Q1 2024 Integer Holdings Corp Earnings Call
Kev Lee: Thank you for standing by. My name is Kev Lee, and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2024 Integer Holdings Corporation earnings call. All lines have been placed on mute to prevent any background noise.
Thank you for standing by my name is Kathleen and I will be your conference operator today.
Kathleen: Time, I would like to welcome everyone to the first quarter 2020 for integer Holdings Corporation earnings call.
Kathleen: All lines have been placed on mute to prevent any background noise. After.
Kev Lee: 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 followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Andrew Senn, Senior Vice President, Strategy, Business Development, and Investor Relations.
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 followed by the number one on your telephone keypad. If you would like to withdraw your question of breast started once again. Thank you I would now like to turn the call overdue Anderson Senior Vice President.
Speaker Change: <unk> business development and Investor Relations.
Andrew Senn: Good morning, everyone. Thank you for joining us and welcome to Integer's first quarter 2024 earnings conference call. With me today are Joe Dziedzic, 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. During our call, we will discuss some non-GAAP financial measures. For 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 at integer.gov.
Speaker Change: Good morning, everyone. Thank you for joining us and welcome to <unk> first quarter 2024 earnings Conference call.
Anderson: With me today are Jody President and Chief Executive Officer, and direct Smith, Executive Vice President and Chief Financial Officer.
Speaker Change: As a reminder, the results and data we discuss today reflect the consolidated results of integer for the periods indicated.
Speaker Change: 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 at <unk> dot net.
Andrew Senn: 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 Diron will then review our adjusted financial results for the first quarter of 2024 and provide an update on our full year 2024 outlook. Joe will come back to provide his closing remarks, and then we'll open up the call for questions. With that, I'll turn the call over to Joe.
Speaker Change: Please note that today's presentation includes forward looking statements.
Speaker Change: Please refer to the company's SEC filings for a discussion of the risk factors that could cause our actual results to differ materially.
Speaker Change: Okay.
Speaker Change: On today's call Joe will provide his opening comments and IRA will then review our adjusted financial results for the first quarter of 2024 and provide an update on our full year 2024.
Speaker Change: Joe will come back to provide his closing remarks, and then we'll open up the call for questions with that I'll turn the call over to Chuck.
Joseph W. Dziedzic: Thank you, Andrew, and thank you to everyone for joining the call today. We appreciate the cell site analysts who have initiated coverage on Integer over the past year, and welcome Kristen Stewart from CL King, who initiated coverage of Integer last month. We had a strong start to 2024, with sales growing 10% year over year and adjusted operating income of 26%, or 2.7 times the rate of sales growth compared to the first quarter of 2023.
Joe: Thank you Andrew and thank you to everyone for joining the call today. We appreciate the sell side analysts to have initiated coverage on <unk> over the past year and welcome Kristin Stewart from C. L King who initiated coverage of vintage or last month.
Chuck: We had a strong start to 2024 with sales growing 10% year over year and adjusted operating income up 26% or two seven times the rate of sales growth compared to the first quarter of 2023. In addition, our adjusted earnings per share grew 31% year over year.
Joseph W. Dziedzic: In addition, our adjusted earnings per share grew 31% year over year, and gross margin expanded 120 basis points versus first quarter 2023, primarily due to the execution of our manufacturing excellence initiatives and an improved supply chain and direct labor environment. We are reiterating our full-year outlook. We continue to expect sales growth of 9% to 11% and adjusted operating income growth of 13% to 20% versus 2023, a strong year-over-year increase. We are also confirming 2024 adjusted earnings per share of $5.01 to $5.43 and free cash flow of $85 to $105 million.
Chuck: And gross margin expanded 120 basis points versus first quarter 2023, primarily due to the execution of our manufacturing excellence initiatives and an improved supply chain and direct labor environment.
Chuck: We are reiterating our full year outlook.
Chuck: We continue to expect sales growth of 9% to 11% and adjusted operating income growth of 13% to 20% versus 2023, our strong year over year increase.
Chuck: We are also confirming 2024 adjusted earnings per share of $5 <unk> to $5 43.
Chuck: And free cash flow of $85 million to $105 million.
Joseph W. Dziedzic: The strategy that we developed in 2017 and began implementing in 2018 is now producing sustained above-market sales growth and margin expansion. We also continue to manage our debt leverage within the range of two and a half to three and a half times trailing four quarter adjusted EBITDA while executing our inorganic growth strategy. It is an exciting time at Integer because we have a strong pipeline of new products concentrated in faster-growing end markets.
Chuck: The strategy that we developed in 2017 and began implementing in 2018 is now producing sustained above market sales growth and margin expansion.
Chuck: We also continued to manage our debt leverage within the range of two and a half to three five times trailing four quarter adjusted EBITDA, while executing our inorganic growth strategy.
Speaker Change: It is an exciting time at integer because we have a strong pipeline of new products concentrated in faster growing end markets. Our margins are expanding as a result of our manufacturing excellence initiatives and we continue to acquire and integrate tuck in acquisitions that add or compound differentiated capabilities I am <unk>.
Joseph W. Dziedzic: Our margins are expanding as a result of our manufacturing excellence initiatives, and we continue to acquire and integrate tuck-in acquisitions that add or compound differentiated capabilities. I am grateful for our associates around the world who are delivering for our customers and making a difference for patients. I'll now turn the call over to Diron.
Chuck: Grateful for our associates around the world that are delivering for our customers and making a difference for patients.
Chuck: I'll now turn the call over to Darren.
Diron Smith: Thank you, Joe. Good morning, everyone, and thank you again for joining our discussion today. I'll provide more details on our first quarter 2024 financial results and provide an update on our 2024 outlook. We started 2024 with a strong first quarter. Sales of $415 million delivered 10% year-over-year growth on a reported basis and 6% on an organic basis, which excludes the impact of our recent Inuroco and Pulse acquisitions, the strategic exit of the portable medical market, and foreign currency fluctuations.
Darren: Thank you Joe Good morning, everyone and thank you again for joining our discussion today.
Darren: Ill provide more details on our first quarter 2024 financial results and provide an update on our 2020 for outlook.
Darren: We started 2024 with a strong first quarter sales of $415 million delivered 10% year over year growth on a reported basis and 6% on an organic basis, which excludes the impact of our recent in Morocco impulse acquisitions, the strategic exit of the portable medical market.
Darren: And foreign currency fluctuations.
Diron Smith: We delivered $81 million of adjusted EBITDA, up $15 million compared to the prior year, or an increase of 22%. Adjusted operating income grew 26% versus last year, more than two and a half times the rate of sales growth. We continue to make progress on our year-over-year margin expansion.
Darren: We delivered $81 million of adjusted EBITDA up $15 million compared to the prior year or an increase of 22%.
Darren: Adjusted operating income grew 26% versus last year more than two five times the rate of sales growth.
Darren: We continue to make progress on our year over year margin expansion first quarter 2024, adjusted operating income as a percent of sales was 15, 2%, which represents approximately 200 basis points of improvement versus a year ago.
