Q3 2024 Integer Holdings Corp Earnings Call
Hello, and welcome to the integer Holdings Corporation third quarter 'twenty 'twenty four earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star one on your telephone keypad.
Speaker Change: I would now like to turn the conference over to Andrew said Senior Vice President of strategy business development and Investor Relations you may begin.
Andrew: Good morning, everyone. Thank you for joining us and welcome to <unk> third quarter 2024 earnings Conference call.
Speaker Change: With me today are Joe <unk>, President and Chief Executive Officer, and Diamond Smith, Executive Vice President and Chief Financial Officer.
Speaker Change: Up $15 million compared to the prior year or an increase of 18%.
Speaker Change: While adjusted operating income grew 17% versus last year or two times the rate of sales growth.
Speaker Change: As we continue to make progress on our year over year margin expansion third quarter 2024, adjusted operating income as a percentage of sales improved by 126 basis points to 17, 5%.
Speaker Change: Adjusted net income for the third quarter of 2024 is $50 million delivering $1 43 of adjusted earnings per share up <unk> 14, or 11% from the third quarter of 2023.
Speaker Change: Both <unk> and <unk> product lines continued to deliver above market sales growth on a trailing four quarter basis.
Speaker Change: The cardio and vascular product line trailing four quarter sales increased 15% year over year.
Speaker Change: <unk> growth is driven by above market growth across all markets, new product ramps in electrophysiology and structural heart and <unk> and pulse acquisitions.
Speaker Change: Cardiac rhythm management, and Neuromodulation trailing four quarter sales increased 7% year over year, driven by double digit neuromodulation growth from emerging PMA customers and normalized low single digit growth in cardiac rhythm management.
Speaker Change: Further product line details are included in the appendix of the presentation, which can be found on our website at <unk> dot net.
Speaker Change: Third quarter 2024 year to date basis, we delivered $25 million more adjusted net income than we did in the first three quarters of 2023.
Speaker Change: Strong sales acquisition performance and operational improvements, which include improving manufacturing efficiencies and operating cost leverage delivered $32 million of the increase this was partially offset by higher interest expense of approximately $7 million.
Speaker Change: The year to date increase in interest expense is primarily due to a higher average debt balance during the period driven by the previously discussed acquisitions of <unk> and pulse technologies.
Speaker Change: Our year to date adjusted effective tax rate was 18, 7% for 2024 consistent with the same period a year ago.
Speaker Change: Increases in the effective tax rate are primarily due to the pillar, 215% global minimum tax and impact of the Malaysian tax holiday exploration fully offset by discreet items, such as higher research tax credits and other tax planning initiatives.
Speaker Change: Historical GAAP and non-GAAP cash flow measures have not been adjusted to remove electric him consistent with the applicable GAAP presentation on the statement of cash flows leverage also a non-GAAP measure has similarly not been adjusted.
Speaker Change: In the third quarter 2024, we generated $72 million of cash flow from operations up $9 million from a year ago and up $24 million from the prior quarter.
Speaker Change: And I was just wondering you talked a lot about some of the year to date trends and then the implied <unk> exit rate, but maybe just specific specifically for the third quarter. If you could just touch on a little bit of a deceleration that we saw at a four 3% relative to the 7% year to date and what you think might have drove that thank you.
Speaker Change: Great. Good morning, Brett. Thanks for the question. So I'll start with the two year highlights at 6% organic year to date and our.
Speaker Change: Our guidance is 7% to 8% organic for the full year, which is up slightly from our original guidance at the beginning of the year, where we said 6% to 8%. So the bottom end on the organic that's come up a little bit and we had highlighted that what we.
Speaker Change: Expect it to happen throughout the year and the biggest driver of the third quarter at 4%. The biggest driver is as we expected based on our order book and the the ordering patterns that we saw at the beginning of the year CRM CRM was was down versus the.
Speaker Change: The trend line that we had had in the first half of the year and we expected that because we can see that in the demand based upon the the order book that we have we would've been a little higher we were 4% for the organic for the quarter would have been more like 5%, but we had a little bit of an impact from the hurricane Helene in as it happened at the end of the quarter for us.
