Q2 2024 Integer Holdings Corp Earnings Call
Hello and welcome to the Q2 2024 Integer Holdings Corporation earnings call. All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session, and if you would like to ask a question during this time, please press star 1 on your telephone keypad.
Andrew Senn: and Earnings Corp. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session, and if you would like to ask a question during this time, please press star 1 on your telephone keypad. I would now like to turn the conference over to Andrew Senn, Senior Vice President, Strategy, Business Development, and Investor Relations. You may begin. Good morning, everyone.
Andrew Senn: I would now like to turn the conference over to Andrew Senn, Senior Vice President, Strategy Business Development and Investor Relations. You may begin.
Andrew Senn: Thank you for joining us, and welcome to Integer's second quarter 2024 earnings conference. With me today are Joe Dziedzic, President and Chief Executive Officer, and Diron Smith, Executive Vice President. As a reminder, the results and the data we discussed today reflect the consolidated results of Integer for the periods. For her 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 Precedent, and the trending schedules, which are available on our website. Please know that today's presentation includes four...
Andrew Senn: Good morning everyone. Thank you for joining us and welcome to Integer's second quarter 2024 earnings conference call.
Speaker Change: With me today are Joe Dziedzic, President and Chief Executive Officer, and Diron Smith, Executive Vice President and Chief Financial Officer.
Andrew Senn: As a reminder, the results and the data we discussed today reflect the consolidated results of Integer for the periods indicated.
Andrew Senn: 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.net.
Andrew Senn: Please note that today's presentation includes forward-looking statements. Please refer to the company's SEC filings for discussion of the risk factors that could cause our actual results to differ materially.
Andrew Senn: 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 second quarter and provide an update on our full year of 2024. Joe will come back to provide his closing remarks, and then we'll open up the call for your questions. With that, I turn the call over to you.
Andrew Senn: On today's call, Joe will provide his opening comments, and Diron will then review our adjusted financial results for the second quarter of 2024, and provide an update on our full year 2024 outlook.
Speaker Change: Joe will come back to provide his closing remarks and then we'll open up the call for your questions.
Joseph W. Dziedzic: Thank you, Andrew, and thank you to everyone for joining the call today. Since our last earnings call, Truist and Oppenheimer have initiated coverage, which brings the total number of sell-side analysts to nine. We appreciate the research coverage from all of our analysts, as it gives more investors exposure to our business and the great work that our associates are doing for our customers and the patients that we serve. In the second quarter, we delivered another strong quarter of year-over-year results; sales grew 9%, and our adjusted operating income grew 20% while expanding operating margins by 152 basis points compared to last year.
Speaker Change: With that, I will turn the call over to Joe.
Joseph W. Dziedzic: Thank you, Andrew, and thank you to everyone for joining the call today.
Speaker Change: Since our last earnings call, Truist and Oppenheimer have initiated coverage.
Joe: which brings the total number of sell-side analysts to nine. We appreciate the research coverage from all of our analysts as it gives more investors exposure to our business and the great work that our associates are doing for our customers and the patients that we serve.
Joseph W. Dziedzic: In addition, our adjusted earnings per share grew 14% year over year. We are raising our full-year profit outlook. Our manufacturing excellence initiatives are delivering operational improvements in direct labor turnover, direct material scrap production, lower overtime, and direct labor efficiency.
Joe: In the second quarter, we delivered another strong quarter of year-over-year results.
Joe: Sales grew 9% and our adjusted operating income grew 20% while expanding operating margins by 152 basis points compared to last year. In addition, our adjusted earnings per share grew 14% year-over-year.
Joe: We are raising our full-year profit outlook. Our manufacturing excellence initiatives are delivering operational improvements in direct labor turnover, direct material scrap production, lower overtime, and direct labor efficiency.
Joseph W. Dziedzic: Combined with our strong first half OPEX leverage, we are confident in our ability to meet our increased full-year profit outlook. At the midpoint of our outlook, we expect 18% adjusted operating income growth on 10% sales growth. We are confident in our ability to deliver strong sales growth given our high visibility to customer demand, including ramping programs in high-growth markets and additional guidewire capacity coming online in Ireland. It is an exciting time at Integer, given our strong pipeline of development programs and faster-growing in-market, expanding margins, and continued execution of our tuck-in acquisition strategy. I am grateful for our associates around the world that are delivering for our customers and making a difference for patients. I'll now turn the call over to Diron.
Joe: Combined with our strong first half OPEX leverage, we are confident in our ability to meet our increased full-year profit outlook.
Joe: At the midpoint of our outlook, we expect 18% adjusted operating income growth on 10% sales growth.
Andrew Senn: We are confident in our ability to deliver strong sales growth given our high visibility to customer demand, including ramping programs in high-growth markets and additional guidewire capacity coming online in Ireland.
Andrew Senn: It is an exciting time at Integer, given our strong pipeline of development programs and faster growing in markets, expanding margins, and continued execution of our tuck-in acquisition strategy.
Andrew Senn: I am grateful for our associates around the world that are delivering for our customers and making a difference for patients. I'll now turn the call over to Diron.
Diron Smith: Thank you, Joe. Good morning, everyone, and thank you again for joining today's call. I'll first provide more details on our second quarter 2024 financial results and then provide an update on our 2024 outlook. We continued our 2024 momentum with strong second quarter financial performance. Sales of $436 million delivered 9% year-over-year growth on a reported basis and 5% 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. We delivered $91 million of adjusted EBITDA, up $15 million compared to the prior year, or an increase of 19%.
Diron: Thank you, Joe. Good morning, everyone, and thank you again for joining today's call.
Diron: I'll first provide more details on our second quarter 2024 financial results and then provide an update on our 2024 outlook.
Diron Smith: Adjusted operating income grew 20% versus last year, more than two times the rate of sales growth as we continue to make progress on our year-over-year margin expansion. Second quarter 2024 adjusted operating income as a percent of sales was 16.5%, which represents approximately 152 basis points of improvement versus a year ago. Adjusted net income for the second quarter of 2024 is $45 million, delivering $1.30 of adjusted earnings per share, up 16 cents or 14% from the second quarter of 2023.
Diron: We continued our 2024 momentum with strong second quarter financial performance.
Diron: Sales of $436 million delivered 9% year-over-year growth on a reported basis and 5% 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.
Diron: We delivered $91 million of adjusted EBITDA, up $15 million compared to the prior year, or an increase of 19%.
Diron: Adjusted operating income grew 20 percent versus last year, more than two times the rate of sales growth as we continue to make progress on our year-over-year margin expansion.
Diron: Second quarter 2024 adjusted operating income as a percent of sales was 16.5%, which represents approximately 152 basis points of improvement versus a year ago.
Diron: Adjusted net income for the second quarter of 2024 is $45 million, delivering $1.30 of adjusted earnings per share, up 16 cents or 14% from the second quarter of 2023.
Diron Smith: D&V and TRM&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 second quarter of 2024. For Cardio and Vascular, trailing four-quarter sales increased 17% year-over-year.
Diron: CNV and TRM&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 second quarter of 2024.
Diron: For cardio and vascular product line, trailing four-quarter sales increased 17% year-over-year.
Diron Smith: D&D growth is driven by double-digit growth across all markets, new product ramps in electrophysiology and structural heart, and the Inurico Impulse acquisition. Cardiac rhythm management and neuromodulations trailing four-quarter sales increased 11% year over year, driven by high single-digit CRM growth and double-digit neuromodulation growth from emerging PMA customers. Further product line details are included in the appendix of the presentation, which can be found on our website at integer.net.
Diron: D&D growth is driven by double-digit growth across all markets, new product grants in electrophysiology and structural heart, and the Inuroco and Pulse acquisitions.
Diron: Cardiac rhythm management and neuromodulations trailing four-quarter sales increased 11% year-over-year, driven by high single-digit CRM growth and double-digit neuromodulation growth from emerging PMA customers.
Diron: Further product line details are included in the appendix of the presentation, which can be found on our website at integer.net.
Diron Smith: In the second quarter 2024, we delivered $7 million more adjusted net income than we did in the second quarter 2023. Strong sales and operational improvements, which include improved manufacturing efficiencies and operating cost leverage, delivered $10 million versus the second quarter 2023, furthered by slightly favorable foreign exchange. This was partially offset by higher interest expense and a slightly higher adjusted effective tax rate totaling approximately $3 million. On a tax-affected basis, adjusted total interest expense was approximately $3 million higher than last year.
Diron: In the second quarter 2024, we delivered $7 million more adjusted net income than we did in the second quarter 2023.
Diron: Strong sales and operational improvements, which include improved manufacturing efficiencies and operating cost leverage, delivered $10 million versus second quarter 2023, furthered by slightly favorable foreign exchange.
