Integer Holdings Corp

(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.

On September 27, 2024, the Company entered into a stock purchase agreement with Ultralife Corporation (“Ultralife”), pursuant to which the Company agreed to sell 100% of the issued and outstanding shares of common stock of Electrochem Solutions, Inc. (“Electrochem”) to Ultralife 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. The divestiture of Electrochem also represents a sale of the Company’s previously reported 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 all continuing operations are included inone reportable segment.

As a result of the anticipated sale, Electrochem met the criteria to be reported as held for sale and discontinued operations as of September 27, 2024. Because Electrochem was previously a reportable operating segment, the Company concluded the divestiture was a strategic shift in its business and classified the related assets and liabilities associated with the discontinued operations as held for sale in the Condensed Consolidated Balance Sheets. 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. The Condensed Consolidated Balance Sheet as of December 31, 2023 was derived from the Company’s audited financial statements and has been retrospectively adjusted to reflect assets and liabilities held for sale. All results and information in the condensed consolidated financial statements is presented as continuing operations and excludes the Electrochem business unless otherwise noted specifically as discontinued operations. Refer to Note 3, “Discontinued Operations” for additional information.

Theaccompanying 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, 2023.

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

The 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.

Factoring Arrangements

The Company has receivable factoring arrangements, pursuant to which certain receivables may be sold on a non-recourse basis to financial institutions. Transactions under the receivables factoring arrangements are accounted for as sales under ASC 860, Transfers and Servicing of Financial Assets, with the sold receivables removed from the Company’s balance sheet. Under these arrangements, the Company does not maintain any beneficial interest in the receivables sold. Once sold, the receivables are no longer available to satisfy creditors in the event of bankruptcy. Sale proceeds are reflected in Cash flows from operating activities on the Condensed Consolidated Statements of Cash Flows. Factoring fees are recorded in Selling, general, and administrative expenses in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income. During the nine months ended September 27, 2024 and September 29, 2023, the Company sold accounts receivable of $162.6 million and $97.4 million, respectively. During the three and nine months ended September 27, 2024, the Company recorded factoring fees of $0.3 million and $1.1 million, respectively. Factoring fees for the three and nine months ended September 29, 2023 were $0.3 million and $0.7 million, respectively.

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(1.) BASIS OF PRESENTATION (Continued)

Supplier Financing Arrangements

The Company utilizes supplier financing arrangements with financial institutions to sell certain accounts receivable on a non-recourse basis. These transactions are treated as a sale of, and are accounted for as a reduction to, accounts receivable. The agreements transfer control and risk related to the receivables to the financial institutions. The Company has no continuing involvement in the transferred receivables subsequent to the sale. Fees for supplier financing arrangements are recorded in Selling, general, and administrative expenses in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income. During the nine months ended September 27, 2024 and September 29, 2023, the Company sold and de-recognized accounts receivable of $119.4 million and $104.7 million, respectively. The Company recorded costs associated with the supplier financing arrangements of $0.6 million and $1.7 million, respectively, for the three and nine months ended September 27, 2024, compared to $0.5 million and $1.3 million, respectively, for the three and nine months ended September 29, 2023.

Recent Accounting Pronouncements

The Company considers the applicability and impact of all Accounting Standard Updates (“ASU”) issued by the Financial Accounting Standards Board (“FASB”). The Company evaluated all recent accounting pronouncements issued, including those that are currently effective, and determined that the adoption of these pronouncements would not have a material effect on the financial position, results of operations or cash flows of the Company. There have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, that are of significance, or potential significance, to the Company.

(2.)BUSINESS ACQUISITIONS

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 (HSRTM), 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 (as defined below) during the first quarter of 2024.

The Company has preliminarily estimated fair values for the assets purchased and liabilities assumed as of the date of the acquisition. The determination of estimated fair value required management to make significant estimates and assumptions based on information that was available at the time 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 price 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 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. During the first nine months of 2024, the Company recorded measurement period adjustments, inclusive of working capital and other closing adjustments, resulting in decreases to goodwill and current liabilities. The measurement period adjustments recorded during the first nine months of 2024 were not material.

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

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, excluding inventory, was assumed to approximate their carrying value as of the acquisition date due to the short-term nature of these assets and liabilities.

The fair value of in-process and finished goods inventory acquired was estimated by applying a version of the income approach called the comparable sales method. This approach estimates the fair value of the assets by calculating the potential revenue generated from selling the inventory and subtracting from it the costs related to the completion and sale of that inventory and a reasonable profit allowance for these remaining efforts. Net book value was deemed to be a reasonable proxy for the fair value of raw materials. Based upon this methodology, the Company recorded the inventory acquired at fair value resulting in an increase in inventory of $1.1 million.

