Integer Holdings Corporation

Ladies and gentlemen, thank you for standing by and welcome to Integer Holdings LLC Q2 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded, and if you require any further assistance, please press star 0. I would now like to hand the conference over to Tony Borowitz, Senior Vice President of Investor Relations. Thank you. Please go ahead.

Good morning, everyone. Thank you for joining us and welcome to Integer's second quarter 2020 earnings conference call. The calls being webcast live in the replay along with a copy of the press release and earnings presentation will be available on the Investor Relations section of our corporate website. The results and data we discussed today reflect the consolidated results of integer for the periods indicated. During our call, we will discuss some non-GAAP measures. For reconciliation of these non-GAAP measures, please see the appendix of today's presentation and the notes of the financial statement in today's earnings release. As a reminder, today's presentation includes forward-looking statements. Please refer the company's SEC filings for discussion of the risk factors that could cause our actual results to differ materially. Joining me on the call to discuss our second quarter results are Joe Dietzik, President and Chief Executive Officer, and Jason Garland, Executive Vice President and Chief Financial Officer. On today's call, Joe will provide his opening comments and discuss how COVID-19 is impacting our business and how we are managing in this new normal. Jason will review our financial results for the quarter, provide an update on how we are managing costs, and discuss our strong cash position. Joe will come back on to provide his final closing remarks, and we will open it up for your questions. At this point, I'll turn the call over to Joe for his comments.