Diron Smith: First quarter 2024 adjusted operating income as a percent of sales was 15.2 percent, which represents approximately 200 basis points of improvement versus a year ago. Adjusted net income for the first quarter of 2024 was $39 million, delivering $1.14 of adjusted diluted earnings per share, up $0.27 or 31% from the first quarter of 2023. CNV and CRM&N product line sales, which represent approximately 91% of our total sales, continued strong year-over-year growth on a trailing four-quarter basis in the first quarter of 2024.
Darren: Adjusted net income for the first quarter of 2024 is $39 million delivering $1.14 of adjusted diluted earnings per share up 27.
Darren: 31% from the first quarter of 2023.
Darren: Dnb and <unk> product lines sales, which represent approximately 91% of our total sales continued strong year over year growth on a trailing four quarter basis in the first quarter of 2024.
Diron Smith: For our cardio and vascular product line, trailing four-quarter sales increased 18% year-over-year with double-digit growth across all CMV markets, driven by strong customer demand and sales from the Inuroco Impulse acquisition. Cardiac rhythm management and neuromodulations trailing four-quarter sales increased 12% year over year, primarily driven by double-digit CRM growth from strong customer demand and double-digit neuromodulation growth from emerging PMA customers Further product line details are included in the appendix of the presentation on our website at integer.net.
Darren: For our cardio and vascular product line trailing four quarter sales increased 18% year over year with double digit growth across all CMV markets, driven by strong customer demand and sales from the <unk> and pulse acquisitions.
Darren: Cardiac rhythm management and Neuromodulation is trailing four quarter sales increased 12% year over year, primarily driven by double digit CRM growth from strong customer demand and double digit neuromodulation growth from emerging PMA customers.
Darren: Further product line details are included in the appendix of the presentation on our website at <unk> Dot net.
Diron Smith: To provide more insight into our first quarter 2024 performance, we delivered $39 million of adjusted net income, up $10 million versus a year ago. Operational improvements, which include improved manufacturing efficiencies and operating cost leverage, delivered $10 million versus first quarter 2023, while improvements in our adjusted effective tax rate were more than offset by higher interest expense and slightly unfavorable foreign exchange. On a tax-affected basis, adjusted total interest expense was approximately $1 million higher than last year.
Darren: To provide more insight into our first quarter 2020 for performance, we delivered $39 million of adjusted net income up $10 million versus a year ago.
Darren: Operational improvements, which include improved manufacturing efficiencies and operating cost leverage delivered $10 million versus first quarter 2023, while improvements in our adjusted effective tax rate were more than offset by higher interest expense and slightly unfavorable foreign exchange.
Darren: On a tax effected basis adjusted total interest expense was approximately $1 million higher than last year. This is primarily due to a higher average debt balance during the period driven by funding for the acquisitions of <unk> and pulse technologies using our available revolver capacity.
Diron Smith: This was primarily due to a higher average debt balance during the period driven by funding for the acquisitions of Inurco and Pulse Technologies using our available revolver capacity. Our adjusted effective tax rate was 18.1% for the first quarter of 2024, compared to 19.8% in the prior year. Our lower Adjusted Effective Tax Rate compared to the prior year was primarily due to discrete tax benefits recognized upon the vesting of restricted stock units during the first quarter of 2024.
Darren: Our adjusted effective tax rate was 18, 1% for the first quarter of 2024 compared to 19, 8% in the prior year.
Darren: Our lower adjusted effective tax rate compared to the prior year was primarily due to discrete tax benefits recognized upon vesting of restricted stock units during the first quarter of 2024.
Diron Smith: We continue to expect our adjusted effective tax rate to be between 19% and 21% for 2024. As discussed in our previous earnings call, this is mostly driven by the recent adoption of the OECD Pillar 2 framework by the EU member states establishing a minimum effective tax rate of 15% as well as the residual effect of the Malaysian tax holiday expiration. In the first quarter of 2024, we generated $23 million in cash flow from operations, up $17 million from a year ago.
Darren: We continue to expect our adjusted effective tax rate to be between 19% to 21% for 2024 as discussed in our previous earnings call. This is mostly driven by the recent adoption of the OECD pillar two framework by the EU member states, establishing a minimum effective tax rate of 15% as well as the.
Darren: The residual effect of the Malaysian tax holiday exploration.
Darren: In the first quarter 2024, we generated $23 million in cash flow from operations up $17 million from a year ago. The.
Diron Smith: The improvement, driven by higher sales volumes, improving margins, and effective management of working capital, was partially offset by higher annual bonus payments, which are made in the first quarter of every year. Our CapEx spend of $29 million in the first quarter is on track to our expected full-year spend of $90 to $110 million. As a result, free cash flow in the first quarter was a usage of $6 million.
Darren: The improvement driven by higher sales volumes, improving margins and effective management of working capital was partially offset by higher annual bonus payments, which are made in the first quarter of every year.
Darren: Our capex spend of $29 million in the first quarter is on track to our expected full year spend of $90 million to $110 million.
Darren: As a result free cash flow in the first quarter was a usage of $6 million.
Diron Smith: Net total debt ended at $1.1 billion for the first quarter of 2024, an increase of $162 million compared to the fourth quarter 2023 ending balance. This increase was driven by the approximately $140 million acquisition of Pulse Technologies in January of this year. Net total debt leverage at the end of the first quarter of 2024 was 3.4 times trailing four quarter adjusted EBITDA, which is within our strategic target range of two and a half to three and a half.
Darren: Net total debt ended at $1 1 billion for the first quarter of 2024, an increase of $162 million compared to the fourth quarter 2023 ending balance.
Darren: This increase was driven by the approximate $140 million acquisition of pulse technologies in January of this year.
Darren: Net total debt leverage at the end of the first quarter 2024 was three four times trailing four quarter adjusted EBITDA, which is within our strategic target range of two 5% to three five times.
Diron Smith: As Joe mentioned in his opening remarks, we are reiterating our 2024 outlook for sales, profit, and cash. We expect to deliver sales in the range of $1,735,000,000 to $1,770,000,000, an increase of 9% to 11% versus last year, with organic growth of 6% to 8%, which is 200 basis points above our underlying market growth rate estimate of 4% to 6%. In addition to our organic growth, we expect the Inuroco and Pulse acquisitions, partially offset by the portable medical market exit, to contribute 3% organic growth.
Darren: As Joe mentioned in his opening remarks, we are reiterating our 2020 for outlook for sales profit and cash.
Darren: We expect to deliver sales in the range of $1 billion $735 million to $1 $770 million, an increase of 9% to 11% versus last year with organic growth of 6% to 8%, which is 200 basis points above our underlying market growth rate estimate of 4% to 6%.
Darren: <unk>.
Darren: In addition to our organic growth, we expect the <unk> and <unk> acquisitions, partially offset by the portable medical market exit to contribute 3% inorganic growth.
Diron Smith: We anticipate adjusted EBITDA between $355 million and $375 million, reflecting growth of 15% to 21%. Similarly, we expect adjusted operating income to grow 13 to 20%, to between $272 million and $290 million. At $281 million, which is the midpoint, Adjusted Operating Income as a Percent of Sales is expected to grow 91 basis points compared to the full year 2024. We expect adjusted net income between $171 and $185 million, which is growth of 8% to 18% compared to the prior year, with adjusted earnings per share of $5.01 to $5.43, which is growth of $34 to $0.76 versus 2023.
Darren: We anticipate adjusted EBITDA between 355 million to $375 million, reflecting growth of 15% to 21%.
