Q3 2023 Integer Holdings Corp Earnings Call

Hello, and welcome to the integer Holdings Corporation third quarter 'twenty twenty-three earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star one on your telephone keypad.

I will now turn the conference over to Mr. Andrew said senior Vice President strategy business development and Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining us and welcome to <unk> third quarter 2023 earnings Conference call with me today are Joe Dziedzic, President and Chief Executive Officer, Diane Smith, Executive Vice President and Chief Financial Officer.

As a reminder, 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 financial measures.

Reconciliation of these non-GAAP financial 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 to Andrew Dot 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 we'll share some exciting news regarding strategic acquisition.

IRA will then review our financial results for the third quarter of 2023 and provide an update on our full year 2023 guidance.

Joe will come back to provide his closing remarks, and then we will open the call for your questions with that I will turn the call over to Joe. Thank.

Thank you Andrew and thank you to everyone for joining the call today, Firstly I would like to congratulate direct Smith on being appointed our Chief Financial Officer direct joined integer in 2021, as our global SG&A leader. He brings strong manufacturing and operational finance experience to the CFO role with a leadership style.

All of that is collaborative and candid dire.

<unk> is focused on enabling the business to deliver excellence for our customers, which will lead to great results for investors I look forward to partnering with direct as we execute our strategy to earn a premium valuation.

Before I provide an update on integer I'd like to take a moment to remember our long time sell side analysts from Keybanc Mcnamee Shine.

Has the way unexpectedly on September eight.

That was greatly respected within our industry. He was always energetic awful and brought his sense of humor to what we all do every day he will be missed and our hearts go out to his family friends and colleagues.

Transitioning to our earnings call, we delivered another quarter of strong year over year results sale.

Sales grew 18% organically from robust customer demand across our targeted growth markets.

Our adjusted operating income grew 39%, while expanding margins by approximately 240 basis points compared to last year.

We were able to deliver more products to our customers than our prior guidance assumed we expanded margins from volume leverage as well as efficiencies gained from an improving supply chain.

Based on continued strong customer demand, we are raising our full year outlook again.

At the midpoint of our guidance, we expect full year sales to grow 15% and adjusted operating income to grow 25% year over year.

The strategy that we began implementing in 2018 is producing above market sales growth with a pipeline to sustain growth at 200 basis points above the market.

We're expanding margins in 2023 and remain confident we can achieve our strategic financial objective of growing operating income at two times the rate of sales growth.

We expect to achieve this through the execution of our manufacturing excellence strategies and further stabilization of the supply chain and direct labor environment.

It is an exciting time at integer because demand remains incredibly strong we have a robust pipeline of new products concentrated in faster growing end markets and we are making the investments needed to deliver sustained growth, including tuck in acquisitions.

Earlier this month, we completed the acquisition of certain assets of a neuro co a company specializing in neuro vascular catheters.

<unk> brings deep design expertise and manufacturing capabilities in high growth neuro vascular catheters that are primarily used in the treatment of ischemic strokes and ensure cranial aneurysms.

Developed and currently manufacture a portfolio of aspiration catheters and a portfolio of neurovascular radial access catheters for the industry leading Oems.

We acquired a neuro code for $42 million plus potential earn outs for achieving specific revenue targets through 2027.

The effective purchase price is approximately $5 million lower after considering the net present value of cash tax benefits, resulting from the acquisition structure.

We expect sales synergy of approximately $20 million by 2027 from our neuro <unk> design and development team supporting our existing pipeline of neuro vascular catheter opportunities.

The transaction is immediately accretive to EPS.

Three of the high growth markets that entered your targets are highlighted in the Blue box on this chart structural heart electrophysiology and neurovascular.

We have the breadth and depth of capabilities needed to serve our customers in these faster growth markets.

As the demand for neuro vascular catheter outsourcing accelerates its endures now even better positioned to capitalize on this high growth market.

Neuro vascular catheters are technically complex that included Neurovascular guide catheters aspiration catheters and radial access catheters.

Position of <unk> is completely aligned with our strategy to add or strengthen differentiated capabilities that enable us to provide innovative solutions to our customers in high growth markets.

Now I'll turn the call over to direct.

Thank you Joe.

Good morning, everyone and thank you again for joining today's discussion.

I'll provide more details on our third quarter 2023 financial results and provide an update on our full year 2023 outlook.

It is important to note third quarter results are not impacted by our acquisition of the neuro co. While the full year outlook includes this acquisition.

We continued our first half momentum through the third quarter delivering another quarter of strong performance.

With sales of $405 million energy delivered 18% year over year sales growth on both a reported and an organic basis, which excludes the impact of currency fluctuations. Our sales performance reflects the continued strong customer demand across our targeted growth markets and the ongoing improvements in the supply chain environment.

We delivered $81 million of adjusted EBITDA up $18 million compared to the prior year or an increase of 28%.

And adjusted operating income increased 39% or $18 million versus last year.

As we continue to make progress on our year over year margin expansion adjusted operating income as a percentage of sales increased by 240 basis points versus the prior year to 15, 9% driven by volume leverage and efficiencies gained from the continued improvement in the supply chain.

With adjusted net income at $43 million, we delivered $1 27 of adjusted diluted earnings per share up 32, or 34% from the third quarter of 2022.

I will touch on the year over year growth in adjusted net income in a few moments.

Diving deeper into our sales by product line, we delivered strong year over year growth in our CMV and <unk> product lines in the third quarter of 2023.

Cardio and vascular delivered 23% sales growth in the third quarter compared to a year ago. This double digit growth was driven by continued strong demand across all markets growth in key products, such as guide wires, new product ramps in electrophysiology and structural heart and supply chain improvements.

Cardiac rhythm management, and Neuromodulation third quarter sales increased 22% over the third quarter of 2022 with double digit growth in both cardiac rhythm management and in Neuromodulation.

This was driven by strong demand, including double digit growth from emerging customers with PMA products and supply chain improvements.

Advanced surgical orthopedics and portable medical saw a 13% decline in the third quarter versus a year ago, driven by execution of the planned multiyear portable medical exit announced in 2022 and low double digit decline of advanced surgical and orthopedics.

And lastly, electric our non medical segment declined 25% from a year ago, returning to a normalized run rate after previously higher sales from the supply chain recovery.

Further product line details are included in the appendix of the presentation on our website at <unk> Dot net.

Third quarter of 2023, adjusted net income increased a total of $11 million compared to the third quarter 2022.

Strong sales and related operational improvements delivered $16 million of the increase minimally offset by foreign exchange rate fluctuations as well as higher interest and taxes.

