Q3 2025 Integer Holdings Corp Earnings Call
Good morning and thank you for standing by. My name is John and I will be your conference operator. Today at this time I would like to welcome everyone to the integer Holdings Corporation third, quarter 2025 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. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. And to withdraw, your questions simply press star 1. Again, I would now like to turn the conference over to sanjie Aurora in your vice president strategy. This is development and investor relations. Please go ahead.
Good morning everyone. Thank you for joining us and welcome to integers. Third quarter 2025 earnings conference call with me today are Joe dik president and chief executive officer payment, kales president and CEO of elect Darren Smith, Executive Vice President and Chief Financial Officer and Kristen Stewart, director of investor relations.
As a reminder, the results and data we discussed today, reflect the Consolidated results of integer for the periods. Indicated, during our call, we will discuss some non-gaap Financial measures for reconciliation of non-gaap financial measures. Please refer to the appendix of today's presentation. Today's earnings press release and trending schedules, which are available on our website at integer.net. Please note that today's presentation includes forward-looking statements please refer to the company's SEC filings for a discussion of the risk factors that could cause our results to materially differ.
On today's call Joe and pay will provide opening comments. Dyn will then review our adjusted Financial results for the third quarter of 2025 and provide an update for the full year, 2025 Outlook.
Payments will then share our preliminary 2026 and 2027 outlooks. Then, we'll open up the call for your questions. I'll turn it over to Joe.
Thank you sanjie, and thank you to everyone for joining the call today. Today is my last call as integers president and CEO and my 64th and final as a public company, CEO or CFO.
As I reflect on the past 8 years, as integer CEO. I am incredibly proud of what we've accomplished together. We've built a company with a Clear Vision, a compelling growth strategy, and a strong values-based culture,
When the CEO transition process began, I did not envision my last earnings call would include a reduction in our financial outlook.
The recent customer forecast, changes, reflect the reality, that not all new products, achieve the level of success we expect or want.
We expect this Dynamic to be short-lived. Despite this news, we are still delivering strong results over the last 3 years, our sales are up 39% from 2022 to 2025 at the midpoint of our Outlook.
And despite what the next few quarters. Hold, we remain confident in our strategy because when measured over time it is working.
I am excited for Integer's future under Payments leadership. He has played a pivotal role in shaping and executing our strategy and fostering our high-performance culture.
As the president of our cardio and Vascular business for 7 years, payment, delivered outstanding results, doubling sales and improving profitability.
Tomorrow payment will become CEO and join the integer board.
Thank you for your support of vintage or during the last 8 years. I am now officially passing the Baton and turning the call over to payment to lead the remainder of the call including the Q&A.
Thank you, Joe, on behalf of the entire integer team. We extend our deepest gratitude for your exceptional leadership and strategic Vision over the past 8 years. Your unwavering commitment to Excellence has made integers stronger. More Innovative better position to serve our customers and create value for our shareholders. The Legacy you leave behind will continue to shape our future. I believe our strategy will continue to deliver for patients customers and shareholders over the long term.
I'm truly honored to step into the role of president and CEO with great enthusiasm. I look forward to Leading integer in his next chapter of growth. We will build on the strong Foundation that you've created and continue to advance our strategy with purpose and passion.
We wish you well in your retirement.
Now, let's turn to our quarterly results and Outlook.
We delivered a strong third quarter in line with our expectations sales, grew 8% on a reported basis and 7% organically reflecting solid demand and execution
Our adjusted operating income increased 14%, driven by a continuous focus on operational excellence and expanding margins. Our adjusted earnings per share grew 25% year-over-year to $1.79.
Despite this strong third quarter, we recently received customer updates, related to the adoption of new products in the market that we expect will impact the next 3 quarters, the magnitude of these changes on multiple products. At the same time, it's highly unusual.
As a result, we are reducing the midpoint of our 2025 sales Outlook by 16 million dollars.
This reflects recent changes in customer Demand with their RCR m&n product line primarily related to select emerging customers with PMA products.
We're actively managing our costs to minimize the profit impact.
As a result, we have reduced the midpoint of our adjusted operating income range by only $3 million and are adjusting EPS range by 2 cents.
For the full year 2025. We now expect to grow our sales between 7% and 8% or 7.6% at midpoint we expect a adjusted operating income to grow between 12 and 14% and adjusted. EPS to grow between 19% and 21%. All in This is a strong performance for the year.
We usually provide our outlook for the upcoming year, during our fourth quarter, call in February. After the completion of our annual budgeting process. However, given recent customer updates, we are providing a preliminary outlook for 2026.
based on the recent customer updates, we expect sales of 3, new products to decline in 2026 2, electrons, and 1 new modulation product on emerging customer
The market adoption of these products has been slower than forecasted.
We anticipate this will represent a 3 to 4% headwind to our total company sales for the next year.
As a result, we expect organic sales in 2026 to be flat to up 4%.
The impact of these specific products is expected to be more pronounced. In the first half of 2026, leading to organic sales decline during that period.
We anticipated recovery to market growth during the second half as the new product headwinds moderate.