Darren: Similarly, we expect adjusted operating income to grow 13% to 20% to.
Darren: Between $272 million and $290 million.
Darren: At $281 million, which is the midpoint adjusted operating income as a percentage of sales is expected to grow 91 basis points compared to the full year of 2023.
Darren: We expect adjusted net income between 171, and $185 million, which is growth of 8% to 18% compared to the prior year with adjusted earnings per share of $5 <unk> to $5 43.
Darren: Which is growth of 34 to <unk> 76 versus 2023.
Diron Smith: First quarter 2024 results were in line with our expectations. We further expect the first half of 2024 sales to grow high single-digit year-over-year, with sales continuing to increase throughout 2024 from new product introductions and emerging PMA customer growth. We expect adjusted operating income as a percent of sales to expand throughout the remainder of 2024 driven by continued improvement in manufacturing efficiency and sales growth outpacing our growth in operating costs. Similar to our outlook on profit and loss, we also reiterate our cash flow outlook and net total debt projections for 2024.
Darren: First quarter 2024 results were in line with our expectations. We further expect the first half of 2024 sales to grow high single digit year over year with sales continuing to increase throughout 2024 from new product introductions and emerging PMA customer growth.
Darren: We expect adjusted operating income as a percent of sales to expand throughout the remainder of 2024, driven by continued improvement in manufacturing efficiency and sales growth outpacing our growth in operating cost.
Darren: Similar to our outlook on profit and loss, we also reiterate our cash flow outlook and net total debt projections for 2024.
Diron Smith: We expect cash flow from operations between $185 million and $205 million, which represents an 8% year-over-year increase at the midpoint of our outlook. Our outlook for capital expenditures remains at $90 to $110 million as we continue to invest in organic capabilities and capacity. As a result, we expect to generate free cash flow between $85 million and $105 million. Inclusive of our approximately $140 million acquisition of Pulse Technologies in January of this year, we expect our 2024 year-end net total debt to be between $1,010,000,000 and $1,030,000,000, which is up $60 to $80 million year-over-year. We expect to end the year with our leverage ratio within our target range of 2 12 and 3 12 times trailing 4 quarter adjusted yield.
Darren: We expect cash flow from operations between 185 million to $205 million, which.
Darren: Resents, an 8% year over year increase at midpoint of outlook.
Darren: Our outlook for capital expenditures remains at 90% to $110 million as we continue to invest in organic capabilities and capacity as a result, we expect to generate free cash flow between $85 million and $105 million.
Darren: Inclusive of our approximately $140 million acquisition of pulse technologies in January of this year, we expect our 2020 for year end net total debt to be between $1 billion $10 million and $1 billion $30 million, which is up $60 million to $80 million year over year.
Darren: We expect to end the year with our leverage ratio within our target range of two five and three five times trailing four quarter adjusted EBITDA.
Joseph W. Dziedzic: With that, I'll turn the call back to Joe. Thank you. Thanks, Diron.
Darren: With that I'll turn the call back to Joe. Thank you.
Joe: Thanks Darren.
Joseph W. Dziedzic: With our strong start to 2024, we are reiterating our outlook of 9% to 11% sales growth and 13% to 20% increase in adjusted operating income. The execution of our strategy, both organically and inorganically, is producing results as we continue to demonstrate above-market sales growth with expanding margins. We remain focused on executing our strategy to create a premium valuation for our shareholders. We will now turn the call over to our moderator for the Q&A portion of the call.
Joe: With our strong start to 2024, we are reiterating our outlook of 9% to 11% sales growth and 13% to 20% increase in adjusted operating income the execution of our strategy both organically and Inorganically is producing results as we continued to demonstrate above market sales growth with <unk>.
Joe: Banding margins.
Speaker Change: We remain focused on executing our strategy to create a premium valuation for our shareholders. We will now turn the call over to our moderator for the Q&A portion of the call.
Kev Lee: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, please press star 1 to join the queue. Your first question comes from the line of Brett Fishbin of KeyBank Capital Markets. Please go ahead.
Speaker Change: Thank you we will now begin the question and answer session. If you have dialed in and would like to ask a question. Please press star one on your telephone keypad to laser has joined the queue. If you would like to withdraw your question simply press Star one again.
Speaker Change: You are called upon to ask your question and our Elisa. Thank biologic secret on your device. Please speak up your handset and ensure that your phone is not on mute when asking a question.
Speaker Change: Again, Please press star one to join the queue.
Speaker Change: Your first question comes from the line of Brett Fishbein of Keybanc capital markets. Please go ahead.
Brett Adam Fishbin: Hey guys, thank you very much.
Brett Fishbein: Hey, guys. Thank you very much.
Brett Adam Fishbin: In the first order, like one topic that came up, you know, a bunch of times.
Brett Fishbein: Just wanted to start off quickly.
Brett Fishbein: Hi.
Brett Fishbein: Hi, Tom.
Brett Adam Fishbin: Office Word Document MSWordDoc Word. Document.8 was just the potential impact of, you know, maybe some inventory build at customers that they were looking to reduce or take down. So, just curious if, you know, looking across the different product areas, you might have seen some pockets where customers needed to actually take down their inventory before some of the ordering activity returned more in line with, you know, underlying trends that we're seeing.
Brett Fishbein: Yes.
Brett Fishbein: Thanks.
Brett Fishbein: What is the potential impact of <unk>.
Brett Fishbein: Inventory build at customers that they were looking to reduce or take down so just curious.
Brett Fishbein: Looking across the different product areas, you might have seen some pockets where customers needed to actually take down their inventory before some of the ordering activity returned more of assignments and the underlying trends that we're seeing.
Joseph W. Dziedzic: Good morning, Brett. Thanks for the question. I guess my immediate answer is we have an order book that's $900 million. It gives us really good visibility of what our customers' demand is. We have really good visibility, particularly in the second quarter and in the third quarter.
Speaker Change: Good morning, Brett Thanks, Thanks for the question.
Brett Fishbein: My immediate answer is we have an order book Thats 900 ish million dollars. It gives us really good visibility to what our customers demand is we have really good visibility.
Brett Fishbein: Particularly in the second quarter and into third quarter and so our guidance is based upon what customers are telling us they need in the near term based on actual orders.
Joseph W. Dziedzic: And so our guidance is based upon what customers are telling us they need in the near term based on actual orders. We highlighted last year on the third-quarter earnings call and the year-end earnings call that last summer we saw customers adjusting what we thought were their inventory levels. We got some of the tier supplier letters on inventory adjustments that they do and when they often do mass adjustments. And we believe what we're seeing and experiencing now is normal inventory management by our customers.
Brett Fishbein: We highlighted last year on the third quarter earnings call in the year end earnings call that last summer we saw customers adjusting what we thought were adjusting inventory levels. We got some of the deere supplier letters on inventory adjustments that they do and when they oftentimes do mass mass adjustments and we.
Brett Fishbein: What we're seeing and experiencing now is normal inventory management by our customers I think it is clear our customers. Many of them have said that they are working to reduce their inventory levels. We've got all of that factored into our guidance. We think we started off the year with a strong first quarter up 10%.