Year over year interest expense increased only $1 million as the higher market based interest rates were mostly offset by the benefit from the lower fixed interest rate convertible notes issued in January of this year.

Additionally, as we described in the second quarter earnings call. The primary driver of our higher adjusted effective tax rate in third quarter 2023 compared to the prior year as the exploration of the 10 year, Malaysia the tax holiday.

In the third quarter 2023.

We generated $62 million in cash flow from operations up $35 million from a year ago and $6 million higher than the prior quarter.

This strong performance was driven by higher sales volumes, improving margins and our continued management of working capital.

In the third quarter, we generated $37 million in free cash flow inclusive of $25 million of capital expenditures.

Third quarter year to date, we have generated $125 million in cash flow from operations and invested $83 million in capex, resulting in $42 million of free cash flow.

Net total debt in the third quarter reduced by $38 million sequentially and our net total debt leverage at the end of the third quarter was three one times, our trailing four quarter adjusted EBITDA well within our strategic target range.

Now, let's spend some time discussing our updated outlook for the full year 2023.

As Joe mentioned in his opening remarks with our continued strong performance we are raising our full year 2023 outlook. Our updated outlook is inclusive of our recent acquisition of <unk>.

Starting with sales, we are increasing our outlook by $45 million to 15% year over year growth at midpoint with a sales range of $1 $575 million to $1 $595 million, an increase of 14% to 16% versus last year up from our previous guidance.

11% to 13%.

Our outlook for 2023, adjusted EBITDA is 18% to 21% growth year over year with a range of 302 million to $310 million up from our previous guidance of 15% to 18% growth.

We are increasing our adjusted operating income outlook by $11 million at midpoint, and expect 2023 to be between $235 million and $243 million rift.

Reflecting our strong year over year growth of 22% to 27%.

At the mid point of 25% our adjusted operating income is growing at one six times the rate of sales growth.

Adjusted net income is now expected to be between $151 million and $157 million.

Reflecting a year over year growth of 16% to 22% up from our previous guidance of 10% to 15% this deliver than expected adjusted EPS outlook between $4 47.

And $4 67.

A growth of 15% to 20% year over year or.

Our latest view of the adjusted effective tax rate is projected to be between 17, and a half and 18, 5%.

We continue to see strong performance quarter after quarter, which has given us confidence to raise our outlook for sales and adjusted operating income as a percent of sales again.

Since our initial guidance. This year, we have raised our sales outlook at midpoint by $100 million <unk>.

Including $5 million for the <unk> acquisition in the fourth quarter.

Additionally, we have increased our adjusted operating income as a percent of sales by 50 basis points since our initial guidance in February and now expect a 113 basis point improvement year over year for the full year.

We expect cash flow from operations between 185 million to $205 million. This includes an expected full year impact of approximately 30% to $35 million from accounts receivable factoring to support capacity investments in our Irish manufacturing facilities, which we shared during our February earnings call.

While 2023 sales are $100 million higher than our initial guidance, we are maintaining our outlook on capital expenditures of $100 million to $120 million.

Additionally, we expect to generate free cash flow between 75% to $95 million.

Inclusive of our $42 million acquisition of <unk>, We expect our 2023 year end net total debt to be between $925 million and $945 million, which is approximately flat to up $20 million from the end of third quarter 2023.

We expect fourth quarter free cash flow to mostly offset the purchase of <unk>, resulting in an expected net total debt leverage ratio at year end well within our target range of two five to three five times, our trailing four quarter adjusted EBITDA.

With that I'll turn the call back to Joe. Thank you. Thanks, Darren integers, having a strong year with third quarter year to date sales up 18% and adjusted operating income up 29%, including raising guidance. The last two quarters, we continue to execute our strategy to deliver sustained above market.

Growth with expanding margins, we have a strong pipeline of new products and continue to invest in differentiated capabilities, both organically and inorganically to sustain above market growth.

We closed another accretive tuck in acquisition in a high growth market, we remain focused on delivering for our customers and the patients they serve to generate a premium valuation for our shareholders. Thank you for joining our call. This morning, I'll now turn the call back to our moderator for the Q&A portion of our call.

Thank you.

Have a question. Please press star one on your telephone keypad to withdraw your question simply press Star one again.

Operator: Hello, and welcome to the Integer Holdings Corporation, 3rd quarter, 2023 earnings call. All lines have been placed on you to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad.

And your first question comes from the line of Greg <unk> with Bank of America. Your line is open.

Good good morning, guys. Thanks for taking the question and Dhiren Congrats on.

Andrew Senn: I will now turn the conference over to Mr. Andrew Senn, Senior Vice President, Strategy, Business Development, and Investor Relations. Please go ahead. Good morning, everyone. Thank you for joining us, and welcome to Integer's 3rd quarter, 2023 earnings conference call. With me today, our Joe Dzic, President, and Chief Executive Officer, and Diron Smith, Executive Vice President and Chief Financial Officer. As a reminder, the results and the data we discussed today reflect the consolidated results of Integer for the periods indicated.

Making the role permanent.

Forward to working with you.

And congrats on a great quarter.

So let me let me start with the very strong growth that you guys have seen in the quarter and over the last.

Really several quarters and.

I know you talked a little bit about the drivers of that but I wanted to see if you maybe expand upon some of your comments what would you attribute the growth to.

Is it the end markets that are growing faster are you do you think youre being utilized more by existing customers.

Andrew Senn: During our call, we will discuss some non-gap financial measures. For reconciliation of these non-gap financial measures, please refer to the appendix of today. Today's presentation, today's earnings press release, and the training 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 will share some exciting news regarding a strategic acquisition.

And or is it new customer adds.

Great. Good morning, Craig I'll start with <unk>.

Thank you and we do have incredibly strong growth, 15% growth at midpoint upfront from 12% that we had guided to on our last call.

I will point to a number of things there is not one or two things driving it.

And I'll address the I do think we do think the industry is probably growing faster than than the mid single digit which in our market. The markets. We serve we have a long term growth rate of mid single digits. We think the industry is growing faster than that as we get more of our customers reported results will will shape. Our view of what we think the industry is doing for the markets, we're serving but.

Andrew Senn: Diron will then review our financial results for the 3rd quarter, 2023, and provide an update on our full year 2023 guidance. So we'll come back to provide his closing remarks, and then we will open the call for your questions.

Joe Dzic: With that, I will turn the call over to Joe. Thank you, Andrew, and thank you to everyone for joining the call today.

I'd point to emerging customers for us, which we characterize emerging customers as our earlier stage neuromodulation customers and we've highlighted in depth. The number of customers. We have an early stage development programs and we've mapped them out through the clinical regulatory and product introduction phases.

