounts receivable factoring and supplier financing fees primarily due to the launch of accounts receivable factoring arrangements during 2023.
Current wording
(e)The increase in bank fees and charges during the first nine months of 2024 was driven by increased accounts receivable factoring and supplier financing fees primarily due to the launch of accounts receivable factoring arrangements during 2023.
Previous wording
RD&E expense for the second quarter and first six months of 2024 was $16.1 million and $31.9 million, respectively, compared to $16.9 million and $36.0 million, respectively, for the second quarter and first six months of 2023. The decreases in RD&E expense during the second quarter and first six months of 2024 compared to the same periods in 2023 were 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.
Current wording
RD&E expense for the third quarter and first nine months of 2024 was $11.9 million and $42.8 million, respectively, compared to $14.1 million and $48.9 million, respectively, for the third quarter and first nine months of 2023. The decreases in RD&E expense during the third quarter and first nine months of 2024 compared to the same periods in 2023 were 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.
Previous wording
(a)Restructuring charges for the first six months of 2024 and 2023 primarily consist of costs associated with our strategic reorganization and alignment and manufacturing alignment to support growth initiatives.
Current wording
(a)Restructuring charges for the first nine months of 2024 and 2023 primarily consist of costs associated with our strategic reorganization and alignment and manufacturing alignment to support growth initiatives.
Previous wording
(b)Amounts for the first six months of 2024 primarily include acquisition expenses related to the InNeuroCo and Pulse acquisitions. Amounts for the first six months of 2023 primarily included integration expenses related to the Aran and Oscor acquisitions, partially offset by a benefit of $0.3 million to adjust the fair value of acquisition-related contingent consideration liabilities.
Current wording
(b)Amounts for the first nine months of 2024 primarily include acquisition expenses related to the InNeuroCo and Pulse acquisitions. Amounts for the first nine months of 2023 primarily included integration expenses related to the Aran and Oscor acquisitions, partially offset by a benefit of $0.5 million to adjust the fair value of acquisition-related contingent consideration liabilities.
Previous wording
During 2024, contractual interest expense has increased due to higher average debt outstanding. The higher average debt balance outstanding is primarily the result of borrowings on our Revolving Credit Facility to fund the Pulse and InNeuroCo acquisitions.
Current wording
During 2024, contractual interest expense has increased due to 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 Pulse and InNeuroCo acquisitions.
Previous wording
Other components of interest expense on borrowings include gains on an interest rate swap contract and non-cash amortization and write-off (losses from extinguishment of debt) of deferred debt issuance costs and original issue discount. Gain on interest rate swap includes realized gains on an interest rate swap contract which matured as of June 30, 2023. Amortization of deferred debt issuance costs and original issue discount increased during 2024 compared to the same periods in 2023 as a result of higher unamortized balances related to new debt. The losses from extinguishment of debt during the first six months of 2023 were related to prepayments of portions of the TLA Facility and full repayment of our seven-year “term B” loan (the “TLB Facility”) in connection with issuance of the 2028 Convertible Notes.
Current wording
Other components of interest expense on borrowings include gains on an interest rate swap contract and non-cash amortization and write-off (losses from extinguishment of debt) of deferred debt issuance costs and original issue discount. Gain on interest rate swap includes realized gains on an interest rate swap contract which matured as of June 30, 2023. Amortization of deferred debt issuance costs and original issue discount increased during 2024 compared to the same periods in 2023 as a result of higher unamortized balances related to new debt. The losses from extinguishment of debt during the first nine months of 2023 were related to prepayments of portions of the TLA Facility and full repayment of our seven-year “term B” loan (the “TLB Facility”) in connection with issuance of the 2028 Convertible Notes.
Previous wording
As of June 28, 2024 and December 31, 2023, approximately 44% and 51%, respectively, of our principal amount of debt are fixed rate borrowings.
Current wording
As of September 27, 2024 and December 31, 2023, approximately 46% and 51%, respectively, of our principal amount of debt are fixed rate borrowings.