Diron Smith: This was primarily due to a higher average debt balance during the period driven by the previously discussed acquisitions of Inuroco and Pulse Technologies using our available revolver capacity. Our adjusted effective tax rate was 20.7% for the second quarter of 2024, compared to 20.1% in the prior year. Our slightly higher adjusted effective tax rate compared to the prior year was primarily 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.
Diron: Our adjusted effective tax rate was 20.7% for the second quarter of 2024 compared to 20.1% in the prior year.
Diron: Our slightly higher Adjusted Effective Tax Rate compared to the prior year was primarily 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.
Diron Smith: In the second quarter of 2024, we generated $47 million in cash flow from operations. Year-over-year, we generated approximately $10 million more cash from operational execution, primarily from higher sales and improved margins. This was all set by the second quarter 2023 accounts receivable factoring of approximately $20 million that did not repeat.
Diron: As previously mentioned, the factoring was executed to support our capacity investments in Ireland,
Diron Smith: In the second quarter of 2024, we continued our organic investment, investing $31 million in capital expenditures. As Jo mentioned earlier, we are reiterating our 2024 sales outlook and raising our 2024 profit outlook. We are raising our Adjusted Operating Income Outlook by $3 million and expect 2024 Adjusted Operating Income to be between $275 million and $293 million, reflecting year-over-year growth of 14 to 21 percent. At $284 million, which is the midpoint, Adjusted Operating Income as a percent of sales is expected to grow 108 basis points compared to the full year 2021.
Diron: In the second quarter of 2024, we continued our organic investments, investing $31 million in capital expenditures.
Diron: In the first half 2024, we have invested approximately $60 million in CapEx, and our CapEx profile for the year is expected to be lower in the second half, as the higher expenditures for the Irish capacity investments are nearly complete.
Diron: The resulting free cash flow in the second quarter was $16 million, which was primarily used to reduce net total debt, which improved by $15 million compared to the first quarter, 2024.
Diron: As a result, our net total debt leverage at the end of the second quarter was 3.2 times trailing for quarter adjusted EBITDA, which is within our strategic target range of 2.5 to 3.5 times.
Diron Smith: Adjusted net income is expected to be between $174 million and $189 million, reflecting a year-over-year growth of 11% to 20%, up from our previous guidance of 8% to 18%. This delivers an expected adjusted EPS outlook between $5.00 and $0.07, at $5.49, which is growth of 9% to 18% year-over-year. This dilution is offset by an improvement in the Adjusted Effective Tax Rate, which is projected to be between 18% and 20%, down from our initial outlook of 19% to 21%.
Diron: As Joe mentioned earlier, we are reiterating our 2024 sales outlook and raising our 2024 profit outlook. With strong first-half margin performance from execution on our manufacturing initiatives, we have increased confidence in raising the adjusted operating income range by $3 million.
Joseph W. Dziedzic: Starting with sales, we continue to expect to deliver sales in the range of $1,735,000,000
Joseph W. Dziedzic: to $1,770,000,000, an increase of 9-11% versus last year, with organic growth of 6-8%, which is 200 basis points above our underlying market growth rate estimate of 4-6%.
Joseph W. Dziedzic: In addition to our organic growth, we expect the Inurico and Pulse acquisitions, partially offset by the portable medical market exit, to contribute 3% inorganic growth.
Joseph W. Dziedzic: We are raising our outlook on adjusted EBITDA by 2 million dollars which now reflects 15 to 22 percent growth year-over-year with a range of 357 million to 377 million dollars up from our previous guidance of 15 percent to 21 percent growth.
Joseph W. Dziedzic: We are raising our Adjusted Operating Income Outlook by $3 million and expect 2024 Adjusted Operating Income to be between $275 million and $293 million, reflecting year-over-year growth of 14 to 21 percent.
Joseph W. Dziedzic: At $284 million, which is the midpoint, adjusted operating income as a percent of sales is expected to grow 108 basis points compared to the full year 2023.
Joseph W. Dziedzic: Adjusted net income is expected to be between $174 million and $189 million, reflecting a year-over-year growth of 11 to 20 percent, up from our previous guidance of 8 to 18 percent.
Joseph W. Dziedzic: This delivers an expected adjusted EPS outlook between $5.07 and $5.49, which is growth of 9-18% year-over-year.
Joseph W. Dziedzic: Our adjusted EPF outlook assumes adjusted weighted average shares outstanding of 34.4 million shares, taking into account an estimated dilutive effect of the convertible notes.
Joseph W. Dziedzic: This dilution is offset by an improvement in adjusted effective tax rate, which is projected to be between 18 and 20 percent, down from our initial outlook of 19 to 21 percent.
Joseph W. Dziedzic: We expect sales in the second half of 2024 to be higher than the first half of 2024 from new product ramps, increased guidewire capacity as a result of our Ireland expansion, and emerging PMA customer growth.
Joseph W. Dziedzic: We expect third quarter sales to be slightly higher than the second quarter with a further increase in the fourth quarter of 2024.
Diron Smith: Moving to our 2024 cash outlook, we expect cash flow from operations between $185 million and $205 million, which represents an 8% year-over-year increase at the midpoint of the outlook. 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 a year. And with that, I'll turn the call back to Joe. Thank you.
Joseph W. Dziedzic: Moving to our 2024 cash outlook, we expect cash flow from operations between $185 million to $205 million, which represents an 8% year-over-year increase at midpoint of outlook.
Joseph W. Dziedzic: Our outlook for capital expenditures remains at $90 to $110 million as we continue to invest in organic capabilities and capacity.
Joseph W. Dziedzic: As a result, we expect to generate free cash flow between $85 million and $105 million.
Joseph W. Dziedzic: 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.
Joseph W. Dziedzic: We expect to end the year with our leverage ratio within our target range of two and a half and three and a half times trailing four quarter adjusted EBITDA. And with that, I'll turn the call back to Joe. Thank you. Thanks Diron.
Joseph W. Dziedzic: We believe we are delivering a very strong 2020 for Outlook after a strong 2023. Over these two years combined, we expect to grow sales 27 percent and grow adjusted operating income 48 percent at the midpoint of Outlook. We will now turn the call over to our moderator for the Q&A portion of the call. Good morning, Brett.
Joseph W. Dziedzic: We believe we are delivering a very strong 2020 for Outlook after a strong 2023. Over these two years combined, we expect to grow sales 27% and grow adjusted operating income 48% at the midpoint of Outlook.
Joseph W. Dziedzic: We are successfully executing our growth strategy, both organically and inorganically, to meet our strategic financial objectives for sales growth, margin expansion, and debt leverage. We are confident this sustained level of performance will produce a premium valuation for our shareholders.
Speaker Change: We will now turn the call over to our moderator for the Q&A portion of the call.
Speaker Change: Thank you. If you would like to ask a question please press star 1 on your telephone keypad. Simply press star 1 again. Please ensure that your phone is not on mute when called upon.
Speaker Change: Your first question comes from the line of Brett Fishbin with KeyBank Capital Markets. Your line is open.
Brett Adam Fishbin: Hey guys, thank you so much for taking the questions.
Brett Adam Fishbin: I just wanted to start off on one of the moving pieces here in cardiovascular and vascular segment. We can definitely appreciate that there were, again, very challenging comparisons, but just given the sequential decline in organic growth in that segment, was curious if you could provide a little bit more detail around any moving pieces.
Speaker Change: impacting the quarter, and then just looking ahead if you think investors should expect some type of recovery there into 2H.
Brett Adam Fishbin: Thanks for the question. So, I'll start with, if you look at the cardiovascular product line sales on a rolling four-quarter basis, trailing four-quarter basis, cardiovascular is up 17%, and reported in the quarter was up 11. You noted organic growth of 4%. I'll call out the first quarter for cardiovascular organic growth was 9%, and for the full year, we're expecting high single-digit organic growth for CMV. So, when you look at the pieces, you know, we think about the business on a rolling four-quarter basis. I wish life were linear, and I wish our customers' manufacturing plans were perfectly linear, but they're not. And so, we think the rolling four-quarter basis is the best way to look at it.
Speaker Change: Morning Brett, thanks for the question. So I'll start with, if you look at the cardiovascular product line sales on a rolling four-quarter basis, trailing four-quarter basis, we're, cardiovascular is up 17% and reported in the quarter was up 11. You noted
Speaker Change: the organic growth of 4%. I'll call out the first quarter for cardiovascular organic growth was 9% and for the full year we're expecting high single-digit organic growth for CMV.
Speaker Change: I wish life were linear, and I wish our customers' manufacturing plans were perfectly linear, but they're not. And so, we think the rolling four-quarter basis is the best way to look at it. And if you look at our past four quarters, our electrophysiology business, although we don't report the specific number, it's growing at one and a half times the market growth rate. If you look at our structural heart sales, those are also growing very strongly, almost twice the market growth rate, recognizing that structural heart is a slightly lower piece of our overall business. And I think we've also been clear that we're under-indexed to TAVR, and we're really more focused in our growth is in mitral and trical.