Joe Dzic: First, I would like to congratulate Diron Smith on being appointed our Chief Financial Officer. Diron joined Integer in 2021 as our Global FPNA Leader. He brings strong manufacturing and operational financial experience to the CFO role, with a leadership style that is collaborative and candid. Diron is focused on enabling the business to deliver excellence for our customers, which will lead to great results for investors. I look forward to partnering with Diron as we execute our strategy to earn a premium valuation.

We highlighted that the last year 2022, we had we had about $50 million of sales with nine of those customers that are in product introduction or launch phase and that by next year 2024, we would expect that to be $180 million to $100 million, so doubling and we're seeing the growth that we would expect in 'twenty three in that in between.

Joe Dzic: Before I provide an update on Integer, I'd like to take a moment to remember our longtime sales site analyst from Keybank, Matt Mishon, who passed away unexpectedly on September 8. Matt was greatly respected within our industry. He was always energetic, thoughtful, and brought a sense of humor to what we all do every day. He will be missed, and our hearts go out to his family, friends, and colleagues.

22% and 20 for.

The growth rate that we set up double we're seeing that growth Thats a couple a couple of three 2% to 3% of our year over year growth this year.

All of the new products that we've been working on from from the pipeline of development work that we've been doing we've highlighted a number of times, how our pipeline of development programs has gone up 230 plus percent over the last five years, and we've shifted that mix to be 80% of those programs in those faster growing end markets.

Joe Dzic: Transitioning to our earnings call, we deliver another quarter of strong year-over-year results. Sales grew 18% organically from robust customer demand across our targeted growth markets. Our adjusted operating income grew 39% while expanding margins by approximately 240 basis points compared to last year. We were able to deliver more products to our customers than our prior guidance assumed. We expanded margins from volume leverage as well as efficiencies gained from an improving supply chain.

We're targeting structural heart electrophysiology neurovascular Neuromodulation, we are seeing those new products being introduced and launched into the marketplace that is driving at least a couple 100 basis points of that year over year growth the acquisitions, we've done Oscar and Erin.

They are accretive to the <unk> level of growth rates. So thats order of magnitude call. It 100 basis points, roughly we're making a big investment in our Irish facility Thats focused on guide wires because demand in guide wires.

Joe Dzic: Based on continued strong customer demand, we are raising our full-year outlook again. At the midpoint of our guidance, we expect full-year sales to grow 15% and adjusted operating income to grow 25% year-over-year. The strategy that we began implementing in 2018 is producing above-market sales growth with a pipeline to sustain growth at 200 basis points above the market. We are expanding margins in 2023 and remain confident we can achieve our strategic financial objective of growing operating income at two times the rate of sales growth.

Which is which is almost all a minimally invasive procedures require at least one sometimes multiple guide wires. The industry demand is being reflected in the demand on our guidewire business, particularly the facility in Ireland that we're adding 80000 square foot expansion to take it to 200000 plus square feet, we're seeing <unk>.

<unk> guide wire demand.

Yes, we did have a little bit of volume we talked about at the end of last year beginning of this year that shifted out of out of 'twenty two and in the end of 2023 that was about 15% to $20 million. So you add up all these things and you get to 15% for the year, which we think is incredibly strong growth, we think we're growing faster.

Joe Dzic: We expect to achieve this through the execution of our manufacturing excellent strategies and further stabilization of the supply chain and direct labor environments. It is an exciting time at Integer because demand remains incredibly strong. We have a robust pipeline of new products concentrated and faster growing in markets and we are making the investments needed to deliver sustained growth, including tuck-in acquisitions.

Other than the market and we think were growing meaningfully faster than our targeted 200 basis points in 2023.

We think about long term growth rate, we still see the markets. We're serving are growing in that mid single digit over the long term, we will have a better view at the end of this year when we see all of our customers reporting.

Joe Dzic: Earlier this month we completed the acquisition of certain assets of a NeuroCo, a company specializing in Neurovascular Capitors. A NeuroCo brings deep design expertise in manufacturing capabilities in high growth Neurovascular Capitors that are primarily used in the treatment of ischemic strokes and intracranial aneurysms. They develop and currently manufacture a portfolio of aspiration Capitors and a portfolio of Neurovascular radio access Capitors for the industry leading OEMs. We acquired a NeuroCo for 42 million dollars plus potential earnouts for achieving specific revenue targets through 2027.

By the markets that they report and we'll have a view of what we think the market is but I'll close with its widespread strength across a number of different elements of our strategy that we're executing we believe we're outperforming both the industry and our targeted 200 basis points above the market.

And your question about newer existing customers its existing customers and in the early stage customers I won't say, they're new they might be new to introducing something in the market, but we've been working with them for for a number of years.

In the particularly the emerging customer neuromodulation.

So the strength is widespread and we think it's demonstrated outperformance versus both the industry and versus our targeted 200 basis points faster than the markets.

Joe Dzic: The effective purchase price is approximately 5 million lower after considering the net present value of cash tax benefits resulting from the acquisition structure. We expect sales synergy of approximately 20 million dollars by 2027 from a NeuroCo's design and development team supporting our existing pipelines of Neurovascular Capitor opportunities. The transaction is immediately accreted to EPS. Three of the high growth markets that integer targets are highlighted in the blue box on this chart, structural heart, electrophysiology, and Neurovascular.

Great. Thanks, Thanks for all the details Joe.

My second question.

There is there is a thought that a lot of the Oems built up inventory to higher than traditional levels over the last couple of years, mainly to protect against some supply chain disruptions.

And that inventory will eventually be worked down. So I guess my question to you is I just I guess I wanted to get your reaction to that thought process and that may just be an investor perspective.

Joe Dzic: We have the breadth and depth of capabilities needed to serve our customers in these faster growth markets and as the demand for Neurovascular Capitor outsourcing accelerates, integers now even better positioned to capitalize on this high growth market. Neurovascular Capitors are technically complex and include Neurovascular guide Capitors, aspiration Capitors, and radial access Capitors.

But wanted to get your reaction and then is that a potential risk as you look out several quarters or into next year.

To your to your growth.

So we don't see it as a risk because we believe we have built in exactly that already into our fourth quarter guidance.

What when we study we studied the orders we received from customers.

Joe Dzic: The acquisition of a NeuroCo is completely aligned with our strategy to add or strengthen differentiated capabilities that enable us to provide innovative solutions to our customers in high growth markets.

