ITGR - NYSE

Hello, and welcome to the Integer Holdings Corporation Fourth Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I would now like to turn the conference over to Andrew Senn, Senior Vice President of Strategy Business Development and Investor Relations. You may begin.

Good morning, everyone. Thank you for joining us, and welcome to Integer's fourth quarter 2024 earnings conference call. With me today are Joe Dziedzic, President and Chief Executive Officer, and Diron Smith, Executive Vice President and Chief Financial Officer. Also joining us on the call is Kristen Stewart, our new Director of Investor Relations. As a reminder, the results and the data we discuss today reflect consolidated results managed for the periods indicated. Except for cash flow measures, prior period amounts have been recast to exclude the electric and business consistent with US GAAP continuing operations presentation. During our call, we will discuss some non-GAAP financial measures. A reconciliation of these non-GAAP financial measures is available in 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. Please refer to our company's SEC filings for a discussion of the risk factors that could cause our actual results to differ materially. On today's call, Joe will provide his opening comments and an update on Integer's strategy, followed by an overview of how we will sustain above-market growth. Diron will then review our adjusted financial results for the fourth quarter and full year 2024, and provide our full year 2025 outlook. Joe will come back to provide his closing remarks, and then we'll open the call for your questions.

Thank you, Andrew, and thank you to everyone for joining the call today. Integer finished the year with strong sales growth in the fourth quarter, up 11% on both an organic and a reported basis. For the full year, sales grew double-digit at 10% and adjusted operating income grew 20% over 2023 levels, or two times the rate of sales growth. During the fourth quarter, we completed the divestiture of making Integer a pure-play medical device company. We ended the year with a leverage ratio of 2.6 times adjusted EBITDA at the low end of our target range, which creates capacity to continue executing our strategic tuck-in acquisitions. We previously announced we acquired Precision Coatings for $152 million in January of 2025, and this morning, we announced we have signed a definitive agreement to acquire BSI Parylene for $28 million. These two acquisitions further our vertical integration with differentiated proprietary coating capabilities while maintaining our debt leverage within our strategic target range. After a strong 2023 and 2024, we expect to continue to grow above the market with expanding margins. For 2025, we expect reported sales to grow 8% to 10% and adjusted operating income growth of 11% to 16%. We expect organic sales to continue growing above the market at 6% to 8%. Our clear and compelling strategy continues to be our North Star as we relentlessly drive to outperform the market and create a premium valuation for our shareholders. We continue to optimize our portfolio strategy, execute our product line strategies that enable us to win in the markets we serve. Our operational strategy defines how we achieve excellence in everything we do, and our values define how we engage with each other. The bottom of the slide articulates the industry and Integer fundamentals that create a resilient business model. The elements of our strategy to generate our sales growth and the disciplined approach we've taken to develop a performance culture. Our financial objectives are clear and measurable: sales growth at least 200 basis points above the market, operating profit growth twice as fast as sales growth, and debt leverage between 2.5 to 3.5 times EBITDA. Everything we do in the company is anchored to this strategy. This slide summarizes our strategy journey to deliver sustained outperformance and ultimately a premium valuation for investors. Our portfolio and product line strategies position us for sustained above-market growth as we continue to shift the mix of our business to higher growth markets. The previously announced exit of our Portable Medical product line, which has limited technology differentiation and low growth, is proceeding as planned. We expect the Portable Medical exit to be completed in the fourth quarter of 2025. In October of last year, we completed the divestiture of our making Integer a pure-play medical device company. We continue to make targeted organic and inorganic investments in capabilities and capacity to enable our growth. Consistent with our tuck-in acquisition strategy, we acquired Precision Coatings and we have signed a definitive agreement to acquire VSI Parylene, expanding our coating formulation and coating services capabilities and further strengthening our pipeline. From an operational perspective, the supply chain labor environments have stabilized and we have refocused our organization to execute our manufacturing excellence initiatives that expand our margins. As I previously mentioned, we acquired Precision Coatings earlier this month for $152 million plus a contingent consideration, representing a purchase price of approximately ten times trailing twelve-month Precision Coating is a developer and manufacturer of high-value surface technology platforms including floral polymer, anodic coatings, ion treatment solutions, and laser texturing. These coating technologies are leveraged for high-value applications across our targeted markets such as electrophysiology and neurovascular, amongst many others. This acquisition brings the opportunity to vertically integrate high-value capability that is widely outsourced. We expect a 2025 sales contribution of approximately $52 million with an accretive margin rate. We're excited to welcome Precision Coatings' 300 talented associates into the Integer family. We're also excited to welcome VSI Parylene to the Integer family. Today, we announced entering into a definitive agreement to acquire VSI Parylene, a full-service provider of differentiated and proprietary parylene coating solutions primarily focused on coating complex medical devices. This transaction will build on our Precision Coating acquisition, further expanding our capabilities and coating services across our targeted markets. We expect to pay approximately $28 million in cash and stock or approximately nine times trailing twelve-month adjusted EBITDA. After the transaction closes, we expect VSI to contribute approximately $7 million to sales in 2025, which is a partial year impact. Precision Coating and VSI Parylene represent our fifth and sixth tuck-in acquisitions in the past three years and three months. Together with the acquisitions of Oscar, Aero Medical, Enduroco, and Pulse Technologies, we have strengthened Integer's position in high-growth markets while adding differentiated capabilities to serve our customers. Our acquisitions further vertical integration strategy and help our customers consolidate and simplify their supply chains. These six acquisitions generate annualized sales of