Speaker Change: We had to shut down our facility in Florida, and the Dominican Republic to protect our associates that had a little bit of an impact it wasn't a material or meaningful impact, but we would've been we would've been 5% organic growth CMV segment would have been about 7% a little higher than our reported 6% organic growth. So when we.
Speaker Change: You look at the quarter, it's really what we expected in terms of the all the moving parts. We had said on our February.
Speaker Change: Fourth quarter earnings call back in February beginning of this year that our order pattern showed that CRM would normalize into the in the second half of the year from an ordering and shipments perspective in and that's what happened. So our neuromodulation business continued to perform very strongly.
Speaker Change: We saw continued growth there in the emerging PMA customers and in fact, the the hundreds $120 million that we had guided the year to for those emerging PMA customers are actually tracking to the high end of that range.
Speaker Change: And we have a strong strong shipments in the fourth quarter four for those emerging PMA customers. So we feel that we feel great about the fourth quarter outlook and the guidance.
Speaker Change: Alright, thanks for the color and then just wanted to ask one quick follow up and congratulations to Andrew and came in on the new roles and was just curious if you could maybe give a little bit more background around maybe the impetus for some of those changes and how you think the new team can build on some of the existing initiatives under this new structure. Thanks again, yeah. So it is.
Speaker Change: It's really it's really about continuing to execute our strategy and to and to outperform on a sustainable basis as we get bigger and continue to grow the size of the business and so it's really about executing our strategy and continuing to.
Speaker Change: To meet or exceed our financial objectives of sales growth above the market organically operating profit two ex Pat payment and Andrew have been integral parts of the strategy for not only the CND business, but the whole company because different leaders have have ownership over enterprise wide elements of our strategy and Andrew <unk>.
Speaker Change: And I have been here since the beginning of the strategy in 2018 and payment joined the company in early 18, Andrew has been with the company much longer but he has been in the <unk> business.
Speaker Change: During payments 10 year, leading the cardio and vascular business, we've almost doubled the sales for cardiovascular we're up over 90%.
Speaker Change: Since since payments stepped into that leadership role Andrew has been in the cardiovascular business for his entire career with into Jersey's He's done everything from lead R&D to sales to marketing you you know I'm more more recently as the enterprise wide leader for the strategy process for M&A and Investor Relations.
Speaker Change: They they both know our customers and the industry incredibly well. So this is really about accelerating the execution of our strategy and giving 222 highly successful leaders broader responsibilities to help us continue to deliver for our customers and then ultimately for shareholders.
Speaker Change: Your next question comes from the line of Craig Bijou with Bank of America. Please go ahead.
Craig Bijou: Good morning, guys. Thanks for taking the questions. So I wanted to start.
Craig Bijou: Can you guys just go over the growth trends of your EP business over the last couple of quarters and then when.
Craig Bijou: And when you when we think about PFA.
Craig Bijou: I guess I wanted to ask directly if you're expected benefit from PMA products.
Craig Bijou: That's changed at all.
Craig Bijou: As of the end of Q3, and I asked because I think investors.
Craig Bijou: Looking to see alright, and maybe see some acceleration in that CMP business given the.
Craig Bijou: Launch of the products today, and then the expected launch in coming in 'twenty five so maybe if you could just kind of.
Craig Bijou: Talking about the EP business PFA, and then you kind of frame how investors should be thinking about potential contribution from that emerging market.
Speaker Change: Thanks for the question Craig I'll start with we remain incredibly excited about <unk> as a therapy that technology and what it what it can do for patients and we're excited to be part of what's happening in the industry with with the growth of PFA.
Speaker Change: Our view and outlook Hasnt changed in fact, it continues to get better with with every passing a new clinical study and an announcement of progress across the industry on an it seems like every every participant coming out with another evolution of their therapy, and getting closer and closer to having more and more.
Speaker Change: Products in the market to deliver this new innovative therapy.
Speaker Change: For us I I'll highlight electrophysiology is an important part of our business, but it's one of many it's one of our four targeted growth markets and then even then within electrophysiology I think we've talked a lot about how we play across the full procedure everything from access with Guidewire introduces guidewire.
Speaker Change: Errors.
Speaker Change: The trans septal crossing as well as the diagnostic catheters that helped perform the mapping and into the ablation therapy itself, where pulse field ablation specifically comes into play. So electrophysiology is an exciting high growth market. We are highly vertically integrated we have a very strong position and footprint.
