Thank you for standing by. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Integer Holdings Corporation First Quarter 2023 Earnings Release Conference 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. [Operator instructions]. Thank you. Mr. Andrew Senn, you may begin..

Good morning, everyone. Thank you for joining us, and welcome to Integer's first quarter 2023 earnings conference call. With me today are Joe Dziedzic, President and Chief Executive Officer; and Jason Garland, Executive Vice President and Chief Financial Officer.

As a reminder, the results and data we discuss today reflect the consolidated results of Integer for the periods indicated. During our call, we will discuss some non-GAAP financial measures.

For a reconciliation of these non-GAAP financial measures, please refer to the appendix of today's presentation, today's earnings press release, and the trending schedules, which are available on our website at Integer.net. Please note that today's presentation includes forward-looking statements.

Please refer to the 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 Jason will then review our financial results for the first quarter 2023, and provide an update on our full-year 2023 guidance.

Joe will come back to provide his closing remarks, and then we'll open up the call for questions. With that, I'll turn it over to Joe..

Thank you, Andrew, and thank you to everyone for joining the call today. In addition to KeyBanc and Benchmark, we are excited to welcome sell-side analysts from Piper Sandler and Bank of America, who have recently initiated coverage on Integer.

We appreciate the coverage from all the sell-side analysts, and are excited by the opportunity to reach more potential investors. In the first quarter, we delivered strong year-over-year results. Sales grew 21% organically, with strong double-digit growth across all product lines.

Our adjusted operating income grew 28%, generating nearly 70 basis points expansion of adjusted operating income as a percentage of sales compared to last year. First quarter sales were stronger than we expected, driven primarily by the recovery of the delayed shipments from the second half of last year.

Although we largely caught up on those delayed sales, the supply chain environment remains challenging overall. On a positive note, we are continuing to reduce our direct labor turnover, and are largely at the headcount levels we need to deliver on our high single-digit organic sales growth this year. We are reiterating our full-year outlook.

We expect our organic sales growth to be 7% to 9%, which is about 300 basis points above the growth rate in the markets we serve. We expect adjusted operating income to grow 10% to 16% year-over-year. We are also confirming our free cash flow guidance of $70 million to $90 million, a strong year-over-year increase.

The strategy we developed in 2017 and began implementing in 2018, is now producing projected sustained above-market sales growth and margin expansion in what remains a challenging supply chain environment. It is an exciting time at Integer, because demand remains incredibly strong.

We are making the investments needed to deliver sustained growth, and we have a strong pipeline of new products concentrated in faster-growing end markets. I am grateful for our associates around the world that are delivering for our customers and making a difference for patients. I’ll now turn the call over to Jason. .

Thank you, Joe. Good morning, everyone, and thank you again for joining today's discussion. I'll provide more details on our first quarter 2023 financial results, and provide an update on our 2023 outlook. We started 2023 with a strong first quarter.

Sales of $379 million delivered growth of 22% year-over-year on a reported basis, and 21% organically, which excludes the impact of the Aran acquisition and currency differences.

Our sales growth is indicative of continued demand strength across all product lines, and includes the impact of delivering products that have been constrained by supplier delays in the second half of 2022. Although we did recover these delays, the supply chain environment remains challenging.

We delivered $66 million of adjusted EBITDA, up $12 million compared to last year, or an increase of 22%. Adjusted operating income was up 28% or $11 million versus last year, and we have made progress on our year-over-year margin expansion.

With adjusted net income at $29 million, we were able to offset the impact from higher interest rates, and deliver $0.87 of adjusted diluted earnings per share, up $0.03 or 11% from the first quarter of 2022.

In the first quarter of 2023, sales for all four product lines grew double-digit year-over-year due to strong customer demand, and continued recovery from the previous supplier delivery challenges. The cardio and vascular product line delivered 20% sales growth in the first quarter, compared to a year ago.

We executed on strong demand in all markets and key products such as guidewires. We also delivered new product ramps in electrophysiology, and benefited from strong performance from the recent Oscor and Aran acquisitions.

Cardiac rhythm management and neuromodulation first quarter sales increased 18% over the first quarter of 2022, with double-digit growth in both CRM and neuromodulation, also driven by strong overall demand, and particularly strong double-digit growth from emerging customers with PMA products.

Advanced surgical, orthopedics, and portable medical saw 42% growth in the first quarter versus a year ago, driven by increased price and demand as a result of the execution of the multi-year portable medical exit announced in 2022. This was partially offset by a single-digit decline in advanced surgical and orthopedics.