Thank you, Tony, and thanks to everyone for joining the call today. I want to start by reiterating what we said at the beginning of our call last quarter. Creating a safe environment for our associates who have been coming into our manufacturing operations every day during this pandemic continues to be our top priority. By ensuring pandemic safety protocols are in place, our associates are able to focus on manufacturing the products our customers and their patients need every day. Sounds simple. Take care of your associates who take care of your customers. Now that we're operating in this new social distanced environment, we have worked to make it as normal as possible so we can stay focused on executing our strategy. We have found a cadence and a rhythm that is as normal as one can be during this dynamic period. One step in this process has been increasing our agility to adjust production to the changing needs of our customers and the market demand. We continue to work closely with our customers to meet their needs while also continuing to implement our strategy with an intense focus on our manufacturing excellence operational strategic imperative. The team has been very creative in their implementation of the integer production system during the pandemic. As many of our lean experts are working remotely, we are operating as though this is the new normal. and remain focused on the execution of our strategy to achieve excellence in everything we do. On our first quarter earnings call in early May, we disclosed that April sales were down approximately 20%, and believed it did not reflect the full impact of COVID-19. We projected our second quarter would be worse than April, and now that the second quarter is complete, sales were down 24%. And even down 24% does not reflect the full impact of COVID, as we believe our second quarter sales were better than the medical device industry sales decline, which is what we expected. I will cover this point in more detail on the following slides. Our profits declined significantly, as we expected, because our approach to the expected temporary sales decline from the pandemic has been to adjust the variable cost with sales and not take out infrastructure. We expected to see a significant margin rate contraction as we worked to adjust variable cost to match the lower volumes and preserve our infrastructure to execute our strategy. We fully expect our earnings to come back as volume returns. Also, as we expected, our cash flow was solid in the second quarter and partially insulated from the profit decline as the second quarter cash collections benefited from the higher first quarter sales. Turning to our outlook for the second half, we're going to be as transparent as possible on what we expect and how it correlates to the market, but we are not providing quantitative guidance. To that point, we expect the third quarter to be relatively similar or even perhaps slightly lower than the second quarter. We expect cash flow to remain positive in the second half of 2020, but well below the first half as the lower second quarter and third quarter sales will reduce cash collections. We would expect to see sequential improvement in sales in the fourth quarter, somewhere in the middle as compared to the second and third quarter run rate and pre-COVID levels. The qualitative information we are hearing from the marketplace and the fact that our order backlog trend is improving supports our view of the second half outlook. It has taken a total team effort to manage in this new environment, and I am proud of the agility and ingenuity the team has demonstrated to deliver for our customers. Let me provide an update on how we are interpreting the industry volume trends and how they are impacting our results. We believe the industry sales declined in the mid-30% range during the second quarter. Abbott reported a 33% reduction in their medical device sales, excluding diabetes products. Johnson & Johnson reported a decline of 34% in their medical device segment. And Boston Scientific reported a 29% decline in their medical device sales. We estimate procedure volumes were in the range of 80 to 90% of pre-COVID levels exiting the second quarter. but that was prior to the recent surge in COVID infections across the southern part of the U.S. Some of the more critical procedures, such as heart failure and structural heart, saw slightly better results, whereas the more elective neuromodulation cases experienced second quarter declines in the neighborhood of 50 percent. On slide nine, you see our current view of the market, depicted in the dark blue line, compared to the view we presented during our first quarter earnings call. which is shown in light blue. The rate of decline at the beginning of the second quarter was steeper than we originally projected, but it also recovered more quickly later in the quarter, leading to a higher exit rate. Although the third quarter is starting at a higher run rate, we expect a flattening during the quarter as the surge of COVID cases in the U.S. has impacted elective medical procedures in certain geographies. We estimate the third quarter industry sales somewhere between 10 and 20% below pre-COVID levels. Barring a further surge in COVID cases, we expect to see improvement in the industry volumes in the fourth quarter, but still below pre-COVID levels by 5 to 15%. Similar to our prior review, we expect that the market will return to pre-COVID levels sometime during the first quarter of 2021. When we look at the COVID impact on Integer, we estimate that our second quarter sales decline of 24% was approximately 10 percentage points better than the market decline. There are several reasons for this difference from the industry decline. Some customers reacted in early April and began to reduce orders, whereas for other customers, we did not see meaningful changes until June. There was a pretty wide range of customer response times, But when they did respond, they responded with meaningful reductions. The blend of reaction times and the magnitude of the change was what we expected. It is important to note that we fully expect the 10 percentage point favorability in the second quarter versus the market to reverse in the second half of the year. We anticipate our growth rate converging with the market growth in early 2021, and returning to our more typical level of variation to the overall market growth. Slide 11 shows our current view of the impact on integer sales and how the curve has changed compared to our prior view. The decline at the beginning of the second quarter started a little earlier, but the pace of the decline was slightly slower. We thought that the bottom of the curve was going to be in June, and now we think the bottom will be in July. We have pretty good visibility into the order backlog for the third quarter, especially since July is almost complete. It doesn't mean customer demand cannot change during the next 60 days, but our order backlog supports this updated curve. Given our current backlog, we expect the third quarter sales to be about the same as the second quarter with a slight bias to lower given the bottom of our curve is now in early third quarter. Turning to slide 12, this brings together our current view of both industry and integer sales. A key takeaway is that integer sales were better in the second quarter than the industry by about 10 percentage points because of the response time of our customers. This is not a criticism of our customers, but an acknowledgment that it takes time to interpret the market change, understand at the procedure level the impact on each medical device, then translate that into a change in their own manufacturing operations, and then communicate that to us in the form of order changes SKU by SKU. The time it takes for this sequence of events to occur generates the lag in the impact on integer and the resulting 10 percentage point favorability versus the industry decline. We expect this favorability to the industry will reverse in the second half. With most of the adjustment coming in the third quarter, and the remainder in the fourth quarter. Our ability to predict the reversal with precision is limited, but this is the current view that our order backlog analysis and our qualitative assessment suggests. How are we managing? We are actively managing our variable expenses to align with the volume decline. We continue to execute our strategy and to position the company with ample liquidity to protect our strategic investments and to carry out our bolt-on acquisition strategy, while safeguarding the company against a prolonged pandemic. I'll now turn the call over to Jason to review the financial results.