In a pretty granular level by plant by product by customer SKU level, and then we work with our customers to interpret and understand what that signal means. The good news is we're still sitting on about $1.01 billion of orders in hand.

Diron Smith: I'll now turn the call over to Diren. Thank you, Joe. Good morning, everyone, and thank you again for joining today's discussion.

The ship over the next mostly 12 to 15 months, so that gives us pretty good visibility and one thing we are seeing here with our fourth quarter and we've incorporated this already into our guidance. We're seeing what we would characterize as a normal pre pandemic level of year end inventory planning by customers every year, we see.

Diron Smith: I'll provide more details on our third quarter 2023 financial results and provide an update on our full year 2023 outlook. It is important to note third quarter results are not impacted by our acquisition of the NeuroCo while the full year outlook includes this acquisition. We continued our first half momentum through the third quarter delivering another quarter of strong performance. With sales at $405 million, Integer delivered 18% year-to-year sales growth on both a reported and an organic basis, which excludes the impact of currency fluctuations.

See in certain certain products certain parts of our customers' businesses.

What we interpret as they're managing inventory, because they've got goals and targets and metrics to hit and we're seeing what we would characterize as a normal level of that activity, which to us is a good sign because it signals that inventory levels might be at a healthy level.

Diron Smith: Our sales performance reflects a continued strong customer demand across our targeted growth markets and the ongoing improvements in the supply chain environment. We delivered $81 million of adjusted EBITDA up to $18 million compared to the prior year, or an increase of 28%, and adjusted operating income increased 39% or $18 million versus last year. As we continue to make progress on our year-to-year margin expansion, adjusted operating income as a percentage sales increased by 240 basis points versus the prior year to 15.9%.

For our customers and they're doing what they used to do before the pandemic and so we feel like we've already we've already built that into our fourth quarter guidance and thats been factored in.

So we don't see a risk of a meaningful maybe correction that there might be a concern about with inventory levels potentially being higher than than customers would like.

Thanks, Thanks for taking the questions, Joe and congrats on the quarter.

Thanks, Craig.

Diron Smith: Driven by volume leverage and efficiencies gained from the continued improvement in the supply chain. With adjusted net income at $43 million, we delivered $1.27 of adjusted deluded earnings per share, up 32 cents or 34% from the third quarter of 2022. I will touch on the year-to-year growth in adjusted net income in a few moments. Diving deeper into our sales by product line, we delivered strong year-to-year growth in our CNV and CRM and N product lines in the third quarter of 2023.

Thank you. Your next question comes from the line of Matthew O'brien with Piper Sandler Your line is open.

Hey, this is bill on for Matt Congrats on the outstanding quarter and Darin. Congrats I know, we're looking forward to working with you for starters I can just on the pricing environment.

Environment for you guys I don't know if you disclosed how much price contributed to the growth in the quarter, but if you don't want to provide a specific number and I apologize for putting you on the spot can you just talk about your ability to take price how durable you see that.

Diron Smith: Cardio and Vascular delivered 23% sales growth in the third quarter compared to a year ago. This double digit growth was driven by continued strong demand across all markets, growth in key products such as guide wires, new product ramps in electrophysiology and structural heart, and supply chain improvements. Cardiac rhythm management and neuromodulations, third quarter sales increased 22% over the third quarter of 2022, with double digit growth in both cardiac rhythm management and neuromodulation.

Moving forward as we look at 2024 and beyond.

Phil Thanks, Thanks for the question. Thanks, Thanks for joining.

And no worries on footings on this slide it's our job to tell you our strategy and how we're executing it from a pricing standpoint, what we've conveyed communicated this year as we have positive price.

I would characterize it as its an increase year over year, which is very different than what we've historically had typically we've been a 1% to 2% price down business. In 2022, we were right at 1% down and this year were actually positive, but the reason, we havent quantified it or <unk>.

Diron Smith: This was driven by strong demand, including double digit growth from emerging customers with PMA products and supply chain improvements. Advanced surgical orthopedics and portable medical saw a 13% decline in the third quarter versus a year ago driven by execution of the planned multi-year portable medical exit announced in 2022, and low double digit decline of advanced surgical orthopedics. And lastly, electric imps are non-medical segment, decline 25% from a year ago, returning to a normalized run rate after previously higher sales from the supply chain recovery.

Precise it is we raised prices very specifically to cover the cost increases or some of the cost increases we've experienced in both labor and material that is how we explain it to investors I am sorry to customers.

That's how we quantified it and ultimately that was our objective is to get enough price to cover some or all of that material and wage inflation and that's what we've done it hasnt been to expand margins in the spirit of strategic partnership and ensuring we maintain a strong new product development pipeline with customers.

Diron Smith: Further product line details are included in the appendix of the presentation on our website at integer.net. Third quarter of 2023 adjusted net income increased a total of $11 million compared to the third quarter of 2022. Strong sales and related operational improvements delivered $16 million of the increase, minimally offset by foreign exchange rate fluctuations, as well as higher interest in taxes. Year-rear interest expense increased only $1 million as the higher market-based interest rates were mostly offset by the benefits from the lower fixed interest rate convertible notes issued in January this year.

That's that's how we approach pricing, we expect going forward, we're a price neutral ish business.

We believe going forward based on the agreements we have in place that we can manage that.

On a looking forward basis, which is a meaningful change from where we've been historically.

So that's how we think about price looking forward.

Thanks for the color and I guess, just one last quick one for me given the investor interest in this category. How do you think of <unk> one's impacting some of your end markets and business in both the near term and longer term if at all.

Diron Smith: Additionally, as we described in the second quarter earnings call, the primary driver of our higher adjusted effective tax rate in third quarter 2023 compared to the prior year is the expiration of the 10-year Malaysian tax holiday, in the 3rd quarter 2023 we generated $62 million in cash flow from operations, up 35 million from a year ago, and 6 million higher than the prior quarter. The strong performance was driven by higher sales volumes, improving margins, and our continued management of work in capital.

Great Great question, well I'll start with since the select trial was announced in early August the Med Tech space looks like it's down 15% to 20%. So I think there is certainly been an investor impact and perception. When we study the markets that we believe that our customers say will be more heavily impacted by.

By <unk> eight points to very Ettrick surgery in diabetes, which are negligible. In fact, we don't we don't really truly see to support diabetes.

Diron Smith: In the 3rd quarter we generated $37 million in free cash flow, inclusive of $25 million of capital expenditures. Third quarter year to date we generated $125 million in cash flow from operations, and invested $83 million in cap-backs, resulting in $42 million of free cash flow. Net total debt in the 3rd quarter reduced by $38 million to quench early, and our net total debt leverage at the end of the 3rd quarter was 3.1 times our trailing 4 quarter adjusted EBITDA, well within our strategic target range.