Speaker Change: Across the full procedure and we expect it to continue growing and we expect it to be a strong participant in so our outlook hasn't changed every day I think it just gets it gets brighter and brighter with the industry's progress, but I'll just highlight it is one of many growth factors for us and I would not expect any one product.
Speaker Change: Or or end market to be the single biggest.
Speaker Change: Driver or materially change the company outlook. So it's in our guidance as we continue to work with customers on their new product Rollouts. We can we continue to factor that into our outlook. Our electrophysiology business continues to outperform the market. We track we track our customers reported sales by end market. We then look at our <unk>.
Speaker Change: Sales by those end markets and we're still growing one and a half ish times the end market growth rate on a trailing four quarter basis, and we expect that to continue to accelerate as more and more products come to market.
Speaker Change: Great. Thanks, Joe and if I can also ask on the acceleration in organic growth expected in Q4 and understand.
Speaker Change: Yeah, Theres, a theres a number of moving pieces, so you're getting rid of electro Cam portable medical is coming out. So maybe if you can just help us understand expectations for acceleration.
Speaker Change: Acceleration organic growth acceleration by by segment, so CMV CRM and N.
Speaker Change: And then even the advanced surgical just just kind of want to get a sense for where that organic growth is going to accelerate.
Speaker Change: Sure. So what when you look at fourth quarter, it'll be a little different from a split between organic and reported and then the first three quarters. So in the first three quarters, you had roughly 400 basis points of difference between reported and organic in the fourth quarter, there's very little.
Speaker Change: All net inorganic in the quarter one of the acquisitions rolls off its rolling 12 months and becomes organic and then the other is offset by by portable medical coming down in the fourth quarter. So when you look at that fourth quarter guidance number think of that as both reported and organic in the quarter. So.
Speaker Change: That'll be a little a little nuance there as you as you stare at organic and inorganic split so <unk> reported and organic are roughly the same same number same percentage in the fourth quarter and we do expect to see continued improvement or acceleration in the growth rate in cardiovascular or because of the new products.
Speaker Change: They continue to ramp in that segment and then on the CRM and neuro, we do expect a neuro sales to be stronger in the fourth quarter in particular from the emerging customer PMA I I commented earlier that that hundreds $120 million range of emerging PMA customers, we expect to be at the high end of that and.
Speaker Change: And there's a slightly higher percentage of those sales in the fourth quarter relative to a normal 25% for any given quarter because of the the extent the ramp plans and our commercialization plans of those customers. These are orders that we had visibility to at the beginning of the year because neuro mod in particular, we have very long.
Speaker Change: As long order patterns and very good visibility multiple quarters out. So we've seen this all year and this was our expectation for the flow of that demand. So.
Speaker Change: And to your question on the advanced surgical and ortho.
Speaker Change: We do have portable medical coming down, which will be an inorganic decline and on and on an organic basis. That's a very small piece of our business that they function as more flattish and in the long and the trend line.
Got it thanks for taking my questions guys.
Speaker Change: Thank you next question My apologies. Your next question comes from the line of Rich <unk> with <unk> Securities. Please go ahead.
Speaker Change: Hi, excuse me thanks.
Speaker Change: Thanks for taking my questions.
Speaker Change: For me I guess, just just one you mentioned the hurricane impact and.
Speaker Change: In the third quarter, I guess is that gonna have any lingering impact into the fourth quarter.
Speaker Change: What what divisions.
Speaker Change: If there were specific ones were more impacted there and that segways into.
Speaker Change: My additional question on CRM, and neuro wasn't that division and if not.
Speaker Change: Just a little more color on <unk>.
Speaker Change: Why that was so soft at least relative to our expectations and seemingly consensus expectations. Thanks.
Speaker Change: Sure. So thanks for thanks for the questions rich the first verse.
Speaker Change: The answer is it's mostly cardio and vascular coming out of the Florida facility in the Dominican Republic facility.
Speaker Change: The lingering impact will likely.
Speaker Change: <unk> cost.
Speaker Change: Cause of having to shut down and then ramp back up and then run some overtime to catch up on on the few days two or three days that we had to shut down.