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 a finance lease liability and finance lease right-of-use asset for a manufacturing facility in accordance with ASC 842, Leases. The lease terms were determined to be at-market as of the acquisition date.

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 Pulse acquisition was allocated to the Medical segment and is deductible for tax purposes.

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The purchase price was allocated to intangible assets as follows (dollars in thousands):

Customer Lists -Customer lists represent the estimated fair value of contractual and non-contractual customer relationships Pulse 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. 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 Pulse 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 a royalty rate of 7.5%. 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 -As part of the Pulse acquisition, the Company may be required to pay additional consideration based on a specified revenue growth milestone being met in 2025. Any amounts earned will be payable in 2026. The contingent consideration is classified as Level 3 in the fair value hierarchy and the fair value is measured based on a Monte Carlo simulation utilizing projections about future performance. Significant inputs include revenue volatility of 11%, a discount rate of 12% and projected financial information. See Note 14, “Financial Instruments and Fair Value Measurements,” for additional information related to the fair value measurement of the contingent consideration.

2023 Acquisition

Effective as of October 1, 2023, the Company acquired substantially all of the assets and assumed certain liabilities of InNeuroCo, Inc. (“InNeuroCo”), a privately-held company based in Florida. InNeuroCo is a recognized leader in neurovascular catheter innovation with strong development and manufacturing capabilities. InNeuroCo’s expertise and highly differentiated neurovascular catheter innovation complements the Company’s existing capabilities and market focus. Consistent with the Company’s strategy, the addition of InNeuroCo further increases Integer’s ability to provide enhanced solutions to its customers in the neurovascular catheter space. The Company funded the purchase price with borrowings under its Revolving Credit Facility.

The total consideration transferred was $44.5 million, which consists of an initial cash payment of $43.6 million and $0.9 million in estimated fair value of contingent consideration. The contingent consideration represents the estimated fair value of the Company’s obligation, under the purchase agreement, to make additional payments of up to $13.5 million based on specified annual revenue growth milestones being met through 2027, and a one-time contingent payment to be made based on cumulative revenue amounts through 2027 exceeding a specified revenue target.

The cost of the acquisition was allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of the acquisition. From the date of acquisition through the quarter ended September 27, 2024, the Company recorded measurement period adjustments to update the allocation of the purchase price to certain current assets and, based on analysis of information as of the acquisition date, reduced goodwill by $3.7 million. During the nine months ended September 27, 2024, the Company recorded a measurement period adjustment of $1.5 million, resulting in an increase to current assets and a decrease to goodwill.

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The final purchase price allocation was as follows (in thousands):

The purchase price was allocated to intangible assets as follows (dollars in thousands):

Actual and Pro Forma disclosures

The following table presents (in thousands) pro forma results of operations for the three and nine months ended September 29, 2023 as if Pulse and InNeuroCo had been included in the Company’s financial results as of the beginning of fiscal year 2023. The pro forma results include the historical results of operations of the Company, Pulse and InNeuroCo, as well as adjustments for additional amortization of the assets acquired, additional interest expense related to the financing of the transactions and other transactional adjustments. The pro forma results do not include efficiencies, cost reductions or synergies expected to result from the acquisitions. The impact of discontinued operations have been removed from pro forma sales for each of the periods presented. These pro forma results do not purport to be indicative of the results that would have been obtained, or to be a projection of results that may be obtained in the future.

The results of operations from the Pulse acquisition have been included in the Company’s Medical segment since the acquisition date. From the date of acquisition through three and nine months ended September 27, 2024, sales related to Pulse were $10.3 million and $31.5 million, respectively, and earnings werenot material.

Acquisition costs

During the three and nine months ended September 27, 2024, direct costs of the Pulse and InNeuroCo acquisitions of $0.2 million and $5.9 million, respectively, were expensed as incurred and included in Restructuring and other charges in the Condensed Consolidated Statements of Operations and Comprehensive Income. There wereno direct costs incurred for these acquisitions during the three and nine months ended September 29, 2023.

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(3.) DISCONTINUED OPERATIONS

On September 27, 2024, the Company entered into a stock purchase agreement with Ultralife, pursuant to which the Company agreed to sell 100% of the issued and outstanding shares of common stock of Electrochem to Ultralife. The Electrochem business represented substantially all of the assets and operations in our previously reported Non-Medical segment, which focused on non-medical applications for the energy, military and environmental sectors.