Joseph W. Dziedzic: I think it's clear from our customers; many of them have said that they are working to reduce their inventory levels. We've got all of that factored into our guidance. We think we started off the year with a strong first quarter of 10%, and for the full year, we're confident in our 9-11% sales growth.
Brett Fishbein: And for the full year, we're confident in our 9% to 11% sales growth.
Joseph W. Dziedzic: And then, you know, maybe on the other side in terms of, you know, potential tailwinds, a lot of conversation around, you know, emerging PFA products. So I'm just curious if there's any way that you could frame, you know, maybe the contribution of some of those products to the trends we're seeing in cardio and vascular, and then maybe just around the broader electrophysiology sub-segment and its contribution to the quarter and how you're thinking about it for the rest of the year as contemplated in the guidance. Thank you very much. Certainly. So, you know, we've talked a lot.
Brett Fishbein: Certainly no very helpful. And then maybe on the other side in terms of potential tailwind a lot of conversation around emerging PFG products.
Brett Fishbein: I'm just curious if there's any way you could frame maybe the contribution of some of those products to the trends, we're seeing in cardio and vascular and then may be just around the broader electrophysiology sub segment and the contribution to the quarter and how youre thinking about it for the rest of the year as contemplated in the guidance. Thank you very much.
Speaker Change: So certainly so we've talked a lot about our we believe we have a very strong position in electrophysiology everything from from access devices through diagnostics as well as the ablation therapy itself, where we're highly vertically integrated where on a number of new programs and we're excited to support our customers and.
Joseph W. Dziedzic: Certainly, so we've talked a lot about our, we believe we have a very strong position in electrophysiology, everything from access devices through diagnostics as well as the ablation therapy itself, where we're highly vertically integrated, we're on a number of new programs, and we're excited to support our customers in bringing new and innovative therapies in that space, in particular to the marketplace. We've experienced very strong growth in electrophysio Last year we had very strong growth in electrophysiology that continued into the first quarter. We expect that to continue throughout the year. We have our best estimate factored into our guidance, and that's what we built in based upon our customers' ramp programs and their launch programs.
Brett Fishbein: Bringing new and innovative therapies in that space in particular to the marketplace.
Brett Fishbein: We've experienced very strong electrophysiology growth last year, we had very strong growth in electrophysiology that continued into the first quarter. We expect that to continue throughout the year, we have our best estimate factored into our guidance.
Brett Fishbein: That's what we built in based upon our our customers ramp programs and their launch programs.
Brett Fishbein: I would highlight our emerging cluster emerging PMA customers, we increase the growth forecast for those customers at the end of last year.
Brett Fishbein: We are beginning of this year, which we had done in the previous year as well. We're excited about those new programs. Many of them are in emerging neuromodulation therapies and applications. We have structural heart programs that are launching that we're excited about so we're excited about a lot of the new products that we're launching with our customers and Thats. The result.
Joseph W. Dziedzic: I would highlight our emerging PMA customers. We increased the growth forecast for those customers at the end of last year or at the beginning of this year, which we had done in the previous year as well. We're excited about those new programs, and many of them are in emerging neuromodulation therapies and applications. We have structural heart programs that are launching that we're excited about. We're excited about a lot of the new products that we're launching with our customers, and it's a result of the focus we've had on getting designed into the faster-growing markets and into the therapies that our customers are counting on to drive their growth. We're excited about last year's strong top-line growth of 16 percent, and this year, we think 9 to 11 percent on top of that continues to demonstrate the success of our strategy of partnering with our customers.
Brett Fishbein: <unk>.
Brett Fishbein: Focus we've had on getting designed into the faster growing end markets and into the therapies that are customers are counting on to drive their growth. So we're excited about last year's strong topline growth at 16% and this year, we think 911% on top of that continues to demonstrate the success of our strategy of partnering with our customers.
Speaker Change: And maybe if I can.
Speaker Change: Last question, obviously only one other thing that stood out you quantified the two biggest segments now over 90% of sales, but just given the magnitude of the decline in biomedical just curious maybe if you could touch on.
Brett Adam Fishbin: I'm just thinking of like one other thing that stood out, you know, you quantified the two biggest segments, you know, now over 90% of sales, but just given the magnitude of the decline in biomedical, just curious, maybe if you could touch on what the key driver of that was, and if, you know, we should think about it getting a little bit more toward, I mean, I guess really it's how to think about it for the rest of the year, maybe sequentially compared to like the baseline from 1Q.
Brett Fishbein: The key driver of that was and if.
Brett Fishbein: You should think about getting a little bit more toward.
Brett Fishbein: I guess really is how to think about it for the rest of the year, maybe sequentially and compared to $5 <unk>.
Speaker Change: Sure. So we've given guidance on electric Jim the Nonmedical segment that we expect $32 million to $36 million of sales for the year, which will be a drag of 50 to 75 basis points work for total <unk> you can do the math on a year over year basis in the first quarter. It was it was a drag.
Speaker Change: About $7 million, so almost almost 200 basis points and the and the non medical segment. So medical segment in the first quarter was actually up eight 5% organically you can see that in our press release and when we filed with do we provide that level of detail.
Diron Smith: Sure, so we've given guidance on Electrochem, the non-medical segment, that we expect 32 to 36 million in sales for the year, which will be a drag of 50 to 75 basis points for total integer. You can do the math on a year-over-year basis. In the first quarter, it was a drag of about 7 million dollars, so almost 200 basis points in the non-medical segment. The medical segment, however, was actually up eight and a half percent organically.
Speaker Change: In particular, the first quarter and what we expect the first half to be down on a year over year basis Electric Jim had a couple of the significant supply chain disruptions that suppressed their sales back in 2021, 2022 time period, and we recovered from those supply chain challenges and had a bolus.
Diron Smith: You can see that in our press release, and when we file the QE, we provide that level of detail. In particular, the first quarter and what we expect the first half to be down on a year-over-year basis, Electrochem had a couple of significant supply chain disruptions that suppressed their sales back in the 2021-2022 time period, and we recovered from those supply chain challenges and had a bolus of backlog orders that we fulfilled in late 2022 and the early part of 2023.
Speaker Change: Our backlog of orders that we fulfilled in late 'twenty two in the early part of 'twenty three and so what we're seeing is we're seeing that normalize to what we expect to be a run rate for that business of $32 million to $36 million for 2024, and then we would expect that to grow mid single digits going forward.
Speaker Change: Hi, Thanks, again, so much for taking the questions.
Speaker Change: Thanks, Brett.
Speaker Change: Your next question comes from the line of Matthew O'brien from Piper Sandler. Please go ahead.
Matthew Ian Mishan: Good morning, Thanks for taking the questions just a follow up a little bit more on the electrophysiology side of things. Joe are you guys did you say you have the most exposure of any of your competitors to this growing PFA.
Diron Smith: And so what we're seeing is that we are seeing that normalize to what we expect to be a run rate for that business of 32 to 36 million in 2024, and then we would expect that to grow mid-single digits going forward. All right, thanks again.
Brett Adam Fishbin: Thanks again so much for taking the questions.
Speaker Change: Dynamic that we're seeing in the market and then.
Matthew Ian Mishan: Your next question comes from the line of Matthew O'Brien from Piper Sandler. Please go ahead.
Speaker Change: Do you have exposure across the board because I know, there's a bunch of different companies developing products here sorry.