approximately $240 million with accretive margins. I'm pleased to highlight that Oscar, Aero, Neuroco, and Pulse are all tracking ahead of our original deal models as we've been able to execute on planned operational synergies. I look forward to Precision Coatings and VSI Parylene contributing to our growth as we integrate them into our business. Over the past several years, we have demonstrated that we can consistently execute tuck-in acquisitions that enhance our capabilities and are accretive to our sales growth rate and profit margins. We are very targeted in the companies that we pursue and have remained disciplined relative to our acquisition criteria. We continue to cultivate relationships with a robust pipeline of founder-led and privately owned businesses. We estimate our annual acquisition capacity is now $350 to $400 million. We are confident we can continue to supplement our strong organic growth with tuck-in acquisitions to deliver high single-digit to low double-digit total sales growth. In addition to inorganic growth, we have been focused on generating a strong product development pipeline that positions us for sustained above-market growth. We developed our portfolio strategy in 2017 and formed the growth teams in 2018. These market-focused teams have executed a structured and disciplined approach across the organization to shift our pipeline to high-growth products and markets, expand our capabilities, and ensure our investments are aligned to our strategy. This structured and disciplined process has been and will continue to be critical to Integer achieving sustained outperformance. We continue to invest in the highest growth C and D markets, the same markets where our customers are investing and the areas with the greatest unmet clinical need. Integer is uniquely positioned to serve our customers across all phases of the product life cycle, because of our deep technology breadth of capabilities and products, global manufacturing footprint, and vertical integration. The products on the bottom of the slide highlight areas of continued investment in capabilities and capacity. Our product development pipeline is concentrated in these high-growth end markets. We also continue to invest in the differentiated capabilities that serve both our traditional cardiac rhythm management and emerging neuromodulation products, including the high-growth subsegments within cardiac rhythm management. Integer is uniquely positioned to be able to bring full design, development, and high-volume manufacturing to these customers while also vertically integrating the most technologically advanced components with our own intellectual property from decades of innovation. Very few other companies have the breadth of design and development capabilities and even fewer offer the depth of component technology that Integer offers to our Neuromodulation customers. The products on the bottom of the slide highlight the high-growth areas of CRM and N and are where our product development pipeline is concentrated. Integer partners with our customers to bring innovative medical technologies to market, and we are paid for this service throughout the product development cycle. As these life-saving and life-enhancing products are introduced to the market and enter the manufacturing ramp phase, Integer benefits from accelerated sales growth. The amount of product development sales and the market growth rate of products being developed are leading indicators for sustained above-market sales growth. Our product development sales have increased 270% since we developed our strategy in 2017, which means our pipeline of new programs has grown significantly and we are being designed into our customers' novel products. We are confident that the current level of development sales will continue to deliver sustained above-market growth. We have continued to strategically target product development opportunities in high-growth markets to accelerate our growth rate on a sustainable basis. 80% of our development sales are currently in high-growth markets with the remaining 20% in more mature markets. We continue to believe the mix of 80% high growth and 20% mature markets is the appropriate balance to accelerate our sales growth rate while sustaining our mature products for the benefits they deliver to our customers and Integer. The development cycle in our industry is relatively long, so it is a meaningful milestone for us to achieve the level of product development sales and program mix necessary to sustain above-market growth. We are excited to share our fifth annual update on emerging PMA customers. We presented this slide for the first time on our earnings call in the third quarter of 2020. These PMA customers are primarily focused on a single innovative therapy that is new to the market. We have been investing in this pipeline of PMA products for many years, and the advancement of these programs is a key contributor to our above-market sales growth. The left-hand side of this slide shows the number of customers we're working with at each phase of the product development process. The right-hand side highlights the actual sales generated in 2018, 2020, 2022, and 2024 for the customers in either product introduction or launch. In 2024, sales came in above our projected range at approximately $125 million. This growth reflects the market success for these novel therapies. As we look ahead, we expect our emerging PMA product sales to grow at a compound annual rate of 15% to 20% over the next three to five years. In addition to this above-market growth, we have increased our pipeline of customers in the development and clinical phases. As we have discussed, Integer is actually executing an organic and inorganic sales growth strategy. Prior to the development and implementation of our strategy, Integer was growing at about the market growth rate of 5%. I have highlighted how growth starts with product development, which is our focused strategy to get designed into our customers' most strategic products in high-growth markets, which is demonstrated by our product development sales growth of 270%. And 80% of our development portfolio is in high-growth markets. These key metrics reinforce why we remain confident we have the organic pipeline to deliver sustained organic growth 200 basis points above the market. Our acquisition strategy has added significant capability depth and breadth we can better serve our customers in high-growth markets. Our recent acquisitions have also added to our organic pipeline and provided sales and profit acceleration. Our focused strategy combined with our organic and inorganic have generated a strong product development pipeline and the most vertically integrated provider to our customers in the fastest-growing end markets. This gives us confidence we can sustainably grow sales high single-digit to low double-digit going forward. The strategy that we launched in 2018 is producing results and has helped Integer accomplish its vision of being our customer's partner of choice for innovative medical technologies and services. I'll now turn the call over to Diron.