Speaker Change: So in the fourth quarter, we would expect to incur a little bit more cost. It was a small impact but it was at the end of the quarter and so you have really no time to react when it was the last few days of the third quarter.
Speaker Change: So that's all on the hurricane impact Fortunately all of our associates are safe and that the impact was far less than what was expected from that particular hurricane.
Speaker Change: On the on the cardiac rhythm management Neuro My question I'll go back to what we said at the beginning of the year on our fourth quarter earnings call back in February we looked at our order patterns that we saw from customers given our order book and we could see that the demand for CRM products was less in the second half, which I would not point to our indicate necessary.
Speaker Change: Really has anything to do with the broader market trends because you look at the market trends.
Speaker Change: Some some of the CRM participants had pretty strong growth some had a little bit lower growth, but I don't know that I would point to it necessarily a market trend I would look at this and say this is how customers, where we're planning to run their facilities and the demand they placed on us across the year, we saw that at the beginning of the year. We said on our earnings call that we expected to see our aim to <unk>.
Speaker Change: <unk> in the second half, which might be at a lower lower run rate than it had been in the first half and in 2023 that played out like we expected that it would.
Speaker Change: Got in the fourth quarter baked our expectation it out of that order pattern baked into our guidance I mean, we're sitting here now we're in the the the end of the fourth week of the quarter. We've got nine weeks to go and we've got really good visibility to the rest of the year. So we feel really good about the the top line guidance that we've given in the split by by segment that we guided to in <unk>.
Speaker Change: Our product line in summary slides in the appendix of the presentation.
Speaker Change: Maybe just one last one Joe any any selling day considerations, we should be thinking about in <unk> and or coming up in <unk>.
Speaker Change: No nothing significant there there there might be plus or minus I I'd have to ask dhiren internally that that's not something that we noticed once we went to a calendar year back in a calendar year for for our reporting back I think it was 2020 I think it was calendar year no. It is actually the end of 2019, we went to a calendar year.
Speaker Change: <unk>.
Speaker Change: For the year it all washes out we had been on a fiscal year, which I think it was every six or seven years, we'd have an extra week, but we're on a calendar year basis. So there might be a day or two but for for how our business operates we don't see that as a meaningful impact.
Speaker Change: Thank you.
Speaker Change: Thanks for the question and neck your next.
Speaker Change: Question comes from the line of Joanne <unk> with Citi. Please go ahead.
Speaker Change: Good morning, and thank you for taking the questions I know, we're a little early on this but can you provide any commentary for how youre thinking about 2025.
Speaker Change: I'd say, we continue to focus on executing our strategic objectives financial strategic objectives of organic growth 200 basis points above the market. We we had said at the beginning of this year. We thought 2024 was going to be a normal.
Speaker Change: Normal market growth relative to 'twenty, three which was above normal and based upon what we've seen in the market. We think that has played out to be a very normal kind of organic growth year for the industry.
Speaker Change: I have no reason at this point to believe 2025 is going to be any different than that so we remain focused on delivering on our strategic objectives.
Speaker Change: The sales girl in at least 200 basis points organically above the market and operating profit twice as fast growing twice as fast as sales.
Speaker Change: I'll just highlight will also be down at the low end of our of our leverage range by the end of this year, we shared that on our on.
Speaker Change: On our cash flow update where leverage at the end of the year is expected to be two six to two seven times EBITDA.
Speaker Change: Thank you and just to confirm what you're currently seeing in terms of your market growth that you think you'll be growing 200 basis points faster.
Speaker Change: That's not our guidance that's our objective we'll provide formal guidance in February on our fourth quarter earnings call.
Speaker Change: Okay. Thank you so much.
Speaker Change: Thanks Joanne.
Speaker Change: Your next question comes from the line of Matthew O'brien with Piper Sandler. Please go ahead.
Matthew O'brien: Good morning, Thanks for taking the questions maybe just sticking on on Q.
Matthew O'brien: Q4 for a second before I do that just congratulations to date, then and Andrew.
Matthew O'brien: But they can on Q4, it does look like a little bit of a T cell in terms of the two year stack. So I'm just curious if that entirely CRM.
Matthew O'brien: Is there any any of the hurricane impact there that caused that slowdown or is it just you guys being somewhat conservative.