Previous wording
The amounts for both periods in 2024 and 2023 relate to our share of equity method investee (gains) losses including unrealized appreciation/depreciation of the underlying interests of the investee. As of June 28, 2024 and December 31, 2023, the carrying value of our equity investments was $9.3 million and $8.2 million, respectively. See Note 13, “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.
Current wording
Equity method investment (gain) loss for both periods in 2024 and 2023 relates to our share of equity method investee (gains) losses including unrealized appreciation/depreciation of the underlying interests of the investee. As of September 27, 2024 and December 31, 2023, the carrying value of our equity method investment was $10.1 million and $7.8 million, respectively.
Previous wording
Other (gain) loss, net for the second quarter and first six months of 2024 were net gains of $0.1 million and net losses of $0.9 million, respectively, compared to net losses of $0.4 million and $1.1 million for the second quarter and first six months of 2023. Other (gain) loss, net primarily includes gains/losses from the impact of exchange rates on transactions denominated in foreign currencies. 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.
Current wording
Other loss, net for the third quarter and first nine months of 2024 were net losses of $0.9 million and $1.8 million, respectively, compared to net losses of $0.6 million and $1.7 million for the third quarter and first nine months of 2023, respectively. Other loss, net primarily includes gains/losses from the impact of exchange rates on transactions denominated in foreign currencies. 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.
Previous wording
The impact of exchange rates on transactions denominated in foreign currencies included in Other (gain) loss, net for the second quarter and first six months of 2024 were net gains of $0.2 million and net losses of $0.9 million, respectively, compared to losses of $0.4 million and $1.2 million for the second quarter and first six months of 2023, respectively. 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.
Current wording
The impact of exchange rates on transactions denominated in foreign currencies included in Other loss, net for the third quarter and first nine months of 2024 were net losses of $0.8 million and $1.7 million, respectively, compared to losses of $0.5 million and $1.7 million for the third quarter and first nine months of 2023, respectively. 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.
Previous wording
We recognized income tax expense of $8.8 million for the second quarter of 2024 on $40.0 million of income before taxes (effective tax rate of 21.9%), compared to an income tax expense of $5.9 million on $29.9 million of income before taxes (effective tax rate of 19.8%) for the same period of 2023. The income tax expense for the first six months of 2024 was $13.0 million on $64.8 million of income before taxes (effective tax rate of 20.1%), compared to income tax expense of $8.9 million on income before taxes of $45.9 million (effective tax rate of 19.3%) for the same period of 2023. Income tax expense for the second quarter and first six months of 2024 included discrete tax expense of $0.5 million and a discrete tax benefit of $0.3 million, respectively. For the second quarter and first six months of 2023, we recorded discrete tax expense of $0.4 million and $0.5 million, respectively.
Current wording
We recognized income tax expense of $7.1 million for the third quarter of 2024 on $43.4 million of income before taxes (effective tax rate of 16.4%), compared to an income tax expense of $5.1 million on $33.3 million of income before taxes (effective tax rate of 15.3%) for the same period of 2023. The income tax expense for the first nine months of 2024 was $20.2 million on $108.3 million of income before taxes (effective tax rate of 18.7%), compared to income tax expense of $13.1 million on income before taxes of $75.4 million (effective tax rate of 17.3%) for the same period of 2023. Income tax expense for the third quarter and first nine months of 2024 included discrete benefits of $1.6 million and $1.9 million, respectively. For the third quarter and first nine months of 2023, we recorded discrete tax expense of $0.8 million and $0.4 million, respectively.
Previous wording
Cash and cash equivalents at June 28, 2024 increased by $10.5 million from December 31, 2023, primarily as a result of cash generated by operating activities and net borrowings on our Revolving Credit Facility, mostly offset by purchases of property, plant and equipment and cash paid to acquire Pulse.
Current wording
Cash and cash equivalents at September 27, 2024 increased by $11.9 million from December 31, 2023, primarily as a result of cash generated by operating activities and net borrowings on our Revolving Credit Facility, mostly offset by purchases of property, plant and equipment and cash paid to acquire Pulse.