Thank you, Joe. Good morning everyone. Thank you again for joining today's discussion. I'll first provide more details on our fourth quarter and full year 2024 adjusted financial results, and then provide our 2025 outlook. It is important to note fourth quarter results are not impacted by our recent acquisitions of Precision Coating, and the pending acquisition of BSI Parylene. While the full year 2025 outlook does include these acquisitions. We ended the year strong. Delivered fourth quarter sales of $449 million. Integer delivered 11% year-over-year sales growth on both the reported and an organic basis. The 11% organic sales growth excludes the impact of our January 2024 Pulse acquisition, the strategic exit of Portable Medical Market announced in 2022, and foreign currency fluctuations. We delivered $95 million of adjusted EBITDA, up $9 million compared to the prior year, or an increase of 11%. Adjusted operating income grew 13% versus last year as we continue to make progress on our year-over-year margin expansion. Compared to the prior year, adjusted operating income as a percent of sales increased to 16.9%, a 22 basis point improvement reflecting the continued improvement in our manufacturing efficiency and operating expense leverage. Adjusted net income was $51 million in the fourth quarter of 2024, up 6% versus a year ago, delivering $1.43 of adjusted diluted earnings per share. Adjusted earnings per share improved year-over-year, with a $0.21 improvement driven by higher adjusted operating income, mostly offset by higher interest, taxes, foreign exchange, and convertible note share dilution from the higher stock price realized in the fourth quarter of 2024. With our strong performance in the fourth quarter, we closed out the full year 2024 with sales of $1.717 billion, representing a strong year-over-year increase of 10% or 7% organically. We delivered $361 million of adjusted EBITDA, up 19% versus last year. Adjusted operating income was $285 million, up $48 million or 20% compared to the prior year, which is two times our sales growth rate. We delivered $184 million of adjusted net income and $5.30 of adjusted diluted earnings per share, up $0.69 or 15% from the prior year. I will provide more color around our year-over-year growth and adjusted net income in a few moments. Taking a closer look at our CMV, and CRM and N products line sales, we delivered strong year-over-year growth on a trailing four-quarter basis in the fourth quarter of 2024 for both product lines. For our cardio and vascular product line, trailing four-quarter sales increased 14% year-over-year with strong growth across targeted C and V markets. This was driven by new product ramps in electrophysiology and structural heart and performance of our Neuroco and PULSE acquisitions. Cardiac Rhythm Management and Neuromodulation's trailing four-quarter sales increased 8% year-over-year. This was driven by double-digit neuromodulation growth from emerging customers, and normalized low single-digit growth in cardiac rhythm management. Further product line details are included in the appendix of the presentation on our website at Integer.net. To provide more color on our full year 2024 performance, we increased adjusted net income by $28 million compared to 2023. Strong sales and operational improvements delivered $39 million equivalent to $1.16 per share. This was partially offset by foreign exchange as well as higher interest and taxes. We incurred adjusted total interest expense of approximately $10 million or $8 million tax-affected higher than last year. This is primarily due to a higher debt balance throughout the year driven by the acquisitions of Neuroco and Pulse Technologies in late 2023 and early 2024, respectively. Our adjusted effective tax rate was 18.3% for the full year 2024 compared to 17.6% in the prior year. The primary drivers of our higher adjusted effective tax rate compared to the prior year are the enacted pillar two legislation in Europe establishing a minimum effective tax rate of 15%, and residual impact of the 2023 expiration of our ten-year Malaysian tax holiday. It is important to note that our 2024 adjusted earnings per share is impacted by both higher adjusted net income and higher adjusted weighted average shares outstanding. The year-over-year increase in adjusted weighted average shares outstanding is primarily due to a doubling of the Integer stock price in the closing of our convertible notes in February 2023. This drove approximately 3% dilution or a $0.14 reduction to our adjusted earnings per share. We delivered another strong quarter of cash generation in the fourth quarter of 2024 with $63 million of cash flow from operations. This strong performance was driven by improved operational execution and continued management of working capital. In the fourth quarter, we generated $44 million in free cash flow inclusive of $19 million of capital expenditures. On a full-year basis, this equates to $205 million in cash flow from activities, a 14% increase versus 2023. Our full-year free cash flow of $100 million, up 65% versus a year ago, reflects $105 million in capital expenditures, which was in line with our outlook throughout 2024. Net total debt ended at $954 million for the fourth quarter of 2024, a decrease of $101 million compared to the third quarter ending balance. As a result, our net total debt leverage at the end of the fourth quarter of 2024 was 2.6 times trailing four-quarter adjusted EBITDA at the end of 2023. We will now transition to providing more detail on our outlook for 2025 sales, profit, and cash. The full-year outlook as summarized earlier reflects our strategy to deliver sustained above-market growth with expanding margins. We expect 2025 sales to be in the range of $1.846 billion to $1.880 billion, an increase of 8% to 10% versus last year. Our outlook reflects organic growth of 6% to 8%, which is 200 basis points above our underlying market growth rate estimate of 4% to 6%. In addition to 6% to 8% organic growth, we expect to deliver approximately 2% of net inorganic growth. The inorganic growth is from our Precision Coating and VSI Parylene acquisitions, partially offset by a decline from the previously announced Portable Medical exit. Our outlook for 2025 adjusted EBITDA is between $401 million and $422 million, which is 11% to 17% growth year-over-year. And we expect 2025 adjusted operating income to be between $315 million and $331 million, reflecting growth of 11% to 16%, which is 1.6 times our expected sales growth rate at the midpoint of our outlook. Adjusted net income is expected to be between $208 million and $221 million, reflecting year-over-year growth of 13% to 20%. This assumes an adjusted effective tax rate between 19% and 21% and assumes our adjusted interest expenses between $52 million and $57 million. This delivers an adjusted EPS outlook between $5.84 and $6.20, a growth of 10% to 17%. It is important to note the strong performance of the Integer stock price, which is up more than 100% since February 2023, does drive some dilution in adjusted weighted average shares outstanding. Our EPS outlook includes approximately 35.7 million adjusted weighted average shares outstanding for the full year and an expected 35.5 million shares outstanding for the first quarter of 2025, reflecting the estimated dilution from the convertible notes. Year-over-year, that represents approximately $0.18 or 3% EPS dilution at midpoint. Our 2025 outlook of 8% to 10% sales growth is inclusive of inorganic growth of approximately $59 million from the 2025 Precision and VSI Parylene acquisitions we discussed earlier, offset by an approximate $29 million decline from the previously announced Portable Medical exit, which is expected to be complete by the end of 2025. We ended 2024 with a strong sales backlog of $728 million, which continues to be above the pre-pandemic level of approximately $300 million, giving us confidence in our 2025 sales outlook. As shared previously, we expected the backlog to normalize as we fully complete our Irish capacity expansion, fulfill the Portable Medical last-time buys, and as lead times continue to improve. We anticipate the backlog to further normalize throughout 2025 while remaining nearly two times the pre-pandemic level. We expect reported sales growth in the first quarter of 2025 to approximate the full-year sales growth rate of 8% to 10%, less approximately 3% due to three fewer working days in the first versus the first quarter of 2024. Most of the first quarter 2025 sales growth is expected to be organic, as sales from the recent acquisitions are largely offset by the declining Portable Medical sales. We expect adjusted operating income as a percent of sales to expand throughout 2025 from improved manufacturing efficiencies and operating expense leverage. Shifting to our 2025 cash outlook, I would like to summarize our cash flow generation on our net total debt projections for 2025. We expect cash flow from operations between $225 million to $245 million, which represents a 15% year-over-year increase at the midpoint of the outlook. Our outlook for capital expenditures is $110 million to $120 million as we continue to invest in capabilities and capacity. As a result, we expect to generate free cash flow between $110 million and $130 million inclusive of the approximate $175 million for the acquisitions of Precision Coatings, and the pending acquisition of VSI Parylene, we expect our 2025 year-end net total debt to be between $1.030 billion and $1.050 billion, which is up $75 million to $95 million year-over-year. We expect to end the year with our leverage ratio within our target range of 2.5 to 3.5 times trailing four-quarter adjusted EBITDA. With that, I'll turn the call back to Joe.