Sure I'm I'm I'm I may not be tracking the two year stack at midpoint, we see we see sales growth of about 11%.
Matthew O'brien: Operating profit in that same order of magnitude so.
Matthew O'brien: So we think for the fourth quarter, we see strong sales growth based upon the new products, we're rolling out and supporting an N C. N V. In the neuro mine acceleration of the emerging customer PMA and so we feel good about that given that we're sitting here four weeks into the quarter with with nine to go.
Matthew O'brien: In the fourth quarter last year, I'm thinking about the comps fourth quarter last year was the highest quarter.
Matthew O'brien: The year it was over $400 million of sales in the prior quarters, where we're well below 300 and it was also the highest profitability of the year. It was 16, 7% Oi.
Speaker Change: Right last year compared to the full year was 15, two so you'll see the quarterly improvements so on a year over year basis fourth quarter is the toughest comp.
Speaker Change: And if you look at our guidance for the fourth quarter, the midpoint from a profitability standpoint.
Speaker Change: Is the average operating margin rate from for a year to date. So we think the fourth quarter guidance is very consistent with year to date and I'll I'll.
Speaker Change: I'll take this opportunity to highlight on a year to date basis, our operating margins up 180 basis points year over year. We're at 16, 5% operating margin rate year to date that compares to $14 seven last year and that's a 100 bps from gross margin. So we're expanding gross margins, which has been a big focus for us this year.
Speaker Change: In particular coming out of coming out of all of the pandemic disruption in and we're very focused on getting margin expansion in gross margin, but we're also getting 80 basis points of leverage on opex. So.
Speaker Change: We're pleased with the progress we're making both in gross margin and earnings getting operated operating leverage so.
Speaker Change: I am sorry, if I didn't answer your question, but I'll I'll take another shot at it.
Speaker Change: No that's perfect appreciate that and then just.
Speaker Change: We continue to follow up on Craig's question.
Speaker Change: In our electrophysiology business I'm, just curious just given the shift and we've seen so quickly. The PFA are you guys feeling any kind of inventory work down on the traditional energy.
Speaker Change: <unk> be a cryo or RF that kind of even weighing a little bit on that part of your business and then at some point is that really.
Speaker Change: And I guess most of the side you start to really see some of the PFA contribution to the business is that a dynamic that we should consider at all thank you.
Speaker Change: So we we havent seen any measurable meaningful shift or change I. Obviously, I think everybody believes cryo is going to be impacted overtime, but pulsed field ablation coming out and so we are we are assuming and factoring in the kind of the broader industry expectation on cryo <expletive>.
Speaker Change: Klein, but and in the and the other the other applications, we continue to see strong demand of.
Speaker Change: Our customers continue to be very optimistic about about the broader electrophysiology marketplace and given our broad footprint and participation across the full procedure and given our significant vertical integration. We think we're incredibly well positioned to support the industry. During this transition.
Speaker Change: And help our customers bring bring products to market as fast as as we all can on a safe basis. So we remain excited and don't don't haven't seen any meaningful shift beyond what you're hearing and seeing in the in the broader industry and as we look at electrophysiology, given our broad footprint and vertical integration.
Speaker Change: And we see it as a net tailwind for the company for sure.
Speaker Change: Got it.
Speaker Change: Can I sneak in one more.
Speaker Change: Yes, the bigger the big R&D cut in the quarter.
Speaker Change: Why was that and does that does that anything to be.
Speaker Change: Cautious about in terms of $25 26 in terms of investment there I don't know if there was an adjustment that I missed in the in the release. Thanks.
Speaker Change: Yeah, No no adjustments are great. It's a great question. So first.
Speaker Change: First off we didn't cut R&D, but nominally we continue to spend more in R&D, what you're seeing there is higher levels of reimbursement or maybe the wrong term given your thought your understanding of reimbursement for our customers higher levels of our customers paying us to do development work for them in the discrete third quarter compared to other.
Speaker Change: Quarters.
Speaker Change: I think in the last couple of years, you've heard us talk about how to think about our development revenues. We the R&D line is impacted by our development revenues.
The cost for our development activity is very flat quarter to quarter throughout the year, because it's primarily R&D engineers doing work so they're on the payroll 365 days a year.
