Q1 2025 Integer Holdings Corp Earnings Call
Speaker Change: Good morning and welcome to the Integer Holdings Corporation first quarter 2025 earnings conference call.
Speaker Change: All participants aren't a listen-only mode. After the speakers remarks, we will conduct a question and answer session.
Speaker Change: To ask a question at this time, you'll need to press star, followed by the number one on your telephone keypad.
As a reminder, this conference call is being recorded.
Speaker Change: I would now like to turn the call over to Sanji Varora, Senior Vice President, Strategy, Business Development and Investor Relations. Thank you, please go ahead.
Speaker Change: Good morning, everyone. Thank you for joining us and welcome to Integer's first quarter 2025 earnings conference call. With me today are Jill Dziedzic, President and Chief Executive
Speaker Change: Payment Cales, President and CEO-elect, and Chief Operating Officer, Diron Smith, Executive Vice President, and Chief Financial Officer, and Kristen Stewart, Director of Industrial Relations.
Speaker Change: As a reminder, the results in data we discussed today reflect the consolidated results of integer for the periods indicated.
Speaker Change: During our call, we will discuss some non-GAAP financial measures. The reconciliation of 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
Please note that today's presentation includes forward-looking statements [inaudible]
Speaker Change: Please refer to the company's SEC filings for a discussion of the risk factors that could cause our actual results to differ materially.
And today's call, Joel will provide his opening comments.
Speaker Change: Diron will then review our adjusted financial results for the first quarter 2025 and provide an update for the full year 2025 outlook. Joanne will come back and provide his closing remarks and then we'll open up the call for your questions. But that, let me turn the call over to Joanne.
Joe Dziedzic: Thank you, Sanjeev, and thank you to everyone for joining the call today.
Joe Dziedzic: Before we discuss our first quarter results, I want you to comment on the planned CEO's accession we announced today.
Speaker Change: I am incredibly proud of what we have built at Integer during my eight years as CEO . We have a clear vision, a compelling growth strategy, and a strong values-based culture. The business is delivering for customers, patients, associates, and shareholders.
Speaker Change: We have already now CEO and payment chaos. He has been an integral part of developing and executing integer strategy and the creation of our high performance culture.
Speaker Change: Payment led our cardio-evascular business for seven years and delivered outstanding results, including doubling the C&D sales while improving profitability.
Speaker Change: We have expanded payments responsibilities over time as part of our leadership development plans including overseeing the CNB and CRM and in businesses at COO.
Speaker Change: Now is the right time for the business to transition the CEO role to payment for a position of strength.
Speaker Change: I am confident payment will build on Integer's track record of success and I look forward to retiring later this year what I will be going to explore in the world with my wife and spending more time with family and friends.
Speaker Change: This transition will be effective on October 24, 2025, and I will then stay on as an advisor through March 31, 2026.
Speaker Change: I'll hand the call over to Payment for a few words. Thank you, Joanne. I'm thrilled to be named president as CEO of this excited time for Integer. I would like to thank you and the board for having faith in me to lead this amazing company into our next chapter.
Speaker Change: We have a lot of momentum in the business as we continue to build differentiated capabilities and collaborate closely with our customers to deliver innovative medical device technologies to patients around the globe.
Speaker Change: I look forward to partnering with Jo over the coming months to prepare for the transition while we continue to focus on executing our strategy. Now I'll tell the call back to you.
Thank you, Baiman.
Let's look at our first corner results.
Speaker Change: In the first quarter, we delivered strong performance with sales increasing 7% year over year on a reported basis and increasing 6% on an organic basis. Our adjusted operating income grew 14% as we improved our gross margin rate and leveraged our operating expenses.
Speaker Change: We are reiterating our 2025 sales outlook of 8-10% reported growth and 68% organic growth.
Speaker Change: 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.
Speaker Change: We're also reiterating our adjusted operating income outlook of 11 to 16% growth year-over-year. This includes a $1 to $5 million estimated tariff impact.
Speaker Change: We are raising our adjusted earnings per share outlook by 31 cents to include the benefit of our March convertible note offering. This represents strong adjusted EPS growth of 16 to 23%.
Speaker Change: The strong execution of our strategy may all Integer Associates is enabling us to sustain above market growth and expand our margins.
Speaker Change: We also continue to execute our Ill Organic Growth Strategy while continuing to manage our debt leverage within our target range of two and a half to three and a half times EBITDA.
Speaker Change: During the first quarter, we completed two tuck-in acquisitions, precision coding and VSI paroling, which increased integer service offering to include differentiated and proprietary coding capabilities.
Speaker Change: It's an exciting time at Integer because we have a strong pipeline of new products concentrated in faster growing in markets.
Speaker Change: Our margins are expanding as a result of our manufacturing and business excellence initiatives. And we continue to acquire and integrate tuck-in acquisitions that add or compound different
Speaker Change: I am grateful for our associates around the world who are delivering for customers and making a difference for patients.
Adoption of the Callovers Diring.
Diron: Thank you, Joe. Good morning, everyone, and thank you again for joining today's call. I'll provide more details on our first quarter 2025 financial results and provide an update on our 2025 outlook.