Thank you, Diron. We delivered a very strong 2024 with full-year sales up 10% and adjusted operating income improving by 20% over 2023. In the last two years, we have grown sales 29% and increased adjusted operating income by 57%. We expect this strong performance to continue into 2025 with an outlook of 8% to 10% sales growth, and an 11% to 16% increase in adjusted operating income. The execution of our strategy both organically and inorganically is producing results as we continue to demonstrate above-market sales growth with expanding margins. We remain focused on executing our strategy to create a premium valuation for our shareholders. We will now turn the call over to our moderator for the Q&A portion of the call.

Thank you. Please ensure your phone is not on mute when called upon. Thank you. Your first question comes from Brett Fishbin with KeyBanc Capital Markets. Your line is open.

Hey, guys. Thank you very much for taking the questions. Just wanted to start off on the guidance, a little bit on some of the segment moving pieces. On cardiovascular, the segment was really growing in the low double-digit range from 2021 to 2023. We saw a little bit of deceleration in 2024. We're just curious if you see potential for a return to that low double-digit range in 2025 if things go well. And if not, if there's anything holding you back that's different from what you were seeing a couple of years ago. Thank you.

Hey. Good morning, Brett. Thanks for the question. So yes, on Cardiovascular, we actually provided some guidance on the product line slide in the appendix for Cardiovascular that we expect the 2025 sales to grow low double-digit on a year-over-year basis. So we absolutely do expect cardiovascular to continue and have very strong growth given our success in the various targeted high-growth markets. And for CRM and N, we finished the second half of the year very strong on the neuromodulation side of the business, especially emerging PMA. On cardiac rhythm management, we saw the second half of the year as expected normalized back to its more traditional low single digits and that's what we have baked in going forward into 2025.

Yep. Makes a lot of sense. And then on Precision Coating, it seemed like an interesting deal. I was hoping you could maybe just give a little bit of background on how this specific deal came together, how long you've been looking at the asset, and why you think it was the right time for both parties.

Certainly. Yeah. It's a great question, and I think your point to timing is kind of the story behind most acquisitions. We've talked about as part of our strategy development back in 2017, 2018 in our shift to getting designed into our customers' most important highest growth products. We did a capability analysis, and we identified where in those targeted high-growth markets, where is the most value created from a technology or a manufacturing know-how or capability perspective, we build that capability roadmap, and we've been systematically checking those off both organically and inorganically. And in this case, we've had coatings on our list for a very long time. We've been monitoring the market, getting to know the different players in the market for a very long time. And like all deals, as the buyer, we have to wait for the seller to be ready and part of what we do is build those relationships so that sellers know who we are and what we're trying to do and understand our culture and our company and our strategy and how we think they may fit into that strategy. And then when the seller's ready, then we're ready and we try to capitalize on that. Ideally, we would like to do that outside of a process, and so you see many of our acquisitions happen in that way because that's part of our strategy. So in this case, coatings as a service is a segment we've been monitoring and studying for a long time and getting to know the players. And we were fortunate to have two opportunities that came together around the same time. We're really excited. We have great depth in coatings and applications of coatings for products that we manufacture. What Precision does and VSI Parylene do is they coat other people's products as a service. They also formulate the coatings themselves, very differentiated and proprietary coatings. And so we see this as a great step towards vertically integrating our offering and helping our customers again with proprietary and differentiated capabilities that compound the coating capabilities we have but now adds the formulations and the proprietary differentiated offering as a service. And so we're excited to welcome both Precision Coating and VSI Parylene to the Integer family and look forward to accelerating their growth by leveraging our deep relationships in the industry and all the products that we currently support customers with.

Alright. And then last one from me. Just on tariffs, I was hoping you could just help frame your exposure in this area just given some of the continued uncertainty and particularly in Mexico, given your footprint there. Thanks very much.

Certainly. Well, you nailed it, the uncertainty. I mean, it's a topic that if I knew what the tariffs were gonna be, if there's gonna be tariffs, and I knew what the structure's gonna be. Our operations in Mexico are maquiladoras. The structure of maquiladoras is you bring material in, and then you into Mexico, you process it, add value to it, and then you take it out, and you would only pay tariffs or tax or anything on the value-added portion. Obviously, the current environment, it's unclear what the tariff structure will be. How it will impact maquiladoras, will there be exceptions for life-saving, life-enhancing devices in the medical device industry like there were in the prior experience with tariffs from the current administration, going back to the prior administration. So right now our view is we're gonna operate as though tariffs are gonna be implemented at some point in time. And we're implementing the operational changes necessary to minimize the impact of the tariffs for both ourselves and our customers. But until we know what the structure of the tariffs is, what exceptions there will be or won't be, and how it will impact the maquiladora structure, it's really not possible to quantify it. At this time, but I'll reinforce we're operating as though at some point the tariffs are gonna ultimately be implemented and we're implementing the mitigation plans that we have at our disposal.

Okay. Super. Thank you very much.

Thanks for the question.

The next question comes from Craig Bijou with Bank of America. Your line is open.

Good morning, guys. Thanks for taking the questions. Wanna ask maybe a follow-up on the CMV growth trend line in your X-ray five. If I look at the trailing four-quarter growth for CMV, it was 14% in Q4, 15% in Q3, you saw a nice acceleration in the actual Q4 growth. So, you know, with some of the high-growth markets that you're serving, you know, in EP and structural heart, it seems like those markets the underlying growth of those markets continue to accelerate. So I guess the question is why couldn't you maintain CMV growth closer to the mid-teens versus low double digits that you're expecting. And you know, I guess, how should we think about contribution from those faster growth markets versus some of the other markets that you're serving within C and V that may not be growing as fast as your target markets?