Matthew Ian Mishan: Morning. Thanks for taking the questions. Just to follow up a little bit more on the electrophysiology side of things, Joe, would you say you have the most exposure of any of your competitors to this, you know, growing PFA dynamic that we're seeing in the market? And then, you know, do you have exposure across the board? Because I know there are a bunch of different companies developing products here. So are you going to be able to supply everybody, or is it just focused on a couple of companies? And sorry for the long-winded question, but is it like the full catheter that you're going to be able to supply, or just components of individual catheters?
Speaker Change: We're able to supply everybody or is it just focused on a couple of companies in and sorry for the long with a question, but is it like the full catheter that you are going to be able to supply our just component of individual catheters.
Speaker Change: So thanks. Thanks, Thanks for the question Matt.
Speaker Change: Fortunately you know how much we would love to be able to tell you about the details of who we're supporting and what exactly we're doing for them, but again I can't provide that level of granularity our customers don't want us getting in front of them talking about their most exciting programs and products that are driving driving their growth.
Speaker Change: I can say is we're highly vertically integrated we do everything from from components to finished device delivery. It's obviously.
Joseph W. Dziedzic: So, thanks for the question, Matt. Unfortunately, you know how much we would love to be able to tell you about the details of who we're supporting and what exactly we're doing for them, but I can't provide that level of granularity. Our customers don't want us getting in front of them talking about their most exciting programs and products that are driving their growth. What I can say is we're highly vertically integrated. We do everything from components to finished device delivery.
Speaker Change: We're not we don't have the same content on every device in the market and every device that's coming into the market, but given the breadth and depth of our capability.
Speaker Change: We can do anything for everyone.
Speaker Change: But it is different customer to customer and so theyre, absolutely is the variable of who wins and who wins in the short medium and long term does affect us, but we have such a broad portfolio both in and access So think guide wires and guiding she's.
Joseph W. Dziedzic: It's obviously, we're not, we don't have the same content on every device in the market and every device that's coming into the market, but given the breadth and depth of our capability, we can do anything for everyone, but it is different customer to customer, and so there absolutely is the variable of who wins and who wins in the short, medium, and long term does affect us, but we have such a broad portfolio both in access, so think guide wires and guiding sheets, think the diagnostic catheters that are necessary, as well as the ablation catheters, and so we are very strong in access and diagnostics that oftentimes can be more agnostic to the therapy itself, and so as the overall market grows, we grow with that, and then on the therapy in particular, what we're designed into and doing for customers can have a bit more of the impact of who wins based upon what dollars per unit, you know, what content on the bill of material we have with that specific customers, but as electrophysiology grows, we'll win because of our access delivery and diagnostic capabilities and how we're serving the market, and I'll just reinforce, we had very strong growth in electrophysiology last year, that continued into the first quarter, and we expect that to continue throughout the year.
Speaker Change: The diagnostic.
Speaker Change: Catheters.
Speaker Change: This area as well as the ablation catheters and so.
Speaker Change: We are very strong in access in diagnostics.
Speaker Change: Oftentimes can be more agnostic to the therapy itself and so as the overall market grows we grow with that and then on the therapy in particular, what we're what we're designed into and doing for customers can have a bit more of the impact of who wins based upon what dollars per unit what content on the bill of material, we have with <unk>.
Speaker Change: Specific customers, but as electrophysiology grows will win because of our access delivery and diagnostic capabilities and how we're serving the market.
Speaker Change: And I'll just reinforce we had we had very strong growth in electrophysiology last year that continued into the first quarter and we expect that to continue throughout the year.
Speaker Change: Got it and then the follow up question on C and B, specifically you had a tough comp.
Speaker Change: Here in Q1.
Speaker Change: Still put up pretty good growth, but I think maybe just a little bit below what some folks were expecting and so I'm just wondering with all these new PMA products that are coming.
Speaker Change: Do you anticipate a lot more contribution from from those.
Matthew Ian Mishan: Got it. And then the follow-up question is on C&B specifically; you had a tough cop here in Q1, but you still put up pretty good growth. But I think it's maybe just a little bit below what some folks were expecting. And so I'm just wondering, with all these new PMA products that are coming, do you anticipate a lot more contribution from those products here in the last three quarters of the year and really strong performance from that C&B business? for the remainder of 24. Sure, so CMV grew...
Speaker Change: Product here and kind of the last three quarters of the year.
Speaker Change: Really strong performance out of that <unk> business.
Speaker Change: For the remainder of 'twenty four.
Speaker Change: Sure. So EMEA grew our reported 16% for the first quarter, we think that that's a pretty strong result, given the broad mix of products and markets that we serve 18% on a rolling four quarter basis. We also have the acquisitions in there that are helping.
Joseph W. Dziedzic: Sure, so CMV grew a reported 16% for for the first quarter. We think that's that's a pretty strong result given the broad mix of products and markets that we serve. 18% on a rolling four-quarter basis. We also have the acquisitions in there that are helping that, so obviously that includes the benefit of those acquisitions, but even without that on an organic basis, CMV still grew high single digits, so very, very strong results for the CMV business, and we would expect CMV to continue to grow throughout the year and continue to, as new programs launch across structural art and electrophysiology, and as we get the commercial synergies from the Pulse and the NeuroCo acquisitions, although that won't necessarily be organic this year because of the time in the acquisition, but that will fuel organic growth when we get into 25 and beyond.
Speaker Change: So obviously that includes the benefit of those acquisitions, but even without that on an organic basis and we still grew high single digits. So very very strong results for the CMV business and we would expect CMV to continue to grow throughout the year.
Speaker Change: And continue to as new programs launch across structural heart electrophysiology and as as we get the commercial synergies from the pulse of the neuro co acquisitions, although that won't necessarily be organic this year because of the timing of the acquisition, but that will fuel organic growth when we get into 'twenty five and beyond.
Speaker Change: Okay.
Speaker Change: Got it thank you.
Speaker Change: Your next question comes from the line of Craig.
Craig William Bijou: Your next question comes from the line of Craig Bijou from Bank of America. Please go ahead.
Speaker Change: Mig.
Craig: From Bank of America. Please go ahead.
Craig William Bijou: Good morning, guys. Thanks for taking the questions. So another one on the EP business, and I recognize that you guys don't provide a lot of color on customers, but if you look at the business that you have today in the aggregate, is there any way to quantify or directionally give some color on the portion of the business that's components versus, you know, full catheters today? And then how does that change with the new PFA launches? I believe you guys have said that you could see more content in the aggregate on PFA devices versus your existing portfolio.
Craig: Good morning, guys. Thanks for taking the question. So another one on the EP business.
Craig: Recognize that you guys don't provide a lot of color on customers, but if you look at the business that you have today in the aggregate.
Craig: Is there any way to quantify or Directionally give some color on the portion of the business thats components versus full.
Craig: <unk> catheters today.
Craig: And then how does that change with <unk> with the new PFA launches I believe you guys have said that you could see more content.
Craig: In the aggregate on PFA devices versus your existing portfolio.
Craig William Bijou: Yeah, a great, great, great question. Thank you.
Speaker Change: Yes, great great Great question. Thank you.