Diron: In the first quarter of 2025 we delivered strong financial results, sales totaled $437 million dollars, reflecting 7% year-over-year growth on a reported basis and 6% on an organic basis.
Diron: Organic Sales Growth removes the impact of our precision and VSI acquisitions in the first quarter 2025, the strategic exit of the portable medical market announced in 2022 and foreign currency fluctuations.
Diron: We delivered $92 million of adjusted EBITDA up to $12 million compared to the prior year or an increase of 14%. Adjusted operating income also grew 14% versus last year or two times sales growth, as we continue to make progress on our year-to-year margin expansion.
Diron: Aduncted Operating Income is a percent of sale of the expanded approximately 100 basis points year-of-year to 16.2%. Nearly 70 basis points from gross margin and 30 basis points from operating expense leverage.
Diron: Adjusted net income for the first quarter 2025 was $46 million, up 19% year-to-year, while adjusted earnings for share total $1.31, up 15% from the same period last year.
Diron: Cardio and vascular sales increased 17% in the first quarter of 2025, driven by new product grants and electrophidiology and incremental sales related to the precision and BSI acquisitions.
Diron: Partially offset by the impact of viewershiping days in 1st quarter 2025 versus 1st quarter 2024.
Diron: On a trailing 4-quarter basis, C&V sales increased 14% year-to-year, which strong growth across targeted C&V margins, driven by electrophysiology and stressful heart, as well as the contribution from acquisitions.
Diron: For the four year 2025, we expect CNV sales to grow in the mid-teens compared to the four year 2024.
Diron: Cardiac Rhythm Management and Neuromodulation Sales increased 2% in the first quarter of 2025, driven by strong growth from emerging PMA customers in neuromodulation and normalized growth in CRM. This was partially all set by the impact of viewershiping days on a year-to-year
Diron: On a trailing 4-quarter basis, DRN and N sailed increased 6% year-to-year, driven by strong growth from emerging PMA customers in neuromodulation and low single-digit growth in cardiac
Diron: For the full year 2025, we continue to expect CRM and N to grow low to mid-single digits as compared to the prior year.
Diron: Product line detail for other markets is included in the appendix of the presentation which can be found on our website at integer.net
Diron: In the first quarter of 2025, we delivered $46 million of adjusted net income up $7 million versus a year ago, which was driven by operational improvements. As FX, interest, and tax had a negligible impact on a year-to-year basis.
Diron: Operational drivers include higher sales volume, manufacturing efficiencies, operating expense management, expanding margins, and acquisition performance.
Diron: Our adjusted effective tax rate was 17.4% for the first quarter of 2025, down from 18.1% in the prior year.
Diron: We continue to expect our adjusted effective tax rate to be within a range of 19 to 21% for the four year 2025.
Diron: Our first quarter of adjusted earnings per share is impacted by both higher adjusted net income and higher adjusted weighted average shares outstanding.
Diron: The year-veer increase in adjusted weighted average shares outstanding drove approximately four cents reduction to our adjusted EPS. This is primarily due to strong performance of the integer stock price and the resulting delutive effect of our 2028 convertible notes.
Diron: In the first quarter of 2025, we generated $31 million of cash flow from operations up 35% from a year ago. This performance was driven by improved operational execution primarily from higher sales and improved margins.
Diron: Our cap-expand in the first quarter of 2025 was $25 million, which is in line with our full-year guidance. As a result, three cash flow was $6 million in the first quarter, an improvement of $12 million from the prior year.
Diron: At the end of the first quarter, net total debt was $1,230 million, which is a $275,000,000 increase compared to the fourth quarter of 2024 ending balance.
Diron: Reflecting the acquisitions of precision and VSI, as well as costs associated with our convertible note offering.
Diron: Our net total of that leverage at the end of the first quarter was 3.3 times trailing four quarter adjusted evita within our strategic target range of two and a half to three and a half times.
Diron: In March of 2025, we completed a strategic refinancing of our capital structure with significantly increased the portion of our debt fixed at a sub-2% rate.
Diron: We expect this structure to reduce our interest expense by approximately $13 million in 2025. This is reflected in the 31-sense increase to our full-year 2025 adjusted EPS outlook.
Diron: Additionally, this structure creates revolver capacity allowing us to support our tuck-in acquisition strategy.
Diron: To refinance our debt, we issued $1 billion of convertible notes due in 2030, with a fixed coupon rate of 1.78% at a conversion premium of 27.5%.
Diron: We use the proceeds to exchange nearly 77% of our in-the-money and outstanding two-and-eight percent
Diron: Foley Retay, Outstanding Borrowings, and the crude interest under our revolving credit facility.
Diron: Partially pay down our term loan A and to purchase cap calls related to the notes to minimize the potential dilute of effect on shareholders by raising the effective conversion premium from 27.5% to 60%.
Diron: Turning to our 2025 full-year outlook, we are reiterating our 2025 sales, adjusted EBITDA and adjusted operating income outlook, while raising our adjusted net income and adjusted earnings per share outlook.
Diron: We continue to expect sales in the range of $1,846,000, to $1,880,000, and an increase of 8% to 10% versus last year.
Diron: On an organic basis, we expect sales growth of 68%, which is approximately 200 basis points above our underlying market growth estimate of 4 to 6%.