Previous wording
Working capital increased by $74.3 million from December 31, 2023, or $63.8 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 inventory, contract assets and accrued expenses. Inventory increased from higher sales volume and product demand which also contributed to the increase in contract assets. Accrued expenses decreased from payments of accrued profit sharing and bonuses.
Current wording
Working capital from continuing operations increased by $75.2 million from December 31, 2023, or $63.3 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 contract assets. Inventory increased from higher sales volume and product demand which also contributed to the increase in contract assets and accounts receivable.
Previous wording
At June 28, 2024, $15.1 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.
Current wording
At September 27, 2024, $21.9 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.
Previous wording
As of June 28, 2024, our capital structure consisted of $1.119 billion of debt, net of deferred debt issuance costs and unamortized discounts and 34 million shares of common stock outstanding. As of June 28, 2024, we had access to $240.5 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 June 28, 2024, our contractual debt service obligations for the remainder of 2024, consisting of interest on our outstanding debt, are estimated to be approximately $27 million. 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.
Current wording
As of September 27, 2024, our capital structure consisted of $1.079 billion of debt, net of deferred debt issuance costs and unamortized discounts and 34 million shares of common stock outstanding. As of September 27, 2024, we had access to $580.5 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 September 27, 2024, our contractual debt service obligations for the next twelve months, consisting of principal and interest on our outstanding debt, are estimated to be approximately $54 million. 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.
Previous wording
As of June 28, 2024, we had Senior Secured Credit Facilities that consist of a $500 million Revolving Credit Facility, with an outstanding principal balance of $256 million, and a TLA Facility with an outstanding principal balance of $375 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.
Current wording
As of September 27, 2024, we had Senior Secured Credit Facilities that consist of an $800 million Revolving Credit Facility, with an outstanding principal balance of $216 million, and a TLA Facility with an outstanding principal balance of $375 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.
Previous wording
As of June 28, 2024, 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 July 1, 2024 and ending at the close of business on September 30, 2024. 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 after entry into the Third Amendment to the 2021 Credit Agreement on July 1, 2024. 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 June 28, 2024.
Current wording
As of September 27, 2024, 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 July 1, 2024 and ending at the close of business on September 30, 2024. Subsequent to September 27, 2024, the sale price for conversion was satisfied as of September 30, 2024 and as a result, the Convertible Notes will continue to be eligible for optional conversion during the fourth quarter of 2024. 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 September 27, 2024.
Previous wording
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 June 28, 2024, we were in compliance with these financial covenants. As of June 28, 2024, our Total Net Leverage Ratio, calculated in accordance with our Senior Secured Credit Facilities agreement, was approximately 2.7:1.0. For the twelve month period ended June 28, 2024, our interest coverage ratio, calculated in accordance with our Senior Secured Credit Facilities agreement, was approximately 8.0:1.0.
Current wording
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 September 27, 2024, we were in compliance with these financial covenants. As of September 27, 2024, our Total Net Leverage Ratio, calculated in accordance with our Senior Secured Credit Facilities agreement, was approximately 2.6:1.0. For the twelve month period ended September 27, 2024, our interest coverage ratio, calculated in accordance with our Senior Secured Credit Facilities agreement, was approximately 7.8:1.0.
Previous wording
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 six months of 2024, we sold, without recourse, $116.8 million of accounts receivable. We did not utilize receivable factoring arrangements prior to the second quarter of 2023. 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.
Current wording
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 nine months of 2024, we sold, without recourse, $162.6 million of accounts receivable. We did not utilize receivable factoring arrangements prior to the second quarter of 2023. 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.
Previous wording
Operating Activities– During the first six months of 2024, we generated cash from operations of $70.5 million, compared to $62.3 million for the first six months of 2023. The increase of $8.1 million was the result of a $18.5 million increase in net income adjusted for non-cash items such as depreciation and amortization, partially offset by a $10.4 million decrease in cash flow provided by changes in operating assets and liabilities.