Joseph W. Dziedzic: So I would start with, we're strong in components and assembly, and assembly, you can think of that from a few components to a significant number. We do have finished device capability, we do finish devices today, but the majority of our business is going to be in components and sub-assembly of those components. Our customers oftentimes want final device assembly, we've said that consistently, but there are absolutely finished devices that we're doing today, but as we move into new programs, we are always working to take advantage of our vertical integration to help customers accelerate their speed to market, give them the synergies of having more of the device under one company, one roof, one supplier, so that they have fewer people to work with, which is the benefits and strategic advantage of vertical integration.
Speaker Change: I would start with.
Speaker Change: We're strong in components and assemblies and assembly you can think of that from from a few components to a significant number.
Speaker Change: We do have finished device capability, we do finished devices today.
Speaker Change: But the majority of our business is going to be in components and sub assembly of those components are our customers oftentimes want final device Assembly, we've said that consistently but there are absolutely finished devices that we're doing today, but as we move into new programs. We are always working to take.
Speaker Change: <unk> advantage on our of our vertical integration to help customers accelerate their speed to market give them the synergies of having more of the device under under one company one roof. One supplier. So that they are fewer people to work with which is the benefits of strategic advantage of our vertical integration. So we are always working to.
Joseph W. Dziedzic: So we are always working to get a higher percentage of the bill of materials and have more components on the device. And so that's our strategy with every next-generation device to get a higher percentage of the bill of materials.
Speaker Change: You get a higher percentage of the bill of material and have more components.
Speaker Change: The device and so.
Speaker Change: Our strategy is with every next generation device to get a higher percentage of the bill of materials.
Craig William Bijou: Great, that's helpful. On operating income growth, obviously, it was pretty strong at 26% in Q1, but you didn't change the guide for the year, which implies a bit of a slowdown or less leverage, if you will. So is that simply conservatism, or are there other things that we should be considering as you move throughout the year that may affect the amount of leverage you guys can deliver?
Speaker Change: Great.
Speaker Change: And.
Speaker Change: On an operating income growth obviously, it was pretty strong at 26% in Q1, but you didn't change the guide for the year, which implies a bit of a slowdown or less leverage. If you will so is it simply conservatism or are there other things that we should be considering.
Speaker Change: As youre moving through throughout the year that that may affect the amount of leverage you guys can deliver.
Diron Smith: Sure. Thanks for noting 26% is a very strong quarter. Last year, it started with 2023. We got progressively better throughout the year on the margin rate. You can see the adjusted operating income grew every quarter on a sequential basis.
Speaker Change: Sure. Thanks.
Speaker Change: Thanks for noting 26% is a very strong quarter last year I'll start with 2023, we got progressively better throughout the year on the margin rate you can see the adjusted operating income grew every quarter on a sequential basis and so if you look at 2023 by quarter to the first quarter was.
Diron Smith: And so, if you look at 2023 by quarter, the first quarter was the lowest, and the fourth quarter was the highest. We would expect that pattern and that trend to repeat itself throughout 2024. I'll point out that the supply chain environment has continued to improve. If you compare where we are today to where we were last year, we are significantly better. The number of disruptions has reduced significantly, and the impact of those has also reduced significantly.
Speaker Change: The lowest fourth quarter was the highest we would expect that pattern and that trend to repeat itself throughout 2024.
Speaker Change: To the supply chain environment has continued to improve.
Speaker Change: If you compare where we are today to where we were last year. We are significantly better the number of disruptions has reduced significantly and the impact of those has reduced significantly we've talked about the direct labor turnover that we had some significant turnover challenges in 2022 in particular, we got better.
Diron Smith: We've talked about direct labor turnover, that we had some significant turnover challenges in 2022 in particular. We got better throughout the year 2023, and that trend has continued into 2024.
Speaker Change: Throughout the year 2023 that trend has continued into 2020 for our direct labor turnover continues to improve and that has helped us to drive that margin expansion and so we would expect throughout 2024 to be able to sequentially grow both sales and profit on a sequential.
Diron Smith: Our direct labor turnover continues to improve, and that has helped us to drive that margin expansion. And so, we would expect throughout 2024 to be able to sequentially grow both sales and profit on a sequential basis, which is consistent with the pattern last year. So, the comps, obviously, as you get better sequentially, the comps get tougher as the year goes on.
Speaker Change: Rachel basis, which is consistent with the pattern last year. So the comps the comps obviously as you get better sequentially the comps get tougher as the year goes so I would just point you to look at look at the quarter splits last year and think about the pattern of.
Diron Smith: So, I would just point out look at the quarter splits last year and think about the pattern of consistent growth. And at the high end of our guidance, we're growing profit 1.9 times the rate of sales, midpoint 1.7. We think 13 to 20 percent profit growth for the year is very strong, and we're excited to get off to a great start in the first quarter with 26 percent growth.
Speaker Change: Growth.
Speaker Change: And at the high end of our guidance, we're growing profit one nine times the rate of sales midpoint 107, we think we think 13% to 20% profit growth for the year is very strong we're excited to get off to a great start in the first quarter with 26% growth in the first quarter.
Speaker Change: Got it helpful and if I could just squeeze one more in on PFA.
Craig William Bijou: Got it, helpful. I could just squeeze one more in on PFA. I think you said that you've included your best estimates in your guidance. What would have to happen from PFA or within PFA for you guys to see upside to your guidance this year? Yeah, maybe I'll...
Speaker Change: I think you said that it's included that you've included in your <unk>.
Speaker Change: Best estimates in your guidance, what would have to happen from PFA or in PSA for you guys to see upside to your guide this year.
Joseph W. Dziedzic: Yeah, maybe I'll answer that by saying, if you think about what we do for our customers, we manufacture component sub-assemblies and finished devices, and if it's a component or sub-assembly, it gets shipped to one of our customers' manufacturing plants, they then build that into a product, they then put that into their distribution channel, and then it goes into a process. And so, what would have to happen is that our customers would have to place significantly more orders into our order book and increase their manufacturing plans to drive incremental volume on us.
Speaker Change: Yes.
Speaker Change: I'll answer that by saying if you think about what we do for our customers.
Speaker Change: We manufacture components sub assemblies and finished devices.
Speaker Change: And if it's a component or sub assembly. It gets shipped to one of our customers manufacturing plants. They didn't build that into a product they didn't put that into their distribution channel and then it goes into a procedure and so what would have to happen and as our customers would have to play significantly more orders into our order book and.
Speaker Change: And increase their manufacturing plans.
Speaker Change: To drive incremental volume on us and so.
Joseph W. Dziedzic: And so, you think about when we build a product in the second quarter of 2024, that's not going to be used in a procedure until the second half of 2024, and maybe even not until early 2025. And so, you have to think about the demand on us relative to the timing of procedure volume. And so, if customers increase their manufacturing, and they increase their orders on us, then we'll deliver that for them. And given our primarily sole source nature, we ultimately get whatever their in-market demand is. Thanks, guys. Your next question comes from the line of Kristen St.
Speaker Change: Think about when we build a product in the second quarter of 2024, let's not going into a procedure until the second half of 'twenty, four and maybe even not until early 2025 and so if you just got it you got to think about the demand on us relative to procedure volume timing.
Speaker Change: So if customers.
Speaker Change: Increased their manufacturing and they increase their orders on US then we'll deliver that for them and given our primarily sole source nature, we ultimately get whatever their end market demand is.