Diron: We reiterate our adjusted EBITDA Outlook range between $401,000,000 to $422,000,000, reflecting the liking growth of 11 to 17%.
Diron: We also continue to expect adjusted operating income between $315 million and $331 million a growth of 11 to 16%. This is inclusive of our estimated tariff impact of $1 to $5 million for 2025.
Diron: We are raising our adjusted net income outlook by $10 million, reflecting the impact of interest
Diron: We now expect adjusted net income to be between $218 and $231 million, an increase of 19 to 26% versus 2024.
Diron: This resulted in an adjusted EPS outlook between $6.15 and $6.51, which is a growth of 16-23% on a year-rear basis, a raise of 31 cents compared to our February 2025 outlook.
Diron: Our outlook assumes adjusted weighted average dilutive shares outstanding of 35.5 million shares for both the second quarter and full year 2025.
Diron: Our expected reported sales growth of 8-10% for 2025 includes inorganic growth of approximately $59 million from the Precision and VSI acquisitions, all set by an approximate $29 million decline from the previously announced portable medical exit which is expected to be completed by the end of 2025.
Diron: For the second quarter of 2025, we expect reported sales growth in the high single digits compared to the second quarter of 2024.
Diron: We expect minimal and organic sales contribution as a second quarter year-to-year impact from acquisitions is mostly offset by the year-to-year decline in formal medical, similar to the year-to-year impact in the first quarter.
Diron: We continue to expect adjusted operating income as a percent of sales to expand throughout the remainder of 2025 driven by continued improvement in manufacturing efficiency and sales growth in our growth and operating costs.
Diron: At the midpoint of Outlook, adjusted operating the income as a percent of sales is expected to expand 76 basis points in 2025 compared to the full year 2024.
Diron: We have raised our outlook for cashflow from operations by $10 million, to now be between $235 million to $255 million, which represents a 20% year-beer increase at the midpoint of the outlook. [inaudible]
Diron: Our outlook for capital expenditures is unchanged at $110 to $120 million as we continue to invest in capabilities and capacity.
Diron: As a result, we now expect to generate free cash flow between $120 million and $140 million, a $10 million increase compared to our February 2025 outlook.
Diron: We expect our 2025 year-in that total debt to be between $1 billion, $115 million, and $1 billion, $135 million.
Reflecting the impact of our debt refinancing [inaudible]
Diron: We expect to end the year with a leverage ratio within our target range of two-and-a-half and three-and-a-half times trailing 4-quarter adjusted to EBITDA.
Joe Dziedzic: With that, I'll turn the call back to Joanne. Thank you. Thanks, Diron. Our first clueless results demonstrate a strong start to the year. We have increased our full year earnings per share outlook after a very successful, convertible bond offering and are projecting adjusted EPS growth of 16 to 23%.
Joe Dziedzic: We are executing our strategy and delivering on our three financial objectives of growing organically above the market, while extending margins and maintaining debt leverage between two-and-a-half to three-and-a-half times EBITDA.
Joe Dziedzic: We are well positioned for the promotion of an experienced Integer leader to the CEO role through a well-managed process over the next year. I have never been more confident in Integer in our strategy, in our associates, and our ability to earn evaluation premium for shareholders.
Joe Dziedzic: We would now turn the call over to our moderator for the Q&A portion of the call.
Speaker Change: Thank you. As a reminder to ask a question, please press star, followed by the number one on your telephone keypad. In the interest of time, we ask that you please limit yourself in one question and one follow up and rejoin the queue for additional questions. Thank you. Our first question will come from Brett Fishbin from Keybank. Please go ahead. Your line is open. Please go ahead. Please go ahead.
I just wanted to maybe start off with...
You know, it can't even do so of the month.
Speaker Change: around tariffs. We were pretty encouraged by the press release that you put out and was just interested in how you got to the $1 to $5 million estimate for impact on adjusted operating income. It may be more specifically how you were able to limit what you were expecting to see to that range based on some of your international footprint.
Thank you.
Speaker Change: Good morning, Brett. So, thanks for the question on tariffs. Love to clear that one off the decks here. So, 1 to 5 million remains are estimated impact.
Speaker Change: For 2025, we're working to make that zero. It is included in our forecast, so there's no adjustments required. Our guidance incorporates this now.
We think about tariffs kind of in two different flows.
Speaker Change: We think about what we sell to customers and then what we buy from suppliers and what we sell to customers our customers manage the logistics of moving those products from our manufacturing facilities to their manufacturing facilities or to their distribution centers.
Speaker Change: So that's their responsibility. They pay the logistics, they manage that process.
Speaker Change: For what we buy, we manage the logistics and we're responsible for the products.
Speaker Change: from taking them from our supplier's location to wherever we are, we are consuming those materials and so that that that mechanism of the buyer is typically the one responsible for managing and paying for the cost of moving product. Thank you very much.
Speaker Change: is what insulates us really well on what we sell, and then on what we buy, we still source primarily from the United States, from United States based suppliers, so that certainly insulates us from import tariffs.
Speaker Change: Of course there are tariffs if there's tariffs on countries against product moving from the US.