And finally, Electrochem, our non-medical segment, delivered first quarter sales growth of 63% versus first quarter 2022, driven by strong demand across all market segments. Further product line detail is included in the appendix of the presentation.

To provide more color on our first quarter 2023 adjusted net income performance, we increased a total of $3 million compared to first quarter 2022, primarily due to operational improvements, and supported by strong sales volume, partially offset by higher interest rates.

In this higher interest rate environment, we incurred interest expense of approximately $7 million, or $6 million tax-affected, more than last year. However, on a sequential basis, compared to the fourth quarter of 2022, we reduced our interest expense by $1 million tax-affected, driven by the previously announced convertible notes.

Moving to cash, we generated $6 million in cash flow from operating activities in the first quarter of 2023. The lower nominal level of first quarter cash flow from operations is consistent with our typical annual profile, driven primarily by payment of associate short-term incentives and rebate payments.

That said, on a year-over-year basis, we did deliver $12 million less cash flow from operations than the first quarter of 2022. Despite higher adjusted EBITDA, we had headwinds from higher interest expense, income taxes, and the final payment of employer Social Security taxes deferred from 2020 as part of the US Government CARES Act.

In addition, we were impacted by the timing of customer collections, which pushed into the first week of the second quarter. These are not collectability concerns, but we are working with our customers on improved payment timing. Our CapEx spend of $25 million in the first quarter was at a rate in line with our expected annual CapEx.

As a result, free cash flow was a usage of $19 million. As an update to the factoring program shared during our fourth quarter 2022 earnings call, we received our first tranche of funding last week totaling $20 million.

For clarity, this is not in the first quarter results, but we reported in the second quarter, and will help fund our one-time facility investments needed to support growth. Net total debt increased $71 million to $978 million, driven primarily by fees associated with the $500 million convertible notes, and the $35 million related cap call.

As a result, our net total debt leverage at the end of the first quarter was 3.6x our trailing four-quarter adjusted EBITDA, just slightly above our strategic target range, which remains at 2.5x to 3.5x. We'll now transition to providing more detail on our guidance for 2023, sales, income, and cash.

As Joe mentioned in his opening comments, we are reiterating our 2023 outlook, with a sales range of $.147 billion, to $1.5 billion, an increase of 7% to 9% versus last year, which is above our underlying market growth rate.

We expect margin rates to continue to expand through improved manufacturing efficiencies from greater stability in our direct labor workforce and increase product development sales through the remainder of the year.

We generally incur product development costs evenly across the year, while product development sales can be lumpy and are usually weighted towards the end of the year based on milestone achievement. Our adjusted operating income should grow through the year from higher product development sales, mostly visible as a reduction in our D&E expenses.

Given these dynamics, we anticipate adjusted EBITDA growth of 11% to 16%, adjusted operating income growth of 10% to 16%, and adjusted net income growth of 4% to 11%, with adjusted earnings per share growth of $0.12 to $0.42.

To provide more insight into our outlook, first quarter sales of $379 million benefited from the closure of the second half of 2022 supplier delivery constraints of approximately $15 million, above an underlying run rate of approximately $365 million.

As we begin the second quarter of 2023, we expect sales similar to the first quarter run rate of $365 million, as we continue to execute in a challenging supply chain environment.

We expect adjusted operating income as a percent of sales to improve throughout the remainder of 2023, as we improve manufacturing efficiencies and achieve higher product development sales. Before we close our financial discussion, I want to also affirm our cash flow guidance.

As mentioned, last week we received initial funding from the previously announced factoring program for approximately $20 million, which is being used to fund the strategic growth in capital investments. We plan to continue to grow that program through the year to an estimated total of $35 million.

We expect to generate cash flow from operations between $180 million to $200 million.

As previously shared, capital expenditures are expected to temporarily increase in 2023, as we invest in capacity expansions, resulting in a total estimated CapEx investment between $100 million to $120 million, resulting in free cash flow between $70 million and $90 million.

The free cash flow generated will be used to reduce our net total debt, and we expect to end the year with our leverage ratio within our target range of 2.5x to 3.5x adjusted EBITDA. With that, I'll turn the call back to Joe. Thank you. .

Thanks, Jason. Integer had a strong start to 2023, with 22% year-over-year sales growth, and adjusted operating income up 28% versus last year. We are reiterating our 2023 outlook as we continue to successfully execute our strategy to deliver above-market growth with expanding margins.