Brett Adam Fishbin: And if you look at our past four quarters, our electrophysiology business, although we don't report the specific number, it's growing at one-and-a-half times the market growth rate. If you look at our structural heart sales, those are also growing very strongly, almost twice the market growth rate, recognizing that structural heart is a slightly lower piece of our overall business. And I think we've also been clear that we're under-indexed to TAVR, and we're really more focused, and our growth is in mitral and tricuspid, and our guidewire business there has remained very strong.
Brett Adam Fishbin: So, when we look at cardiovascular on a rolling four-quarter basis, historically, we continue to see very strong growth. When we look at it for the full year, we expect to see high single-digit organic growth, and on a reported basis, we expect that to be in the low double-digits, call it low teens to mid-teens, which is the guidance we provide on the product line slides for cardiovascular on slide 27. All right, thank you so much for that color.
Speaker Change: and our guidewire business there has remained very strong. So when we look at cardiovascular on a rolling four-quarter basis historically, we continue to see very strong growth. When we look at for the full year, we expect to see a high single-digit organic growth and on a reported basis, we expect that to be in the low double-digit.
Speaker Change: and call it Low Teens to Mid Teens, which is the guidance we provide on the product line slides for cardiovascular at slide 27.
Craig William Bijou: Quick follow-up, on the positive side, we're really impressed by some of the operating margin progression this quarter. And guidance for the full year now implies off-income growth at a multiple closer to 1.8x compared to 1.7x exiting last quarter. But just looking at the range, it's still fairly wide.
Speaker Change: Alright, thank you so much for that, Collar. Quick follow-up, you know, on the positive side, we're really impressed by some of the operating margin progression this quarter and guidance for the full year now implies.
Speaker Change: off income growth at a multiple closer to 1.8x compared to 1.7x.
Craig William Bijou: So just at this point in the year, I was curious what you think of as the biggest swing factors driving margin expansion to the low end versus the high end of the range. Thank you very much for taking the question. Your next question comes from the line of Craig Bijou with Bank of America. Your line is open. Good morning, guys.
Speaker Change: exiting last quarter. But just looking at the range, it's still fairly wide. So just at this point in the year, I was curious what you think of as the biggest swing factors driving, you know, multiple, or sorry, margin expansion to the low end versus the high end of the range. Thank you very much for taking the questions.
Speaker Change: Sure, well I'll start with we still have a very strong order book or backlog, it's still close to $900 million, that gives us tremendous visibility. We look at our first half sales, we guided 9 to 11 for the year, we're at 9.3% growth in the first half. We're doing exactly what we said we would do from a sales growth rate perspective. Margins were a little better in the second quarter, so we've updated the full year. Our outlook to be slightly higher, we didn't update the range, we're halfway through the year. Strong visibility to the top line, we have confidence in our ability to continue to expand margins.
Speaker Change: So, we felt like updating the profit guidance was the right thing to do at this point. Variability, when we think about the things that have caused that in the past, it's been supply chain disruptions. We feel like we're beyond that. We have a very stable supply chain environment at the moment, which is great. Our direct labor turnover continues to improve.
Speaker Change: Our manufacturing excellence initiatives and our operational improvements continue to gain traction, which is what gave us the confidence to increase the profit outlook.
Speaker Change: Your next question comes from the line of Craig Bijou with Bank of America. Your line is open.
Craig William Bijou: I wanted to ask, maybe drill down a little bit deeper on the cardiovascular segment. You know, it came in below street expectations, but I wanted to know if it was below your expectations, and if it was, kind of what areas were below.
Craig William Bijou: Good morning, guys. Thanks. Thanks for taking the questions.
Craig William Bijou: I wanted to ask, maybe drill down a little bit deeper on the cardiovascular...
Craig William Bijou: It came in below street expectations, but I wanted to know if it was below your expectations.
Joseph W. Dziedzic: And then when you talk about the acceleration that you're expecting in the second half of business to get to that high single-digit growth number, you know, maybe just talk about your visibility into your second half revenue for that segment specifically. I'll start with cardiovascular and, for that matter, cardiac rhythm management. The rest of the business was in line with our expectations in the first quarter and second quarter, and our visibility, given the order book we have for the second half, gives us great confidence in our ability to deliver on our guidance.
Speaker Change: If it was, kind of what areas...
Speaker Change: were below.
Speaker Change: And then when you talk about the acceleration that you're expecting in the second half of business to get to that high single digit number, growth number, you know, maybe just talk about your visibility into your second half revenue for that segment specifically.
Speaker Change: Sure, I'll start with cardiovascular and, for that matter, cardiac rhythm management and the rest of the business was in line with our expectations.
Speaker Change: in the first quarter, second quarter, and our visibility, given the order book we have to the second half, gives us great confidence in our ability to deliver on our guidance.
Joseph W. Dziedzic: So, I appreciate there might have been some exuberance and excitement around a particular segment in electrophysiology within cardiovascular after the first quarter results and the dialogue around some of the emerging products there. But, like I said, we look at it on a rolling four-quarter basis. We look at what customers' demand is. I wish it were perfectly linear, and customers ran their manufacturing plants in a linear fashion. They don't.
Speaker Change: So, I appreciate there might have been some exuberance and excitement around a particular segment in electrophysiology within cardiovascular after first quarter results and the dialogue around some of the emerging products there. But, like I said, we look at a rolling four quarter basis. We look at what customer's demand is. I wish it were perfectly linear and customers ran their manufacturing plants in a linear fashion. They don't.
Joseph W. Dziedzic: Recognizing most of what we build, we ship to our customers' manufacturing sites. So, it's dependent upon what they're building that determines our sales in the short term. Recognizing we're mostly a sole source, so most of what we do, we're going to get whatever the market demand is over time, which is why we think the rolling four-quarter view is the most representative. Thus, we were not surprised by the second quarter geography of the sales. We're very much in line with the year.
Speaker Change: Recognizing most of what we build, we shift to our customers' manufacturing sites, so it's dependent upon what they're building that determines our sales in the short term. Recognizing we're mostly sole source, so most of what we do, we're going to get whatever the market demand is over time, which is why we think the rolling four-quarter view is the most representative. So we were not surprised by the second-quarter geography of the sales. We're very much in line with the year. Again, I'll point you to slide 26 in our presentation, which...
Joseph W. Dziedzic: Again, I'll point you to slide 26 in our presentation, which lays out medical sales and non-medical sales. So, when you look at our organic growth rate, our medical sales are up 7% organically for the year. Sorry, for the first half.
Speaker Change: lays out medical sales and non-medical sales. So when you look at our organic growth rate, our medical sales are up 7% organically for the year.
Joseph W. Dziedzic: On an actual basis, that's very much in line with our four-year guidance and four-year expectation for organic growth and medical. And C&B and CRM&N are also very much in line with our expectations. So, as we look at the second half, we've talked a lot about the investments we made in our new Ross Ireland facility. We now have possession of that expansion, so we're now building more guide wires because we have more capacity.
Speaker Change: I'm sorry, for the first half, on an actual basis, that's very much in line with our full-year guidance and full-year expectation for organic growth and medical. And C&B and CRM&N are very much in line with our expectations.
Speaker Change: So as we look at second half, we've talked a lot about the investments we made in our New Ross Ireland facility. We now have possession of that expansion, so we're now building more guide wires because we have more capacity. We expect that to fuel additional growth in the second half of the year.
Joseph W. Dziedzic: We expect that to fuel additional growth in the second half of the year. We have a number of electrophysiology and structural heart programs that are in production and are ramping up. I'll contrast that with a scenario where you might expect something to start to go into production. These are programs and products that are already in production, and now the volume is ramping based upon customer demand and the ramp plans. When we look at the second half of the year, we're confident in our ability to step up growth in the third quarter.
Speaker Change: We have a number of electrophysiology and structural heart programs that are in production and are ramping. I'll contrast that with the scenario where you might expect something to start to go into production. These are programs and products that are already in production and now the volume is ramping based upon customer demand and the ramp plans. And so, when we look at the second half of the year, we're confident in our ability to step up the growth.
Joseph W. Dziedzic: So, our guidance is sales slightly higher in the third quarter compared to the second, with a continued nominal increase from the third to fourth quarter and very much within the range of the 9% to 11% growth for the full year. That would put us right in the middle of our 6% to 8% organic growth for the year. So, the second quarter is as expected for us on the top line, a little better on the bottom line, which is why we increased the operating profit guidance. And I know we've talked a lot about PFA, and you guys have talked about it as a tailwind. So I wanted to ask you a specific question here.
Speaker Change: in the third quarter, so our guidance is sales slightly higher in the third quarter compared to second, with continued nominal increase from third to fourth quarter, and very much within the range of the 9 to 11 percent growth for the full year. That would put us right in the middle of our 6 to 8 percent organic growth for the year, so second quarter is as expected for us on the top line, a little better on the bottom line, which is why we increased the operating profit guidance.