Speaker Change: into those countries because we have a global manufacturing footprint. There could be exposure there and that's really what's driving our one to five million dollar range.
Speaker Change: We source very, very, very little from China, so the very high tariff on imports to and from China impact us in a negligible manner. And so that's how we're confident in our $1 to $5 million estimate. Again, we're working to make that as close to zero as possible.
Speaker Change: All right. Thank you. And then just for my follow-up, you know.
Speaker Change: Maybe like the one area to nitpick a little bit on the quarter was just the deceleration in CRM and segment, so just curious if you could walk through what you saw in that segment, this quarter if you know there were any headwinds and then maybe just more broadly, I think you might have commented, like load a mid single digit growth expectation for this year, which is like a bit of a slowdown from the past couple of years as well, and you know, yeah, just trying to think through like if that's the right run rate to think about the longer term or if there are specific
Thanks again.
Speaker Change: Certainly, so I'll start with, we delivered the high end of our sales guidance for the corner, so we feel like we're doing our job and managing all the moving parts and every corner there's always moving parts.
Speaker Change: And in this case, with CRM and N, 2% growth, I start with, we did have fewer selling days in the quarter, so that's a bit of a headwind when you look at all the sales across the board, but we had that factored into our guidance and our expectation. The emerging PMA customers continue to grow very nicely. We gave guidance that we expect the three to five year outlook for that group of customers. And that's a bit of a waste of time.
Speaker Change: to grow in the 10 to 15 to 20% range, which is 2X the market. Those customers, those products continue to grow nicely. CRM and IN has normalized back to a low single digit growth rate, especially when you adjust for the headwind on days. So CRM and IN came in where we expected. You did see some strength in CMV where we continue to do well with our new product launches and helping customers get products to market.
Thank you.
Speaker Change: And on your question about low to mid-single digits, going to go forward basis, I'd probably lean a little more towards the mid-single digit on a go-forward basis as the neuromodulation products become a higher percentage of that total. That will improve the mix and the growth rate for that segment as you look out over multiple years.
Thank you.
Thanks, Brett.
Speaker Change: Our next question comes from Craig Bijou from Bank of America. Please go ahead your line is open.
Craig Bijou: Hey guys, good morning. Thanks for taking the questions. I want to start with C&B and obviously nice, nice growth there as you have been delivering for.
Craig Bijou: Several quarters, you called out electrophysiology, and I know that's been an area of strength for you guys for a number of quarters.
Craig Bijou: I guess in the past you've talked about how that growth, your own EP growth has compared to the market and I think in the past it's been ahead of what the market's growing so basically just wanted to
Get your updated thoughts on-
into the next session.
Craig Bijou: that volume growth in the industry is contributing to our growth. The pulse field ablation is also an opportunity for us as we're getting higher content on average on the population catheter in that step.
Craig Bijou: And so we remain excited about electrophysiology. It continues to be a strong contributor to our growth. We are growing above the market. But as you highlighted, there's other growth factors as well in the business that we remain excited about. And it starts with that development pipeline that gives us confidence in our sustainability to sustainably outgrow the markets organically. [inaudible]
Great, thanks, next show, and...
Maybe a follow-up on tariffs and understand.
Craig Bijou: that it's not a big dollar amount for 25 and you guys are working to get it even lower. And how to think about that impact in 26, and is there anything I appreciate the comments on what is driving the tariff impact for you guys, is there anything within contracting or anything that may potentially make 26 a little bit higher from a tariff impact other than just maybe it's running through the balance sheet?
Craig Bijou: It's a good question, and if I could predict the future and all the variables that go into that I'd give you a really specific answer, but I'll just take the current view of tariffs and what's out there now. We would expect 2026 to be really the run rate of what we're seeing this year, somewhere in that one to five range.
Craig Bijou: It would be in that one to five range. We're pretty confident in the products we sell and how those flow from our plant to our customers.
Craig Bijou: and then on what we buy, I'll reiterate the majority of what we buy comes from U.S.-based suppliers and so we're insulated from import tariffs into the U.S. and we feel good about where we're sourcing from. Again, we're not really impacted by sourcing from China because we sourced very, very little from China so we feel good about the 1-5 estimate this year and I would say if if we end up with 2 or 3 this year or 1, it would still be in that cumulative 1-5 when
when you get into 2026.
Got it. Very helpful. Thanks, guys.
Thanks, Craig.
Speaker Change: Our next question comes from Richard Newitter from Tourist Securities. Please go ahead, your line is open.
Speaker Change: Hi, thanks for taking the questions and and Joe, congratulations. Best wishes to you.
Speaker Change: So, I wanted to just ask, you know, are the conversations or the strategic outlook in the way that you fit into some of your key?
OEM customers.
Speaker Change: Are they engaging you differently or more aggressively than maybe prior to Liberation Day, if you will? I'm just trying to get a sense for kind of how this, taking a step back, potentially, you know...
Speaker Change: Anything that you could provide there, and in the context of that, if you could also just give us an update on what the backlog trend looks like.