Thank you, Joe. Good morning, everyone, and thank you again for joining our call. I'll provide more highlights on our second quarter 2020 adjusted financials, as well as provide an update on our liquidity and the actions we've taken to enhance our ability to continue investing to execute our strategy throughout the pandemic. As Joe highlighted, our second quarter results were significantly impacted by COVID-19. Sales decreased by 24% to $240 million, adjusted operating income decreased 65% to $22 million, and adjusted EBITDA decreased 56% on a reported basis. As a reminder, we now include adjusted operating income, as we believe this metric more comprehensively reflects our performance in managing all operating costs in the business. We'll continue to show EBITDA so that you can see both measures. Finally, we reported $10 million of adjusted net income, a decrease of 74%, and the adjusted earnings per diluted share declining to $0.32. The profit decline is a direct result of the rapid decline in volume while maintaining infrastructure to support the return of sales post-COVID and continue executing our strategy. We are adjusting variable costs to the new volume levels and working to mitigate COVID related social distancing cost increases. We anticipate the second quarter to be the most challenging from a profitability perspective. The next slide may look familiar as we showed it in our first quarter earnings call to share the approach we are taking to manage costs during the pandemic. And we believe it will help to provide more color on our second quarter income reduction. We are appropriately matching our variable cost reductions to the reduction in sales volume by taking necessary labor reduction and working with suppliers to reduce material input. Our indirect labor and overhead are less variable and in most cases fixed, but we are actively implementing measures to reduce activities more closely tied to production. We are maintaining support for our continuous improvement programs and our facility infrastructure. In general, we expect fixed costs to continue to remain constant. We are controlling discretionary spending, but as we noted in the first quarter earnings call, we are maintaining SG&A and RD&E as we continue to believe the sales decline to be temporary. While we have stopped non-critical resource addition, we remain committed to the addition of strategic talent required to execute our long-term strategy. Considering this approach, we want to again be clear that we anticipate a temporary contraction of margin rates on the significant but temporary reduction of sales. We expect margins to improve as sales increase. By protecting our strategic investment areas like lean manufacturing and business process excellence through the pandemic, we believe to be well-positioned post-COVID-19. The impact of COVID driving sales down 24% year over year with no meaningful change in infrastructure costs is readily apparent on our bridge. as the operational driver's bucket contributed to a $33 million reduction in our adjusted net income versus last year. Our interest rate management lowered interest expense by $3 million and contributed 9 cents of growth. The impact of our effective tax rate and foreign exchange were negligible in the second quarter. I'll now turn to a review of our product line sales results. As a reminder, slide 19 reflects trailing four-quarter organic adjusted sales rate. We believe this is a more meaningful indicator of our sales trend and how we are performing in the market versus looking at an individual quarter, which may contain anomalies such as product launches, end-of-life programs, and customer inventory management actions. Our growth rate has been significantly impacted by COVID-19. and our performance is consequently skewed. That said, we are leaving this analysis in our presentation, as we believe this still remains the best way to view our performance, and when we return to a more normal environment, it will continue to provide the best insight into our sales trends. The cardio and vascular product lines organic sales were down 15% in the second quarter. Sales were negatively impacted by the pandemic across almost all of our C&V markets. Structural Heart was the exception, where we continued