Speaker Change: Got it thanks guys.
Speaker Change: Your next question comes from the line of Kristen Stewart from C. L. King. Please go ahead.
Craig William Bijou: Your next question comes from the line of Kristen Stewart from CL King. Please go ahead. Hi, congratulations on a good quarter.
Kristen Stewart: Hi, congratulations on a good quarter and thanks for taking my question.
Kristen Stewart: Just wondering if you could just share a little bit more further details on.
Kristen Stewart: And neuro and pulse technology is how they performed in the quarter and expectations for the year and then any update on your thinking on the M&A perspective.
Kristen Stewart: Certainly so. Enrico and Pulse are off to great starts. They both had strong first quarters.
Speaker Change: Certainly so <unk> pulse are off to great starts they both had strong first quarters.
Joseph W. Dziedzic: It's always good when they come out and meet or exceed the plans that you have for them in the first couple of quarters. We're seeing operational synergies. There are benefits and things we've learned from how they operate.
Speaker Change: It's always good when they come out and meet or exceed the plans that you have for them in the first couple of quarters, we're seeing we're seeing operational synergies.
Speaker Change: There are benefits and things we've learned from how they operate we think we've been able to share some of the things we do but it's very much been a two way sharing we believe we're going to see synergies operational synergies in the year from a commercial standpoint, we have a strong pipeline of conversations and activities.
Joseph W. Dziedzic: We think we've been able to share some of the things we do, but it's very much been a two-way street, and we believe we're going to see synergies, operational synergies, during the year. From a commercial standpoint, we have a strong pipeline of conversations and activities with customers that we believe are going to help us accelerate those businesses, and we're very excited about having them be part of Inte The integration process is well underway, and we're excited about what they bring to the business, and we expect to see organic growth accelerate from those two businesses when we get into 2025. And then just thoughts on the M&A landscape. Yep, great. Sorry, I missed your second part. We continue to curate a number of opportunities in our pipeline. We never stop that process.
Speaker Change: With customers that we believe is going to going to help us accelerate those businesses and we're very excited about having them be part of part of integer. The integration process is well underway and we're excited about what they bring.
Speaker Change: Going to the business and we expect to see.
Speaker Change: Organic growth accelerate from those two businesses when we get into 2025.
Speaker Change: And then just thoughts on the M&A landscape.
Speaker Change: Yes, great great sorry.
Speaker Change: Mr. Second part, we continue to curate a number of opportunities in our pipeline, we never stopped that process. The variable really is when do we have the debt leverage capacity to be able to do an acquisition. We we ended the first quarter at three four times leverage and Thats. After the two acquisitions in October.
Joseph W. Dziedzic: The variable really is when we have the debt leverage capacity to be able to do an acquisition. We ended the first quarter at 3.4 times leverage, and that's after the two acquisitions in October of last year and January of this year. So we're well within our strategic range of 2.5 to 3.5 times. Based on cash flow and EBITDA growth, we would expect to have more capacity in the second half of the year to continue to do tuck-in acquisitions while maintaining that leverage.
Speaker Change: Last year in January of this year, so we're well within our strategic range of two five to three five times based on cash flow and EBITDA growth, we would expect to have more capacity in the second half of the year.
Speaker Change: Continue to do the tuck in acquisitions, while maintaining that debt leverage.
Joseph W. Dziedzic: We think we've got a competitive advantage in being able to curate the opportunities for these tuck-ins with founder-led or individual owned businesses, and we'll continue to execute the strategy that we think has been working well for us.
Speaker Change: We think we've got we've got a competitive advantage in being able to curate the opportunities for these tuck ins with founder led or individual owned businesses and we will continue to execute the strategy that we think has been working well for us.
Nathan Treybeck: Your next question comes from the line of Nathan Treybeck of Wells Fargo. Please go ahead.
Speaker Change: Great. Thanks very much thank.
Speaker Change: Thanks Kristen.
Speaker Change: Your next question comes from the line of Nathan <unk> of Wells Fargo. Please go ahead.
Nathan Treybeck: Hi, thanks for taking the question. Joe, just a high-level question. How are you thinking about your long-term outlook of, you know, four to six percent market growth plus 200 base points above this? You had said this framework several years ago, and it seems, maybe, this could have changed with the new industry developments like PFA and tricuspid therapy. You know, could this potentially mean a higher structural growth rate for your business? That's a great, great, great, great question, Nathan, and I would absolutely say yes.
Speaker Change: Hi.
Nathan: Thanks for taking the question.
Nathan: So just a high level question, how are you thinking about your long term outlook.
Nathan: 4% to 6% market growth plus 200 basis points above this.
Speaker Change: <unk> said this framework several years ago and it seems maybe what's kind of changed the new industry developments like PSA in the tricuspid therapies.
Speaker Change: This potentially mean, a higher structural growth rate for your business.
Speaker Change: Great Great Great Great question, Nathan and I would say absolutely.
Joseph W. Dziedzic: Ultimately, over time, as the mix of the business shifts to a higher percentage in the faster-growing end markets that we've been targeting, we would absolutely expect the WAMGR, if you will, the weighted average market growth rate of our sales mix to increase market growth because when we define market growth, we use our sales mix. So I absolutely would expect that over time, as the amount of sales we have in electrophysiology and structural heart, neuromodulation, and neurovascular, would absolutely increase our WAMGR.
Speaker Change: Ultimately over time as the mix of the business shifts.
Speaker Change: Into a higher percentage in the faster growing end markets that we've been targeting we would absolutely expect the.
Speaker Change: <unk>, if you will the weighted average market growth rate of our sales mix to increase the market growth because when we defined market growth. We use our sales mix. So I absolutely would expect over time as the amount of sales we have in electrophysiology and structural heart Neuromodulation and neuro last.
Speaker Change: Sure what absolutely increase our <unk>.
Joseph W. Dziedzic: Having 80% of our development programs that we're working with customers on in those targeted growth markets will absolutely lead to that faster WAMGR. But what it'll also do is it'll continue that pipeline of new programs that allow us to stay at least 200 basis points above that WAMGR because that's our ultimate measure of success: are we growing faster than the market? That's how we know that we're winning.
Speaker Change: Having having 80% of our development programs that we're working with customers on in those targeted growth markets will absolutely lead to that faster <unk>. What it'll also do is it will continue that pipeline of new programs that allow us to stay at least 200 basis points above that Wham group, because that's our ultimate measure.
Speaker Change: <unk> success is are we growing faster than the market. That's how we know that we are winning so it's a great great point and yes. So over time the mix of sales will absolutely lift Lambert of the business, which will lift the total organic sales growth rate.
Nathan Treybeck: So it's a great, great point, and yes, over time, the mix of sales will absolutely lift the WAMGR of the business, which will lift the total organic sales growth rate. Okay, thanks for that. And how are you thinking about gross margin in 2024? Can you talk about the cadence relative to 20% and Q1? You know, you previously talked about pricing being flattish in 2024. But are you able to take prices to offset any lingering inflation?
Speaker Change: Okay. Thanks for that and how are you thinking about.
Speaker Change: <unk> margin in 2024 can you talk about the cadence relative to the 28% in Q1.
Speaker Change: You previously talked about pricing being flattish in 2024, but are you able to take price to offset any lingering inflation. Thanks.