[inaudible] I'm sorry. I'm sorry. I'm sorry
Speaker Change: Sure, so I guess I'd start with, you've read what I think most of the OEMs in the industry have said, which is something something like
Speaker Change: Until we have greater clarity on the direction of tariffs, the permanency, or lack of permanency or clarity on the amount of tariffs, it's really hard to do a thoughtful economic analysis of what your manufacturing footprint should be.
Speaker Change: You could go down the path of making meaningful changes in your manufacturing footprint and your I'll call them country payers, where you make stuff, where you sell stuff and then tariffs change, the amount of tariffs.
Speaker Change: or the tariff in the direction that the tariff is imposed on changes and you maybe have made a strategic decision and an investment that turns out to be a really bad decision. So it does feel like from what you're reading publicly what we're hearing is that everyone's being thoughtful about let's see how this plays out and let's get to what we might consider to be a more stable environment beyond whatever negotiations are going to occur and trade agreements are going to take place. So my answer is...
Speaker Change: We're not seeing any rush or race to make any substantive meaningful changes. Of course everyone is looking at based upon the current footprint and where things are manufactured, where they are sold, where they are distributed. People are reflecting on within that existing structure, what can we do? And I'll just reinforce the industry has a very global manufacturing footprint.
Speaker Change: But you also got to consider the wage rates. There is a meaningful wage rate differential between some of the locations I just mentioned outside the US and the US and that is very much a variable that we're hearing everyone talk about think about and consider. So I guess my answer is we're not seeing a race to any significant structural changes, but of course everyone's looking to optimize within the existing footprint today. Thank you.
Okay, very helpful.
Speaker Change: So we published a number, I think it was 728 in our 10K for a year in, we're actually closer to 800 million now as we continue to introduce and bring new products to the market. We ask customers to place orders for those new products to give us certainty for some period of manufacturing as we ramp up a manufacturing line, hire associates, train them. We want a certain amount of kind of fixed guaranteed, we know we're going to build a certain amount while we're investing in there.
at RAMP.
Speaker Change: That's calls to our order book to actually go up closer to 800 million. We still think based upon the factors we've talked about for the last three or four years that that number is going to come down as we get closer to year end. We absolutely expected to based upon the orders for our facility in Ireland that we opened. We were asking customers to place orders 18 months out so we could better manage the allocation of that capacity. We're not asking customers to place orders that far out anymore so we know that's going to come down. We've talked about-
Speaker Change: Portable Medical and how we finished shipping those last time by products in 2025 so we know those orders go away. So strong order book today gives us excellent visibility to the rest of this year but just remember we do expect that number to come down for the factors I just mentioned.
Thank you.
Speaker Change: Our next question comes from Nathan Treybeck from Wells Fargo. Please go ahead, your line is open.
Nathan Trabeck: Hi, well thank you for taking the questions. I just wanted to clarify on the tariffs, this contemplated scenario where the 90-day pause ends and many of the proposed tariffs go into effect.
Yes, it does.
Okay, let's all fall.
Speaker Change: And then for my second question, just around the PMA launches that you had in Q4, the impact that grows margin in that quarter, as you ramped the manufacturing lines, do you expect this to be a material driver of gross margin expansion this year and will this offset the tariff impact?
Speaker Change: So, also to the tariff impact is really us just managing the business every year, there's moving parts, there's positive things and negative things that happen throughout the year and the guidance range we provided on operating profit of $315 to $331 million.
Speaker Change: allows for some of those moving parts and so in this case I wouldn't call out anything specific as to an offset of tariffs other than it's a rounding error in the sense of 325 midpoint on operating profit. But maybe to add a little color to the gross margin. So the first quarter gross margin was 28.7%. That's up 60 basis points on the full year.
Gross Marger Rake for 2020-24, it's up 120 basis points.
Speaker Change: from our fourth quarter margin rate. I know we talked about gross margins quite a bit in the fourth quarter and like we said last quarter, the gross margin can be impacted by the timing of new product launches by hiring associates training them while you're while you're not not shipping product yet or you ramp a line and until you get that that manufacturing line up to a certain volume you've got an efficiency just just baked into the throughput of that line until you until you get up to manufacturing yields. [inaudible]
Speaker Change: and so what we saw in the first quarter was an improvement in some of those operating lines and those new products but what I would caution everyone is that for the full year I would not take the first quarter gross margin and just add to it from there. You've heard me say many times life isn't linear businesses and either we would expect some variability in gross margins going forward for all the reasons we've talked about over the years but what I would reiterate is [inaudible]
Speaker Change: Our guidance for the four-year is intact. We still expect for the four-year to deliver margin expansion at midpoint at 76 basis points on operating margin that operating margin increase will come from some gross margin expansion. We're off to a great start in the first quarter on doing that as well as leveraging our operating cost.
Speaker Change: We've said that for the full year we expect SGNA to grow more in line with sales, so not as much operating leverage there.
Speaker Change: That's a result of the acquisitions bringing SDNA in and then on the RDME we would expect to continue to grow the amount of revenues we generate from customers for that development work so we would expect our RDME expense line to grow slower than sales so we would expect to get some operating
Speaker Change: If I could just sneak one more in, just on customer inventory levels, I mean, you've gotten this question a lot of the now I'm thinking about it the other way where, you know, given the 90-day pause and tariffs, are you seeing customers build inventories kind of as a precaution and could this be a tailwind for you?
