Integer Holdings Corporation Q3 FY2025 earnings call

• Joe Dziedzic mentioned it's his last call as Integer's President and CEO, proud of past 8 years' achievements but noted recent customer forecast changes led to financial outlook reduction. - Payman Khales thanked Joe, shared third quarter strong results, noted customer forecast changes impact on 2025 outlook, provided preliminary 2026 and 2027 outlooks, with 2026 affected by slow market adoption of some new products and 2027 expected to return to above-market organic sales growth. - Diron Smith detailed third quarter financial results, updated 2025 sales, operating income, and EPS outlooks, including fourth quarter sales expectations and reasons for adjustments.

In the third quarter of 2025, sales totaled $468 million, showing 8% growth on a reported basis and 7% on an organic basis. Adjusted EBITDA was $106 million, up $10 million or 11% compared to the prior year. Adjusted operating income grew 14% versus the previous year. By product line: Cardio & Vascular sales increased 15% in the third quarter, with full-year 2025 expected to grow in the mid-teens. Cardiac Rhythm Management & Neuromodulation sales increased 2% year-over-year in the third quarter and 4% on a trailing 4-quarter basis, with full-year 2025 now expected to grow low single digit due to lower demand from select emerging customers with PMA products. In terms of revenue contribution, C&V and CRM&N are key segments with their respective growth and impact on overall sales.

• 2025: Expected reported sales to be in the range of $1.840 billion to $1.854 billion, growth of 7% to 8% (midpoint 7.6%), adjusted operating income range $319 million to $325 million, growth of 12% to 14%, adjusted EPS range $6.29 to $6.43, growth of 19% to 21%. - 2026: Reported sales expected to be down 2% to up 2%, organic sales expected to be flat to up 4%, with organic sales decline in the first half of 2026 and recovery in the second half. - 2027: Expected to return to above-market organic sales growth driven by strong product development pipeline.

• Recent customer forecast changes reflect that not all new products achieve expected success, leading to reduction in financial outlook. - Particular products in CRM&N and EP have slower market adoption than forecasted, causing headwinds to sales. - Multiple customers and products having significant magnitude changes in a short period is an unusual dynamic that could impact results.

Q: Just a couple on the early 2026, if you can hit on the specific headwinds in a second.

A: Yes, let me take that question. So what drives above-market growth of the 6% to 8% that you talked about is the new product introductions. Without new product introductions, the rest of our portfolio will grow at the rate of market. Now the headwinds that we're talking about, these 3 programs that we've highlighted that have given us headwinds in 2026, they're actually declining in 2026, which -- which normally that would have helped us drive growth and get to that 6% to 8% range. So it's -- when you remove new products, the rest of the portfolio is expected to grow at the rate of market.

Q: I guess one, just -- is this a PSA product or an RF product that's changed in EP? And is it -- basically, it sounds like it's a customer who as of Q3 you didn't really know about it until Q3.

A: Yes. So let me try to frame it in the context of 2 EP products. I can't be specific about the type of product, Travis, but it is 2 EP products. Now what you stated about the customer's 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 there was a leveling out and a little bit of a lowering as they were 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 up. What changed is that they came to us in the third quarter effectively telling us that the rate of adoption has not been as they had anticipated as a result, 2026 is going to be impacting.

Q: So it sounds -- I think I have an idea of what's going on in EP. Could you please explain if it was a similar dynamic that went on 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 dynamic or a different dynamic?

A: We believe that it has to do with the rate of market adoption of select products in this space. So this book of business, our emerging customers with PMA product has done really well over the past many years. We've talked about the rate of growth of this book of business. And as we entered in 2025, we continue to have very strong growth. In fact, I would even say into the third quarter, that book of business was growing well in the rate of 15% to 20%, and we had anticipated the same rate of growth in the second half that we had seen in the first half. But what happened is that in the third quarter, some of these customers, we learned that the forecast that we had anticipated is not materializing 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.