We have a strong pipeline of new products, and are investing in the capacity to sustain this growth. We remain focused on delivering for our customers and the patients they serve to generate a premium valuation for our shareholders. Thank you for joining our call this morning.

I will now turn the call back to our moderator for the Q&A portion of our call..

[Operator Instructions] Your first question comes from a line of Matthew Mishan from KeyBanc. Please go ahead..

Hey, good morning and thank you for taking the questions. Just a first one on like what you're seeing around your production schedules. I mean, you kept your revenue guidance the same. 1Q was definitely much better than expected.

What are you seeing from your customers, and are you seeing demand increase through the course of the year versus what you initially expected? And are you able to meet that incremental demand?.

Thanks for the question, Matt. We're seeing - you've seen it across the industry that the underlying market seems to have been stronger than everyone expected and projected, and you're seeing that show up in sales.

The thing that we're asking ourselves is, was that reflected in our customers’ expectations when they placed orders on us, let's say second half of last year, and they said, what do we need from Integer in the first quarter, second quarter? And if that underlying strength in the marketplace was in that demand, then we wouldn't expect to see much different than the 7% to 9% organic growth that we guided to for the year, because that's what we've been been planning for.

And given our backlog and the amount of visibility we have to demand over the next six to nine months, unless customers were to adjust the timing of that demand, we won't see it, but if the demand that's happening in the underlying markets that we're hearing about from everyone in the industry, if that was unexpected and unplanned for, then we would expect to see customers ask us to pull some of that demand that's on order now.

They would ask us to move it to be earlier in the year. And that then has the potential then to lift our full-year outlook, because obviously we're operating with really good visibility to demand with $900 plus million on order, most of it this year.

And so, it really comes down to, were our customers expecting this incremental growth that's being observed in the underlying markets in the first quarter? I wish I had a clear answer for you, but we're obviously working with our customers to understand their needs near-term, long-term.

We see this as it's only upside to us because we've got really good visibility to the year. We had a strong start to the year, and we're excited about the prospects of the industry becoming even stronger than everyone expected..

And then just Joe, and Jason, I guess just to flow through, if you were to see some incremental upside on the revenue, how should we think about the flow-through of that? Is this a situation where you need to hire more people, you need to expedite freight, or is it something which could actually flow through at a higher rate given the volume in your plans?.

Yes, it's another great question. So, maybe I’ll start with, we have the direct labor. We've been able to hire the direct labor that we need to deliver for this year.

We think we can get the 7% to 9% organic growth without adding much labor from where we were, quite frankly, at the end of last year, because remember, last year we had a 15% more direct labor on 6% sales growth organically. And so, we hired more than we needed last year, or more than we could actually ship.

And so, as our workforce becomes more proficient at what they're doing, and we work through the continued challenging supply chain environment, that creates more capacity with the existing footprint, with the existing workforce, and we feel like we'd be able to get some of that volume out without having to add more direct labor and without having to invest more.

We also have seen a very significant improvement in our direct labor turnover. I think that's been a challenge for everybody. We see it in our suppliers as well. We improved significantly in the fourth quarter versus third quarter last year. We saw that trend continue.

We actually have about a quarter of our manufacturing sites are back to pre-COVID levels of direct labor turnover. I would attribute that to a number of factors. I think our plant leadership teams have done a great job of engaging our workforce. They've made changes in how we onboard, how we train.

I think we've gotten better at identifying through the interview process, associates who are ideally suited to work in the manufacturing environment. And then I think the broader labor market has improved in many of the markets.

So, I think it's all of those factors, but the continued improvement in turnover, our ability to get our workforce more proficient and efficient at what they do, is going to give us the capacity to meet increasing demand, while also generating the efficiencies, which ultimately will show up in gross margins. So, we’re excited about that.

Supply chain remains challenging. We’re taking what we think is a pretty pragmatic approach towards what we expect from supply chain. We're seeing fewer issues. We're seeing some suppliers improve, but there remains a group of persistently delayed suppliers.

We also are seeing - in some instances, we're seeing some quality issues start to come from some suppliers who I think they're also training their new workforce and we're identifying that early in the process. But that also ultimately leads to more disruption in efficiency.

So, we're (indiscernible) approach to supply chain, but if demand is higher and stronger than what we're forecasting and expecting, we feel we have both the workforce and the capacity to deliver on that..

Okay. Excellent. Thank you for taking the questions, and I'll let some of the new guys ask some more..

Your next question comes from the line of Craig Bijou with Bank of America. Please go ahead..