Speaker Change: We are not and we would look at that as purely timing and if that were to happen that would be disruptive to our manufacturing processes because what you're suggesting is if customers were to want to order a lot more during this 90 day pause they would order less because at the end of the day.
Speaker Change: We're almost entirely sole-sourced on what we do. We're going to get whatever the in-market demand is and
Speaker Change: Something like you described would simply be timing of when we would be manufacturing and shipping product which would be inefficient and we would be having conversations with customers about those inefficiencies and if there was something meaningful material like that we would be communicating that to you so you would know the impact it would have on our sales in the timing of our sales.
Craig, thank you.
Thanks for the question.
Speaker Change: Our next question comes from Andrew Cooper from Raymond James, please go ahead, your line is open.
Speaker Change: Hey, everybody, thanks for the question. Joe Kengrat, Kaming Kengrat, sorry to only get one earnings call with you, Joe. But maybe just to jump in.
Speaker Change: on the guidance a little bit. Understand it's early just one quarter in the books, but you did a little bit better.
then what you had expected in one cue.
Speaker Change: What do you guys look forward to to kind of let you say, hey?
Speaker Change: It's time to think about adjusting those ranges given if we think about the 3% days headwind that's not quite what you saw relative to similar to the full year that you would point at us to you for the first quarter.
Speaker Change: So, I'll start with, we think 8 to 10% reported sales growth, 6 to 8% organic is a strong guide on the top line and we believe that continues to demonstrate our third consecutive year of outgrowing the markets on an organic basis.
Speaker Change: On profitability, we backed in, similar to what we'd often do at the beginning of the year, something in the range of 1.6 times profit growing 1.6 times as fast as sales.
Speaker Change: And what we like to see is we like to see each quarter that we make progress on making our way towards that strategic target of operating profit growing twice as fast as sales.
Speaker Change: Last year we did that, operating profit grew 20%, sales grew 10%, so as we click each quarter and we make progress on that, we would look to incorporate that into our guidance going forward because once you make progress on that, that usually sets a new run rate for you. And so first quarter, we typically look at that and say it's very early, you know, one quarter of the year done, this year has some particular volatility with the tariff conversation although it's not yet.
Speaker Change: Impactful to us from a cost standpoint. It has taken some effort to understand and manage that. And we're working with customers in every way we can to minimize their cost of tariffs.
Speaker Change: based on how we manufacture and product gets delivered to them and so we are working to ensure that we are doing everything we can to minimize our customers cost.
Speaker Change: of TRFs, and so I would say, well, as the year clicks forward and we stack up quarters of continuing to do more, we look to then incorporate that into our guidance.
Speaker Change: Great, that's helpful, and certainly appreciated it's a noisy time to put it lightly.
Speaker Change: Maybe just a two-farter next, and then I'll stop there. In terms of M&A, can you give us a little bit more flavor on sort of the early days with precision coding and VSI in terms of
Speaker Change: Maybe most importantly, the conversations with customers around leveraging kind of those additional capabilities you can integrate into what you do for them. And then secondly,
Speaker Change: Just how do you think about the appetite from here knowing where the leverage is but knowing there's at least one kind of larger asset being talked about in the market a little bit, and maybe your willingness to step up.
Speaker Change: for a bigger asset or do something creative from a structure perspective for something a little bit more transformational in size.
Payment Kills: A. Good morning, Andrew. This is Payment Cales. Let me take the first question that you asked the acquisitions that you mentioned. Thank you very much.
Speaker Change: Ben Cardiovascular, as you know, we've made over a half dozen acquisitions in recent years within Cardiovascular. So, as Joanne mentioned before in the past, we have a very specific
Speaker Change: Roadmap of capabilities. We have clear visibility as to what those critical capabilities are in the core markets that we want to serve. And we know exactly which ones we want to grow organically and inorganically. So the acquisitions that you see are a direct result of that. So the two most recent acquisitions that you referenced. And so we are going to move on to the next one.
Speaker Change: or all related to coatings. I'm glad that the opportunity came. Coatings have been on a road map for product.
Speaker Change: Capabilities for quite some time and I'm glad that these two companies were available because they add significantly to the core capabilities that we have that allows us to then
Speaker Change: further vertically integrate and be on our customers' product road maps. So we're off to a great start. In terms of integrating them, we have already begun conversations with our customers about those capabilities and how we can then serve them in the future. As you know, the product development life cycle is quite long.
Speaker Change: So we get on early as we have done six, seven, eight years ago you see the results now and we are doing the very same thing with every acquisition that we do and that includes the coding. I would highlight that we are off to a great start.
Speaker Change: Integrating these acquisitions. We are quite seasoned. These are number 6, 7, and 8 acquisitions that we've done in the past 6, 7 years. We have a good playbook if you will for integration and that's going well.
Speaker Change: I'll take the question on the appetite. I'll start with we remain very committed to our two and a half to three and a half times leverage. We think that's important to investors and that that's a comfortable range for most investors to be able to own the Integer stock. We've highlighted that we estimate we have 350 to $400 million of annual capacity to do acquisitions. We don't feel that we have to do acquisitions to be successful with our strategy.