And they reported basis, we expect sales to be down 2% to up to percent. This includes the final decline in portable medical as we complete the delivery of the last time by orders in the fourth quarter of 2025, which is a headwind of approximately 2%, to our total sales in 2026,
While our 2026 Outlook is not where we would like you to be. We remain confident in the strength of our long-term growth strategy. Our portfolio at the depth of our customer relationships. How continuous focus on being designed into high growth products early in the development process positions us. Well in the fastest growing markets.
Our product development pipeline continues to expand fueled by close collaboration, with our customers, as they Advance the next generation of medical Technologies.
2027, which is consistent with our long-term, Financial strategic objective.
I'll now turn the call over to Darren to review the quarter and the 2025 Outlook in Greater detail.
Thank you payment. Good morning, everyone. And thank you again for joining today's call.
I'll provide more details on our third quarter, 2025 Financial results and providing an update on our full year 2025 Outlook.
In the third quarter of 2025, we delivered strong financial results. Sales totaled $468 million, reflecting 8% growth on a reported basis and 7% growth on an organic basis.
Organic sales growth, removes the impact of the Precision and vssi Acquisitions. The Strategic exit of the portable Medical Market and foreign currency fluctuations.
We delivered $106 million of adjusted EVA, up $10 million compared to the prior year, or an increase of 11%.
Adjusted operating income grew 14% versus last year as we continue to make progress on our year-over-year margin expansion. Adjusted operating income as a percentage of sales expanded approximately 80 basis points year-over-year to 18.4% comprised of 10 basis points from gross margin and 70 basis points from operating expense Leverage.
Adjusted net income for the third quarter of 2025 was 63 million.
27% year-over-year while adjusted earnings per share totaled, $1.79 up 25% from the same period last year.
On a year-to-date basis. We are delivering strong results for sales up 9%, adjusted operating income up 14% and adjusted. EPS up 20%.
Turning to our sales performance by product line, Cardio and Vascular sales increased 15% in the third quarter of 2025, driven by new product ramps in electrophysiology and incremental sales related to the Precision and BSI acquisitions, as well as strong demand in neurovascular.
On our trailing 4 quarter basis CMV sales, increased 18% year-over-year with strong growth from new product, ramps, and electrophysiology and neurovascular, as well as contribution from acquisitions.
For the full year. 2025, we expect cnv sales to grow in the mid teens compared to full year 2024, which is consistent with what we shared on our July earnings call.
In the fourth quarter of 2025. We expect cnv sales growth to decelerate from recent Trends, reflecting a decline in the 2 new products and electric physiology mentioned earlier.
This is consistent with our prior Outlook. However, we now expect this impact to continue into 2026 primarily the first half,
Cardiac Rhythm management and neuromodulation sales increased year-over-year 2% in the third quarter 2025 and 4% on a trailing 4 quarter basis.
Driven by strong growth from emerging neuromodulation customers with PMA products and normalized CRM growth.
Partially offset by the planned decline of a neuromodulation program.
For the full year 2025. We now, expect CRM, and in sales to grow low, single digit versus 2024 compared to our previous expectation of mid single-digit growth.
This is primarily due to lower demand related to select emerging customers with PMA products.
Product line detail for other markets is included in the appendix of the presentation which can be found on our website at integer.net.
In the third quarter of 2025, we delivered 63 million of adjusted net. Income up 13 million versus a year ago.
This increase was driven mainly by operational improvements which include higher sales. Volume manufacturing gross, margin expansion, operating expense management and acquisition performance.
We also benefited from lower interest expense as a result of our convertible debt offering in March, 2025, as well. As a slightly lower adjusted effective tax rate,
Our adjusted effective tax rate was 16.3% for the third quarter of 2025 down from 17.2% in the prior year.
We now expect our full year 2025 rate to be within the range of 17 to 18% which is 150 basis points better than our guidance in July.
This Improvement is primarily due to an improved Outlook regarding R&D tax credits given our higher R&D Investments.
The year-over-year increase in adjusted weighted average shares outstanding drove, approximately 2 cents. Reductions to our adjusted eps.
Own profit performance in the third quarter.
And the third quarter of 2025 we generated 66 million of cash flow from operations and our capex, spend in the third quarter was 19 million.
Free cash flow was 46 million in the third quarter flat with the prior year.
At the end of the third quarter, net total debt. Was 1,158 Million which is a 46 million decrease compared to the second quarter 2025 ending balance.
Our net total debt leverage at the end of the third quarter was 3 times trailing 4 quarter, adjusted ibida. At the midpoint of our strategic target range of 2 and a half to 3 and a half times.
As payment mentioned earlier, we are adjusting our sales and profit Outlook ranges for 2025.
Starting with our sales Outlook.
For the full year. We now expect reported sales to be in the range of 1 billion, 840 million to 1 billion, 854 million, reflecting growth of 7 to 8% on a reported basis. This includes inorganic growth of approximately 59 million from the Precision and vssi Acquisitions offset by an approximate. 29 million decline from the previously announced portable medical exit, which is expected to be completed by the end of 2025, on an organic basis. We now expect sales to increase 5 to 6%,
Are updated Outlook represents a 16 million dollar reduction at the midpoint compared to our July Outlook reflecting, reduced expectations for our CRM andn product line.