Hey guys, thanks for taking the questions, and obviously congrats on a very strong start to the year. Wanted to follow up on the demand question, and I appreciate your thoughts that you can manage any demand above what you're expecting with your current infrastructure.

But when does it get to a point, I guess, where if the underlying procedure volume has remained strong and maybe was a surprise to some of your customers, and is there a point where you do have to add people, capacity? I mean, is M&A a part of it? Or on the other side, if supply chain worsens a bit or some of these quality issues become more pervasive, I guess it's just a follow-up on asking how you plan to deal with that and how nimble, I guess, you guys could be if you do need to add capacity..

Great question, Craig. And Craig, thank you for picking up coverage and welcome. We look forward to the opportunity to work with you. Addressing your question, so maybe I’ll frame it with, last year we added 15% more direct labor workers, workforce associates, and we only grew sales about 6%.

So, that gives you an idea of the magnitude of the inefficiencies that were caused by the supply chain environment, as well as the level of turnover and the training required. And so, I mean, if I just kind of macro level, if you only grew sales 6% and you added 15% more people, that's 9% capacity with your workforce.

And this year, we're projected to grow 7% to 9%. So, that - you can see how you don't really need to add a lot more direct labor workforce in order to be able to get to 7% to 9%.

The other thing that we're planning on this year, and we've been very focused on is reducing overtime, because we have worked a lot of overtime due to the supply chain challenges and the training of associates. And so, I think we have the capability to flex.

Instead of reducing overtime, we could maintain overtime and where possible and where applicable, maybe even add overtime in order to meet a surge in demand, if demand increases.

I also think we’re becoming more proficient with our workforce because of the lower turnover and the increased stability, and that training and proficiency is pretty impactful. I mean, it's very, very positive to capacity, not only just efficiencies, but capacity. I also think the supply chain environment, we're being very pragmatic.

We’re assuming the supply chain environment we're in is what persists for the foreseeable future. And quite frankly, until we can tangibly say yes, we're getting better on-time delivery, full quantities, and quite frankly, in spec. So, the quality that then allows us to fully use that material, I think there's opportunity there.

That'll create more capacity because we're still dealing with supplier deliveries that are not on time and quite frankly having to realign schedules. So, I think there's improvement potential there as supply chain improves and broader market indicates supply chain is improving.

We have our own unique suppliers who serve us, and it's not the macro picture, it's the micro picture that does or doesn't make a difference.

The other thing I maybe would highlight is in the first quarter, our sales were about $15 million higher than what we had kind of guided to for the first quarter, and that was really, we were able to catch up on the sales from the second half of last year where we had supply chain challenges.

And so, that's a good indicator of some surge capacity that we were able to deliver on in the first quarter. So, I think there's a lot of moving parts there, but maybe to summarize your answer, I feel like given the workforce we have now and the improved training and proficiency, gives us some of that surge capacity.

We have assumed supply chain, I would maybe say just pragmatically, we're not counting on it to get better in a meaningful way. And if that does get better, that gives us additional capacity.

So, we will figure out how to meet our customers’ needs in the same way that we have throughout the last couple of years with the labor and supply chain environments..

Got it. Very helpful.

And then if I can ask, and I apologize if I missed it in the prepared remarks, just the pricing environment for you guys, I don't know if you disclose how much price contributed to the sales growth in the quarter, but if you don't provide a specific number, maybe just talk about your ability to take some price, how durable you see that through ’23, and then even in ‘24, ‘25 as we started looking at the out years..

Sure. So, we have positive price this year. It’s low, but it is positive. And maybe the importance of that is to contrast that we've historically been 1% to 2% price down. And historically that - as far back as we can see, that's been our typical pricing.

Last year, 2022, we were about 1% price down, and that's because we were able to pass through some of the material and wage inflation that we incurred, really starting in the middle of ‘21. So, we began to pass some of that through in 2022. We've been successful at passing more of that through in 2023.

And I think the reason you don't hear us highlighting the price increase as it impacts margins is because it's really designed and the way we negotiated it with our customers, is to cover the cost increases. We aren't raising prices in this environment necessarily to expand margins. It's really to cover cost.

And we think that's why our customers have been willing to work with us on that because they've been able to see the impact of those inflationary pressures. They're experiencing them. And then quite frankly, we've got to go work on efficiencies that we can then share with our customers as part of both of us improving our operations.

And so, we think of the price and we think this is the spirit of strategic partnership and why we have the long-term agreements we have is that we've been able to pass through some of those inflationary pressures. And so, it is a bit of an increase.