Great. Great. Great question, Craig. Thank you. So we do in a especially from those underlying markets. You know, we're still outgrowing the market meaningfully in electrophysiology and structural heart, and those are big contributors. And so we've given guidance for the full year on cardiovascular to be low double-digit, low double-digit kind of has a range that could creep up into the range in the area that you're pointing to. What I'd say is our goal is to continue to deliver above-market growth, organic growth in total. We're targeting at least 200 basis points above the market. We gave guidance at the beginning of 2024 of 6% to 8%. We ended up for the year at organic growth in 2024 of 7.3% organic growth. As we look at 2025 regarding 6% to 8% organic growth, we're driving to make that as big a number as we can. And of course, those faster-growing underlying markets that you're referencing are going to be big contributors to that. So we do expect CV to keep growing in a very strong manner, strong double digits and the emerging PMA customers will also continue to grow. So we're excited about the products that we're on and the new to outgrow the markets on an organic basis. And then supplement that with our strategic tuck-ins on the acquisition side with the goal ultimately of always delivering high single-digit, low double-digit top line with expanding margins.

Got it. That's helpful. Thanks. Thanks, Jeff. And Joe, I'm I apologize, but I'm gonna push you a little bit on the Mexico tariff impact. So I think when investors are just trying to understand is what is the exposure and then understanding that there's uncertainty that the actual value-add piece of or component of the tariff is yet to be determined. So is there any way that you can help frame you know, the amount of sales from Mexico that come into the US even in some general terms. I know in your filings, you have know, percentage of employees there, percentage of long-lived assets. Anything that you can say or direct investors to to have some understanding of potential exposure, recognizing that there's still a lot of uncertainty around it.

Yeah. Without being really, really granular and specific on the underlying assumptions about the tariffs and structure of the tariffs. It's hard to quantify a number, and the reality is as the specifics of any potential tariff change, the number changes. What I can say is this, we manufacture product all over the world. And then we ship it to our customers' manufacturing plants all over the world. And so every one of our plants is shipping products all over the world to wherever our customers' manufacturing plants are. And you know our customers, you know the industry as manufacturing hubs. In Minneapolis, the northeast in the US, some in California, Costa Rica, Puerto Rico, Mexico, Galway in Ireland, Southeast Asia. So the industry manufacturing footprint is global. The vast majority of the products that we manufacture go to one of our manufacturing plants. They go all over the globe. So you should not assume that any one of our plants ships everything to one country because there's a myriad of destinations. And so we've done the analysis on our operations to look at where we're shipping. We're implementing any shipping logistics changes to mitigate or minimize any potential impact of tariffs. We're operating as though at some point, tariffs will be implemented. And putting mitigation plans in place. And until we have more certainty about what the tariffs could be, it really wouldn't be credible to put a number on it because it requires a number of variables that are uncertain and that do seem to be changing regularly.

Okay. Thanks for the color, Joe. I'll let others jump in. Thanks.

Thanks, Greg. Thanks, Greg. The next question comes from Matthew O'Brien with Piper Sandler. Your line is open.

Good morning. Thanks for taking the class. Maybe just to follow-up a little bit on the first question start with on the acquisition side, just these new coming technologies that you have, just talk a little bit about you know, you mentioned think, EP in there, neurovascular fast growth areas. What other kind of halo effect can you get from these applications or these applications you know, for the rest of the business on top of what you're already seeing or new areas it's gonna push you into?

Certainly. So it's coatings as a service. And so it tends to be something that customers have to look at and think about early in the process of designing and developing products. And so what that means is then we are engaging with customers very early in the process, and it's giving us visibility to the products they're working on, because this is primarily an outsourced process. So most of what the coatings are done as a service in the industry. We see this as really vertically integrating and allowing us to take the coating application processes that we use today for products we manufacture and now expand what we can do and offer that as a service and simplify our customer supply chain by allowing us to be involved earlier in the process, allowing us to offer coatings as a service. Or in addition to, like, what we already do where we coat the products that we manufacture today. So we have deep expertise in coatings today as a process. The other thing that this allows us to get into are some of the other faster-growing end markets that maybe we don't have products in today, but that require coatings. And so this is a service that can tap into those faster-growing end markets where maybe we aren't making product today, but the coating service allows us to participate in those faster-growing end markets. We listed a couple of those on the summary side. So we see this as a service that allows us to go where the fast growth is, and allows us to engage more deeply with our customers earlier in the process to again, it's about simplifying their supply chain and allowing them to work with fewer suppliers allow us to help them get products to the market faster and gain that first-mover advantage.

Appreciate that. And then as a follow-up, and this might be a little bit of a stretch though, but know, one of your big customers mentioned a new manufacturing facility in Galway, now up and running. Obviously, you have a facility there. I'm just wondering if you know, you're gonna potentially benefit from that new manufacturing facility for one of your big customers or if it's a headwind it's an area that I think, you know, expecting a lot of growth out of. So I'm just wondering what kind of benefit Integer sees from that know, over the next couple of years. Thanks.