As mentioned earlier, the reduction in CRM and sales was primarily driven by reduced customer demand for select emerging customers.
For the fourth quarter, we expect reported sales growth of 2 to 5%.
On an organic basis, sales are expected to be down 1% to up 2%.
We have a more challenging year-over-year growth comparison. As last year, we benefited from new product ramps in both our cnv and CRM product lines.
Consistent with our prior Outlook. We expect lower sales in our electrophysiology business. The fourth quarter also, reflects our reduced outlook for CRM and and
even though we are adjusting our sales Outlook, we continue to expect strong margin expansion, driven by Improvement in manufacturing and operating expense Leverage.
At the, midpoint of our Outlook, we continue to expect adjusted operating income as a percentage of sales to be 17.4% in 2025 and 85 basis point expansion, compared to the full year 2024,
This would result in a 13% increase in adjusted operating profit a strong performance for the year.
For adjusted operating income. We now expect a range of between 319 million to 325 million. Growth of 12, to 14% reflecting cost management actions to minimize the impact of our lower sales Outlook.
while still maintaining the same low end of our previous Outlook range, this represents a million dollar reduction at the midpoint
For adjusted net income, we now expect a range of between $222 million and $227 million. This reflects an increase of 21% to 24% versus 2024, driven by strong operational performance, reduced interest expense, and a lower adjusted effective tax rate.
Lastly we now expect adjusted earnings per share of between 6 dollars and 229 and $6.43 which is strong growth of 19 to 21% on a year-over-year basis.
Our Outlook assumes and adjusted weighted. Average diluted shares outstanding of 35.4 million shares for the full year 2025
Given the changes in our profit outlook, we are also updating our cash flow projections. We expect cash flow from operations to be between $230 million and $240 million, which represents a 15% year-over-year increase at the midpoint of the outlook.
We now expect Capital expenditures to be 95 to 105 million. As a result. We expect to generate free cash flow between 130 and 140 million. Which represents a 35% year-over-year increase at the midsole.
We expect our 2025 year-end net total debt to be between 1 billion, 98 million and 1 billion 108 million.
This would result in a leverage ratio of between 2.7 and 2.8 times trailing 4/4 adjusted evida, which is toward the lower end of our target, range of 2, and a half to 3 and a half times.
I'll now turn the call over to payment to discuss our preliminary outlooks for 2026 and 2027.
Thank you. Darren.
Marketplace is expected impact on our 2026 sales. We are sharing a preliminary 2026 Outlook earlier than usual.
We remain confident in our long-term growth based on our robust development pipeline and the strong visibility we have to new product launches. This is why we're also providing a preliminary 2027 outlook.
We expect 2026 reported sales to be down 2% to up 2% versus 2025, which includes an approximate 2% headwind from the plant portable medical exit that we will complete in 2025.
On an organic sales basis. We expect to be flat to upflow single digits,
As I mentioned earlier, we recently received customer updates, regarding 3, new products.
Based on these updates, we now anticipate our sales for these three products to decline in 2026, which we expect to be a 3% to 4% headwind to our sales outlook.
This offsets the expected. 47% growth across the remaining portion of the business.
The new product headwinds will be more pronounced in the first half of 2026 as a result. We expect our organic sales to decline low single digits, in the first half of the year with the recovery to market growth in the second half of the year.
We expect the inorganic headwind from the portable medical exit to be similar in the first half and the second half of 2026.
From the product line perspective, we expect both cnv and CRM andn to be flat to up low. Single digits on a reported basis as we navigate the select new product. Headwinds, in other markets, we expected decline of approximately 30 to 35 million primarily driven by the portable medical exit.
We're actively taking steps to align our costs with manufacturing volumes based on our preliminary assessment. We expect adjusted operating income in 2026 to range from a decline of 5% to an increase of 4% and adjusted EPS to range from down 6% to up 5%.
as we look Beyond 2026, we have a strong development Pipeline with good visibility to new product introduction, schedules over the next couple of years, given the strength of this development pipeline, we expect to return to above market growth in 2027,
We continue to expand our product development Pipeline with a focus on getting designed in early to new products in higher growth markets. Since 2017. We project that, by the end of 2025, our product, development sales will increase by over 300%.
This is up from the 270% growth that we shared at the end of 2024.
Our mix continues to be Approximately 80% in emerging and growth markets and 20% in more mature markets,
We remain confident in our strategy and the long-term outlook for the business. The markets in which we compete are growing at a steady, mid single digit rate in Aggregate. And our approach is to secure early design wins and higher growth and markets. Approximately 70% of our sales are under multi-year agreements.
In addition to driving strong organic growth, we plan to continue our tuck in acquisition strategy. While maintaining our leverage ratio within our Target, a range of 2, and a half to 3 and a half times.
We have demonstrated that our strategy delivers results over the long term and remain focused on execution while we navigate the next 3 quarters.
In summary, we delivered strong results for the third quarter, with sales growth of 8%, adjusted operating income growth of 14%, and adjusted EPS growth of 25% on a year-to-date basis. Sales are up 9%, adjusted operating income is up 14%, and adjusted EPS is up 20%.