Speaker Change: When we get revenue when we generate revenues or get paid by our customers is connected to achieving milestones on those different development programs and in previous years. What we saw was a pattern of more revenues later in the year in particular in the fourth quarter as we and our customers work to.
Speaker Change: To hit milestones within the year end and stay on track we have been very focused on level is normalizing or leveling that out across the year and I think I commented on last quarter's call that this year in particular, we've been seeing a much much more level loaded revenues.
Speaker Change: For that kind of work and what you're highlighting here is actually in the third quarter, we actually saw more revenues in the third quarter for that kind of work than the than the other quarters and so that's the biggest driver of the R&D expense being down it's because of revenues not because of reducing cost and so now we're expecting fourth quarter.
Speaker Change: <unk> to be a more normal average for the year as compared to prior years, where fourth quarter might've been a very strong revenue quarter for the development revenues. So thanks for hiding that because it was important to explain that we didn't lower any cost we actually just generated more revenues for the work we're doing.
Speaker Change: Very helpful. Thank you.
Speaker Change: Yeah.
Speaker Change: Once again, ladies and gentlemen, if you have a question. It is star one on your telephone keypad.
Speaker Change: Next question comes from the line of Kingston Stewart with C. L. King. Please go ahead.
Kingston Stewart: Hi, Thanks for taking the question I was wondering if you could just give a little bit more detail on gross margins in the quarter, what drove kind of the increase and then how should we think about it going forward just from a sustainability perspective.
Speaker Change: The increase year to year.
Speaker Change: And whether or not you can get back to that 31 pre COVID-19 level and if theres any time horizon associated with that achievement.
Speaker Change: Great. Thanks. Thanks for the question, we absolutely expect to get back to the 2019, 31% gross margins and then we expect to build on that we don't plan to stop at 31.
Speaker Change: But we have made tremendous progress year to date up 100 basis points year over year, it's really a function of recovering getting back some of the inefficiencies that we've incurred from supply chain disruption and the direct labor turnover or our supply chain is very very stable at this point the team has done a good.
Speaker Change: Job of managing that and then on the direct labor turnover.
Speaker Change: Company Company total were below where we were pre pandemic, which is great where we're very focused on engagement with our with our direct labor associates and we're getting really good traction on our manufacturing excellence.
Speaker Change: Initiative and the work, we're doing with associates to to provide them with tools and in kaizen events and lean implementing lean processes and we see we see continued significant opportunity whether it's in direct materials scrap reduction or reducing over time because of how we load the plants or.
Speaker Change: Driving greater direct labor efficiency, there is automation.
Speaker Change: <unk> still and so now that the teams the plant management teams can really get back to focusing on driving those individual projects. Many of them are small projects to compound over time, we're starting to see the financial benefits of the hard work. The team has been doing and we expect that to.
Speaker Change: To continue and excited for the progress that the team is making so we absolutely expect to continue growing operating profit twice as fast as sales. The sales growth rate is our objective and we would expect that to come from both.
Speaker Change: Expanding gross margins, while also continuing to get leverage on the operating expense and so right now were 180 basis points at the operating margin rate a level above last year on a year to date basis, and that's 100 basis points from gross margin to 80 from Opex and that's a it's a good mix that will keep driving going forward.
Speaker Change: Yeah.
And then as your leverage is coming down and I was wondering if you could give us an update on how you're thinking about M&A.
Speaker Change: Yes, but well by the end of the year, we expect to be at the low end of our range, which means we've got the the $250 million to $300 million of capacity that we've talked about on a kind of a rolling annual basis and so we continue to have a robust pipeline that we continue to secure a you know many of the acquisitions we do.
Speaker Change: We work with those targets over multiple years building a relationship understanding their business, so that when they're ready and and you know we don't we don't get to choose when theyre ready ready to transact. If we did we would probably be paying a premium and we'd rather pay a fair a fair price payer multiple.
Speaker Change: That pipeline continues to be curated by Andrew and his team and we would expect to continue executing our inorganic strategy over time and the nice thing is we now have the full capacity that we target within our targeted debt leverage range.
Speaker Change: Okay. Thanks very much.
Speaker Change: Thank you.
Speaker Change: Your final question comes from the line of Suraj Kalia with Oppenheimer. Please go ahead.