You know, I'd love to give you a list of all the programs we're on and the new products that we're launching with customers that support our 6% to 8% organic growth guidance for 2025 that delivered on the 7.3% organic growth that we had in 2024. And it gives us confidence that we're gonna continue to be able to outgrow the markets on an organic basis. But our customers really don't want us talking about their products and the things that they're doing. And so we're focused on continuing to do the development work and growing the development work that we continue to grow. And making sure that we can deliver on the organic growth and the tuck-in acquisitions that we've included in our guidance. And so maybe the closing point is we benefit from any consolidation in the industry. You know, we built a brand new greenfield facility in Galway. We have a smaller operation that's completely out of capacity. We built a whole new facility in Galway because of the amount of development work that's happening in Galway and customer to co-develop physically together in Galway, and we think that's gonna be a big contributor to our growth over time. And so we're excited about the programs that we're on. I wish I could share them in more detail with you, but anything like that that's happening in the industry, we're aware of it, and it's factored into our 2025 guidance, and we think 8% to 10% growth in this environment with 6% to 8% organic is a strong outlook for the year.

Understood. Thank you.

Thanks for the questions, Suvir.

The next question comes from Richard Newitter with Truist Securities. Your line is open.

Hi. Thanks for taking the question. Just wondering on gross margin in the fourth quarter. I, you know, came in a little bit shy of our expectations despite the better revenue performance gross our forecast at least. Anything to call out there? And I'm curious if you could talk to the gross margin or how we should think about that improving or not in moving into 2025 and what's baked into the from a gross margin standpoint into your 76 basis point operating margin expansion target?

Great. Good morning, Rich. Thanks for the question. So let me start with we had 11% organic growth in the fourth quarter, which is exactly what we guided to. We actually landed right at the midpoint of our sales guidance. And I know on the third quarter call, there were a few people asking, wow, that's a pretty big step up in organic growth. And we said, hey. We're already four weeks into the quarter. We've been planning for this all year long. We know what customers' demand is. And so I'll start with we delivered very strong 11% organic growth in the quarter right at the midpoint of our guidance. Operating profit was a little better. And so I know that the geography of the income statement might look a little different, in the actuals versus what folks were expecting, but it was very much in line with what we were expecting. The thing I'll point to is we highlighted that we had some significant new product ramps in the quarter. We highlighted that our emerging PMA customers were going to be at the high end of the range we had provided. You may have seen on the slide they we came in slightly above the high end of the range. So we had strong growth there and other new products that we continue to launch. So happens when you launch a lot of new programs in any given quarter, you hire you have to hire a lot of people, train a lot of people, and there's always some level of inefficiencies during those ramp periods. It may take us a few quarters to work out some of those inefficiencies, until we either get the lines up to a load that's more balanced with the amount of resources we have because we're preparing for that growth, which is part of what's fueling the 6% to 8% organic growth in 2025. So we weren't surprised by that. I would characterize it maybe summarize it as 11% organic growth, a lot of new programs, you hire people, you got to get them trained, they're not as proficient in the early phases, we'll do what we always do, which is continue to improve those processes. And as the volumes ramp, the lines become more balanced and level loaded and efficient. Associates become more proficient at what they're doing. And it's a great problem to have when you've got 11% organic growth with lots of new associates building new products.

Okay. I guess, you know, the gross margin direction was down. Sounds like there were some efficiency productivity things that sound transient and it came in line with your expectations. Maybe just because you just issued 2025 guidance can you give us a ballpark of you know, how we directly should think of gross margin on a full-year basis year-over-year? Should it be roughly in line with 2024, above 2024, below? Just how you're getting to the operating margin improvement in how we think about the gross margin direction.

Sure. So maybe I'll start with the way we think about our overall strategy of growing operating profit twice as fast as sales is. We want some contribution from gross margins because that's our Integer production system manufacturing excellence driving a culture of continuous improvement, in all areas of the business. And then we want operating leverage. We don't want to grow our operating costs as fast as our sales, so we expect to get operating leverage every year. We expect to get gross margin expansion every year. And any given year, depending upon what programs we're launching and what products we're introducing and how fast we implement the continuous improvement, we expect there, it'll vary from year to year, how much of our operating margin expansion comes from operating leverage and gross margins. In 2024, we had 140 basis points of operating margin expansion. We think that's a great year with sales up 10% operating profit up 20%. That came from 40 basis points from gross margins and 100 basis points from operating margin operating cost leverage. As we look into next year, we would expect our RD and E cost as we continue to grow the development sales that will lower the RD and E line item. But we're doing more work next year, so we would expect RD and E to grow at less than the rate of sales. We'd expect it to be nominally a little higher on a year-over-year basis, but well below the sales growth rate. We expect SG and A to grow something closer to the sales rate. The acquisitions bring in some SG and A, and, you know, we'll always work on continuing to leverage our SG and A infrastructure across the company, but we would expect SG and A to be more in line with overall sales. And so then we'll get some gross margin expansion and that mix of it is going to vary across the year. I wish it was always perfectly linear, but we would expect to get some gross margin expansion while continuing to leverage our OpEx on a go-forward basis.

Okay. Thank you.