While we're updating our 2025 sales and profit Outlook and expect a more flattish sales performance in 2026. We are confident in our ability to return to 200 basis points above market growth in 2027 driven by our strong new product development pipeline.
we will now turn the call over to our moderator for the Q&A, portion of the call,
Thank you, ladies and gentlemen, we will now begin the question and answer session. And as a reminder, if you would like to ask a question, please press star, followed by the number 1 on your telephone keypad. And if you would like to withdraw, your questions, simply press star 1, again, we'll take 1 question and 1 follow-up after that, please feel free to jump back into the queue.
Our first question comes from the line of Brett fish pin with KeyBank. Please go ahead.
And was hoping you could maybe touch on that part of the plan, given the deviation from, you know, the typical 6 to 8%, you know, when looking at it excluding some of those new product introduction, headwinds, thank you.
Yeah, good morning, Brad. Um, Let me let me take that question. So what what drives above market growth of the 6 to 8%. That you talked about is the new product introductions uh without new product construction. Introductions the rest of our portfolio will grow at the rate of market. Now the the the headwinds that we're talking about these 3 programs, that we've highlighted that are giving us headwinds in 2026, they're actually declining in 2026 which is, which normally they would have helped us drive growth and get to that 6 to 8% range. So, so it's it's when you remove new products, the rest of the portfolio is expected to to grow at the rate of at the rate of Market.
All right, helpful. And then maybe specifically on the cardio and Vascular items. You know, I was hoping you could elaborate just a little bit on, you know, kind of the nature of the expected headwinds. Whether it's a matter of, you know, loss of customer, share of wallet for either of them to programs, or whether it's tied to actual and market demand, um, on on both sides there. Um, and then maybe I'll just squeeze in like 1 quick follow-up. Just any thoughts on, you know, level of visibility into the return to market growth by 2 age of next year. Like how you get competent in you know, such an improvement from call it, like 2226 into 326. Thank you very much.
Yeah, no problem. Thank you. So let me actually broaden your first question a little bit. I know your question was was related to, to cnv, none of the none of the products and customers that are talking about giving us headwinds, either in 2025 or 2026. Our lost products loss of share, insourcing, or products that are being pulled from the market.
We are still the supply for these products and these products, all of them are still in the marketplace. Now, getting specific to your, uh, to your card and Vascular question. The the the headwinds that we are seeing is related to, to 2 electrophysiology products that has strong Grant in the first half of 2025 that we had anticipated would uh, would would level out and step down a little bit in the in the uh second half of 2025. And then we had visibility to the rate of growth kind of entering into 2026. These EP programs were were scheduled to to step up. As we enter 2026, what we learned during the course of the third quarter, uh, is that the market adoption of these products has been less than what we had anticipated. This is new news and as you can imagine with the changing production plans or whatnot, we were we have been in discussion with our customers.
Since uh, during the course of uh, the third quarter, entering into the fourth quarter to, to kind of get our arms around it. And the Outlook that we're giving you right now for 2026 is is as a result of this this reduction in forecast. Now, you talked about, uh, your second question, being the level of visibility that we have, we still believe
We have very good visibility in our business. Our backlog has remained steady. We entered the year at about $728 million in backlog.
And and uh our backlog is still around the same number around 730 that gives us good visibility we have a rolling customer forecast from our customers. For 12 months, we still have the visibility. Now what brings into question is the change that we talking about today and what I would like to highlight is maybe maybe a little bit of a delineation between the the some of the variability that we have in new product launches. And and how how, how that that can change over time as a products ramp get into the market, get adopted at different rates and how our customers, see changes, that's what we're talking about. New product, launches are inherently lumpy if you will. But generally speaking, we
We see some do better. Some do worse. Net total is that we we we kind of end up in the range that we had anticipated. What is unusual in this case is that we have a number of these programs. Having a big magnitude of change all at the same time, that is unusual. Let me just add 1, more 1, more answer to the question. I think 1 of the questions that you had is in the second half of 2026, we are going to be anniversary Inc. The the, the big ramp the growth that we had in the first half of 2026, which gives us also confidence in, getting back to growth.
And of of of 2025, pardon me. The first half of 2025,
Okay, thank you very much. I appreciate it.
Hey thanks for taking the the question I got 1 just is this a a PFA product or an RF product that that's changed in EP and is it basically it sounds like it's a customer who, you know, as of Q3 you didn't really know about it until Q3 just want to make sure that's clear. And it sounds like it's a customer where they just have a different view of of the end market demand. And that's the really, the only change in the EP side. Is that right?
Yeah, so let me um, let me try to frame it in the uh in the context of 2, EP products. Um, I can be specific about the type of product Travis, but it is it is too EP products. Now what what you stated about, you know, the the customers learning about their demand is accurate. So what happened is that they had given us a forecast based on what they anticipated. The rate of adoption in the market would be there was a ramp period in the first half of 2025 and then there was a leveling out and a little bit of a lowering as they were uh trying to gauge the rate of market adoption and their rate of sales. And then we had a forecast entering into 2026 that would be then stepping uh that would be then stepping up. What changed is that they came to us in in the third quarter. Effectively telling us that the rate of adoption had not been as they had anticipated as a result 2026 is going to be impacted.