Speaker Change: Got it. Thanks for that, Joe. Very thorough answer.
Speaker Change: And I know we've talked a lot about PFA and you guys have talked about it as a tailwind, so I wanted to ask a specific question here. So
Joseph W. Dziedzic: So a number of the players, you know, in that space, are talking about sourcing manufacturing. And I know that that doesn't necessarily mean that you're not going to be making product for those players. But I guess I wanted to gauge your level of concern or, you know, visibility as these companies are talking about insourcing their PFA manufacturing. What's the potential that that disrupts the tailwind that you guys have talked about from PFA moving forward? So I'll start with, we've shared over time the cycle times in our industry. We've shared how long the development processes are for the devices that we support our customers on.
Speaker Change: A number of the players in that space, they're talking about insourcing manufacturing, and I know that that doesn't necessarily mean that you're not going to be making product for those players.
Speaker Change: But, I guess I wanted to gauge your level of concern or, you know, visibility as, you know, as these companies are talking about insourcing their PFA manufacturing, you know, what's the potential that, that, that, that disrupts
Speaker Change: the tailwind that you guys have talked about from PFA in moving forward.
Speaker Change: So, I'll start with, we've shared over time the cycle times in our industry, we've shared how long the development processes are with the devices that we support our customers on. And so, when we're talking about sales in the near term, in the next year or two or three, it's because those programs have been in development for that long, and they're actually in manufacturing and or ramping in manufacturing. And so, the conversation there is, we have very long lead times and visibility to what we're going to manufacture for our customers on the most important products that they make. And I'll point to, we've continued to grow our product line.
Joseph W. Dziedzic: And so when we're talking about sales in the near term, in the next year or two or three, it's because those programs have been in development for that long, and they're actually in manufacturing, or ramping up manufacturing. And so the conversation there is that we have very long lead times and visibility to what we're going to manufacture for our customers on the most important products that they make. And I'll point out that we continue to grow our product development pipeline. We continue to have very strong visibility into that pipeline and the timelines on it.
Speaker Change: product development pipeline. We continue to have very strong visibility to that pipeline and the timelines on it. And then the order book gives us incredible visibility to what our customer's demand is. Because especially with programs, products that are introducing into the marketplace and ramping, customers give us very strong visibility to that because they're looking for us to support their ramp plans. So we have very strong visibility to new product introduction.
Joseph W. Dziedzic: And then the order book gives us incredible visibility to what our customers' demand is because, especially with programs, products that are introduced into the marketplace and ramping, customers give us very strong visibility to that because they're looking for us to support their ramp plans. So we have very strong visibility into new product introductions. So I'll close with multi-year visibility on product development programs and new products. So we know and understand what components of these devices our customers are insourcing versus outsourcing, and we factor that into our guidance. Your next question comes from the line of Matthew O'Brien with Piper Sandler. Your line is open.
Speaker Change: So, I'll close with multi-year visibility on product development programs and new products. And so, we know and understand what components of these devices our customers are insourcing versus outsourcing, and we factor that into our guidance.
Matthew Ian Mishan: Morning, thanks for taking the questions and so sorry to push you a little bit on the PFA side, but do you have direct exposure to the growth of that category as we think about it over the next several years, which should be, should be dramatic? I don't know that I would characterize it as dramatic because I'm reflecting on total integer and our commentary that no one part of our business or one program is going to materially, meaningfully drive the company.
Speaker Change: Morning, thanks for taking the questions. And Joe, sorry to push you a little bit on the PFA side, but do you have direct exposure to the growth of that category as we think about it over the next several years, which should be should be dramatic?
Speaker Change: I don't know that I would characterize dramatic, because I'm reflecting on total integer and our commentary that no one part of our business or one program is going to materially, meaningfully drive the company. I will say, yes, PFA, we have strong visibility to the pipeline, multi-generation product development plans, and we know which ones we're on and which ones we're working to get on. So we do have very strong visibility, and we absolutely expect PFA as a therapy to be a tailwind. And I'll come back to what I think we've talked about a handful of times. It's not only the ablation and the therapy itself, but it's also the access and the diagnostics and the guiding structures.
Matthew Ian Mishan: I will say, yes, PFA. We have strong visibility into the pipeline, multi-generation product development plans, and we know which ones we're on and which ones we're working to get on. So we do have very strong visibility, and we absolutely expect PFA as a therapy to be a tailwind. And I'll come back to what I think we've talked about a handful of times. It's not only the ablation and the therapy itself, but it's also access and the diagnostics and the guiding sheaths, and the transeptal crossing needles.
Joseph W. Dziedzic: It's the full procedure that we're able to participate in in the industry. And so as electrophysiology procedures grow, we're able to participate in all elements of that. And PFA, if it accelerates the overall number of procedures, we'll benefit from that. Generally speaking, with PFA, we have higher content on those devices than some of the other ones, and so we benefit from that. So I would absolutely expect it to be an important, meaningful part of integers of continued organic growth and being able to grow above the markets that we serve on an organic basis. Got it.
Speaker Change: She's the transeptal crossing needles. It's the full procedure that we're able to participate in in the industry. And so as electrophysiology procedures grow, we're able to participate in all elements of that. And PFA, if it accelerates the overall number of procedures, we'll benefit from that. Generally speaking with PFA, we have a higher content on those devices than some of the other ones.
Speaker Change: And so we benefit from that. So I would absolutely expect it to be an important, meaningful part of integers of continued organic growth and being able to grow above the markets that we serve on an organic basis.
Joseph W. Dziedzic: Very helpful. I appreciate that. And then on cardiovascular, just in aggregate, you know, the back half ramp, the comps are tougher in the back half of this year. And I know, you know, you said this visibility into the back half of the tour is what you've got. But can you talk a little bit about, you know, I think what's tripping up everybody today is that Q2 is a little softer on a two-year stack basis, and that's a pop back up in the back half.
Speaker Change: Got it, very helpful, appreciate that. And then on cardiovascular, just in aggregate, you know, the back half wrapped.
Speaker Change: The comps are tougher in the back half of this year, and I know
Speaker Change: You know, you said this visibility into the back half of the tour is what you've got, but can you talk a little bit about, you know, I think what's tripping up everybody today is Q2 is a little softer on a tier stack basis than it has to pop back up in the back half.
Joseph W. Dziedzic: So, I don't know if it's Ireland or other things you can point to specifically that give people comfort that, hey, you know, getting to the back half performance is attainable versus what I think is a little bit of skepticism just based on the Q2 two-year stack. Well, let me start with saying we'd be high single-digit growth for the first half, and we're at 9.3% for the So, how do you break that down between organic and inorganic? We've got very strong visibility into customer demand. We have almost a $900 million order book.
Speaker Change: So, I don't know if it's Ireland or other things you can point to specifically that give people comfort that, hey, you know, getting to the back half performance is attainable versus what I think is a little bit of skepticism just based on the Q2 two-year stack performance.
Speaker Change: Well, let me start with, we said we'd be high single digit growth for the first half and we're at 9.3% for the first half, reported basis.
Speaker Change: So, how you break that down between organic and inorganic, we've got very strong visibility to customer demand. We have almost a $900 million order book. And so, when we look at the business, I think we've been reasonably good at predicting the level of sales.
Joseph W. Dziedzic: And so, when we look at the business, I think we've been reasonably good at predicting the level of sales. You know, we know, we understand the pieces of those sales because we have specific orders from customers. We know the reasons why the second half steps up a little bit.
Speaker Change: We know, we understand the pieces of those sales because we have specific orders from customers.
Joseph W. Dziedzic: You know, we tried to be clear that we expect third-quarter sales to be a little higher nominally than second quarter. Then we expect fourth-quarter sales to be even higher. A meaningful part of that is the Irish facility that is now online and in our possession. We're building more guide wires. We've talked for the last two and a half years about the strong demand in our guide wire business. And so that's a part of it.
Speaker Change: We know the reasons that second half steps up a little bit. We tried to be clear that we expect third quarter sales to be a little higher nominally than second quarter. Then we expect fourth quarter to be even higher. A meaningful part of that is the Irish facility that is now online in our possession. We're building more guide wires.
Speaker Change: We've talked for the last two and a half years, the strong demand in our guidewire business, and so that's a part of it, but we also have programs.
Joseph W. Dziedzic: But we also have programs in electrophysiology, structural heart, in particular, and also for our emerging PMA customers, mostly neuromodulation. There are programs that are in production and ramping up. So, it's not going to go into production.
Speaker Change: in electrophysiology, structural heart in particular, also in our emerging PMA customers, mostly neuromodulation. There are programs that are in production and ramping.