The next question comes from Nathan Treybeck with Wells Fargo. Your line is open.

Great. Thanks for taking the questions. Your slide that I called out renal denervation as a target growth market, can you disclose what it is you're manufacturing, whether it's components or final product, and are you working with both Medtronic and ReCore? And, you know, further, we expect a significant ramp in renal denervation following its NCD. You feel comfortable you'll have the capacity to supply that?

Yeah. I really wish I could give you a list of all the programs rolling and all the individual customers we're on. We're excited about this market as well. It's getting a lot more visibility lately. It's a huge opportunity in terms of helping patients. And we've been working on in this space for a very, very long time. We think it leverages our core capabilities that we have in the business incredibly well. And if you look at me, it's a bit like the electrophysiology and the ablation catheters, the diagnostic catheters, leveraging that core capability. We think it fits really well with our capabilities and it's an exciting end market. We're excited to see the potential for helping more patients and to participate and help our customers participate in helping more patients and growing both of our businesses.

Okay. Thanks for that. And as a follow-up, so you now have a three to five-year outlook for your TNA portfolio at a 15% to 20% CAGR. Can you talk about the sequencing of this growth? Should we expect next year and the year after that to be in line above or below this growth?

Yeah. Great question. We did pivot to growing at what we think is still well above the market at 15% to 20%. We'd characterize that closer to 2x the market. We love the portfolio of companies that we're serving there. I wish I could say it was perfectly linear. I mean, part of the reason that we were showing two-year increments is as programs launch, they can have some lumpiness in the launch, in the initial loading of inventory. Nice thing is we've gone from a business that six years ago was $10 million. It was a rounding error. A $125 million portfolio of products, which is awesome. So it will have a little more predict I don't think it'll be perfectly linear because there'll continue to be launches. And what I'll highlight is if you look on that particular slide in the decks, we've got the number of customers that we're working with in the different phases of the product development and launch. Here's what I'll highlight. In the third quarter of 2020, the first time we showed this slide, we had 27 customers we were working with across those five phases. Now, we have 39. So as part of our development revenues continuing to grow and we highlighted that we've grown 270% since we launched our strategy. Last year, that chart said 230%. So you see we continue to grow and accelerated rate which helps to lower that RD and E line item because we're getting paid for that work. We're excited about the pipeline of customers. We're excited about a $125 million portfolio that is growing at 2x the market rate. And we would expect it to be a little more linear than what it had been but there will still be some lumpiness just because of the nature of product launches.

Great. Thank you.

Thanks for the question.

The next question comes from Suraj Kalia with Oppenheimer. Line is open.

Good morning, Joe. Tyler, can you hear me alright?

Yes. Good morning, Suraj.

Perfect. So, Joe, one question for you and one for Diron. So, Diron, first for you, and maybe I'm doing something wrong. Please forgive me on this. So, Diron, if I look at the two acquisitions and now in precision coding and, you know, and the other one, this morning. Right? And I stripped that out from your guide as reported, I'm getting, you know, somewhere close to 4% on the lower end. Can you help us to reconcile that 6% to 8% organic growth that you mentioned versus the LST that we are getting know, doing this math. I'm certainly screwing it up somewhere. And, Joe, to you, I know a lot of questions have been asked about EP and CRM and so on and so forth. And even renal denervation. But maybe if I could push you on transcatheter tricuspid therapies. I know that is a core focus for you guys, and you know, our math is roughly there were three or four thousand cases done in 2024. As you enter 2025, can you give us some guidepost on how you're not thinking you know, in terms of manufacturing outlook, any additional color would be greatly appreciated. Gentlemen, thank you for taking my questions.

Yes, Suraj. Just on the organic and inorganic piece of the calculation, what you have to look at is the portable medical market exit that we announced back in 2022 and its effect on the growth versus 2024. So the portable medical is down about $29 million year-over-year, 2025 versus 2024. And you need to back out in 2024 the $58 million of sales that we had in 2024. So you adjust 2024 and 2025 to exclude portable medical, that's where you'll be able to calculate in the 6% to 8% organic growth.

This concludes the question and answer session. I'll turn the call to Andrew for closing remarks.

Yeah. Let me just answer Suraj's other question about about I'll start with we continue to outgrow the market in Structural Heart. We said on the last call, we were growing one and a half or faster than one and a half times or faster than the market. Overall on structured heart. I'd love to get into specifics on individual programs, but we continue to have a strong development pipeline in structural heart. Feel that we're well prepared to support and serve that market as our customers introduce new products. And as they accelerate and ramp those programs. I feel like we're really well positioned if that was part of what you were asking. So we're excited about the structural heart market as one of our multiple growth drivers in delivering on that organic growth.

Thank you.

Thanks, Raj. Thanks for the question.

This concludes the question and answer session. I'll turn the call to Andrew for closing remarks.

Okay. Great. Thank you everyone for joining the call today. As always, you can access a replay of the call and the presentation on our website. Thank you for your interest in Integer, and that concludes our call.