<unk> surgery, and when we look at the markets, we're focusing on to drive growth.

Structural heart Neurovascular Neuromodulation electrophysiology.

It would appear to have at least based on what are customers, saying, what the analysis. Thus far has been done they would appear to be minimally impacted by <unk> <unk>.

Our demand remains strong and our targeted growth markets, we're not hearing or seeing customers say.

Diron Smith: Now let's spend some time discussing our updated outlook for the full year 2023. As Joanne mentioned in his opening remarks, with our continued strong performance we are raising our full year 2023 outlook. Our updated outlook is inclusive of our recent acquisition of a neurocope. Starting with sales, we are increasing our outlook by $45 million to 15% year-over-year growth at midpoint, with a sales range of $1,575 million to $1,595 million and increase of 14 to 16% versus last year, up from our previous guidance of 11 to 13%.

They are either changing orders for demand on us or expect to because of <unk> youre hearing that on their earnings calls and I can tell you in our in our order order book and the demand we're seeing we're not seeing that impact and again, it's we're focused on on procedures to treat structural heart defects arrhythmias <unk> III.

Our aneurysms paying.

Pain.

Management in Neuromodulation, we are just not seeing an impact maybe it's too early but our customers are not telling us they are expecting and we're not seeing any impact in both the order book or the development pipeline that we're working on but it is certainly having an impact on.

Diron Smith: Our outlook for 2023 adjusted EBITDA is 18 to 21% growth year-over-year with a range of $302 million to $310 million, up from our previous guidance of 15 to 18% growth. We are increasing our adjusted operating income outlook by $11 million at midpoint and expect 2023 to be between $235 million and $243 million, reflecting a strong year-over-year growth of 22 to 27%. As in midpoint of 25%, our adjusted operating income is growing at 1.6 times the rate of sales growth.

The evaluations of Med Tech that's clear.

That's gonna understatement, but thanks, so much and I will hop back in line.

Thanks.

Thank you. Your next question comes from the line of Nathan <unk> with Wells Fargo. Your line is open.

Hi, guys.

Great quarter, and direct congrats and look forward to working with you.

So this morning.

Calculate your guidance implies Q4 growth of 7% to 8% reported this includes in neuro co.

Diron Smith: Adjusted that income is now expected to be between $151 million and $157 million, reflecting a year-over-year growth of 16 to 22% up from our previous guidance of 10 to 15%. This delivers an expected adjusted EPS outlook between $4.47 and $4.67, a growth of 15 to 20% year-over-year. Our latest view of the adjusted effective tax rate is projected to be between 17 and a half and 18 and a half percent. We continue to see strong performance quarter after quarter, which has given us confidence to raise our outlook for sales and adjust operating income as a percent of sales again.

One is is this about right and then in light of the strong growth in Q1 through Q3 is there conservatism built into the Q4 guide.

Great. Thanks, Thanks, Nathan for further questions.

So youre right that it does it does imply 7%, 8% at midpoint growth on a year over year basis, <unk> $5 million of that so it's a 100 basis points year over year.

I would highlight if you look at the quarter splits for 2020 to the fourth quarter of 2002 was about 11% higher than the average of the first three quarters. So so where if you're just thinking about comps on a year over year basis. The fourth quarter last year was the highest year to date, we've got 18% growth for the third.

Diron Smith: Since our initial guidance this year, we have raised our sales outlook at midpoint by $100 million, including $5 million for the inert co-acquisition in the fourth quarter. Additionally, we have increased our adjusted operating income as a percent of sales by 50 basis points since our initial guidance of February, and now expect a 113 basis point improvement year-over-year for the full year. We expect cash flow from operations between $185 million to $205 million.

Year to date, we are going to be we're estimating 15% at midpoint for the year. We think that's an incredibly strong year I wish I wish everything in life, where linear and we could just have the exact same steady growth rate every quarter year over year, but life doesn't work that way.

And so youre right in terms of the midpoint interpretation, we feel like we've got a we got pretty good handle on the fourth quarter given that we're sitting here at the end of October.

We've got a much more stable supply chain environment still some pockets of disruption that we're working on so we feel pretty good about our 400 ish midpoint of guidance sales for the fourth quarter. The demand remains very strong from from customers again, I highlighted that we're seeing customers make their.

Diron Smith: This includes an expected, full-year impact of approximately $30 to $35 million from accounts receivable factoring to support capacity investments in our average manufacturing facilities, which we share during our February earnings call. While 2023 sales are $100 million higher than our initial guidance, we are maintaining our outlook on capital expenditures of $100 million to $120 million. Additionally, we expect to generate a free cash flow between $75 million and $95 million. In close to of our $42 million acquisition of NuroCo, we expect our 2023 year-in-net total debt to be between $925 million and $945 million, which is approximately flat to up 20 million from the end of 3rd quarter of 2023.

Diron Smith: We expect 4th quarter free cash flow to mostly offset the purchase of a NuroCo, resulting in an expected net total debt leverage ratio at year and well within our target range of 2.5 to 3.5 times our trailing 4-quarter adjusted even up.

<unk>, what we think our historically normal year end inventory adjustments and we've got that baked into our fourth quarter. We still think it's a strong year over year fourth quarter at high single digits. It's just not as strong as the first three quarters, but 15% for the year on the type of top line and 25% on the operating profit.

We feel it is a pretty strong year of outperformance.

Okay.

Okay. Thanks for that and just in terms of.

You noted that the supply chain has continued to improve I guess, how would you characterize the supply chain and maybe the inflation environment relative to the first half and maybe your expectations for when it normalizes back to happen in 2024.

Joe Dzic: With that, I'll turn the call back to Joe. Thank you. Thanks, Diron. Integers having a strong year with 3rd quarter year-to-date sales of 18% and adjusted operating income up 29%, including raising guidance to last 2 quarters. We continue to execute our strategy to deliver sustained above-market growth with expanding margins. We have a strong pipeline of new products and continue to invest in differentiated capabilities both organically and inorganically to sustain above-market growth. We close another accretive tuck-in acquisition in a high-growth market. We remain focused on delivering for our customers and the patients they serve to generate a premium valuation for our shareholders.

Okay.

Yeah, Great Great question on supply chain, So third quarter average supply chain impact versus <unk> was probably marginally better only because the second quarter was a meaningful improvement. So we entered the second quarter in a tougher environment exited in a better environment in the third quarter average was about was better than second quarter, but there is still pockets.