Joseph W. Dziedzic: These programs are in production, and they're ramping, and they step up based on customer demand in the second half. And that's what gives us confidence in our ability to hit the second half sales numbers as well as the profitability, which we did increase this quarter. Your next question comes from the line of Richard Newitter with. Hi, thanks for taking the questions.
Speaker Change: So, it's not going to go into production. These programs are in production and they're ramping and they step up based on customer demand in the second half and that's what gives us confidence in our ability to hit the second half sales numbers as well as the profitability which we did increase this quarter.
Speaker Change: Got it. Thanks so much.
Speaker Change: Your next question comes from the line of Richard Newitor with Truist. Your line is open.
Richard Samuel Newitter: Maybe just to start a little higher, has anything changed at your OEM customers with respect to their end market demand curves or what their kind of intermediate to longer-term ordering patterns look like? You know, any downward revisions or upward from their outlook that kind of flows down to you? We would love to hear any, We have not seen any material, meaningful change in customer expectation when you look out. I'll frame it into 25 and beyond, given your question about the longer term.
Richard Newitor: Hi, thanks for taking the questions. Maybe just to start a little higher level, has anything changed?
Richard Newitor: at your OEM customers with respect to their end market demand curves or what their kind of intermediate to longer term ordering patterns look like
Speaker Change: Any downward revisions or upward? From their outlook, that kind of flows down to you. We would love to hear any color there, and then I have a follow-up.
Speaker Change: We have not seen any material meaningful change in customer expectation when you look out. I'll frame it into 25 and beyond, given your question about longer term. I mean, sitting here with almost $900 million of order book, we were expecting that order book to start to come down because there are some components or some elements of that higher order book that are connected to the exit of our portable medical business, to the strong demand and guide wires that we ask customers to place orders much further in advance, given the capacity coming on. We still expect the order book to come down. I would have expected the order book to come down a little sooner than it has, and I think that points to the continued strength and
Joseph W. Dziedzic: I mean, sitting here with almost $900 million in the order book, we were expecting that order book to start to come down because there are some components or some elements of that higher order book that are connected to the exit of our portable medical business, to the strong demand and guide wires that we ask customers to place orders much further in advance, given the capacity coming on. We still expect the order book to come down.
Joseph W. Dziedzic: I would have expected the order book to come down a little sooner than it has, and I think that points to the continued strength in the market and continued high expectations of our customers for growth. They continue to place orders out further into the future, and it gives us tremendous visibility. I think our customers remain very, very... optimistic about their most exciting programs that they're bringing to the marketplace, and the overall market growth rates continue to show optimism.
Speaker Change: in the market, continued high expectations of our customers for growth. They continue to place orders out further into the future, and it gives us tremendous visibility. So I think our customers remain very, very.
Speaker Change: optimistic about their most exciting programs that they're bringing to the marketplace.
Speaker Change: And the overall market growth rates continue to show optimism. And I look to our order book and I look to the order patterns very much in line with what we expected entering the year and they've continued. If anything, the order book might be a little higher than what I would have expected at this point in the year given some of the things that we knew were going to come down in the order book.
Joseph W. Dziedzic: And I looked through our order book, and I saw the order patterns very much in line with what we expected entering the year, and they've continued. If anything, the order book might be a little higher than I would have expected at this point in the year, given some of the things that we knew were going to come down in the order book. Okay, thanks for that.
Joseph W. Dziedzic: And then just making sure, you know, it sounds like, So our view is third-quarter sales nominally are a little bit higher than second quarter, and then fourth quarter is higher than third quarter. So we see that kind of continued trajectory. If you look at last year, 2023, there was a step up between the second and third quarter of 5 million sales, and then between the third and fourth quarter, I'm talking 2023, an 8 million step up.
Speaker Change: Okay, thanks for that. And then, just making sure, you know, it sounds like...
Speaker Change: Everything's trending the way you expected, at least internally, and that's the reason you're reiterating your fully organic outlook.
Speaker Change: A little, maybe a little more second half weighted or acceleration weighted relative to the street.
Speaker Change: So, I'm just curious, within that second half,
Speaker Change: and Outlook.
Speaker Change: It's reached at $448 million roughly for 3Q on revenue and about $458 million on 4Q. I guess, is that the right pacing of cadence just to make sure we're...
Speaker Change: a little more appropriately calibrated with your internal expectations. Thanks.
Speaker Change: So our view is third quarter sales nominally is a little bit higher than second quarter, and then fourth quarter is higher than third quarter. So we see that kind of continued trajectory. If you look at last year, 2023, there was a step up between second and third quarter of 5 million in sales, and then between third and fourth quarter, I'm talking 2023, an 8 million step up. So it continued to grow as the year progressed, and that's what we would expect to happen in 2024 as well. And to your comment about organic growth, I guess I would ask folks to kind of stare at slide 26 in our presentation, which shows medical, non-medical. The non-medical business, it's only 2%.
Joseph W. Dziedzic: So it continued to grow as the year progressed, and that's what we would expect to happen in 2024 as well. And to your comment about organic growth, I guess I would ask folks to kind of stare at slide 26 in our presentation, which shows medical and non-medical growth. The non-medical business is only 2% of our total sales, but in the first half, non-medical was down 36%. So even though it's only 2%, it does create, you know, it creates a little bit of drag on organic growth, and that normalizes in the second half of the year.
Speaker Change: [inaudible]
Joseph W. Dziedzic: So you won't see non-medical being down as much in the second half year over year, which allows the total integer organic growth rate to lift. But if you look at medical, medical had 7% organic growth in the first half, and that's what we expect for the full year. So medical continues to perform at that 7-ish percent organic growth, and then non-medical has less of an impact in the second half. And I think that's an important thing to point out and focus on when you're looking at the organic growth quarter by quarter and then half by half.
Speaker Change: But if you look at medical, medical is 7% organic growth in the first half, and that's what we expect for the full year. So medical continues to perform at that
Speaker Change: Seven-ish percent organic growth, and then the non-medical has less of an impact in the second half. I think that's an important thing to point, to focus on when you're looking at the organic growth quarter by quarter and then half by half.
Speaker Change: Great. Can I just follow up on that? So it sounds like the medical is right on track and it's maybe just the non-medical that is really what you're relying on for the acceleration and you have increased confidence in that because of what you just called out in the backlog.
Joseph W. Dziedzic: Well, I guess, depending on the term acceleration. I mean, our reported sales in the first half are 9.3, and the guidance for the year is 9 to 11, so there is a step up on a year-over-year basis, so a slight step up in the growth rate. It is coming from medical as well.
Speaker Change: Well, I guess, depending on the term acceleration, I mean, our reported sales in the first half are 9.3, the guidance for the year is 9 to 11, so there is a step up.
Speaker Change: on a year-over-year basis, so a slight step up in the growth rate. It is coming from medical as well. I highlighted the ramping programs in electrophysiology, structural heart, emerging customer, PMA, the neuromodulation. But there was a step up in sales last year from second to third, third to fourth quarter, and so nominally the sales have to grow to maintain the growth rate on a year-over-year basis.
Joseph W. Dziedzic: I highlighted the ramping programs in electrophysiology, structural heart, emerging customer, PMA, and neuromodulation. But there was a step up in sales last year from second to third, third to fourth quarter, and so nominally, the sales have to grow to maintain the growth rate on a year-over-year basis. I'm just highlighting that the organic growth in the first half for medical is 7 percent. It will obviously maintain that, and we expect it to maintain that for the rest of the year and the second half.
Speaker Change: I'm just highlighting that the organic growth in the first half for medical is 7%, it'll obviously...
Joseph W. Dziedzic: Medical is less of a drag, and so the total integer gets a little better in the second half. But the organic growth in medical continues to improve as we roll into the second half because of the new programs, the ramping programs. Very helpful, Culler.
Speaker Change: We expect to maintain that for the rest of the year, the second half. Medical is less of a drag, and so the total integer gets a little better in the second half. But the organic growth...
Speaker Change: and Medical continues to improve as we roll into the second half because of the new programs, the ramping programs. Okay, that's a very helpful caller. Thank you for that.
Kristen Marie Stewart: Thank you for that. Hi, thanks for taking the question. It looks like the contribution from acquisitions was a little bit stronger in the quarter. I was just wondering if you could provide us an update on how the acquisitions have been going and then just look ahead to how you're feeling about M&A in general. Great, sure.
Speaker Change: Your next question comes from the line of Kristen Stewart with CL King. Your line is open.
Kristen Stewart: Hi, thanks for taking the question. It looks like the contribution from acquisitions was a little bit stronger in the quarter. I was just wondering if you could provide us an update on how the acquisitions have been going and then just looking ahead how you're feeling about M&A in general.
Joseph W. Dziedzic: Thanks for the question, Kristen. The acquisitions are going very well. They're slightly ahead of what we had modeled for the first half. We're excited to have both NeuroCo and Pulse Technologies be part of the portfolio. The organic growth, or it's not organic, but the top-line growth in that business is because of the programs they have. We've been able to identify really good operational synergies. They've had good ideas that we've been able to learn from.