Okay. Uh, and you didn't know about it until Q3 sounds like
We did not know about it until uh, the third quarter. And um, as I mentioned earlier, when we learned about this, obviously we work with them to try to understand the the rate of change the magnitude, the our production plans because obviously you can change your production plans, very quickly. So these discussions also continued into the fourth quarter.
Okay. And do you is that a a a US product or an international product and or both?
we, uh,
I can't be more specific than that Travis, I wish I could be but uh, but because of the confidentiality that we have with our customers, I need to be uh, I need to make sure that I can be overly specific that the product is identifiable. Other than that, these are 2 products in the EP space.
Okay, great, I'll jump in. Thank you. Thanks a lot.
Your next question comes from the line of Joe and winch with CP. Please go ahead.
All right. I was on mute I'm here now. Um, good morning. So, good morning. Uh, good morning. Also it, it sounds, I think.
I have an idea of what's going on in in EP. Could you, please explain if it was a similar Dynamic that went on in um, uh, in neuromodulation where
Things were supposed to ramp at a particular rate and then in the third quarter, people came back and said, no, no that's not what's really going on. Is it a similar damage dynamic or a different dynamic?
We believe that it has to do with the rate of market adoption of Select products in this, in this space. So this book of business, our emerging customers with PMA, product has done really well. Uh, over the past many years, we've talked about the rate of growth of This Book of business, as well as, as as we entered in 2025.
We we continue to have very strong growth. Uh, in fact, what I would even say into into the third quarter that book our business was growing well in the rate of 15 to 20% and we had we had anticipated the same rate of growth in the second half then we had that we had seen in the first half but what happened is that in the third quarter? Uh some of these customers uh we we learned that that that the forecasts that we had anticipated role is not is not materializing for for for some of these customers. And we think what's happening is that the primary reason for the change is they are they're trying to align the purchases from us to match the market demand that they're seeing
Section. Sorry.
Yeah yeah, I apologize. So so I think your question was to make sure that I'm answering your question accurately. I think your question was related to 2025 because the impact that I talked about is specific to the fourth quarter of 2025. Was that was that your question?
No, I actually thought you did a great explanation of EP, and I was curious if it was a similar explanation for neuromod.
Uh, is going to be in the high single digit rate, which is in alignment with neuromodulation. So, so it is it. We think there, we think this is just a question of a handful of these, customers chewing up. What they've bought from us with the with what they're seeing in the marketplace.
In this case, sort of change their path in terms of their, um, forecasts and their ordering patterns with you or do you view this as sort of a, an aberration in your historic history of uh of this business and and thank you.
This is an aberration and it's highly unusual. We, we see radar variation with new products. This is just normal. Our customers, see that too and and we, we always take a step back and, and we'll look at what do we think the outcomes would be for each of these new products and we kind of calculated low case. If you will a balanced view on the low case and a balanced view on the high case and on aggregate, we provide our guidance based on that. Some products do better than others. But usually, it washes out. So, what we're talking about, what what we're talking about today is a number of them happening. At the same time with a, with a, with a high level of magnitude. This is highly unusual.
If Matthew O'Brien with Piper Sandler, please go ahead.
Uh, morning, thanks for taking the, the questions and Joe best of luck in retirement. Um, so payment, just, you know, and start to stay on this topic on the CNB side, but as I calculated, I think it's about a 70 million dollar reduction to your, your outlook for CNB, for next year, for those 2 EP products.
I don't know if that's exactly the right number. But is that split evenly between these 2 Programs? And then you say, you say, emerging customers is that is that people coming along that were outside of maybe the top 3 you know your big 3. Um that are that make up about 45% of total sales? Is that how we should think about it?
So with regards to your first question, the math that you did is generally in the ballpark, but let me remind you of that, that would be for 3 products. Not not for 2 EP products. So we have 3 products that are giving us headwinds in 2026 to an electrophysiology 1 in neuro modulation. The, your second question, uh, is related. I think to the emerging customers with PMA know, these are emerging customers. That's why, that's why we put him in that bucket. So so these are customers that have new products emerging therapies. We have about, we have about 39 customers that we have. Uh we've been working with and we have development Pipeline with
10 of those customers have products that are in the market, uh, or in different phases of launch. So, so these are not, we're not necessarily talking about new modulation. Would, the big customer. This is generally, uh, the the grouping of customers that are newer, and more emerging.
Okay, and the same goes on the EP side, it's people that are that are emerging versus those that are maybe a little bit more established for you guys. Again, you you've got, you know, customer concentration, among 3, 3 big, uh, providers out there that I think is just under half of total sales, so it's, it's the the people that are not in that that top 50 for you guys top 50%. It's, it's other providers.
Yeah, our EP business is is very broad. So obviously we we have a good book of business with the with the largest oems, uh, as as well as others. So it's a pretty broad, it's a pretty broad, uh, business that we have and and uh, we we we have products across the procedure. So any ablation procedure has has you know different steps into it from the access to body from navigating the body from uh mapping diagnosing. And of course doing ablation. We have product across the board with different costs with the different range of customers uh, beyond that. I hope you understand that I can't be more specific.