Electrochem met the criteria to be reported as held for sale and discontinued operations as of September 27, 2024. As a result, the Company classified the results of operations of Electrochem as discontinued operations in the Condensed Consolidated Statements of Operations and Comprehensive Income for all periods presented and classified the related assets and liabilities associated with the discontinued operations as held for sale in the Condensed Consolidated Balance Sheets. All results and information in the unaudited condensed consolidated financial statements are presented as continuing operations and exclude the Electrochem business unless otherwise noted specifically as discontinued operations.

The following amounts summarize the Electrochem assets and liabilities which have been segregated from Integer’s continuing operations, and are reported as assets and liabilities of discontinued operations held for sale in the Condensed Consolidated Balance Sheets (in thousands):

(a) The assets and liabilities of the Electrochem business classified as held for sale are presented as current on the September 27, 2024 Condensed Consolidated Balance Sheet as it is probable that the sale will occur and proceeds will be collected within one year.

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(3.) DISCONTINUED OPERATIONS (Continued)

Income (loss) from discontinued operations, net of tax, were as follows (in thousands):

In accordance with ASC 205-20, Allocation of Interest to Discontinued Operations, the Company elected to allocate interest expense to discontinued operations for the Company's debt that is not directly attributed to the Electrochem business. Interest expense was allocated based on a ratio of net assets of discontinued operations to the sum of consolidated net assets and consolidated debt.

Cash flow information from discontinued operations was as follows (in thousands):

(4.)SUPPLEMENTAL CASH FLOW INFORMATION

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

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(5.)INVENTORIES

Inventories comprise the following (in thousands):

(6.)GOODWILL AND OTHER INTANGIBLE ASSETS, NET

See Note 2, “Business Acquisitions” and Note 3, “Discontinued Operations” for additional details regarding goodwill and intangible assets.

Goodwill

The changes in the carrying amount of goodwill for the nine months ended September 27, 2024 were as follows (in thousands):

Intangible assets comprise the following (in thousands):

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(6.) GOODWILL AND OTHER INTANGIBLE ASSETS, NET

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

Estimated future intangible asset amortization expense based on the carrying value as of September 27, 2024 is as follows (in thousands):

(7.)DEBT

Long-term debt comprises the following (in thousands):

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 million aggregate principal amount of 2.125% Convertible Senior Notes due in 2028 (the “2028 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, 2023.

Third Amendment to the 2021 Credit Agreement

On July 1, 2024, the Company entered into a third amendment (the “Third Amendment”) to the 2021 Credit Agreement. The Third Amendment amended the terms of the 2021 Credit Agreement to increase the maximum borrowing capacity of the Company under the Revolving Credit Facility pursuant to the 2021 Credit Agreement by $300 million from $500 million to $800 million. All other terms of the 2021 Credit Agreement remain unchanged. In connection with the Third Amendment, the Company incurred and capitalized $2.1 million of issuance costs in accordance with ASC 470-50, Debt Modifications and Extinguishment. These costs have been recorded as a component of Other long-term assets on the Condensed Consolidated Balance Sheets as of September 27, 2024 and will be amortized over the remaining term of the 2021 Credit Agreement.

Senior Secured Credit Facilities

As of September 27, 2024, the Company maintained Senior Secured Credit Facilities consisting of afive-year $800 million revolving credit facility (the “Revolving Credit Facility”) and afive-year “term A” loan (the “TLA Facility”).

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(7.) DEBT (Continued)

Revolving Credit Facility

The Revolving Credit Facility matures on February 15, 2028. As of September 27, 2024, the Company had available borrowing capacity on the Revolving Credit Facility of $580.5 million after giving effect to $216.0 million of outstanding borrowings and $3.5 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 September 27, 2024, the weighted average interest rate on outstanding borrowings under the Revolving Credit Facility was 6.46% 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, and requires quarterly installments. The quarterly principal installments under the TLA Facility increase over the term of the loan. During 2023, the Company prepaid the contractual amounts due on the TLA Facility through the second quarter of 2025. 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. As of September 27, 2024, the interest rate on the TLA Facility was 6.46%.

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 tonot exceed a specified maximum Total Net Leverage Ratio (as defined in the 2021 Credit Agreement) and an interest coverage ratioas of the end of each fiscal quarter. As of September 27, 2024, the Company was in compliance with these financial covenants.

Contractual principal maturities under the Senior Secured Credit Facilities as of September 27, 2024, are as follows (in thousands):

2028 Convertible Notes

In February 2023, the Company issued the 2028 Convertible Notes with an aggregate principal amount of $500 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 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.

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 thantwo 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.

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(7.) DEBT (Continued)

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 Company’s 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 thefive business day period after anyten 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 Company’s 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.

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 Company’s 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 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, 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 September 27, 2024.