Speaker Change: Great, sure, thanks for the question, Kristen. The acquisitions are doing very well. They're slightly ahead of what we had modeled for the first half. We're excited to have both the NeuroCo and Pulse Technologies be part of the portfolio. The organic growth, or it's not organic, but the top-line growth in that business is because of the programs they had. We've been able to identify really good operational synergies. They've had good ideas that we've been able to learn from. We've had ideas we've been able to share, and we're getting strong operational synergies and margin improvement there. We would expect over time to be able to get commercial synergies and can get the top-line growing even faster, but that takes a little longer.
Joseph W. Dziedzic: We've had ideas we've been able to share, and we're getting strong operational synergies and margin improvement there. We would expect, over time, to be able to get commercial synergies and get the top-line growing even faster, but that takes a little longer given the cycle time, so we're very happy with the acquisitions and excited for them to continue to grow both operational and commercial synergies. From an M&A perspective, it's been a pretty active first half overall.
Speaker Change: We're very happy with the acquisitions and excited for them to continue to grow both operational and commercial synergies.
Joseph W. Dziedzic: If you look at the industry with the number of acquisitions that have happened, some larger dollar acquisitions compared to maybe the historical average, but you know we're focused on tuck-in acquisitions that allow us to maintain our 2.5 to 3.5 times debt leverage. We continue to have a very robust pipeline of opportunities. Our debt leverage was at 3.2 at the end of the second quarter.
Speaker Change: From an M&A perspective, it's been a pretty active first half overall if you look at the industry with the number of acquisitions that have happened, some larger dollar acquisitions compared to maybe historical average. But you know we're focused on tuck-in acquisitions that allow us to maintain our two and a half to three and a half.
Speaker Change: times debt leverage. We continue to have a very robust pipeline of opportunities. Our debt leverage is at 3.2 at the end of the second quarter. I'll highlight, you know, we've done almost 550 million dollars worth of acquisitions in the last two and a half years.
Joseph W. Dziedzic: I'll highlight we've done almost $550 million worth of acquisitions in the last two and a half years while maintaining our debt leverage sitting at 3.2 at this point, so we do, as the year progresses, pay down more debt, and generate more EBITDA, so our capacity, our capital available for acquisitions does increase as the year progresses, and we don't get to choose when acquisitions want to sell or when they want to trans Just reiterating on the acquisition front, we're looking for acquisitions that are very much aligned with our targeted growth markets and have an accretive growth rate or a clear path to an accretive growth rate and have accretive margins or a clear path to accretive margins.
Speaker Change: While maintaining our debt leverage sitting at 3.2 at this point, so we do as the year progresses pay down more, pay down more debt, generate more EBITDA, so our capacity, our capital available for acquisitions does increase as the year progresses.
Speaker Change: And we don't get to choose when acquisitions want to sell or when they want to transact, but we've got a very robust pipeline that...
Speaker Change: We continue to nurture and curate and are excited to be able to continue to identify tuck-ins that fit within our strategy.
Speaker Change: And, you know, just reiterating on an acquisition front, we're looking for acquisitions that are very much aligned with our targeted growth markets.
Speaker Change: and have an accretive growth rate or a clear path to an accretive growth rate and have accretive margins or a clear path to accretive margins. We've been able to identify those in the past and expect to be able to do that going forward for the size of acquisitions that we're looking for.
Speaker Change: Perfect, thanks for taking my questions.
Joseph W. Dziedzic: We've been able to identify them in the past and expect to be able to do that going forward for the size of acquisitions that we're looking for. Thanks for taking my question. Thanks, Kristen. Your next question comes from the line of Suraj Kalia with Oppenheimer. Your line is open. Good morning, Joe.
Kristen Stewart: Thanks Kristen.
Speaker Change: Your next question comes from the line of Siraj Kalia with Oppenheimer. Your line is open.
Suraj Kalia: Thanks for taking my questions. And the second part of my question, Jill, would be, even if a client wants to outsource, from the point that they start, the whole program, right? How much of a time does it take for them to completely outsource and get to the quality levels that are necessary? It's not going to happen overnight, but just so you can characterize the time frame.
Siraj Kalia: Good morning, Joe. Thanks for taking my questions.
Siraj Kalia: So Joe, a lot has been asked about PFA, and sorry for belaboring this, multi-part first question. Obviously, you know, I know you all can give specifics, but FairPulse is reflected, so we get that.
Siraj Kalia: Joe, in terms of the organic growth of 4% or so in cardiovascular, right, how should we think about incremental contribution from PFA?
Siraj Kalia: And the second part of my question, Jill, would be, you know, even if a client wants to insource,
Jill: From the point that they start.
Jill: The whole program, right? How much of a time does it take for them to completely insource and get to the quality levels that are necessary? It's not going to happen overnight, but just if you could characterize the time frame.
Joseph W. Dziedzic: Sure, so maybe I'll just on organic growth for CMV of 4% in the second quarter. This was very much expected by us. The order book we have gives us great visibility. There were no surprises in that.
Speaker Change: Sure, so maybe I'll just, on the organic growth for CMV of 4% in the second quarter, this was very much expected by us. The order book we have gives us great visibility, there were no surprises in that. I wish our customers' manufacturing plans were perfectly linear. I wish that the lumpiness that occurs in our customers' production schedules didn't exist, but it does. And I would point to and reiterate that we expect high single-digit organic growth in CMV. If you look at the trailing four quarters, the CMV business is growing at 17% reported. We've given guidance of low double-digit, call it low to mid-teens.
Joseph W. Dziedzic: I wish our customers' manufacturing plans were perfectly linear. I wish that the lumpiness that occurs in our customers' production schedules didn't exist, but it does, and I would point out and reiterate that we expect high single-digit organic growth in CMV. If you look at the trailing four quarters, the CMV business is growing at 17% reported. We've given guidance of low double-digit, call it low to mid-teens, so we're very excited about our CMV business. Electrophysiology and structural art, in particular, are growing faster than the market. We measure our customer sales. We aggregate that.
Speaker Change: [inaudible]
Joseph W. Dziedzic: We look at what the market's growing at, and we're growing faster than the market in those two important segments. To your question about insourcing specifically, we've tried to lay out the cycle times on development programs. If it's a 5-10K program, from start to finish, it could be two to three years of development, three to five years from the time we start a program until it turns into manufacturing revenues.
Speaker Change: To your question about insourcing specifically, we've tried to lay out the cycle times on development programs.
Speaker Change: You know, if it's a 510K program from start to finish, it could be two to three years of development, three to five years from the time we start a program till it turns into manufacturing revenues. And so to the earlier question that was asked about visibility to customers insourcing or outsourcing, you know, those are the lead times. So it gives us tremendous visibility to our growth and the programs that we're designed into. And we see that as a huge advantage for us because you want us to be very predictable in our guidance and in our growth rates.
Joseph W. Dziedzic: To the earlier question that was asked about visibility to customers, insourcing or outsourcing, those are the lead times. It gives us tremendous visibility into our growth and the programs that we're designed into. We see that as a huge advantage for us because you want us to be very predictable in our guidance and in our growth rates. To your other question on looking at insourcing and the time frames, it's three to five years.
Speaker Change: Um...
Joseph W. Dziedzic: We've got great visibility with our customers, and we're excited about the growth in PFA given our vertical integration and our ability to support the entire procedure. And you know, when you look at the overall trend, just one last comment, overall trends are toward outsourcing, not insourcing. And the reason for that is that our customers are looking for help in getting to the market faster, and given our level of vertical integration, we can manage a lot of the supply chain for them. And we see that as a competitive advantage of ours. Fair enough.
Speaker Change: for them.
Suraj Kalia: And Joe, the tangential question, you know, obviously one of the TAVR companies yesterday was highlighting constraints on cat lab time, you know, given everything from the left atrial appendage to TAVR to this and that, you know, to being thrown in the cap lab. I'm curious if, through derivative commentary from your end customers, if you could opine on what y'all are picking up in terms of cap I guess a lot of your products, obviously, in CNV are going through the same port of entry, so to speak, right? I'm curious if you could shed any light on that through your end customer discussions. Thank you so much for taking my question.
Speaker Change: You've given everything from left atrial appendage to TAVR to this and that you know to being thrown at the in the cat lamp.
Speaker Change: I'm curious if, through derivative commentary from your end customers, if
Speaker Change: You could opine on what y'all are picking up in terms of CAPLAC constraints.
Speaker Change: Port of Entry, so to speak, right? I'm curious if you could shed any color through your end customer discussions. Thank you so much for taking my questions.