Got it. Okay, that's helpful. And then, um, I'm a neuromod side. Um, is it, I guess to kind of join this question. It's an existing customer that is now seeing, um, a little less, uh, adoption than they had expected. I mean, again it would seem to be a pretty sizable. Customer is that in sizable amount of Revenue that you hadn't been anticipating. So, is that, is that a fair assessment of kind of what's going on on the neuromod side too?
I think this is a question related to 2026. Is that correct?
2025, and they were seeing.
Less adoption in the market than they had hoped, so they have a sizable decline in 2026.
Okay, thank you.
Your next question comes from the line of Clayton feedback. With wolf Fargo, please go ahead.
Hi. Uh thanks for taking the question. Um, you know, can can you just give color on? So so these 2 EP products in the neuromod product. How long were they in the market? I'm trying to understand what was there in inventory. Build in 2025 that contributed to to to the sales growth and then the and market demand is just not panning out. Is that what happened?
So these products, uh, have been have been uh, launched recently and and they have been ramping, both of them have strong ramp in excuse me, all 3 of them had strong ramp in 2025.
The EP products specifically had that strong ramp in the first half of the year in the first 2 quarters, which is, which is typical when our customers, you know, launch continue launching products. There's usually a period of ramp because they want to make sure they have sufficient product in their distribution channels as as they get products out. And then there was a leveling out, which was again, expected and anticipated once, uh, once our customers then,
Kind of perceived the launch and they wait to see what the rate of adoption is. And as I mentioned earlier, they're seeing less than rid of adoption the, which is why they changed their forecasts on us for, uh, which which is primarily a 2026 impact. The new modulation product, uh, was a, was a similar scenario in, in, in the sense that they had, they had strong demand and strong growth in 2025, but they are not seeing the rate of adoption and they're saying headwinds in the marketplace, which is why we're seeing the decline.
Okay. And and just to confirm the 2 EP products that are from 2 separate customers.
Uh, I I'm not at Liberty to specify that again because we need to make sure that we maintain the confidentiality. So so I I I had to be a little bit less specific in terms of how many customers, but I can tell you that there are 2 products
Right, right. So so you know, I
At a high level. I mean, the EP, uh, you know, uh, the the market is, you know, the Outlook is, is for pretty strong growth. Um, it sounds like these were novel products and not tied to,
Like existing procedures because the overall Outlook is pretty positive and what we're hearing from, uh, from the manufacturers is, you know, uh, pretty strong growth. So, I'm I'm just trying to understand where these kind of products that were not tied to, you know, procedure volumes as they are right now.
These are so let me start with it with the strength of the EP Marketing in general. You're correct. The the EP Market is very, very strong. Uh, we have seen very strong growth in our EP business, over the past 4 or 5 years actually, including in 2025. So so, so we, our EP business, has done really well.
Because again, in in you're you're referencing some new products. But even if you take any new products out of the, uh, out of the equation, we have a portfolio that goes into this in into a typical ablation procedure. So, as the EP Market grows, our business has Tailwind, because of that, because of that. Now, if we, if, if then I come back to the impact of these 2 products, if I remove the impact of these 2 products, our EP business still grows at the rate of Market, which is doing really well. So, this is isolated to the impact of these 2 EP products.
Okay? And just the last one for me, um, you know, as we think about your prior outlook for the PMA portfolio, you're targeting 15% to 20% 3 to 5-year CAGR. Is this kind of no longer intact?
Uh, no, it is. It is still, it is still, uh, 15 20% kager over the next, uh, over the next 3 to 5 years. We, we do anticipate some, uh, some shorter term headwinds. Uh, as we mentioned a little bit in the, in the, in the fourth quarter and, and during the course of 2026, Let Me Maybe add a little bit of a color in 2026. We have
um,
And within that grouping of customers, we're not counting any of the products that are giving us headwinds now to rebound in 2027; it's more new product launches that we're expecting.
Okay, thank you.
Your next question comes from the line of Andrew Cooper with Raymond James. Please go ahead. Hey everybody, thanks for the questions. I'm gonna
Ask me 1 more on, on the ET side, uh, similar to 1 that was already asked. I know you can't get into this specific products but, you know, like mentioned EP procedures aren't really inflecting away from expectations, from a market perspective. So giving you talk about that breadth of portfolio, you know, is there any potential for you to recapture some of this volume elsewhere with other customers and and what would that look like? And when would, when could we think about seeing that if or when it potentially could play out?
Yeah, thank you for the question. So we our EP business. I I would, I would reiterate. As I said earlier is is doing very well. Excluding these 2 products that are giving us headwind and then I would also add that we have new products that are scheduled to launch in the second half of of 2026 and 2027. In fact, we have new product launches, I'll go a little bit more Broad and then I'll come back specific to EP. We have new product, launches scheduled, and every 1 of our growth markets in EP in new vascular, structural heart, and new modulation in the second half of 2026 and 2020.
