Integer Holdings Corporation

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 a question during this time, simply press star one on your telephone keypad. I would now like to turn the conference over to Andrew Sen, 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 Dzik, President and Chief Executive Officer, and Dyron 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 discussed today reflect the consolidated results of Integer for the periods indicated. Except for cash flow measures, prior period amounts have been recast to exclude the electric and business consistent with U.S. GAAP continuing operations presentation. 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 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 Integer will sustain above-market growth. Kyron 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. With that, I will turn the call over to Joe.

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 ElectroChem for $50 million, 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. As we previously announced, we acquired Precision Coating for $152 million in January of 2025. And this morning, we announced we have signed a definitive agreement to acquire VSI Paralean for $28 million. These two acquisitions further our vertical integration with differentiated and proprietary coding 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 and 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 discipline 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 electric and business, 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 Tuckian acquisition strategy, we acquired Precision Coating and we have signed a definitive agreement to acquire VSI Paralean, expanding our coating formulation and coating services capabilities and further strengthening our pipeline. From an operational perspective, the supply chain and 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 Coating earlier this month for $152 million plus a contingent consideration, representing a purchase price of approximately 10 times trailing 12-month adjusted EBITDA. 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 a 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 Coating's 300 talented associates into the Integer family. We're also excited to welcome VSI Paralean to the Integer family. Today, we announced entry into a definitive agreement to acquire VSI Paralean, a full-service provider of differentiated and proprietary Paralean coating solutions primarily focused on coding complex medical devices. This transaction will build on our precision coding acquisition, further expanding our capabilities in coding services across our targeted markets. We expect to pay approximately $28 million in cash and stock, or approximately nine times trailing 12-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 coding and VSI parallel represent our fifth and sixth tuck-in acquisitions in the past three years and three months. Together with the acquisitions of OSCOR, Aaron Biomedical, and NeuroCo, and Pulse Technologies, we have strengthened integers 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, Aaron, Enrico, 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 coding and BSI paralleling 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 creative 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 Tupkin 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 lifecycle. Because 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. And 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 CRMN, 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 the 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 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 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 270%. 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. 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 and the fastest growing in 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 it's helped Integer accomplish its vision of being our customer's partner of choice for innovative medical technologies and services.