Current wording
Operating Activities– During the first nine months of 2024, we generated cash from operations of $142.0 million, compared to $124.6 million for the first nine months of 2023. The increase of $17.3 million was the result of a $29.4 million increase in net income adjusted for non-cash items such as depreciation and amortization, partially offset by a $12.1 million decrease in cash flow provided by changes in operating assets and liabilities.
Previous wording
The increase in net income adjusted for non-cash items such as depreciation and amortization was primarily from higher sales volume and margin partially offset by higher acquisition costs related to the Pulse acquisition. The decrease associated with changes in operating assets and liabilities is primarily related to unfavorable cash flow impacts from accrued expenses and inventory, partially offset by the benefit of lower growth in accounts receivable. Accrued expenses included higher levels of profit sharing and bonus payments in the first six months of 2024. Inventory growth during the first six months of 2024 is consistent with the higher sales volume and product demand, Accounts receivable benefited from new factoring arrangements that were entered into after the first quarter of 2023.
Current wording
The increase in net income adjusted for non-cash items such as depreciation and amortization was primarily from higher sales volume and margin partially offset by higher acquisition costs due to the Pulse acquisition. The decrease associated with changes in operating assets and liabilities is primarily related to unfavorable cash flow impacts from accrued expenses. Accrued expenses included higher levels of profit sharing and bonus payments in the first nine months of 2024.
Previous wording
Investing Activities – The $141.4 million increase in net cash used in investing activities was attributable to cash paid for an acquisition and increased purchases of property, plant and equipment. Investing activities for the first six months of 2024 included net cash paid of $138.5 million for the Pulse acquisition.
Current wording
Investing Activities – The $142.2 million increase in net cash used in investing activities was primarily attributable to cash paid for an acquisition and increased purchases of property, plant and equipment. Investing activities for the first nine months of 2024 included net cash paid of $138.5 million for the Pulse acquisition.
Previous wording
Financing Activities – Net cash provided by financing activities for the first six months of 2024 was $138.8 million compared to $7.6 million for the first six months of 2023. Cash provided by financing activities for the first six months of 2024 was primarily due to net borrowings on our Revolving Credit Facility of $157.0 million, primarily to fund the Pulse acquisition. The cash provided by financing activities for the first six months of 2023 was primarily related to the issuance of our 2028 Convertible Notes of $486.3 million, which was partially offset by $335.6 million in full repayment of our TLB Facility, $55.3 million in repayments on our TLA Facility, $23.8 million of net payments on our Revolving Credit Facility and $35.0 million of capped call purchases related to the issuance of our 2028 Convertible Notes.
Current wording
Financing Activities – Net cash provided by financing activities for the first nine months of 2024 was $95.6 million compared to $35.5 million used in financing activities for the first nine months of 2023. Cash provided by financing activities for the first nine months of 2024 was primarily due to net borrowings on our Revolving Credit Facility of $117.0 million, primarily to fund the Pulse acquisition. The cash used in financing activities for the first nine months of 2023 was primarily related to the issuance of our 2028 Convertible Notes of $486.3 million, which was partially offset by $335.6 million in full repayment of our TLB Facility, $55.3 million in repayments on our TLA Facility, $59.4 million of net payments on our Revolving Credit Facility and $35.0 million of capped call purchases related to the issuance of our 2028 Convertible Notes.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
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.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
Refer to Note 6, “Debt” of the Notes to Condensed Consolidated Financial Statements contained in Item 1 of this report for information regarding the Third Amendment to the 2021 Credit Agreement, which increased the maximum borrowing capacity under the Revolving Credit Facility by $300 million from $500 million to $800 million. After giving effect to the Third Amendment on July 1, 2024, the available borrowing capacity under the Revolving Credit Facility was in excess of the notional amount of the 2028 Convertible Notes, which became eligible for conversion at the option of the holders beginning on July 1, 2024 and ending at the close of business on September 30, 2024. 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.