Good day. My name is Savannah, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Integer Holdings Corporation First Quarter 2022 Earnings Call. [Operator Instructions]. And I would now like to turn the conference over to Tony Borowicz. Please go ahead.

Good morning, everyone. Thank you for joining us, and welcome to Integer's First Quarter 2022 Earnings Conference Call. With me today are Joe Dziedzic, President and Chief Executive Officer; and Jason Garland, Executive Vice President and Chief Financial Officer. As a reminder, the results and data we discuss today reflect the consolidated results of Integer for the periods indicated. During our call, we will discuss some non-GAAP measures. For a reconciliation of these non-GAAP measures, please refer to the appendix of today's presentation, today's earnings press release and the trending schedules which are available on our website at integer.net. Please note that today's presentation includes forward-looking statements. Please refer to the company's SEC filings for a discussion of the risk factors that could cause our actual results to differ materially. On today's call, Joe will provide his opening comments and more detail on the recently announced acquisition of Aran Biomedical. Jason will then review our adjusted financial results for the first quarter 2022, provide additional insight on our product line performance and review our full year 2022 guidance. Joe will come back to provide his closing remarks, and then we will open up the call for your questions. With that, I'll turn the call over to Joe.

Thank you, Tony, and thanks to everyone for joining the call today, especially the Integer Associates who have continued to deliver for our customers during these dynamic times, while also remaining focused on executing our strategy. Our first quarter results were consistent with our expectations when we provided full year guidance on our last earnings call. We told investors that we expected our first quarter sales to be about the same as the fourth quarter of last year. They were within $2 million of that guidance. We did not provide profit guidance for the first quarter, but I can share that we deliver the exact adjusted operating income we were projecting, which was $39 million. We've shared on prior calls that we have good visibility to the demand from customers for the current quarter, and we believe we continue to demonstrate that with our guidance. The first quarter sales were about flat organically on a year-over-year basis, largely due to the high January COVID-related absenteeism, and supply chain constraints. This was incorporated into our guidance for both the first quarter and the full year. Our adjusted operating income declined 16% year-over-year as we grew our direct labor associates 10%, and invested in training and overtime to ramp up to meet the growing demand from our customers. We also increased inventory in the first quarter by about $20 million to support our sales growth for the remainder of the year. We feel our staffing and inventory levels are well positioned to deliver approximately double-digit sales growth in the second quarter and the rest of the year, while also improving gross margins through the remainder of the year. We are excited that Aran Biomedical joined Integer earlier this month, and we're confident that together, we can deliver even more innovation for our…

Thank you, Joe. Good morning. Thank you again for joining our call. I'll provide more details on our first quarter 2022 adjusted financial results, summarize our product line sales trends and conclude with our 2022 outlook, which has been updated to reflect the impact of our Aran acquisition. First quarter sales were consistent with our fourth quarter 2021 earnings guidance, and first quarter adjusted operating income was consistent with our expectations. Both of which included the negative impact caused by high January and February absenteeism due to the COVID-19 surge and from ongoing supply chain constraint. In the first quarter, our sales were $311 million, delivering 7% growth over the first quarter of last year. Organic sales growth, which excludes $19 million of first quarter sales for Oscor and currency differences is 1% higher than the first quarter of last year. Gross margins in the first quarter were consistent with those realized in the third and fourth quarters of 2021, though there was a decline versus first quarter 2021, a period not impacted by the same supply chain and labor constraints. We continued to face direct labor headwinds caused by higher-than-normal overtime inefficiencies from delayed material as well as high training costs, and the incremental salaries for the associates we are hiring to support growth through the rest of 2022. As Joe mentioned, Direct labor associates were up 10% versus the first quarter of 2021. With half of that increase in the last 3 months as we have continued to get better traction on hiring. Having the resources and inventory needed coupled with strong demand gives us confidence in our ability to grow in the second quarter. Furthermore, we entered the second quarter of 2022 with our highest order backlog in company history. We are well positioned to deliver approximately…