Joseph W. Dziedzic: Yeah, that's a very front-end question that our customers continue to place very high, strong demand on us, particularly for their newest, most exciting programs and therapies. But we're not involved in touching that part of the cycle, the process to understand their constraints on capital labs. Recognizing that our demand is coming from their production of products, which is three to six, nine months ahead of the actual procedure. And so by the time we get demand and orders from our customers, they've already factored whatever the hospital cap lab constraints are into the demand they're placing on us. So we really don't have real-time visibility or insight into that. Fair enough.
Speaker Change: Yeah, that's a very front-end question that our customers continue to place very high, strong demand on us, particularly for their newest, most exciting programs and therapies.
Speaker Change: But we're not involved in touching that part of the cycle, the process, to understand their constraints on cath labs.
Speaker Change: recognizing our demand is coming from their production of products, which is...
Speaker Change: which is three to six, nine months ahead of the actual procedure. And so by the time we get demand and orders from our customers, they've already factored whatever the hospital cap lab constraints are into the demand they're placing on us.
Speaker Change: So we really don't have a real-time visibility or insight into that.
Nathan Treybeck: Thank you. Suraj, you asked a question about ramps and maybe yields or quality. There absolutely is a learning curve on ramping up new programs, and the thing we focus on is ensuring we've got the highest possible yields when we do ramp up and launch a program. But to your point, there is a learning curve on that, especially as the volumes ramp up, and the margins typically get better over time as you improve yields. Great, thanks. Your next question comes from the line of Nathan Treybeck with Wells Fargo. Your line is open.
Speaker Change: Fair enough. Thank you.
Speaker Change: Suraj, you had asked a question about ramps and maybe yields or quality. There absolutely is a learning curve on ramping new programs.
Suraj: And the thing we focus on is ensuring we've got the highest possible yields when we do ramp and launch a program. But to your point, there is a learning curve on that, especially as the volumes ramp up. And the margins typically get better over time as you improve yields.
Speaker Change: Great, thanks.
Speaker Change: Your next question comes from the line of Nathan Treybeck with Wells Fargo. Your line is open.
Joseph W. Dziedzic: Great, thanks for taking the question. You brought down CRM and neuromodulation guidance to high single digits from low double digits. Can you talk about what you're seeing in this business? And is there any change in the implied outlook for your PMA portfolio?
Nathan Treybeck: Great, thanks for taking the question. You brought down CRM and neuromodulation guidance to high single digits from low double digits. Can you talk about what you're seeing in this business and is there any change in the implied outlook for your TMA portfolio?
Joseph W. Dziedzic: Thanks for the question, Nathan. So on CRM, we had said at the beginning of the year that we expected to continue to see fairly robust CRM-specific, not neurologic, but cardiac rhythm management growth, and then we would expect it to normalize in the second half of the year, meaning lower growth rates. That's what we saw based on the order book and based upon conversations with customers. If you look at, I'll just point to two of the industry players who have reported results, Abbott's CRM growth rate from the first to second quarter stepped down a couple hundred basis points.
Speaker Change: Great. Thanks for the question, Nathan. So, on CRM, we had said at the beginning of the year that we expected to continue to see fairly robust CRM-specific, not neuro, but cardiac rhythm management growth.
Speaker Change: And then we were expecting it to normalize in the second half of the year, meaning lower growth rates. That's what we saw based upon the order book and based upon conversations with customers.
Speaker Change: If you look at, I'll just point to two of the industry players who've reported results, Abbott CRM, Growth Rate.
Joseph W. Dziedzic: I still think Abbott's got a really strong growth rate; I think it was just under 6% in CRM, but the second-quarter growth rate for Abbott and CRM was lower than the first quarter. Specifically, because we're seeing and expecting that markets are normalizing, Abbott's still very strong with, they called out their Avere leadless pacemaker program. Boston also had a step down in their growth rate; I think it was 5% to 3%, first quarter was 5% growth, second quarter was 3%. So we look at that data, we look at what our customers are ordering from us, and we look at what that translates to, and so we, for our sales, expect to see the CRM segment normalize more in the second half. lower growth rates than in the first half, on your question, and so that's happening as expected.
Speaker Change: From the first to second quarter, step down a couple hundred basis points. I still think Abbott's got a really strong growth rate, I think it was just under 6% in CRM. But the second quarter growth rate for Abbott in CRM was lower than first quarter.
Speaker Change: Specifically because we're seeing and expecting that markets are normalizing. Abbott's still very strong with, they called out their Avere leadless pacemaker program. Boston also had a step down in their growth rate. I think it was five to three percent. First quarter was five percent growth, second quarter was three. So we look at that data, we look at what our customers are ordering from us, and we look at what that translates to. And so we do, for us, for our sales, expect to see the CRM segment normalize more in the second half, i.e. lower growth rates than in the first half, on your question. And so that's happening as expected.
Joseph W. Dziedzic: It's very much following what we saw at the beginning of the year and what we were hearing. On the emerging PMA customers, we gave guidance for the year of 100 to 120 million sales for that group of customers. That's up from 50 million two years ago, and 50 million in 2022, so very strong growth. We're very much on a trajectory to deliver on that.
Speaker Change: It's very much following what we saw at the beginning of the year and what we were hearing.
Speaker Change: On the emerging PMA customers, you know, we gave guidance for the year of 100 to 120 million of sales for that group of customers. That's up from 50 million two years ago, 50 million in 2022, so very strong growth.
Joseph W. Dziedzic: Those sales are a little more back half, second half weighted than first half, so that's where you'll see some additional sales in the second half with that group of customers. That's because those programs are in production, and we're ramping the output based upon their forecast plans and how they're introducing those products into the marketplace. So we do expect to see slightly higher emerging PMA customer sales in the second half of the year compared to the first half, and we're very much on a trajectory to deliver that 100 to 120 million dollars of sales that we had guided to at the beginning of the year. Okay, thank you for that. And just a two-part question on PFA.
Speaker Change: We're very much on a trajectory to deliver on that. Those sales are a little more back half, second half weighted than first half, so that's where you'll see some additional sales in the second half is with that group of customers. That's because those programs are in production and we're ramping the output based upon their forecast plans and how they're introducing those markets.
Speaker Change: products into the marketplace. So we do expect to see slightly higher emerging PMA customer sales in the second half of the year compared to the first half, and we're very much on a trajectory to deliver that $100 million to $120 million of sales that we had guided to at the beginning of the year.
Nathan Treybeck: Can you speak to the net benefit that you get from PFA in the context of cannibalizing your non-PFA ablation business? And then the second part would be, you know, we're hearing that EP market growth is accelerating, in part driven by increased procedures, but there's also the price premium for PFA. And I'm just wondering to what extent are you able to capture, you know, those economics as a contract manufacturer? Thanks. So, I'll start.
Speaker Change: Okay, thank you for that. And just a two-part question on PSA.
Speaker Change: Can you speak to the net benefit that you get from PFA in the context of cannibalizing your non-PFA ablation business?
Speaker Change: And then the second part would be, you know, we're hearing that the EP market growth is accelerating, in part driven by increased procedures, but there's also the price premium for PFA, and I'm just wondering, to what extent are you able to capture, you know, those economics as a contract manufacturer? Thanks.
Joseph W. Dziedzic: The price premium is on the finished device, and a lot of what we're doing for our customers is similar capabilities to what we're providing with current ablation technologies. And so, it's not like if our customers are getting a meaningful price premium, that that necessarily is flowing through to us, but that's okay because this is a strong business and a strong portfolio with differentiated technologies already. And applying them to a faster growing new therapy is a great thing for us.
Speaker Change: So, I'll start. The price premium is on the finished device and a lot of what we're doing for our customers is similar capabilities.
Speaker Change: as what we're providing on current ablation technologies. And so it's not like if our customers are getting a meaningful price premium that that necessarily is flowing through to us, but that's okay because this is a strong business and a strong portfolio with differentiated technologies already, and applying them to a faster growing new therapy is a great thing for us. So that's how I think about the price premium. From a cannibalization of current therapies, you know, it's hard to determine what that cannibalization is gonna be, but net, net, net, I think everyone believes PFA is ultimately gonna accelerate the growth in the marketplace from a procedure volume perspective.
Joseph W. Dziedzic: So, that's how I think about the price premium. From a cannibalization of current therapies perspective, it's hard to determine what that cannibalization is going to be, but net, net, net, I think everyone believes PFA is ultimately going to accelerate the growth in the marketplace from a procedure volume perspective. And given our participation across the full procedure on multiple platforms, we see that as a tailwind for us in aggregate. Thank you. Your final question comes from the line of Joanne Wuensch with Citigroup. Your line is open. Hi, this is Philippe. I'm on behalf of Joanne.
Speaker Change: And given our participation across the full procedure on multiple platforms, we see that as a tailwind for us in aggregate.
Speaker Change: Thank you.
Speaker Change: Your final question comes from the line of Joanne Wuensch with Citigroup. Your line is open.