Suraj Kalia: Morning, Joe Dogger and can you hear me all right.
Suraj Kalia: Yes, good morning Suraj.
Suraj Kalia: So diner and one question for you and Joe One question for you Darren Let me start out with you so the 1%.
Suraj Kalia: Our shortfall in organic growth because of hurricane Colleen.
Suraj Kalia: I guess I wanted to ask the question a slightly different way given the visibility of your customer orders for the long term contracts should.
Suraj Kalia: Should we start thinking about you know a relative concentration in the last week of a quarter or so.
Speaker Change: I mean, the logic would have dictated it would be a relatively steady cadence throughout the quarter. Maybe you can help us reconcile clean in the last week of September.
Speaker Change: Yeah, and just tie it into how youll see customer orders throughout the quarter.
Speaker Change: Sure Suraj, Yeah, I mean, when you when you look at our order pattern. There's there's a couple of different variables that that happened in one of them is the you know the normal order pattern is relatively smooth we.
Speaker Change: We do about 30 $33 million a week.
Speaker Change: And so when you look at the.
Speaker Change: Timing of that.
Speaker Change: Most are relatively smooth you have some debt that you have sterilization near the end of the quarter, where that happened a little bit more in bulk and when you talk about hurricane Helene specifically it all happened right in the last few days of the quarter. So we ended up closing a facility for about three days.
Speaker Change: And that was right when things are in the process of getting packed shipped final sterilization. So you have a little bit of an outsized impact again. It ultimately is about a one percentage point impact to our overall organic growth that for that will be will be caught up in the fourth quarter and noticed Joe mentioned earlier would be primarily a.
Speaker Change: Cost pressure.
Speaker Change: Cost headwind as we kind of work through getting re ramped up.
Speaker Change: So we shouldn't think about.
Speaker Change: Besides the hurricane impact normal cadence and we should start thinking about concentration towards the end of the quarter is that a fair way to look at it yeah.
Speaker Change: Yeah, Yeah, correct not not from a kind of an ongoing basis, yes, you should not think of kind.
Speaker Change: Kind of last couple of days concentration.
Speaker Change: Fair Fair enough Joe one question for you.
Speaker Change: Appreciate all the color.
Speaker Change: Joe in terms of the comment about new structural heart products. I know you guys are talking of.
Speaker Change: The tricuspid component and structural heart, maybe if I can push you on Tri clip remind us is it based on just minimum volumes or are there any adjustments based on price volumes, how should we think about you know as.
Speaker Change: As we rollout into Q4 and FY 'twenty five any color you could give us would be great gentlemen, thank you for taking my questions.
Speaker Change: Great. Thanks, Thanks, Raj I can't speak to any specific individual program or individual customer, but if I. If I just respond to your question maybe more broadly.
Speaker Change: Our our agreements some of our agreements will in fact have some pri.
Speaker Change: Pricing based upon volume levels, we call that tiered pricing.
Speaker Change: As we hit certain volume thresholds, we drive additional synergies efficiencies of scale and we do in fact share some of that with our customers. So that we both benefit from growth. Our goal is to enable our customers' success, which means help them grow and treat more patients and grow in the market and win win.
Speaker Change: We get to participate in that we have to earn that right. When we get to participate in that there is a sharing.
Speaker Change: On some programs and so that that is it is a structure and function that we have with with some customers. It's very common with our new product launch where pricing may be above average in the early days because you have inefficiencies as you introduce something and ramp you've got training of associates.
Speaker Change: Yields are not always optimal at the beginning of a new product launch and then as you move into kind of a full scale production and the pricing comes in line more with kind of the cost that you would expect in a full scale manufacturing line and so there is there is that dynamic but.
Speaker Change: The end objective of that is really just kind of matching the inefficiencies with the pricing during that ramp phase and then and then as quickly as possible getting to a very efficient full scale production.
Speaker Change: In a price that's very competitive and it helps our customers succeed in the market.
Speaker Change: Thank you.
Speaker Change: This concludes the question and answer session I will turn the call to Andrea for closing remarks.
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 cover. Thank you for your interest in integer and that concludes today's call.
Speaker Change: This concludes today's conference call. We thank you for joining you may now disconnect.
Speaker Change: [music].