Joseph W. Dziedzic: So, our pricing for the year is largely established, but there will still be some pockets of opportunity as the year progresses. But we're comfortable with where we are on the flat-ish pricing for 2024. And we would expect to see some continued gross margin improvement throughout the rest of the year. At midpoint, we're at 91 basis points of operating margin, adjusted operating income, margin improvement. And we would expect some of that to come from gross margins, but we also work very hard to control the operating expenses, SG&A, and the R&D expense that we keep after recovering some from our customers. We'll work to get that operating expense leverage as well, so we would expect it to come from both gross margin and operating leverage.
Speaker Change: So our pricing through the for the year is largely established.
Speaker Change: But there still will be will be some pockets of opportunity as the year progresses, but we're comfortable with where we are on the flat flattish pricing for 2024, and we would we would expect to see some continued gross margin improvement throughout the rest of the year. We're at midpoint, we're at 91 basis points.
Speaker Change: Of operating margin adjusted operating income margin improvement and we would expect some of that to come from gross margins, but we also work very hard to control the operating expense SG&A and the R&D expense that we keep after after vector recovering some from our customers.
Speaker Change: We will work to get that operating expense leverage as well. So we would expect it to come from both gross margin and operating leverage.
Nathan Treybeck: Okay, thank you.
Speaker Change: Okay. Thank you.
Speaker Change: Thanks Nathan.
Joanne Karen Wuensch: Again, if you would like to ask a question or if you have a follow-up question, simply press star 1 on your telephone keypad. And your next question comes from the line of Joanne Wuensch of Citigroup. Please go ahead.
Speaker Change: Again, if you would like to ask a question or if you have a follow up question simply press star one on your telephone keypad.
Speaker Change: And your next question comes from the line of Joe <unk> of Citigroup. Please go ahead.
Felipe Lamar: Hi, this is Felipe Lamar on behalf of Joanne. Just quickly, I was wondering if you could just touch on the internal and external investments that you're making to build up the portfolio, and I guess how you're seeing consolidation of share across your customers as you kind of expand your portfolio. Thank you.
Joe: Hi, this is fully below more on for Joanne.
Foley: Quickly I was wondering if you could just touch on that.
Fully: Just how like internal and external investments R. R.
Joe: You are making to build out the portfolio I guess, how youre seeing consolidation of share across your customers as you kind of expand your portfolio. Thank you.
Joseph W. Dziedzic: Certainly, if the question's about internal and external investment, I'd point to the CapEx investments that we're spending this year, which are still at a slightly elevated level because of the two Irish facility expansions that we've talked about. Maybe from a CapEx timing perspective, I would expect the first half of CapEx to be high, and the second half to step down because we take possession of those two facilities in the middle of this year, and so we will have finished the build out of those facilities. So CapEx, from a run rate standpoint, will step down in the second half. You can see that the first quarter is at a higher than average level.
Speaker Change: But certainly if the questions about an internal and external investment I would point to the the Capex investments that we're that we're spending this year, which is still at a slightly elevated level because of the two Irish facility expansions that we've talked about maybe from a capex timing I would expect.
Speaker Change: First half capex to be higher in the second half to step down because we take possession of the those two facilities middle of this year and so we will have finished the build out of those facilities. So capex from a run rate standpoint will step down in the second half you can see the first quarter is at a higher than average level.
Felipe Lamar: From an external investment, if you mean acquisition or inorganic, the two acquisitions we just closed, we're very excited about, and we would expect to have more debt capacity as we get into the second half of the year. And maybe the question about what we're seeing with customer supplier consolidation. We continue to see our customers and hear from them that they want fewer, stronger, more strategic partner suppliers. We think that plays to our strengths.
Speaker Change: From an external investment if you mean, the acquisition or in our inorganic.
Speaker Change: The two acquisitions, we just closed we're very excited about and we would expect to have more debt capacity as we get into the second half of the year.
Speaker Change: And maybe the question about what we're seeing with customer supplier consolidation, we continue to see our customers and hear from them that they want they want fewer stronger more strategic partner suppliers. We think we think that plays to our strength. We think we're incredibly well positioned to help them consolidate the supply chain whether it's.
Felipe Lamar: We think we're incredibly well-positioned to help them consolidate the supply chain, whether it's through acquisitions or whether it's through continued vertical integration. Even if we're not doing a finished device, vertically integrating components and doing some assemblies or a significant portion of the device from an assembly standpoint gives us vertical integration capabilities that we view as a competitive advantage. And we think it enables us to accelerate our top line while helping our customers execute their strategies.
Speaker Change: Through the acquisitions or whether it's through continued vertical integration, even if we're not doing our finished device vertically integrate integrating components and doing sub assemblies or a significant portion of the of the device from an assembly standpoint gives us a vertical integration capabilities that are we view a compare.
Speaker Change: Additive advantage and we think enables us to accelerate our top line, while helping our customers execute their strategies.
Felipe Lamar: Great. And then on operating margins, I mean, you were able to expand margins by about 200 bps in the quarter. And I'm just wondering, like, where did you have the most success and where do you see the most room for opportunity for the rest of the year? Thank you. Certainly. Well, it was a combination.
Speaker Change: Great and then on the operating margins I mean, you were able to extend margins about 200 bps in the quarter I'm just wondering like where did you have the most success and where do you see the most room for opportunity at for the rest of the year. Thank you.
Speaker Change: Certainly well it was it was a combination of the improving supply chain and direct labor turnover enabled us to recover some of the inefficiencies while while also now annualizing some of the pricing to pass through the inflation pass through that we did last year and as the supply chain and labor.
Joseph W. Dziedzic: Certainly. Well, a combination of the improving supply chain and direct labor turnover enabled us to recover some of the inefficiencies while also now annualizing some of the inflation pass-through that we did last year. And as the supply chain and labor environment continues to stabilize, we're working some of those inefficiencies out. I would also just point out that we don't expect to have 26% growth in operating profit for the year.
Speaker Change: The environment continues to stabilize we're working some of those inefficiencies out I would also just point out that.
Speaker Change: We don't expect to have 26% growth in operating profit for the year, the 13% to 20% remains our estimate for the year and it's really every every quarter into 2023 on a sequential basis, we improved our operating profit and a margin rate and we would expect.
Joseph W. Dziedzic: The 13 to 20% remains our estimate for the year. And really, every quarter in 2023, on a sequential basis, we improved on our operating profit and our margin rate. And we would expect to see that continuous improvement throughout 2024 as well. So we're working on that steady, continuous improvement approach and would expect 2024 to follow a similar pattern.
Speaker Change: To see that continuous improvement throughout 2024 as well. So we're working on that steady continuous improvement approach and would expect 2024 to follow a similar pattern.
Andrew Senn: There are no further questions at this time. I will now turn the conference back over to Andrew Senn for closing remarks.
Speaker Change: Thank you.
Speaker Change: Thanks for the questions.
Speaker Change: There are no further questions at this time I will now turn the conference back over to Anderson for closing remarks.
Andrew Senn: Okay, great. 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 Integer, and that concludes our call.
Anderson: Okay, great. 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 cover. Thank you for your interest in integer and that concludes our call.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.
Anderson: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Anderson: Okay.
Anderson: [music].
Anderson: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].