27. So so we fully expect that we're going to get back to growth now, back to Eep, specifically uh what are the reasons why we are confident that we're going to get back to growth is because we're going to be anniversary Inc. The strong weight of growth that we had in the first half of 2025 in the uh, that in in the second half of 2026. We're not, we're not, we don't have those comps anymore. And when you add the strength of our EP portfolio, in general, and some of the other product launches that that are planned, we're confident that we're going to get to growth in the second half of 2026 and to evolve market growth in 2027.
Okay helpful. And then maybe second 1 just on margins and your ability to sort of offset the the drag here. Um you know, looking for close to Flat profitability, um, similar to to what you're expecting for Revenue. So how do we think about the magnitude of potential cost out that you might be able to achieve here or is this you know hey we've got to be able to to to drive volume back to where we would expect and that's when we get back to more of that margin expansion, like a typical year.
Yeah, and and Andrew just to. This is to confirm, you're referring to the 2026 margin. 26? Correct? Sorry. Correct. Yeah. So so when we look at at the 26th of profit, um, as you know, we we have put in our, our range of our adjusted, operating income of down 5% up 4%, um, that that range. First of all the note is very consistent with our sales range, uh, that, that we have also
Provided. So we're we're, you know, matching the sale range with that our our profit algorithm uh essentially we we we rely on operating expense, leverage on volume um as well as our um
As well as our gross margin expansion primarily from our integer production system. Um, as you can imagine, the, the volume piece of that algorithm will be a little bit more challenging in in 2026, but we still have a very strong, uh, foundational process. In our integer production system where we, where we focus on Direct labor efficiency, where we reflect, um, focus on direct direct material efficiency as well, and we believe that's where we'll still be able to, to drive continuous Improvement and see, uh, margin expansion. Um, at the same time with the, with the lower volumes we'll we will be, uh, very disciplined in our in our cost management as we manage through these 3 quarters of of headwind that, that we're facing. And so we believe next year, although, uh, you know, down 5 to, uh, to up 4% on the aoi Range. Uh, we believe, uh, that we will be able to deliver on that and and we'll work to narrow that range as we as we get into February.
Okay, I'll stop there. Thank you. And uh, Joe congrats and and enjoy your retirement.
Thank you.
Your next question comes from the line of feature newer from True Security. Please go ahead.
Hi, thanks for taking the question. Maybe. Um,
Uh, so so the person that takes work out, but I guess just in light of the fact that this happened, uh, this year, can you talk to us about any any of the processes that need to be changed for your forecasting, or how you potentially, took into account the possibility for something like this happening again, next year, with with the guidance that you're providing? We're, you know, you guys are more of a steady Eddie even with some of the quarterly variability. So I'm just trying to get a sense for, you know, how how much visibility and and then with the Outlook uh, that you're putting out now in 26, you know how we should be interpreting that from a conservatism standpoint. Thanks.
Yeah, good morning rich and uh look as you can imagine, we have been reflecting on this a lot and we get customer forecasts and we get purchase orders as you correctly, pointed out and we get great visibility by our backlog. Which again, as I mentioned earlier, still in the range of 730 ish million which gives us good visibility in, at least 1 and a half quarters plus and and then you know, tie that to the uh uh to the forecasting that we get from our customers. This is highly unusual.
We, we, we are looking at...
what our algorithm is and has been and how we calculate if you will, our forecast has not changed. We for, for for products that are in the longer term in our pipeline. We risk adjust those our customers, tell us a, you know, certain range of outcomes. We look at that we risk adjust those. And also as you correctly pointed out and in, you know, some total they kind of wash out and we usually end up in that in that range, that we expect 4 products that are longer if you will, in the development cycle in the shorter term.
Our production plan is based on what our customers tell us.
If the customers tell us to to, to build and deliver X, that's what we will do. So, so, what's, what's unusual is that they came to us and
revised their forecast that impacted a shorter term than we would normally expect. So, again, we're talking about the unusual nature of multiple customers, multiple products, large magnitude, all in a short period of time. We don't expect or anticipate that this will be a recurring thing. This is unusual.
Okay, thank you. And then
Hello, can you hear me?
Yes yes of course. Sorry just just just maybe going back to the the the 2, the the differences in in in the EP products, the electrical projects and the and the neuromod projects, these are both products that were on the market.
And generating revenues throughout 2025 and then prior periods. These are not new and emerging.
EMA products, where the PMA is, is, you know, about to get going or waiting for approval, correct. They just fall in the bucket of your quote, PMA, kind of uh uh R&D, you know, division. Is that right?
Both of these or all 3 of the products in EP. And, uh, and, uh, a neuroma, our products that have been in the market.
In 2025 and are still on the market and expected to be in the market in 2026.
We we are also the supplier for these products in terms of the supply, nothing has changed. It just has to do it, just has to do with with with the rate of adoption of the products that our customers are seeing.
Okay, and then just to follow up on that. Are any of them finished? Good.
it's we we have had a a good portion but I can be specific on is that we've had we've had the good portion of a bill of material beyond that which I can't be more specific
I'm also struggling payment just doing an exercise here, right? I'm trying to connect all the Dots here on the EP side. So you'll have a bullish about a new product in second half 206 logic tells us that's what
BSX already has it in the market, right? But there are two customers that you're seeing the demand schedule move left.