Supply chain. We think this is probably the new normal and we're getting better and better every day at how we manage that and the mitigation actions that we started a year and a half ago or some of those are starting to.

Move into the execution phase and bring some of those benefits. So we are we do think we're getting better at managing supply chain. We think going forward, we'll continue to improve on that but we're operating as though this is the supply chain environment going forward.

Joe Dzic: Thank you for joining our call this morning.

Operator: I'll now turn the call back to our moderator for the Q&A portion of our call. Thank you. If you have a question, please press star one on your telephone T-pad to withdraw your question, simply press star one again.

From a supply chain standpoint, our focus is on making sure that as our direct labor turnover has improved that we continue to train our associates and become more proficient in what we do and we think theres significant opportunity to gain greater efficiencies as we move into 2024 with the current <unk>.

Craig Bijou: Your first question comes from the line of Craig Visu with Bank of America. Your line is open. Good morning guys. Thanks for taking the question and Diron congrats on making the role permanent. Look forward to working with you and congrats on a great quarter. Let me start with the very strong growth that you guys have seen in the quarter and over the last really several quarters. I know you talked a little bit about the drivers of that, but I wanted to see if you may be expand upon some of your comments. What would you attribute the growth to? Is it the end markets that are growing faster? Do you think you're being utilized more by existing customers? Or is it new customer ads? Great.

Apply chain levels as well as improving execution in our manufacturing facilities and better trained associates that can drive the efficiencies that we expect to grow our margins.

Thanks, guys.

Nathan do you have any follow up questions at this time.

No I'm all good thank you.

Okay. Thank you.

Ladies and gentlemen, once again, if you have a question or a follow up question. It is star one on your telephone keypad.

Your next question comes from the line of Joanne Glenn.

Your line is open.

Hi, This is Felipe <unk> on for Joe and Thanks for taking the question and congrats on the quarter just quickly as it relates to the use of cash.

Joe Dzic: Good morning, Craig. I'll start with thank you and we do have incredibly strong growth. 15% growth at midpoint, up from 12% that we had guided to on our last call. I will point to a number of things. There is not one or two things driving it. I'll address I do think we do think the industry is probably growing faster than the mid-single digit, which are the markets we serve have a long-term growth rate of mid-single digits.

Congrats on the acquisition of neuro count, but I am just curious moving forward how are you thinking about.

Cash allocation is as you think about M&A or debt pay down and then looking forward are there any segments that you think are particularly attractive as tuck in M&A opportunities. Thank you.

Hi, Good morning, Philippe Thanks, Thank you for the question.

We are I'll start with we remain very committed to our two five to three five times net leverage we ended the third quarter at three one times.

Joe Dzic: We think the industry is growing faster than that. As we get more of our customers reported results, we'll shape our view of what we think the industry is doing for the markets we're serving. But I'd point to emerging customers for us, which we characterize emerging customers as our earlier stage, neuromodulation customers. We've highlighted in depth the number of customers we have in early stage development programs, and we've mapped them out through the clinical regulatory and product introduction phases.

With the expected cash flow generation in the fourth quarter and in the neuro acquisition, which occurred in the fourth quarter. So that 42 million outflows in the fourth quarter. If you look at the mid point of our EBITDA guidance and the midpoint of the debt levels.

<unk> that we gave youll see at year end, we still expect to be at midpoint of $3 one times.

Leverage and so we feel like we have the capacity to spend $2 million to $250 million a year on tuck in acquisitions, we have a robust pipeline of tuck in acquisitions that we are nurturing at any point in time.

Joe Dzic: We highlighted that last year, 2022, we had about 50 million of sales with nine of those customers that are in product introduction or launch phase, and that by next year, 2024, we would expect that to be a hundred to a hundred million, so doubling. And we're seeing the growth that we would expect in 23, and that mid- in between 22 and 24 growth rate that we set up double. We're seeing that growth.

We're very excited about <unk>, we think they bring very differentiated design and development capability in the neurovascular market, which is a market that is we believe is transitioning to significantly more outsourcing.

Joe Dzic: That's a couple, couple three percent, two to three percent of our year-over-year growth this year. All the new products that we've been working on from the pipeline of development work that we've been doing. We've highlighted a number of times how our pipeline of development programs has gone up 230 plus percent over the last five years, and that we've shifted that mix to be 80 percent of those programs in those faster growing in markets that we're targeting, structural art, electrophysiology, neurovascular, neuromodulation.

Joe Dzic: We're seeing those new products be introduced and launched into the marketplace. That's driving at least a couple hundred basis points of that year-over-year growth. The acquisitions we've done Oscar and Aaron, they're accretive to the integer level of growth rate, so that's order magnitude, call it a hundred basis points roughly. We're making a big investment in our Irish facility that's focused on guide wires because demand in guide wires, which is almost all minimally invasive procedures require at least one sometimes multiple guide wires.

That has been the historical norm in that space. So we think thats a pocket of accelerated outsourcing and we think adding the <unk> team and their tremendous engineering group that has tremendous experience in designing and developing finished devices and then manufacturing them, we think that contributes to our pipeline of develop.

Programs very soon be symbiotically.

We're expecting to double the size of that business in the next three years to four years based upon the pipeline that we think they can help us accelerate and execute so we continue to look at tuck in acquisitions and $3. One now in three one at year end net debt gives us additional capacity, maybe a simple way to think about it is if we if we grew.

ROE EBITDA at the targeted targeted growth rate of profit growing twice as fast as sales that creates a order of magnitude of 140 $150 million worth of debt capacity for acquisitions generating $100 million of free cash flow year as another 100, that's where you get the two to $2 50 of capacity every year and still make.

Joe Dzic: The industry demand is being reflected in the demand on our guide wire business, particularly the facility in Ireland that we're adding 80,000 square foot expansion to, to take it to 200,000 plus square feet. We're seeing strong guide wire demand. We did have a little bit of volume we talked about at the end of last year beginning of this year that shifted out of 22 and into 2023. That was about 15 to 20 million dollars.

Gaining the two five to three five times net leverage so we're excited about <unk> excited about the opportunities in front of us for additional tuck ins.

Thanks for the question Fleabag that that's helpful. Just on PSA continues to be a hot topic. So I'd just be curious if you can give us an update on where you are in developing those platforms and when you might expect meaningful revenue contribution. Thank you.

Joe Dzic: So you add up all these things and you get to 15 percent for the year, which we think is incredibly strong growth. We think we're growing faster than the market and we think we're growing meaningfully faster than our targeted 200 basis points in 2023. When we think about long-term growth rate, we still think the markets we're serving are growing and that mid-single digit over the long term will have a better view at the end of this year when we see all of our customers reporting by the markets that they report in.