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 at an effective interest rate of 2.76%.

Capped Call Transactions

In connection with the issuance of the 2028 Convertible Notes, the Company entered into privately negotiated capped call transactions (the “Capped Calls”) with certain financial institutions. The Capped Calls are expected generally to reduce the potential dilution to the Company’s 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 Capped Calls is $108.59 per share and is subject to certain adjustments under the terms of the Capped Calls.

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(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):

Stock Options

The following table summarizes the Company’s stock option activity for the nine month period ended September 27, 2024:

Time-Based Restricted Stock Units

Most RSUs granted to employees during the nine months ended September 27, 2024 vest over a period ofthree 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 ofone 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.

The following table summarizes RSU activity for the nine month period ended September 27, 2024:

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(8.) STOCK-BASED COMPENSATION (Continued)

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 athree 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 athree year performance period, or contingent upon achieving specified stock price milestones over afive year performance period.

The following table summarizes PRSU activity for the nine month period ended September 27, 2024:

(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 Integer common stock on the date of grant. The weighted average fair value and assumptions used to value the PRSU awards granted with market-based performance conditions are as follows:

The valuation of the market-based PRSUs granted during 2024 and 2023 also reflects a weighted average illiquidity discount of 8.00% and 11.23%, respectively, related to thesix-month period that recipients are restricted from selling, transferring, pledging or assigning the underlying shares, in the event of vesting.

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(9.)RESTRUCTURING AND OTHER CHARGES

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

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 by classification in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (in thousands):

(a) Restructuring-related expenses primarily include retention bonuses, consulting expenses and professional fees.

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(9.) RESTRUCTURING AND OTHER CHARGES (Continued)

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

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 nine months ended September 27, 2024, acquisition and integration costs primarily related to the Pulse and InNeuroCo acquisitions. During the nine months ended September 29, 2023, acquisition and integration costs primarily related to the Aran and Oscor acquisitions. Acquisition and integration costs for the nine months ended September 29, 2023 included a benefit of $0.5 million to adjust the fair value of acquisition-related contingent consideration liabilities. See Note 14, “Financial Instruments and Fair Value Measurements” for additional information related to the fair value measurement of the contingent consideration.

Other general expenses

During the nine months ended September 27, 2024 and September 29, 2023, 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. In addition, during the nine months ended September 27, 2024, the Company recorded $1.2 million of loss recoveries relating to property damage which occurred in the fourth quarter of 2023 at one of its manufacturing facilities.

(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.

The difference between the Company’s effective tax rates and the U.S. federal statutory income tax rate of 21% for the third quarter and first nine months of 2024 and 2023 is due principally to 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.

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(10.) INCOME TAXES (Continued)

For the third quarter and first nine months of 2024, the Company recorded discrete tax benefit of $1.6 million and a discrete tax benefit of $1.9 million, respectively. The discrete tax benefits for the third quarter and first nine months of 2024 are predominately related to favorable return to provision adjustments attributable to the 2023 U.S. tax return. The remainder of the discrete tax amounts relate predominately to excess tax benefits, net of deductibility limitations, recognized upon vesting of RSUs, partially offset by tax expense from shortfalls recorded for the forfeiture of certain PRSUs, as well as unfavorable return to provision adjustments attributable to certain foreign tax returns for the 2023 tax year.

For the third quarter and first nine months of 2023, the Company recorded discrete tax benefits of $0.8 million and $0.4 million, respectively. The discrete tax expense for the third quarter and the nine months of 2023 predominately related to favorable return to provision adjustments attributable to the 2022 U.S. tax return. The remainder of the discrete tax amounts relate predominately to excess tax benefits recognized upon vesting of RSUs during those periods partially offset by tax expense from shortfalls recorded for the forfeiture of certain PRSUs, as well as unfavorable return to provision adjustments attributable to certain foreign tax returns for the 2022 tax year.

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 2024 provision for income taxes includes the impact of the Pillar Two 15% Global Minimum Tax, with an enactment date of January 1, 2024.

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 September 27, 2024, the Company had unrecognized tax benefits of approximately $6.5 million, substantially all of which would favorably impact the effective tax rate, net of federal benefit on state issues, if recognized. As of September 27, 2024, the Company believes it is reasonably possible that a reduction of approximately $0.5 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.