to see growth driven by customer development programs. Moving to the next product line, the organic sales in our cardiac and neuromodulation product line were down 37% in the second quarter, with both neuromodulation and cardiac rhythm management significantly impacted by the pandemic. Additionally, neuromodulation was impacted by a $7 million year-over-year headwind from Nuvector's bankruptcy. Slide 22 shows the final part of our medical segment. Please recall in July of 2018, Vyan acquired our ASNO product line. The advanced surgical, orthopedics, and portable medical product line shown today includes sales under supplier agreements with Vyan. Sales declined 6% in the second quarter versus the prior year driven by the pandemic, partially offset by increased demand for ventilator and patient monitoring components in our portable medical product line. Finally, slide 23 summarizes electrochem, our non-medical segment. Electrochem sales declined 48% in the second quarter, driven by the severe decline of the energy market and demand fallout from the COVID-19 pandemic. We anticipate the market downturn and reduced demand for our products in this segment could be prolonged, which led us to take actions to right-size our cost structure. In April, we implemented furloughs and reductions in force in our electrochem business unit to adjust to this new market environment. Though we suspended guidance in the first quarter due to the uncertainty created by the COVID-19 pandemic, we are committed to continue providing transparent communication regarding our financial position and the actions we are taking to not only enhance, but to continue to make Integer stronger. Our liquidity has grown in the second quarter, and with the improvements we have made in increasing our debt covenant leverage cushion, we are well positioned to continue executing our strategy. Our liquidity increased in the second quarter from our solid cash flow in the quarter. in which we generated $46 million in cash flow from operating activities and $34 million in free cash flow. Cash collections in the second quarter were aided by strong sales in the first quarter, which were not impacted by the COVID-19 pandemic. That also means that our cash flow in the third quarter will be lower as we collect on the lower second quarter sales base. CapEx spend was higher in the second quarter as compared to the prior year as we remain committed to investing in our strategy. In the second quarter, we lowered our net total debt, which is debt minus cash on hand, by $33 million, including paying $15 million on our revolver. Our debt leverage ratio increased to 3.1 times adjusted EBITDA, as our trailing four-quarter adjusted EBITDA is lower given the impact of the COVID-19 pandemic on the second quarter. I'd like to close with reviewing how our financial strength allows us to continue executing our strategy throughout the pandemic. To begin, we increased our liquidity. As a reminder, early in the second quarter, we executed $165 million drawdown on our revolver to protect against potential financial market illiquidity in the event of a prolonged pandemic. We continue to view this as an inexpensive insurance and prudent protection against a prolonged pandemic. At the close of the quarter, we had $206 million in cash on hand with $230 million in total liquidity up $24 million from last quarter. We have historically generated strong cash flows, and we expect to continue generating positive cash flows for the remainder of 2020, albeit at lower levels during the second half of the year. Additionally, we announced early in the month that we worked with our bank group to increase our covenant leverage from four times to 4.75 times from third quarter 2020 to second quarter 2021. We also added the ability to increase our leverage covenant to 5.25 times upon the execution of an eligible M&A transaction. We believe this provides additional protection and flexibility for minimal costs. We want to thank our bank group for their broad support. We believe we are well positioned to withstand a prolonged pandemic and our strong financials afford us the ability to maintain critical investments that will make us stronger post-COVID-19. With that, I'll turn the call back to Joe. Thank you.