Speaker Change: Energy. Our strategy starts with growing organically above the markets, and that would put us in the 6 to 8% organic growth range. And then we want to supplement that organic growth with tuck-in acquisitions and tuck-in tends to not be transformative in nature. We obviously as one of or the largest med device manufacturer in the industry get an opportunity to look at a lot of the opportunities out there in the space.
and we don't feel we have to do any acquisition.
Speaker Change: As Payman noted, we've got our technology roadmap that we continuously execute on and monitor the marketplace. We remain committed to our strategy and within that strategy our focus is on leverage or maintaining that leverage. And if you look at our guidance for the year, if you just look at the event our guidance we've provided, look at the debt levels that we've guided to, we're at the low end of our range by year end. And so by year end.
Speaker Change: You can look at us having that $350 to $400 million of capacity by year end, and so we'll be deploying that in the most return on investments, focused way that we can assist with the acquisitions we've done.
Fantastic, appreciate it.
Thank you.
Speaker Change: Our next question comes from Matthew O'Brien from Piper Sandler. Please go ahead, your line is open.
May it not on for Matt. Thank you for taking our questions.
Speaker Change: I guess first we want to touch on the tariff, you know.
You know, fully appreciate that you are primarily sourcing from the U.S.
Speaker Change: You know, could you talk a little bit about the potential that your suppliers see any impact from tariffs and raise prices? You know, how long would it take for you all to then raise your prices to customers? And, you know, are you seeing any of this happen yet?
Speaker Change: That's a great, great question. And we have been digging deep into our supply base to see we have not seen or heard from any significant way from our suppliers that they are incurring tariffs.
Speaker Change: to your point. That doesn't mean that as you go deeper and deeper into the supply chain that that's not occurring and that it won't potentially make its way there.
Speaker Change: But if it's not surfacing and bubbling up right now, it's probably very deep in the supply chain and that would point to it being relatively small in the context of what we buy. Again, the majority of what we buy comes from US-based suppliers and we're just not hearing or seeing suppliers racing to us talking about tariff costs that they're incurring. Obviously, we'll be working to manage that and at the end of the day it is our belief that...
Speaker Change: Any of these kinds of costs ultimately need to be passed all the way through to the end consumer so that the ultimate supply change ultimately gets this cost all the way to to the end. And so that's what we would absolutely work to do.
Speaker Change: Great, thank you and I know you mentioned a growing order book, I think you referenced 800 million now. I'm wondering if you're seeing any customers trying to pull forward orders ahead of the
Speaker Change: We are not seeing that and I'd reiterate that if we did we would view that as pure timing and we would be talking to our customers about the inefficiency impact that would have on our operations. Thank you very much.
Speaker Change: because we are primarily sole source to everything we do and that means that whatever the ultimate end-market demand is is what we're going to get and if customers were to pull things forward in order to avoid a tariff that would create inefficiencies for us and we would have to adjust our manufacturing potentially to output more in the short term and less than the medium term and that inefficiency would be a conversation that we would have that would have to be balanced against the impact of tariff so we're not seeing
Speaker Change: Any significant or meaningful change in orders or timing of orders that would indicate that behavior.
Speaker Change: Great. Thank you. I could sneak in just one last one. I know you previously mentioned renal denervation as a target market, which is a hot topic right now. I'm just wondering if you can give any update on any demand you're seeing and how you expect that market to contribute to your growth rate.
Speaker Change: I wish I could give you tremendous detail on that. It's a market that we feel our existing capabilities match up very well with the needs for that therapy. We're excited for the potential impact on patients to bring that therapy to the market. We highlighted it because it's now getting closer and closer to being commercially available on a wider scale. And we do think that has the potential to have meaningful difference for patients and we look
Speaker Change: for the supporting our customers in any way possible to supporting bringing that therapy to the marketplace.
Great. Thank you so much.
Thank you for the questions.
Speaker Change: Our next question comes from Joanne Wuensch from City. Please go ahead, Diron is open.
Joanne Wensch: Good morning, and thank you so much for taking the questions and congratulations to Joanne Payman. Amazing. Two quick questions. If you were shipping days, did you quantify the impact of that on the quarter?
Speaker Change: It was about 300 basis points of impact on the first quarter and because last year was a leap year, I think there's one full day impact on the year-over-year basis and the 300 basis points partially on wines in our third quarter.
Joanne Wensch: Our second and fourth quarter, we expect to be comparable number of days year over year with the slide off set in the third quarter.
Speaker Change: Thank you for that. And a lot of folks have been on how does the company as an OEM manufacturer or fit in the tariff regime. But I have a slightly different question, which is...
Speaker Change: Should we, when we, could we move into a recessionary environment?
Speaker Change: How does OEM manufacturing work in that kind of situation? I didn't cover the company previously back in I don't know, but I'm sort of curious to think about that environment and OEM manufacturing and what you can do during that period. Thank you.
Speaker Change: Sure, so I'll start with, we have the benefit of being in an industry that's very recession resilient in treating patients and the vast majority of our business are therapy. We support therapies that we view as not elective therapies.
Speaker Change: by concentrating our new product development on those forward-targeted faster-growing markets where our customers are bringing new therapies that expands the available market, treating new and undetreated patients.