It's not meaningful when you look at either the 22% growth in the first quarter and it's not really meaningful in the full 7% to 9% organic for the year.

But we also think that - to get to your question about, well, how durable is it? We believe we're now in an environment and that we have a structure with our customers that going forward we can be price neutral-ish, that any given year, we're going to be somewhere around flattish. Maybe some years it'll round down. In other years, it'll round up.

But we think that's a meaningful change in our model. And as long as inflation and labor ultimately go back to kind of historic levels, we think that's an ideal place to be. And then we can focus on growth with our customers and enabling their success and sharing synergies that we get from working together to make changes to drive efficiencies.

And so, we’re excited about the ability to be able to pass through those inflationary pressures in ‘23 and then looking forward being a neutral-ish pricing environment for us..

Great. very helpful. Thanks for taking the questions and look forward to the ongoing discussion..

Great. Thank you, Craig. Thanks again for picking up coverage..

Your next question comes from the line of Phillip Dantoin with Piper Sandler. Please go ahead..

Hey, this is Phil on for Matt. He sends his apologies as he's currently in Europe and was worried about his connection here. But just a few from us, and I appreciate the commentary on the delayed sales recoup here, the $15 million in the quarter.

That's totally behind you at this point, is that correct? And then that $15 million, is that derived from any segment in particular or it spread broadly across all segments?.

Yep. Phillip, welcome and thank you as well, and Matt, for picking up coverage. We look forward to working with you. And to answer your question, the $15 million does mostly capture - there's a few million left in a few spots to complete what was pushed out late last year. So, it does almost entirely capture that.

And it was spread across both the cardiovascular and the mostly neuromod segments that lands in the cardiac and neuromodulation segment. So, I think it was probably - I think it was about evenly balanced.

It might have leaned a little more heavily in the cardiovascular side, but that that's the sales - or the answer to the question, and we’re glad to get that behind us.

There are still pockets where customers need and want more product, where we know they need to replenish inventory, and there are very specific supplier constraints that we're working to resolve in order to be able to do that.

So, for sure, versus our guidance there, there's product that last year pushed out that's been addressed, but there's still definitely pockets with certain customers where we know they need more inventory and we're working to replenish that inventory.

That's been factored into our guidance, in the 7% to 9% organic growth because we fully expect to be able to fully replenish those customers' inventories this year..

No, that’s helpful. And I'm just trying to parse out, I mean, you said that your underlying markets are strong.

Is there any particular market, even with the bolus of this backlog in cardio and neuromod, they both grew nicely, but is there any particular market that you'd call out as being stronger compared to the others? Or is it just broadly speaking, every market is doing well?.

Well, without a doubt, every market, all of our product lines were up double-digit, and we saw that in the underlying submarkets in many areas. But unquestionably, electrophysiology strength is there in the underlying market. You saw that in almost all of the industry and certainly our customers.

And we saw that flow through to us, which as we try to triangulate, well, how much of this demand did our customers see, sometimes it's a little hard to tell because they may pull more from us, but that might be to replenish inventories. And or it might be to meet the demand to try to keep their inventory levels up.

And so, they may or may not have anticipated that and therefore had the demand on us. We’re definitely seeing neuromodulation growth and strength, but I’ll characterize that. It’s not just in spinal cord stem. It's across all segments. Less than - the spinal cord stem is less than half of our neuromod sales today.

The pipeline of emerging customers that we have, we have been able to diversify in markets beyond spinal cord stem. And that’s helped us in a meaningful way to have more opportunities, but not also be dependent upon on just pain management.

Whether it's epilepsy or sleep apnea or incontinence or Parkinson's, various therapies, we've been able to diversify. And so, that gives us confidence in our ability for our emerging customers to continue to grow.

We had shared on our last earnings call that we had about $50 million from that bucket of mostly neuro emerging customers, and we expect that to grow to $80 million to $100 million in two years in 2024. And that's across a wide range of therapies and in markets.

And so, electrophysiology for sure strength, neuromod, but for us more broad-based as we have new launches. And we did see the underlying strength kind of across the board. You see that in our double-digit growth across all the end markets.

And we announced on on our last call that we're making a significant investment in one of our Irish facilities where we make guidewires. The demand for guidewires, which just points to the minimally invasive procedure growth in the industry, particularly some of the new therapies, tremendous demand, tremendous growth there.

I think we may have shared on the last call that we're maxed out in that facility. We were last year. We are this year. And that's why we’re making the investment to expand the capacity in a meaningful way..