Thank you, Jason. We continue to lead Integer with a priority on taking care of our associates during these uncertain times. Our manufacturing associates continue to build products that patients need every day throughout the pandemic. They are delivering for our customers and ensuring they have the highest quality products where they need them and on time. We continue to experience strong demand in product development, and have expanded our engineering team during the pandemic. Our sales pipeline activity also remains robust, including customer outsourcing opportunities. We are approaching each day as the new normal by increasing our agility to respond to the changing needs of our customers and the volume changes in the marketplace. We are remaining focused on executing our strategy. Our lean experts have been extremely creative in implementing the integer production system while working remotely and we continue to move forward with a sense of urgency. The sales leadership is accelerating the execution of our Salesforce Excellence Operational Strategic Comparative despite the pandemic, and we continue to make the necessary investments and our capabilities to deliver differentiated products to our customers. The impact of COVID is real and significant, but we remain focused on executing our strategy through the pandemic so that when volumes return to normal, we are back on the growth trajectory we were on pre-COVID. Thank you for joining our call this morning. I'll now turn the call back to our operator for the Q&A portion.

Ladies and gentlemen, in order to ask a question, you will need to press star and then one on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of Matthew Michon with KeyBank. Your line is open.

Great, and thank you for taking the questions. Hey, Joe, I just want to clarify some of the commentary between market sales and your sales. I think you are very consistent with how you've approached it from last quarter call to this quarter call. What I'm not sure about is where you've captured for Integer the higher trough of industry sales in 2Q. So it's pretty clear that May-June trends from the customer were stronger than they had anticipated back in April and back when you were communicating your forward outlook. Where did that change apply to Integer?

Well, Matt, it showed up both in our second quarter results as well as in our current view of where we think the third and fourth quarter will land. I think we didn't provide specific revenue guidance or quantitative guidance for the second or third quarter. What we saw on our earnings call, what we conveyed on our earnings call was we were down about 20% in the month of April and by all previous communications and now it's been communicated more clearly, the industry appears to have been down in the order of magnitude of 50, 55% in the month of April. So we knew in the month of April that we weren't down as much as the industry and we expected the lag that we've described. So I think the best way to look at our sales is correlating it to the industry with this lag. And we've tried to portray that as clearly as we could. We didn't know what the second quarter sales were going to be. We knew orders were declining. We were studying our backlog and what customers were communicating to us. But we knew that it would take our customers time to assess the impact of the market and then translate that into changes in their production plans. and then translate that into order changes for us. So we fully expected this lag. I wouldn't say that our sales is higher or lower than what we expected, because what we expected in the second quarter was dependent upon what happened in the market. But we knew there would be a lag, and that lag has played out. And we think it's very clear. It's order of magnitude 10 percentage points. We can't be as precise as we'd love to be, but When we look at J&J and Abbott, for example, down 33%, 34% in their med device sales. Abbott were excluding their diabetes business. And we see that we were down 24%. The lag is evident. But you just have to look at April. With the industry down 50-plus percent, and we were down about 20%. And we expected to hit the bottom of our curve, the trough. Sometime in late 2Q, based on what at the time everybody was thinking, that shifted a little bit based upon the actual orders. And we've studied our order pattern and our backlog from our customers and tried to correlate that to the industry dynamic. And this lag is very clear. Our backlog declined during the months of April and May, commensurate with our sales decline. In the month of July or June, in June, our backlog was flat. There wasn't much increase or decrease. In July, the first three weeks, we've seen our backlog grow in a way that's consistent with the curve that we're portraying. So I guess I don't have an answer to why it's different than the industry view because we were correlating our expectation against the industry view because we are a reflection of the industry just with a lag.

Yeah, I think to sum it up, I think what it looks like is, you know, when you communicated 2Q at that down 20, I had modeled, I think, down 25% for 2Q. I don't think that probably accurately reflected, you know, some of what you were thinking 2Q could have actually been down. And then 2Q actually came in better than your internal expectations based upon – based upon customer orders?

Yeah, if I go back to first quarter, we had said April was down 20%, and we knew that did not reflect the full impact of COVID because at that time there were indications and communications about the industry being down order magnitude 50% in April. So we knew 20% wasn't the full impact, and we tried to convey that, that we expected second quarter to be worse than 20%. on April being down 20. And we tried to portray it on the first quarter with our bottom of the curve for integer sales being in late 2Q, while the industry would be in early to mid 2Q. Everything just kind of shifted to the right for us based upon the actual order pattern. But I think the thing I would convey is relative to the industry, we think our sales in the second quarter were about 10 percentage points. This is an order of magnitude. It's not a precise number. But about 10 percentage points better than the industry volumes, which means in the second half that has to unwind. And what I'm confident of is we continue to win business with customers. We are a reflection of the market during this dynamic, during the pandemic. And as volumes go down and come back up, We're going to be a reflection of the market. We're just going to have this lag based upon the time it takes for customers to absorb the market impact, translate that into changes in their production, and translate that into a change in demand on us. We're a reflection of the market with just a lag.