Speaker Change: and so that accelerated growth is what we're working to participate in. So I, I, we believe there would be an impact on the industry and that we would feel the ripple effect of that. So I'd say we, we, we would likely move with the industry on an aggregate, but we, we feel we're pretty well insulated because most of the therapies that we're supporting customers on are not elective in nature. And so we feel, we feel we're pretty well protected by potential recession relative to most other industries. So I, I, I, I, I
Speaker Change: Do you think that people will send out, or not send out, that's the other word, send to you more OEM products manufacturing in that environment?
Speaker Change: or maybe pull more in-house. I don't know. I'm trying to figure this out. Thank you.
Speaker Change: Sure. Sure. We see our customers continuously looking to do more outsourcing. Our customers are great at therapy development and commercialization. They can be great at manufacturing, but when they look at their returns on their investments.
Speaker Change: Getting a new therapy to market first and getting that first mover advantage and the pricing that comes with an innovative therapy that treats patients who are currently under-treated or untreated, that's the single biggest return for our customers and drives their growth.
Speaker Change: So they want to allocate all of their capital towards new therapy development. They obviously have a very large commercial infrastructure that brings that therapy to market. And our expertise is in the manufacturing and the process designed to be able to manufacture at high quality competitive cost and bringing that to helping customers get to market quickly. And we think are vertically integrated offering that we continue to add capabilities to.
Speaker Change: A very global manufacturing footprint that reflects the industry manufacturing footprint gives them that option to partner with
Speaker Change: Someone like Integer who is, in most cases, our customer's largest supplier. We have anywhere from 30 to 80 years of experience with all of our customers. So we think we're uniquely positioned to be able to help customers with their desired outsourcing, and we continue to see that outsourcing trend play to our strengths.
Thank you so much. Have a great day.
Thanks, Joanne.
Speaker Change: Our last question today will come from Suraj Kalia from Oppenheimer. Please go ahead, your line is open.
Speaker Change: Good morning, gentlemen. Jo, congrats and payments same to you too. Jo, one question for you and if I could sneak in two questions for Diron.
Speaker Change: For your cardiovascular group, Joanne, should we still think about EP as roughly one-fifth of that segment, just trying to determine sensitivity of the segment growth?
to PFA growth and anticipated market share shifts.
as the competitor wars heat up.
Speaker Change: and Diron quickly if I could in the interest of time for you, AR took a significant step up in the quarter sequentially any key drivers, especially credit terms.
Speaker Change: And also, you know, a lot has been discussed about tariffs fairly so how do you look out in terms of effects, buffers or lack thereof? Gentlemen, thank you for taking my questions.
Speaker Change: So I think, thanks for the questions. I'll start. I think the Cardiovascular segment grew 17 percent in the quarter of 11 or 12 percent organic. Somebody helped me with that. More than 11 percent.
Speaker Change: on an organic basis. So we think we delivered very strong growth in Cardio Lasker, that is what it got us to the high end. So we think that not only electrophysiology, but the other submarkets that were very focused on accelerating our presence in and winning new development programs, we think Cardio Lasker was delivering. That's our fastest growing segment, three of our four target growth markets are there. So we feel like we're delivering and we're managing the total to deliver.
Diron Smith, Joseph Dziedzic, Andrew Senn
Speaker Change: Thank you, Suraj. Yeah, on a count of three ago, I would say nothing really surprising there. There's a couple drivers on the AR balance move versus you're in and that is primarily acquisitions is a piece of it again, so we had the VSI and the precision.
Speaker Change: Coding acquisitions that drove a bit of the increase, and then the other piece is really timing of how the sales fall within a quarter.
Speaker Change: So if you look at prior quarter, you're going to have a lot more sales in the first couple of months of the quarter less at the end because of holidays.
Speaker Change: And when you look at first quarter, you'll have a bit fewer in the first months and more of the sales in the latter half of the quarter. So that drives a little bit of a movement on the accounts receivable, but underlying foundationally, nothing really changed with AR. And overall, we feel that we have a very, very strong credit profile with our customers and collections are still remaining strong.
Speaker Change: Related to the FX buffer, I would say, first of all, we don't really think about FX as being a buffer per se to the terrorists, they're fairly unrelated in the direct sense.
as we look at our facts.
Speaker Change: As you can imagine with us being a global company, we do train back in multiple currencies.
Speaker Change: with the two biggest ones being the Euro and the peso in Mexico. We implement a hedging process, some natural hedges, some using forward contracts.
Speaker Change: and we manage that through more of a rolling dollar cost averaging method so it helps mute the impact of any volatile movements in foreign exchange in any particular period.
Speaker Change: So in the year we do see a bit of benefit coming from the Euro and we see a bit of pressure coming from the Euro and we see a bit of benefit coming from the peso but nothing that is large and material to our overall results.
Appreciate it. Thank you. Yep, thank you
Speaker Change: We have no further questions. I'd like to turn the call back over to San Giovavirora for any closing remarks.
Speaker Change: Thank you everyone for joining today's call. 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 today's call. We look forward to talking to you next quarter.
Speaker Change: This concludes today's conference call. Thank you for your participation. You may now disconnect.
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