Integer Holdings Corporation

Hello and welcome to the Q4 2023 Integer Holdings Corporation earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. And if you would like to ask us questions, simply press star one on your telephone keypad. I will now turn the conference over to Andrew Sens, Senior Vice President, Strategy and Business Development and Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining us, and welcome to Integer's fourth quarter 2023 earnings conference call. With me today are Joe Dziedzic, President and Chief Executive Officer, and Dyron Smith, Executive Vice President and Chief Financial Officer. As a reminder, the results and the data we discussed today reflect the consolidated results of Integer for the periods indicated. During our call, we will discuss some non-GAAP financial measures. For reconciliation of 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 all 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 an update on Integer's strategy, followed by an overview of how Integer will sustain above-market growth. Dyron will then review our adjusted financial results for the fourth quarter and full year 2023 and provide our full year 2024 outlook. Joe will come back to provide his closing remarks, and then we'll open the call for questions. With that, I will turn the call over to Joe.

Thank you, Andrew, and thank you to everyone for joining the call today. We had a strong fourth quarter and an even stronger full year. 2023 sales were up 16%. and adjusted operating income grew by 26% over 2022. We were able to grow sales at a rate significantly above the market rate while expanding operating margin by 117 basis points. Adjusted operating income grew at 1.6 times the rate of sales growth, approaching our strategic target of two times. We expect this strong performance to continue in 2024 with an outlook of 9% to 11% sales growth and adjusted operating income growth of 13% to 20%. We are confident in sustaining above-market sales growth in 2024 and beyond. We acquired Pulse Technologies on January 5th, which deepens our precision micro-machining capabilities and further strengthens our pipeline in high-growth markets like electrophysiology, structural heart, and heart pumps. Integer continues to execute our strategy to deliver sustained outperformance. 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 continue to make targeted organic and inorganic investments in capabilities and capacity to enable our growth. The supply chain and labor environments have meaningfully improved, and we have refocused our organization to execute our operational strategy to expand margins. During the J.P. Morgan Healthcare Conference earlier this year, we publicly announced the acquisition of Pulse Technologies, our fourth Tuckian acquisition in 25 months. The acquisitions of Oscor, Aaron Biomedical, the NeuroCo, and Pulse Technologies have strengthened integers position in high-growth markets while adding differentiated capabilities for our customers. Our acquisitions further our vertical integration strategy and help our customers consolidate and simplify their supply chains. In addition to the strategic benefits, these four acquisitions generate annualized sales of approximately $170 million with accretive margins. Oscar and Aaron were meaningful contributors to our sales and profit growth in 2023, and I look forward to InuroCo and Pulse being equally as successful as we integrate these differentiated businesses. Integer acquired Pulse Technologies on January 5, 2024, for approximately $140 million, with the potential for an additional earn-out in 2025 based on revenue growth. We paid less than 13 times trailing adjusted EBITDA multiple, or just over 11 times after considering the $15 million net present value tax benefit. Pulse deepens Integer's capabilities in precision micro-machining and further strengthens our pipeline in high-growth markets. We welcome the 250 talented associates in Quakertown, Pennsylvania to the Integer family. Pulse has been a longstanding strategic supplier of critical components to leading medtech OEMs. Their focus on high growth markets and products, along with excellent customer relationships, align perfectly with Integer's strategy. 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. These product line strategies have generated a strong product development pipeline that is delivering results and positions us for sustained above-market growth. 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&V 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 lifecycle 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 2023 CMV growth and product development pipeline are 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 that contributed to our growth in 2023. Our product development pipeline is concentrated in these same high growth end markets. 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 life-saving and life-enhancing products are introduced to the market and enter the manufacturing ramp phase, These are your benefits from accelerated sales growth. The amount of product development sales and the market growth rate of the products being developed are leading indicators for sustained above-market sales growth. Our product development sales have increased 230% 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 revenue 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 fourth 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 single product, highly novel and innovative, and bring emerging neuromodulation therapies to 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 are working with at each phase of the product development process. The right-hand side highlights the actual sales generated in 2018, 2020, and 2022 for the nine customers who are in either product introduction or launched since 2020. We are increasing our 2024 sales projection to a range of $100 to $120 million. which is the second consecutive year we have done so. This is the result of the success in the market for these novel therapies and demonstrates our strong pipeline of high-growth products that contribute to sustained above-market growth. In addition to our organic pipeline, we have just demonstrated that we can consistently execute Tuckian 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 are confident we can continue to add 200 to 400 basis points of inorganic sales growth on an annual basis by deploying 250 to 300 million on acquisitions, while maintaining a debt leverage of 2.5 to 3.5 times adjusted EBITDA. 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 focus strategy to get designed into our customers' most strategic products in high-growth markets, which is demonstrated by our product development sales growth of 230%. 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 so 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. Going forward, we expect to add 200 to 400 basis points of growth annually from acquisitions. Our focus strategy combined with our organic and inorganic investments 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 Dyrith.