Okay. I think that's all very fair. When you're talking about the 4Q forecast and moving forward, are your customers just factoring in the coronavirus? at this point, are they starting to take into account some other factors like unemployment? Have you had some broader conversations about how they're seeing the recovery?

Great question. I think everyone is built in as much as they can project given the high degree of uncertainty. What I am more confident in is the near-term and the near-term orders that we have with customers recognizing that reaction time that it takes for them. I do believe our customers have factored in some underlying assumption for the impact of unemployment, the impact of what potentially another federal government stimulus or CARES Act package could be. I think that's all factored in, but from a practical perspective, looking six to nine months out, our demand is going to be what's what our customers see closer to that time period. We really have pretty good visibility to the next two, three months. When you get beyond three months, it's really dependent upon what they see come August, September will determine what they do for fourth quarter demand on us.

Okay. All right. And then the decremental margin, I think, in the quarter was a little steeper than we had modeled. Can you talk through some of the investments that you might have been making in the quarter to help strengthen the relationship with your customers for the long term?

Absolutely. So I'll start with you can't see this because we publish gross profit, which includes the infrastructure in our manufacturing operations. The gross profit includes the fixed cost in every plant. The building itself, the overhead, the maintenance, the equipment. So what we do is we look at the variable profit, which is the variable margin, variable cost, and we've worked really hard to match that variable cost to our sales change. Obviously, and I think you've seen this in every company that's reported a meaningful drop in sales, you need some amount of time to be able to adjust your variable cost, and you need even more time to adjust that fixed cost. When we look at our variable profit or variable margin, we saw a slight deterioration in that. We had some inefficiencies in implementing social distancing and being able to react to the meaningful volume decline. But overall, I think in the quarter, we were pretty effective at matching our variable cost to the sales decline. It's the fixed cost in the plants, the overhead, the infrastructure is what drove the majority of the gross profit decline. And so that's why you see the decremental margin being as big as it is. The reverse of that is when sales grow and you get growth on top of that fixed cost, you get leverage on the other side, which is why growth is so important. But to your question about the investments that we've made, we made a conscious decision when we were, like everyone, faced with what to do during the pandemic, that we viewed this as a six to nine, maybe now it's a 12-month, decline, temporary decline, and that we were going to continue executing our strategy and play the long game. We were going to continue investing because the things that we've, what we've succeeded in accomplishing thus far with our customers, two-thirds of our business under multi-year agreements, we have a meaningful amount of opportunities with our customers. Our commercial activity, when you look at the quote volume and the amount of opportunities we have with our customers, continues to grow. We've added salespeople. I talked on the last call about the new sales leadership team and the processes we're putting in place there. Our development of new program activities, the R&D work we're doing with customers, continues to grow. That demand continues to grow. We've been adding engineers during the pandemic to support that development work because we have growth opportunities. And once the market recovers, those will become more visible. They're not visible today because of the pandemic, but the pipeline is very robust, and that gives us great optimism. We didn't want to hit pause on that and allow those to go somewhere else because we've worked really hard to build the relationships with our customers, get multi-year agreements, and we're confident in the future growth. And so we've decided to play the long game, which... reflects in some of our margins. We might have been able to take another $2, $3, $5 million of cost out, but that would have come at the expense of executing the strategy, and we chose consciously to play the long game.

Excellent, and this is just a follow-up to that. And this is the last question, and I'll jump out, and apologies to the guys behind me. Are your customers making changes or thinking about changes around business continuity and redundancy? coming out of this and how does that, you know, potentially impact industry? And thanks for taking all the questions.