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(12.)EARNINGS 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):

The diluted weighted average share calculations do not include the following securities, which are not dilutive to the EPS calculations or the performance criteria have not been met (in thousands):

The dilutive effect for the Company's 2028 Convertible Notes is calculated using the if-converted method. The Company is required, pursuant to the indenture governing the 2028 Convertible Notes, to settle the principal amount of the 2028 Convertible Notes in cash and may elect to settle the remaining conversion obligation (the in-the-money portion) in cash, shares of the Company's common stock, or a combination thereof. Because the principal amount of the 2028 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 2028 Convertible Notes. During the three andnine months ended September 29, 2023, the potential conversion of the 2028 Convertible Notes was not included in the diluted earnings per share calculation because the conversion feature in the 2028 Convertible Notes was out of the money and all associated shares were antidilutive.

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(13.)STOCKHOLDERS’ EQUITY

Common Stock

The following is a summary of the number of shares of common stock issued and outstanding for the nine month periods ended September 27, 2024 and September 29, 2023:

Accumulated Other Comprehensive Income

Accumulated other comprehensive income (“AOCI”) comprises the following (in thousands):

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(13.) STOCKHOLDERS’ EQUITY (Continued)

(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):

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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 September 27, 2024 is as follows (dollars in thousands):

Information regarding outstanding foreign currency forward contracts as of December 31, 2023 is as follows (dollars in thousands):

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 nine months ended September 27, 2024 and September 29, 2023 (in thousands):

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The Company expects to reclassify net losses totaling $2.2 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 September 27, 2024 and December 31, 2023, the Company had total gross notional amounts of $30.0 million and $23.0 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 $1.0 million and losses of $0.2 million, respectively, for the three and nine months ended September 27, 2024, compared to net losses of approximately $0.6 million and $0.7 million, respectively, for the three and nine months ended September 29, 2023. 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 and nine months ended September 27, 2024 and September 29, 2023 (in thousands):

As of September 27, 2024 and December 31, 2023, the contingent consideration liability of $4.5 million and $0.9 million, respectively, was non-current and included in Other long-term liabilities on the Condensed Consolidated Balance Sheets.

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The contingent consideration at September 27, 2024 is the estimated fair value of the Company’s remaining obligations, under the purchase agreements for 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 Pulse and InNeuroCo was $3.6 million and $0.9 million, respectively, at the date of acquisition and at September 27, 2024. See Note 2, “Business Acquisitions,” for additional information about the Pulse and InNeuroCo 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 September 27, 2024 and December 31, 2023, the estimated fair value of the 2028 Convertible Notes was approximately $783 million and $635 million, respectively. The estimated fair value of the 2028 Convertible Notes was determined through consideration of quoted market prices. The fair value of the 2028 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):

The components of (Gain) loss on equity investments for each period were as follows (in thousands):

During the third quarters of 2024 and 2023, the Company determined that certain of it investments in its non-marketable equity securities were impaired and determined the fair value to be zero based upon available information. During the third quarters of 2024 and 2023, we recorded impairment charges of $0.3 million and $3.3 million, respectively. These assessments were based on qualitative indications of impairment which are considered to be a Level 3 fair value measurement, as the fair value was determined based on significant inputs not observable in the market. Factors that significantly influenced the determination of the impairment losses included the investee’s financial condition, operational and financing cash flow activities, and priority claims to the equity security, distributions rights and preferences.

The Company’s equity method investment is in a venture capital fund focused on investing in life sciences companies. As of September 27, 2024, the Company owned 7.1% of this fund.

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(15.)SEGMENTS AND DISAGGREGATED REVENUE

The Company's Electrochem business previously represented a reportable segment prior to being reclassified as discontinued operations. As a result of the anticipated sale of the Electrochem business, the Company's continuing operations represent onlyone reportable segment. Therefore, the Company has not disclosed results from continuing operations or from discontinued operations by segment. In accordance with discontinued operations accounting, 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 following its divestiture. Additional disclosures regarding the divestiture of the Electrochem business are provided in Note 3, “Discontinued Operations.”

The following table presents sales by product line (in thousands):

Revenue recognized from products and services transferred to customers over time represented 30% and 32%, respectively, of total revenue for the three and nine months ended September 27, 2024, compared to 31% for the three and nine months ended September 29, 2023.

The following tables present revenues by significant customers, which are defined as any customer who individually represents 10% or more of a segment’s total revenues.

The following tables present revenues by significant ship to location, which is defined as any country where 10% or more of a segment’s total revenues are shipped.

Contract Balances

The opening and closing balances of the Company’s contract assets and contract liabilities are as follows (in thousands):

During the three and nine months ended September 27, 2024, the Company recognized $1.1 million and $3.9 million, respectively, of revenue that was included in the contract liability balance as of December 31, 2023. During the three and nine months ended September 29, 2023, the Company recognized $0.4 million and $3.1 million, respectively, of revenue that was included in the contract liability balance as of December 31, 2022.

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