Absolutely, we think we're incredibly well positioned in electrophysiology, we're highly vertically integrated today, we have significant experience in scaling complex ETP products, we do everything from components and sub assemblies. The finished device manufacturing today.

We think what we do today is incredibly applicable to PFA.

And the new therapy, that's coming out we are excited about the new therapy.

Joe Dzic: We'll have a view of what we think the market is, but I'll close with it's white spread strength across the number of different elements of our strategy that we're executing. We believe we're outperforming both the industry and our targeted 200 basis points above the market. And your question about new or existing customers, it's existing customers and then the early stage customers. I won't say they're new, they might be new to introducing something in the market, but we've been working with them for a number of years in the particularly the emerging customer neural minds space. So the strength is white spread and we think it's demonstrated out performance versus both the industry and versus our targeted 200 basis points faster than the market.

We're working on a number of programs in this space we're.

We're excited for the therapy to come to market. We think it will have a tremendous impact on patients both safety and potentially efficacy as well.

We're well positioned to believe that it has strong potential to be a tailwind for us like anything in life. If it all comes down to who gets to market first and who gets the most market share and what share of wallet, we have with that particular customer, but we think we're incredibly well positioned for it to be a tailwind for us.

Thank you okay.

Philippe do you have any further questions at this time.

Joe Dzic: Thanks for all the details, Joe. My second question, there's a thought that a lot of the OEMs build up inventory to higher than traditional levels. Over the last couple of years, mainly to protect against some supply chain disruptions, and that inventory will eventually be worked down. So I guess my question to you is, I guess I wanted to get your reaction to that thought process, and that may just be an investor perspective, but wanted to get your reaction and then, is that a potential risk as you look out several quarters or into next year, to your growth?

Ladies and gentlemen, if you have a question star one on your telephone keypad.

There are no further questions at this time I will turn the call back to Andrew.

Okay. Thanks, Sarah Thank you everyone for joining the call today as always you can access the replay of this call on our website as well as the presentation that we just covered thank you for your interest in Azure and that concludes our call today.

Thank you for joining this concludes today's conference call you may now disconnect your lines.

Joe Dzic: So we don't see it as a risk because we believe we have built in exactly that already into our fourth quarter guidance. When we studied the orders we received from customers in a pretty granular level, by plant, by product, by customer, skew level, and then we work with our customers to interpret and understand what that signal means. The good news is we're still sitting on about 1.0 billion dollars of orders in hand that the ship over the next mostly 12 to 15 months.

Okay.

Sure.

Joe Dzic: So that gives us pretty good visibility. And one thing we're seeing here with our fourth quarter and we've incorporated this already into our guidance, we're seeing what we would characterize as a normal pre-pandemic level of year-end inventory planning by customers. Every year we see certain products, certain parts of our customers' businesses, what we interpret as they're managing inventory because they've got goals and targets and metrics to hit. And we're seeing what we would characterize as a normal level of that activity, which to us is a good sign because it signals that inventory levels might be at a healthy level for our customers and they're doing what they used to do before the pandemic.

Joe Dzic: So we feel like we've already built that into our fourth quarter guidance and that's been factored in. And so we don't see a risk of a meaningful maybe correction that there might be a concern about with inventory levels potentially being higher than customers would like. Thanks.

Thanks.

Craig Bijou: Thanks for taking the question show and congrats on the quarter. Thanks, Craig. Thank you.

Matthew O'brien: Your next question comes from the line of Matthew O'Brien with Piper Sandler. Your line in quarter and Diron Kegraff. I know we're looking forward to working with you.

Thank you.

Diron Smith: For starters, I can just on the pricing environment for you guys. I don't know if you disclose how much price contributed to the growth in the quarter, but if you don't want to provide a specific number and I apologize for putting you on the spot, can you just talk about your ability to take price? How durable you see this moving forward as we look at 2024 and beyond. Phil, thanks. Thanks for the question.

Okay.

[music].

Okay.

Diron Smith: Thanks. Thanks for joining. And no worries on footings on the spot. It's a job to tell your strategy and how we're executing it. From a pricing standpoint, what we've conveyed communicated this year is we have positive price. I would characterize it as, it's an increase year over year, which is very different than what we've historically had. Typically, we've been a 1% to 2% price down business. In 2022, we were right at 1% down in this year, we're actually positive.

Yes.

Diron Smith: But the reason we haven't quantified it or emphasized it is, we raised prices very specifically to cover the cost increases or some of the cost increases we've experienced in both labor and material. That's how we explained it to investors. I'm sorry to customers. That's how we quantified it. And ultimately, that was our objective is to get enough price to cover some or all of that material and wage inflation. And that's what we've done.

Diron Smith: It hasn't been to expand margins in the spirit of strategic partnership and ensuring we maintain a strong new product development pipeline with customers. That's how we approach pricing. We expect going forward where a price neutral ish business. We believe going forward based on the agreements we have in place that we can manage that on a looking forward basis, which is a meaningful change from where we've been historically. So that's how we think about price looking forward. Thanks for the color and I guess just one last quick one for me.

Yes.

Joe Dzic: Given the investor interest in this category, how do you think of GLP1s impacting some of your end markets and businesses in both the near term and longer terms at all? Great, great question. Well, I'll start with since the select trial was announced in early August. The MedTech space looks like it's down 15 to 20%. So I think there's certainly been an investor impact in perception. When we study the markets that we believe and that our customers say will be more heavily impacted by GLPs, it points to bariatric surgery and diabetes, which are negligible.

Sure.

Thank you.

Yeah.

Joe Dzic: In fact, we don't really[inaudible] we're not seeing that impact. Again, we're focused on procedures that treat structural heart defects, arrhythmias, cerebral aneurysms, pain management in neuromodulation. We're just not seeing an impact. Maybe it's too early, but our customers are not telling us they're expecting it. We're not seeing any impact in both the order book or the development pipeline that we're working on. But it's certainly having an impact on the valuations of MedTech. That's clear. That's definitely an understatement, but thanks so much and I'll have that in line.

Matthew O'brien: Thank you.

Nathan Trebek: Your next question comes from the line of Nathan Trebek with Wells Fargo. Your line is open. Hi, guys.

Diron Smith: We're at the Great Quarter in Dyer and Congrats. I look forward to working with you. So just starting, you know, we calculate your guidance implies Q4 growth of 7 to 8% reported. This includes in NeuroCo. One is this about right and then in light of the strong growth in Q1 through Q3 is their conservatism built into the Q4 guide. Great. Thank you, Nathan, for the questions. So you're right that it does imply 7 to 8% at midpoint growth on a year-over-year basis.