No worries. No worries, Matt. Thank you for the questions. I think it's unquestioned that our customers are looking at the pandemic and asking themselves, how do they take advantage of this? What are the opportunities that this creates? And we do believe that they are relooking at, what infrastructure they have, what infrastructure investments they want to make in their own manufacturing, and they're making those trade-offs. And we're seeing opportunities. On the last call, I was asked the question, well, what's COVID done to their insourcing, outsourcing decisions? And at that time, I thought it was way too early to have an indication. There are indications that our customers are in fact thinking about what is it that they want that's most strategic. As we look at it in an environment where cash is important and capital investments are more constrained, there's more opportunity for us. And we've seen those opportunities. And we think outsourcing will continue to grow and accelerate. Business continuity was important going into COVID. I think in the environment where there's excess capacity, it's less of a concern. But as we ramp back up, it's going to be even more important, especially when we get on the other side and we see the growth and the pent-up demand that's happening in the market at the moment.

Thanks for the questions, Matt.

Our next question is from Jim Sidoti with Sidoti & Company. Your line is open.

Good morning. Can you hear me? Yes, Jim. Good morning. So, you know, you did a pretty good job, I think, explaining how basically you're seeing the same trends as the industry, only your trends are shifted a little bit to the right, you know, lagged a little bit because of the delay in orders. But you seem to indicate that Q3 will be your lowest quarter on sales, but not on profitability. Did I hear that correctly? And why would that be?

Jim, we do think that second quarter will be the lowest on profitability. We think third quarter is likely, even if third quarters are similar, which we expect is second quarter.

That's what I meant. I'm sorry. Third quarter would be lowest on sales but not on profitability.

Yes. And so part of that is in the second quarter we had inefficiencies related to implementing the social distancing environment. We had some inefficiencies from a variable cost perspective, the ability to react as quick as the volume declined. And we also continue to execute our manufacturing excellence strategy to drive savings and efficiency into the business. So we expect of ourselves to get better every quarter on both the year over year on a linear basis. And so we expect the second quarter to be the bottom from a margin rate or a profitability measured by margin rate perspective. We expect it to be a little better in the third quarter. There were inefficiencies in the second quarter, but I think we managed them pretty effectively. So we'll get some help there. And then it's just the continuous improvement efforts in the business should drive improvement in the third quarter. And just let me frame, when we say third quarter sales might be a little lower than second quarter, order of magnitude, we're in low single digit percentages, single digit dollars of revenue. We're not talking meaningful. At least that's what we see sitting here today, and obviously July sales are almost complete, and we've got really good visibility into August and September orders and demand from our customers. That's not to say that can't change, but the picture we're looking at today, we feel like we've got pretty good visibility to the third quarter.

Okay, and then you did – take on some more debt in the quarter. Can you let us know what you think interest expense will be over the next couple quarters?

We are about an average 3.6% for 2Q, and again, barring any real big changes with LIBOR, we expect to keep that consistent right through the second half.

So 3.6% on the new balance.

And the debt increase, Jim, was from the revolver drawdown, which we would expect to repay the revolver as the environment continues to stabilize. We actually paid down on the aid.

We have our required debt payment, and then we also pay back within the quarter, or by the end of the quarter, $15 million on the revolver. So, you know, we drew it early in the quarter in April, and with the cash we generated, we actually paid some of that back even within. But to your point, quarter over quarter, you see the net increase from the revolver draw.

And again, we...

that just to be prudent and prevent against any risk in case the market became illiquid and this thing is prolonged. So we're watching that. We believe that the situation in the credit markets is certainly stabilizing and we'll continue to look at that balance and likely bring down that through the second half.

Jim, the net debt in the second quarter went down $33 million. So when you look at cash and debt combined, it was down 33 in the quarter.

Okay. I know Jason's used to running the business with less than $20 million of cash in the bank. So I would expect you can make some changes over the next couple quarters.

We will definitely get back to that level when we get to a more normal environment.

All right. Thank you.

Thank you, Jim. And again, it is star and then one to queue for a question. And at this time, there are no further questions.

I will now turn the call back over to Tony Burowitz for any closing remarks.

All right. Thank you, everyone, for joining us on today's second quarter call and for your continued interest in Integer. Note that this conference call is going to be available for replay on our website. So thank you. That concludes the call today, and stay safe, everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.