Great. And just shifting gears here really quickly, I mean, you've been targeting operating income about 2x revenue growth. Given you've maintained guidance for the year here, you're close, but not fully all the way there yet.

What's kind of holding you back? And how did quarter one go in terms of your own internal expectations in terms of kind of getting to this 2x op income versus revenue growth down the road?.

Great question. You’re getting at one of our three financial objectives of our strategy, which is to grow profit twice as fast as sales.

And the big impediment this year is both supply chain and continuing to get direct labor turnover back to levels we were previously when we were growing profit twice as fast as sales in 2018, ’19, we achieved that financial objective.

So, we have a quarter of our manufacturing facilities that their direct labor turnover is at or below pre-COVID levels. We need to get the rest of our facilities back to those levels. That’ll naturally bring greater proficiency with our associates, and therefore efficiencies.

And then on the supply chain, we do need suppliers to deliver on schedule in full and inspect. And when the supply chain environment does stable - normalize, and I'll say normalizes back to pre-COVID, we’re confident we can deliver operating profit that's twice as - growth twice as fast as sales. And so, it’s really those external factors.

And that’s kind of the macro picture on 2023 and going forward. How do we get back to that level? Quite frankly, I think we gave us 7% to 9% organic growth guidance for 2023 in October of last year. So, seven months ago, we guided to 7% to 9% organic growth because we could see that.

With the underlying strength in the marketplace, if that drives incremental volume, then that should help us. But that's to be determined. We'll have to see how those markets play out. But when you - so that's where the full-year we're confident as direct labor continues to improve supply chain, we'll get back to growing profit twice as fast as sales.

On top of that, I would point to our strategic objective of growing profit twice as fast as sales, was in an environment where we had 1% to 2% price down. And so, it actually should be easier for us to get to that profit twice as fast as sales now that we don't have 1% to 2% price down, and we expect to be price neutral-ish going forward.

So, that's kind of the bigger picture, but maybe I'll speak to the first quarter specifically. When you think about the full-year, our first quarter typically has the lowest amount of product development revenue in it.

And we've shared how robust and strong our product development pipeline is and how we've shifted that from being 50-50, 50% in high growth markets, and 50% in lower growth or more mature markets. Now, it's 80% in faster growing markets.

And we've almost tripled the amount of development revenues or development sales that customers are paying us to do that work for. And so, when you think about the timing of those revenues over the course of the year, it's much more heavily weighted to the fourth quarter and lower in the first quarter.

And it's just a natural cycle of both the customer and us driving to meet milestones and finish programs at year-end. It's in their budgets. It's in our budgets, and they want to move the products forward. So, we typically have a heavier fourth quarter and a lighter first quarter.

And why that's important is the cost to do this work, it's mostly R&D engineers and some material. So, the cost is there, whether the revenue is being recognized or not.

And so, if you think about cost being level-loaded across the year, but more of the sales in the fourth quarter than the first quarter, you get a naturally lower margin rate for the total company in the first quarter to naturally higher in the fourth quarter.

So, it's a bit of seasonality that I'd say wasn't there three to five years ago, but three to five years ago, the amount of product development sales we had wasn't big enough to really be impactful to the company.

So, this is really a new phenomenon for us that as we've gotten to such a strong level of product development sales, it does - there is some, I dare say seasonality, but it’s more of the cycle of when programs reach milestones and get completed and allows us to then recognize the sale.

So, I would expect to see margin improve through the rest of the year. That's one of the factors, but as direct labor turnover continues to improve and it's on that strong trajectory of improving, and then we'll see what happens with supply chain.

But I would say, we're being pretty pragmatic about supply chain improving or meeting - we're not counting on it to improve a lot.

So, we think that’ll help us with margins as the year progresses, hopefully by sometime in ‘24, ‘25, we're back to a pre-COVID level of turnover and supply chain, and we’re back on the growing profit twice as fast as sales, and sales are higher because now we believe we can do 6% to 8% organically, which is 200 basis points above the markets we serve, which is one of our other financial objectives..

Well, that was my next question, but thank you so much for taking all of our questions and I'll hop back in queue. Thank you so much..

Great. Phillip, thank you very much for the coverage. Look forward to working with you..

[Operator instructions]. I’m showing there are no further questions at this time. I'll turn the call over to Mr. Senn..

Great. Thank you, everyone, for joining today's call. As always, you can access the replay of this call on our website, as well as the presentation that we just covered. Thank you for your interest in Integer, and that concludes today's call..

And this does conclude today's conference call. You may now disconnect..