Joanne Karen Wuensch: Just looking back at the back half of 23, I'm thinking about order lead times for your electrophysiology franchise. I'm just wondering if you could remind us of what those look like from your customers. And I guess with the strong start to the first half of 24, have you seen any change in lead times, and is there any amount of seasonality that's kind of baked into your guidance? Thanks so much.
Philippe Aon: Hi, this is Philippe Aon for Joanne. Just looking back to the back half of 23, I'm thinking about orderly times for your electrophysiology franchise. I'm just wondering if you could remind us of what those look like from your customers.
Speaker Change: And I guess with the strong start to the first half of 24, have you seen any change in lead times and is there any amount of seasonality that's kind of baked into your guidance? Thanks so much.
Joseph W. Dziedzic: So, I heard the second part; I didn't hear the first part, but let me answer the seasonality of the second half there. There really isn't any meaningful seasonality in our sales. We used to, in the last couple years, talk about our engineering revenues or the product development revenues that we generate from customers for developing products for them. We talked about how that was oftentimes back-end loaded. It was heavier in the third and fourth quarters, lighter in the first quarter and second quarter, in particular.
Speaker Change: So, Phillip, I heard the second part. I didn't hear the first part, but let me answer the seasonality about the second half there. There really isn't any meaningful seasonality in our sales.
Speaker Change: We used to, the last couple years we had talked about our engineering revenues or the product development revenues that we generate from customers for developing products for them. We had talked about how that was oftentimes...
Speaker Change: back in loaded. It was heavier in the third and fourth quarter, lighter in the first quarter, second quarter in particular. In 2024, we've actually seen a much more balanced
Joseph W. Dziedzic: In 2024, we've actually seen a much more balanced profile of our engineering revenues. And the reason that's relevant is that if you think about the cost of doing development work, they're engineers, and they're engineers who are on the payroll 365 days a year. So, the cost is fairly evenly loaded across the quarters, and when the revenue was back half loaded, you had a little bit of a mix shift there to less margin in the first half and more in the second half. For 2024, we've actually seen a much more balanced profile, which is something we've been working on, and we've been accomplishing that. So, we don't really have any meaningful or identifiable seasonality baked into our second half.
Speaker Change: profile on our engineering revenues. And the reason that's relevant is, if you think about the cost of doing development work, they're engineers, and they're engineers who are on the payroll 365 days a year. So the cost is fairly evenly loaded across the quarters. And when the revenue was back half loaded, you had a little bit of a mix shift there to less margin in the first half, more in the second half. For 2024, we've actually seen a much more balanced profile, which is something we've been working on, and we've been accomplishing that. So we don't really have any meaningful or identifiable seasonality baked into our second half.
Joseph W. Dziedzic: Our second half, slightly higher sales and growth rate is coming from new programs being introduced. They're already in production. They're ramping up, as well as the Irish facility coming online and giving us more capacity. And I apologize, I couldn't hear the first part of your question. If you could state that again, yeah, no problem at all.
Speaker Change: Slightly higher sales and growth rate is coming from new programs being introduced. They're already in production, they're ramping, as well as the Irish facility coming online and giving us more capacity. And I apologize, I couldn't hear the first part of your question, if you could state that again. Yeah, and the...
Joanne Karen Wuensch: I'm just wondering about order lead times for electrophysiology devices. I'm trying to understand how long it takes from order to actually being used in a procedure, and if you're seeing any change in cadence from your customers in terms of order timing, if it's happening more frequently just in the first half of 2024. Okay, so two things.
Speaker Change: [inaudible]
Joseph W. Dziedzic: Lead times In general, we haven't seen a meaningful change in lead times, and I point to our order book. When lead times come down, which we do expect over time they will, naturally, the order book goes down because of that. And so we would expect to see the order book come down with lead times and a couple other specific things. In terms of ramping up new programs and electrophysiology, you know, different customers have different approaches to how they approach their buildup of inventory in advance of approval or waiting for approval before they want to ramp. But we often get more orders for new programs further into the future so that we have even better visibility into the ramp plans of our customers. But that actually helps us.
Speaker Change: Okay, so two things. Lead times in general, we haven't seen a meaningful change in lead times, and I point to our order book, when lead times come down, which we do expect over time they will, naturally the order book comes down because of that. And so we would expect to see the order book come down with lead times and a couple other specific things.
Speaker Change: In terms of ramps of new programs in electrophysiology, different customers have different approaches to how they approach their build-up of inventory in advance of approval or waiting for approval before they want to ramp, but we oftentimes do get more orders for new programs further into the future so that we have even better visibility to the ramp plans of our customers, but that actually helps us, it gives us much better visibility and clarity on what the next 3, 6, 9 months look like, and then as you accelerate that ramp you clearly get synergies per the earlier question and the efficiencies that come with that, the yields improve over time as well.
Joseph W. Dziedzic: It gives us much better visibility and clarity on what the next three, six, nine months look like. And then as you accelerate that ramp, you clearly get synergies for the earlier question and the efficiencies that come with that. The yields improve over time as well. Great, thank you.
Operator: Thank you, and then just on operating leverage, what gives you the confidence that you can continue to deliver leverage at the rate that you've been doing the first half year in the back half year. Thank you so much for taking questions.
Joseph W. Dziedzic: And then just on operating leverage, what gives you the confidence that you can continue to deliver leverage at the rate that you've been doing in the first half of the year and the back half of the year? Thanks so much for taking the time to answer my question. Sure, so we've continued to see strong operational execution across our manufacturing facilities. We are executing on our manufacturing excellence initiatives, which gave us the gross margin improvement that we saw in the second quarter and first half year over year.
Speaker Change: Great, thank you. And then just on operating leverage, what gives you the confidence that you can continue to deliver leverage at the rate that you've been doing in the first half of the year and the back half of the year? Thanks so much for taking the questions.
Joseph Dziedzic: Sure, so we continue to see strong operational execution across our manufacturing facilities. We're executing on our manufacturing excellence initiatives, which gave us the gross margin improvement that we saw in the second quarter in first half year over year. We expect that to continue.
Speaker Change: Sure, so we've continued to see strong operational execution across our manufacturing facilities.
Speaker Change: We're executing on our manufacturing excellence initiatives, which gave us the gross margin improvement that we saw in the second quarter and first half year-over-year. We expect that to continue. We're executing on reducing scrap, reducing overtime, continued improvement in operator efficiency. And really, it's calling back some of the inefficiencies that occurred because of the supply chain disruption and the direct labor turnover that we had during the growth years after the pandemic. We're now at the company level. We're below the levels of turnover we had prior to the pandemic, which is helping us because our associates become more proficient at what they're doing. That helps to reduce scrap, reduce.
Joseph W. Dziedzic: We expect that to continue. We're executing on reducing scrap, reducing overtime, and continued improvement in operator efficiency, and really, it's calling back some of the inefficiencies that occurred because of the supply chain disruption and the direct labor turnover that we had during the growth years after the pandemic. We're now at the company level. We're below the levels of turnover we had prior to the pandemic, which is helping us because our associates are becoming more proficient at what they're doing.
Joseph Dziedzic: We're executing on reducing strap, reducing over time, continued improvement, operator efficiency, and really it's calling back some of the inefficiency. So they occurred because of the supply chain disruption and the direct labor turnover that we had during the growth years after the pandemic. We're now at the company level; we're below the levels of turnover we had prior to the pandemic, which is helping us because our associates become more proficient at what they're doing. That helps to reduce strap, reduce waste, and so that gives us the confidence and continued to expand largest the rest of the year.
Joseph W. Dziedzic: That helps to reduce scrap and reduce waste, and so that gives us confidence in continuing to expand margins the rest of the year. It's also very much aligned with our strategy of growing operating profit twice as fast as sales, which leads to margin expansion.
Joseph W. Dziedzic: It's also very much aligned with our strategy of growing operating profit twice as fast as sales, which leads to margin expansion.
Speaker Change: [inaudible]
Operator: There are no further questions at this time. I will turn the call back to you for closing remarks. Great, thank you Sarah and everyone who joined the call today. As always, you can access the replay of this call as well as the presentation on our website. Thank you for your interest in Integer, and that concludes our call today.
Operator: There are no further questions at this time.
Operator: I will turn the call back to you for closing remarks.
Speaker Change: There are no further questions at this time. I will turn the call back to you for closing remarks.
Operator: Great, thank you, Sarah, and everyone who are going to call today. As always, you can access the replay of this call, as well as the presentation, on our website.
Speaker Change: Great, thank you Sarah and everyone who joined the call today. As always you can access the replay of this call as well as the presentation on our website. Thank you for your interest in Integer and that concludes our call today.
Operator: Thank you for your interest in integer, and that concludes our call today.
Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Speaker Change: This concludes today's conference call. Thank you for joining. You may now disconnect.