I mean logic tells me, you are
Implicitly telegraphing, it’s J&J and Medtronic.
I know it's a long question. Payment help us understand? Because it's like suddenly a lot has been thrown in this whole story.
Uh, the S. I fully appreciate the question and what you're talking about? Yes, there are. There are a number of moving parts and that's what I keep referring as as being highly unusual for us. So let me let me talk specifically about your first question which had to do with with uh our backlog and our visibility to orders. Yes, customers Place orders. Again if we have about 730 ish million in your backlog, that is about a quarter and a half worth of orders, right? I mean if you want to just kind of look,
Got it, on average. So, that's what we had: good visibility to now.
Let me highlight the following. We always work with our customers to meet their demand needs. If our customers tell us that, you know, they have purchase orders that they need us to then exceed and and try to increase our capacity. We do everything that we can to do that and we do the opposite as well. We, we try to work with them if they come and tell us, look, I I have more Demand on you that I need and I would like to scale that down we work with them to do this in an orderly manner and and not necessarily, you know, uh the the look at, you know, if you will contracts and whatnot, we try to work with them in in uh, to try to meet, uh, to try to meet their demands and, and, and needs. Now, let me highlight and be specific that the impact of of electrophysiology products is 2026. Uh, we don't expect an impact on that. In, um, in 2025 and are seeing the business is still expected to grow per our previous guidance, which was in the meeting,
Needs. So that has not changed. That is purely a 2026 impact. And let me also highlight that.
We are mostly Soul Source in our business and ultimately, we see the products that end up in the marketplace even though if there are fluctuations in the shorter term. And a little bit of a variability, where where we are, sole sourcing, the products we end up, we end up, seeing we end up seeing that that demand over time.
Uh, maybe maybe I think you you had another question Sage that was specific to uh, products and customers. And and uh, and of course, uh, you you, you understand that, I can be more specific on those
No, I totally respected payment and I hope you all appreciate. That's why all of us are
Trying to get bits and pieces here. Um, so payment on the second part of my question, right on the Q2 call, you'll at $5 to $10 million, at least that was, if I remember correctly, pulled through in revenues payment. Can you do a little more specific and tell us if it was specifically an EP? And part of the reason I asked this is...
If you were already there, there was already a sense of softness brewing on the EP side, ultimately payment. It is hard to reconcile.
Other company commentary.
In the EP space with what y'all are seeing right. The RF, uh, RFA softness is already being telegraphed. I cannot imagine that as the reason for the softness. So logic tells us there's something growing in PFA. I'm just trying to connect all the Dots here, sorry, for the lengthy question. Uh, gentlemen, thank you for taking my questions.
Include the impact of the 2 products in question that are declining.
So our portfolio in, in the electrophysiology continues to do really well. And we expect you to grow at the rate of Market in 2026, excluding the, the negative impact of these 2 EP products. And once we anniversary in the second half of the year, the the impact of the ramp that we had in the first half of 2025, before fully expect, to get back to growth for a total business. But, but uh, but of course in AP as well, uh, to, to the rate of market growth, and then be be above market growth in 2027. We see this as a 3 quarter headwind
in in in the fourth quarter and the first half of 20 2026, and we fully expect to get back to growth in the second half of 26 and above market growth in 2027.
Thank you.
Your next question comes from the line of Andrew Cooper with Raymond James. Please go ahead.
Hey, thanks for one more follow-up here, but maybe just diving into this one in another way. Can you share a little bit of context on the EP side of how much of this is lapping? Inventory? Build versus truly lowering how you and your customers think about the end market demand. Because I think that's the question we're all trying to get to. If these customers are slower, are you telling us the end market is a little bit slower and it's not getting made up for elsewhere?
It's getting made up for.
In other customers that you don't work with or other players that you don't work with or, you know, or, or or kind of what is the, the situation there. Because I think that's kind of the 1 of the key pieces here.
That all these questions are going to in terms of what's going on in the EP Market versus specific customers. Giving you are broadly exposed like you talked about
Yeah, I fully understand the question and understand elements of both.
I mean our our customers, you know how to Ram, you know, they got products from us, they're they're adjusting, uh, they're they're getting real-time feedback as to the rate of adoption in the marketplace, what they're seeing, uh, the, you know, those products doing and they're adjusting their demand on us. So it's probably an element of both.
Okay, thank you. I'll stop there.
And that's all the time we have for questions. I will now turn the call back over to payment kills for closing remarks.
Okay, thank you, sir.
Thanks everyone. And I'd like to summarize our conversation today. We're facing it. 3/4 sales headwind, and we expect to return to growth in the second half of 2026.
We have a strong development Pipeline and expect to get to above market growth in 2027. And as I take on the health, I'm excited to lead our team to deliver for patients, customers and shareholders. And thank you again for your time and interest in integer.
Thank you again for joining us today. You can access the replay of this call, as well as the presentation, on the Integer Investor website at integer.net. This concludes today's conference call. You may now disconnect.