Diron Smith: NeuroCo is $5 million of that, so it's 100 basis points year-over-year. I would highlight, if you look at the Q4 splits for 2022, the fourth quarter of 2022 was about 11% higher than the average of the first three quarters. So if you're just thinking about cops on a year-over-year basis, the fourth quarter last year was the highest. Year-to-day, we've got 18% growth from the third quarter of year-to-day. We're estimating 15% at midpoint for the year.

Diron Smith: We think that's an incredibly strong year. I wish everything in life were linear and we could just have the exact same steady growth rate every quarter year-over-year. But life doesn't work that way. And so I think you're right in terms of the midpoint interpretation. We feel like we've got a pretty good handle on the fourth quarter given that we're sitting here at the end of October. We've got a much more stable supply chain environment, still some pockets of disruption that we're working on.

Diron Smith: So we feel pretty good about our 400-ish midpoint of guidance sales for the fourth quarter. The demand remains very strong from customers. Again, I highlighted that we're seeing customers make there. What we think are historically normal year-end inventory adjustments, and we've got that baked into our fourth quarter. We still think it's a strong year-over-year fourth quarter at high single digits. It's just not as strong as the first three quarters, but 15% for the year on the top-line in 25% on the operating profit we feel is a pretty strong number. We've got a year-of-out performance. Okay, thanks for that.

Diron Smith: And in terms of, so you noted that the supply chain has continued to improve. I guess how would you characterize the supply chain and maybe the inflation environment relative to the first half? And maybe your expectations from one in normalize if that could happen in 2024? Thanks. Yeah, great, great question on supply chain. So, you know, third quarter average supply chain impact versus 2Q was was probably marginally better only because the second quarter was a meaningful improvement.

Diron Smith: So we entered the second quarter and the tougher environment exited in a better environment and the third quarter average was about what was better than second quarter, but there's still pockets of supply chain. We think this is probably the new normal and we're getting better and better every day at how we manage that and in the mitigation actions. That we started the year and a half ago or some of those are starting to move into the execution phase and brings some of those benefits.

Diron Smith: So we do think we're getting better at managing supply chain. We think going forward, we'll continue to improve on that. But we're operating as though this is the supply chain environment going forward from a supply chain standpoint. Our focus is on making sure that as our direct labor turnover has improved that we continue to train our associates and become more proficient in what we do. And we think there's significant opportunity to gain greater efficiencies as we move into 2024 with the current supply chain levels as well as improving execution in our manufacturing facilities and better trained associates that can drive the efficiencies that we expect to grow our margins. Thanks guys. Nathan, do you have any follow-up questions at this time? No, I'm all good. Thank you. Okay, thank you.

Operator: Ladies and gentlemen, once again, if you have a question or a follow-up question, it is star one on your telephone keypad.

Felipe Lamar: Your next question comes from the line of Joanne French of city. Your line is open. Hi, this is Felipe Lamar on for Joanne. Thanks for taking me question and congrats on the quarter. Just quickly as it relates to the use of cash, congrats on the acquisition of neurocale, but I'm just curious, moving forward. How are you thinking about cash allocation as you think about MNA? We're getting paid down and then looking forward, are there any segments that you think are particularly attractive as tucking MNA opportunities?

Felipe Lamar: Thank you. Hi, good morning, Felipe. Thank you for the question. I'll start with, we remain very committed to our two and a half to three and a half times that leverage. We ended the third quarter at 3.1 times with the expected cash flow generation in the fourth quarter and in the neuro acquisition, which occurred in the fourth quarter. So that 42 million outflows in the fourth quarter. If you look at the midpoint of our EBITDA guidance and the midpoint of the debt levels guidance that we gave, you'll see at year end, we still expect to be at midpoint at 3.1 times leverage.

Felipe Lamar: And so we feel like we have the capacity to spend two to 250 million dollars a year on tucking in acquisitions. We have a robust pipeline of tucking acquisitions that we are nurturing at any point in time. We're very excited about the neurocale. We think they bring very differentiated design and development capability in the neurovascular market, which is a market that is we believe is transitioning to significantly more outsourced. That has been the historical norm in that space.

Felipe Lamar: So we think that's a pocket of accelerated outsourcing. And we think adding the neurocoteam in their tremendous engineering group that has tremendous experience at designing and developing finished devices. And then manufacturing them, we think that contributes to our pipeline of development programs very symbiotically. And we're expecting to double the size of that business in the next three to four years based upon that pipeline that we think they can help us accelerate and execute.

Felipe Lamar: So we continue to look at tucking acquisitions at 3.1 now at 3.1 a year end that gives us additional capacity. And maybe a simple way to think about it is, if we grow EBITDA at the targeted growth rate of profit growing twice as fast as sales, that creates a older magnitude of 140, 150 million dollars worth of debt capacity for acquisitions generating $100 million of free cash flow years. Another hundred, that's where you get the two to 250 of capacity every year and still maintaining the two and a half to three and a half times debt leverage. So we're excited about a neurocone, excited about the opportunities in front of us for additional tucking. Thanks for the question, Felipe. That's helpful.

Diron Smith: Just on PFA, it continues to be a topic so I'm just curious if you can give us an update on where you are in developing those platforms and when you might expect meaningful revenue contribution. Thank you. Absolutely. We think we're incredibly well positioned at electrophysiology. We're highly vertically integrated today. We have significant experience in scaling complex EP products. We have subassemblies to finish Delice Manufacturing today. We think what we do today is incredibly applicable to PFA and the new therapy that's coming out.

Diron Smith: We're excited about the new therapy. We're working on a number of programs in the space. We're excited for the therapy to come to market. We think it'll have a tremendous impact on patients, both safety and potentially efficacy as well. We're well positioned to believe that it has a strong potential to be a tailwind for us. Like anything in life, it all comes down to who gets to market first and who gets the most market share and what share a while that we have with that particular customer.

Diron Smith: But we think we're incredibly well positioned for it to be a tailwind for us. Thank you. Okay. Philippe, do you have any further questions at this time? Once again, ladies and gentlemen, if you have a question, it is there one on your telephone keypad. There are no further questions at this time.

Andrew Senn: I will turn the call back to Andrew Sen. Okay. Thanks, Sarah.

Andrew Senn: Thank you, everyone, for joining the call today. As always, you can access the replay of this call on our website as well as the presentation that we just covered.

Operator: Thank you for your interest in Inger, and that concludes our call today. Craig Bijou, Joanne Wuensch,