Thanks, Jason. Integer is uniquely positioned to serve our customers across all phases of their product life cycles. We continue to add differentiated capabilities, both organically and inorganically, while delivering for our customers. Our disciplined and structured product line strategies have positioned us well to accelerate our sales growth rate while expanding margins. We are confident we will deliver on our financial objectives because of the performance culture we have created. I'll wrap up by reiterating but our first quarter results were consistent with our expectations and with our financial guidance. We updated our full year guidance for the acquisition of Aran Biomedical, and we believe our staffing and inventory levels position us well to deliver approximately double-digit growth in the second quarter and the rest of the year. We continue to execute our strategy by adding differentiated capabilities in high-growth markets that enable us to deliver more comprehensive solutions to our customers. We believe our strategy focused on innovation and excellent service will accelerate our growth with customers by enabling their success. I'll close by providing an example of how this strategy is paying dividends. We have been a strong partner to Nevro for many years, starting back in 2008 with the design and development of their high-frequency spinal cord stimulation implantable pulse generator and supporting them through regulatory approval into high-volume manufacturing. Nevro's success ultimately led them to decide to in-source the assembly of their IPG but they wanted a partner to provide a second source for business continuity. I am happy to announce that we have signed a multiyear supply agreement with Nevro to be their sole outsourced manufacturer on their next-generation platform, including annual volume commitments. We will continue to be their sole source for their current generation product. We have also agreed to further vertically integrate Integer components into the Nevro IPG for both Integer and Nevro's manufactured product. We believe this partnership demonstrates the success of serving our customers with differentiated technology and service, and is how we plan to continue fulfilling our vision of being our customers' partner of choice. Thank you for joining our call this morning. I will now turn the call back to our moderator for the Q&A portion of our call.

[Operator Instructions]. And our first question will come from Matthew Mishan with KeyBanc.

So Joe, as you think about your -- this is going to be like a 2-part question. As you think about your outlook today versus a couple of months ago, are you more or less confident in the visibility to that outlook? And then the second part of that, are there any components of raw materials that are particularly challenging at this point that could cause some uncertainty as you go through the summer?

Matt, great questions, which get at the heart of the supply chain challenges in the dynamic environment that we're all living in. And I'll start with the -- versus a few months ago, we actually feel even better about the rest of our year. We had the advantage of our earnings call being in mid-February. So we had our fourth quarter earnings call. So we had already experienced a dramatic surge in absenteeism in January from the COVID surge heavily in the U.S., a little bit in Europe. We also had already seen how it was tapering off in February, but still impacted February. So we were able to incorporate that impact in our first quarter expectations for revenue being flat with the fourth quarter as well as the operating profit. I mentioned we landed right on the operating profit we were internally projecting. So in terms of thinking about where we are today versus mid-February, we actually feel a lot better about the rest of the year because we've been able to build $20 million of inventory. We added 5% more direct labor associates within the first quarter. So we're up 12% into first quarter -- in the first quarter. So we got really good traction adding the direct labor that we need to fulfill on the growth in the second quarter and rest of the year. Jason mentioned in the prepared remarks, we entered the quarter with the highest amount of orders for the quarter that we've ever had. That's one of the things we measure very closely. We've got really good visibility in the next 3, 4 months. And so we feel really good about the demand from customers. So we feel really good about the rest of the year, and we're glad to have the first…

Okay. And then the record order book that you guys were talking about, is that due to some back orders that may not have been able to be filled in the first quarter? Or is that due to just a really strong recovery from your customers and positive like underlying momentum in the business?

I think there's 3 variables. I think the strong recovery is one of them for certain as we look to the rest of the year. We have new products that are launching that we're ramping up, and we're moving out of development and into the manufacturing sites in order to be able to ramp to our customers' product introduction. So we see that as one factor of growth. There's absolutely volume that we were planning to ship in the first quarter. But because of this COVID surge, we were not able to, probably half the inventory we built is related to that volume. And so we entered the quarter with that volume in hand. And then there's a third variable where our customers, but we see this as well as ourselves and everybody in the industry and probably in any manufacturing environment. Everyone is placing orders further in advance to give supply chain greater visibility. We're doing that with our supply base. We're encouraging our suppliers to do. With their supply base. Our customers are doing it. So what it's doing is it's giving everybody better visibility to be able to better manage the supply chain. And we think what that does ultimately is it gives us even better visibility to the demand for the rest of the year, which increases our confidence in our guidance for the rest of the year.

Okay. And then just lastly on the guidance, is that -- there's obviously a lot of moving pieces over the last couple of months. Is the guidance reflective of Aran. So the sales bump is there no change otherwise. EPS down a little bit. Is that a little dilutive because of the interest rate upfront or are there some other moving pieces to be considering there?

So the only change in our guidance is we added Aran. And so the change in our guidance is adding 16 of sales for Aran, adding $3 million of EBITDA, $2 million of AOI, and it's a few pennies dilutive on EPS because we've got the debt for the full year and we only get 9 months of the income. And by the time we get to 2023, we expect Aran to be accretive -- flat to accretive to EPS.

The only change there -- it only changes there.

