Integer Holdings Corp Q3 FY2024 earnings call

• Promoted Payman Khales to Chief Operating Officer and Andrew Senn to President of Cardio & Vascular, with transitions in Q1 2025.
• Q3 2024 results: Sales grew 9%, adjusted operating income grew 17%; YTD sales up 10%, operating income up 23%.
• Narrowed 2024 sales outlook to 10%-11% growth.
• Raised full-year profit and EPS outlook; midpoint of adjusted operating income expected to grow 20% y-o-y, adjusted EPS expected $5.24-$5.43 (14%-18% y-o-y growth).
• Divested Electrochem to become pure-play medical tech, expected EPS neutral and generating $50M cash.
• Manufacturing excellence initiatives driving margin expansion through direct labor turnover reduction, material scrap reduction, lower overtime, and efficiency improvements.

Cardio & Vascular (C&V) product line: Trailing four quarter sales increased 15% year-over-year, driven by above-market growth across all markets, new product ramps in Electrophysiology and Structural Heart, and the InNeuroCo and Pulse acquisitions. Cardiac Rhythm Management and Neuromodulations (CRM&N) product line: Trailing four quarter sales increased 7% year-over-year, with double-digit Neuromodulation growth from emerging PMA customers and normalized low single-digit growth in Cardiac Rhythm Management.

• 2024 sales outlook: $1.707B-$1.727B (10%-11% growth), organic growth 7%-8% with ~3% inorganic growth from acquisitions and portable medical exit.
• Adjusted operating income outlook: $280M-$288M (18%-22% y-o-y growth).
• Adjusted EPS outlook: $5.24-$5.43 (14%-18% y-o-y growth).
• Cash flow from operations outlook: $195M-$205M; capital expenditures: $100M-$110M; free cash flow: $90M-$100M.

• Hurricane Helene in Q3 caused slight organic growth deceleration due to facility shutdowns.
• Normal quarter-end selling day considerations, not materially impacting business.
• Potential impact of industry transitions on traditional energy products in electrophysiology.

Q: Briefly on organic growth trend deceleration in Q3, what drove it?

A: CRM segment down vs H1 trend, plus Hurricane Helene impact on Florida and Dominican Republic facilities. Neuromodulation from emerging PMA customers still strong.

Q: Background on changes in Payman and Andrew's roles?

A: To accelerate strategy execution, leveraging their integral roles in strategy development since 2018.

Q: Growth trends of EP business and PFA contribution?

A: EP is high growth, outperforms market 1.5x end market growth; PFA is promising, but not a single big driver of outlook.

Q: Organic growth acceleration in Q4 by segment?

A: C&V to accelerate due to new product ramps; CRM&N to see neuromod sales strength from emerging PMA customers.

Q: Hurricane impact lingering in Q4?

A: Slight cost impact from shutdown and ramp-up, but not material.

Q: 2025 outlook?

A: Focus on executing strategic objectives of organic growth 200 bps above market, operating profit 2x sales growth, and low end of leverage range by year-end.

Q: R&D cut in Q3?

A: Not a cut, but higher customer development revenues in Q3 due to milestone payments.

Q: Gross margin increase and sustainability?

A: Driven by supply chain stability and manufacturing excellence initiatives; expected to continue expanding with ongoing projects.

Q: M&A outlook?

A: Robust pipeline with $250M-$300M capacity post-debt leverage reduction.

Q: Hurricane impact on customer orders?

A: Normal cadence, no ongoing concentration towards end of quarter besides slight Q3 impact.

Q: TriClip pricing and volume?

A: Some agreements have tiered pricing based on volume, with pricing adjusting as ramp-up to full scale occurs.