[Operator Instructions]. Our next question will come from Jim Sidoti with Sidoti & Company.

Can you talk a little bit about how Aran distributed their products and as a stand-alone company and what distribution is going to look like now that they're part of Integer?

Well, I think the biggest -- one of the biggest advantages of combining with Aran is we can now vertically integrate and be even more comprehensive -- have a more comprehensive offering to our customers. And one of the things we love about Aran is more than half of their pipeline, and we were able to get very deep into their pipeline that they're working on their development programs, which we talked a lot about Integer's development program pipeline on the last earnings call. More than half of Aran's development pipeline is in structural heart, which demonstrates the differentiation that they bring to their customers our ability to then help Aran ramp and scale to high-volume manufacturing and vertically integrate with our offerings on structural heart access devices and delivery systems gives us a really comprehensive offering, we think, the most comprehensive offering in the industry. And we think the combination is going to allow us to develop significant commercial synergies we didn't make much commercial synergies into the deal because we didn't need to. The pipeline Aran has stood on its own and justified the deal, but we're really excited about the ability to partner and offer a more comprehensive solution to our customers. And we think our scale and manufacturing capability will open up even more opportunities for Aran. So we would expect to see that growth that they have now that we expect 20% to 30% growth over at least the next few years with their pipeline we think with our combination that we can even accelerate that and build and get more into your product through to our customers with Aran's capability.

Okay. But specific for distribution, were they using direct reps, direct salespeople or independent reps? And how will it after the -- now that the 2 companies are combined?

They had a very similar model to Integer their engineering teams work closely with the same customers we work with our customers' engineering team, their development engineers we're selling in the same manner that we are. What's different today is now they have a more comprehensive portfolio to offer, and we obviously are much deeper given our size and scale with those same customers than they are. So it going to be the same go-to-market approach with the engineers talking engineers and selling differentiated technologies and capabilities, enabling them to get their structural art devices, peripheral vascular, neurovascular devices to market faster.

Okay. And then a question, Jason, the R&D is up a little over $3 million in the quarter. It sounds like it's going to stay that way. Is that primarily due to the addition of folks from Oscor? Or is there something else going on?

Yes, that's a great question, Jim. So absolutely Oscor a piece of that, probably about 1/3 of the growth. The rest of it really is in line with our continued focus and investment in resources and programs and the high-growth focus areas and markets that we've been talking about, those resources continue to grow. There's always a little bit, as we've talked about, timing of customer reimbursements and how that flows through. But right now, we continue to grow that revenue, the revenue side of that as well as the program expense, and we see that being more of that run rate that we had in 1Q for the rest of the year.

Our next question will come from Bob Wasserman with Benchmark.

Just wonder if you could provide a little more color on the Nevro contract that you talked about this morning in terms of the timing of when that we started and also the scale, will it be close to what your contract earlier contracts and also whether there was any contribution in this round from either on Oscor or Aran components?

Great. Bob, thanks for the question. So on Nevro, we've been a strong partner with Nevro from their inception and as they were looking for their second source, we think we were uniquely positioned to serve them. And so we're building their current generation device. We're working with them on their next-generation device which is what they plan to assemble the I think the latest thing they've said publicly is by late this year, they expect to have their plants up and running. So we'll support them as they go into that transition of doing their own assembly. We'll now start providing them with additional components that we manufacture that will be vertically integrated into both our assembly as well as their assembly. It's a multiyear long-term agreement. There's share commitments for the components as well as volume commitments on the IPGs. We'll support them as they ramp and be there to ensure that if they need any incremental volume and additional volume over, and above what they're planning to produce or as they work through assembly their IPG for the first time ever. We'll be there to support them and ensure that they have all the product that they need to meet their launch of their next-generation products and their introduction of that whenever they do get that introduced. And in terms of components, obviously, score was in the first quarter results. They were in the December results last year. So on a year-over-year basis, Oscor is inorganic, and you see that in our results. It had about $19 million in sales in the first quarter, they had a very strong first quarter. It's a great start to the year. We're really excited about how well the integration is going and how well they're performing. And we expect them to continue to outperform the rest of the year. We're excited about the combination and the additional commercial synergies that we're working on already.

[Operator Instructions]. And there's no further questions. I'd like to turn the call back to Mr. Borowicz for any additional closing remarks.

Great. Thanks, everyone, for joining the call today. The replay of this call will be available on our website as well as the presentation we just reviewed today. So I look forward to taking your follow-up questions, and thank you for your interest in Integer, and that does include the call for today. Thank you.

And this will conclude today's conference. Thank you for your participation, and you may now disconnect.