Release Date: February 20, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Integer Holdings Corp (NYSE:ITGR) reported strong sales growth of 11% in the fourth quarter of 2024, both organically and on a reported basis.
• The company completed the divestiture of Electric Kim for $50 million, making it a pure play medical device company.
• Integer Holdings Corp (NYSE:ITGR) ended the year with a leverage ratio of 2.6 times adjusted EBITDA, at the low end of their target range, providing capacity for strategic acquisitions.
• The company announced the acquisition of Precision Coating for $152 million and VSI Paroline for $28 million, enhancing their vertical integration and proprietary coating capabilities.
• Integer Holdings Corp (NYSE:ITGR) expects continued above-market growth with expanding margins, projecting 8% to 10% sales growth and 11% to 16% adjusted operating income growth for 2025.

Negative Points

• The company faces uncertainty regarding tariffs, particularly in Mexico, which could impact operations and costs.
• Gross margin in the fourth quarter came in below expectations despite better revenue performance, attributed to inefficiencies during new product ramps.
• The exit from the portable medical product line is expected to result in a $29 million decline in sales by the end of 2025.
• Higher interest expenses and taxes impacted adjusted net income, with a noted increase in the adjusted effective tax rate due to new legislation.
• The strong performance of Integer Holdings Corp (NYSE:ITGR) stock price has led to dilution in adjusted weighted average shares outstanding, affecting EPS.

Q & A Highlights

• Warning! GuruFocus has detected 8 Warning Signs with ITGR.

Q: Can you provide insights on the growth expectations for the Cardio and Vascular segment in 2025, considering the deceleration observed in 2024? A: Joe Dic, President and CEO, stated that Integer expects the Cardio and Vascular segment to grow in the low double digits in 2025. The company anticipates strong growth due to success in targeted high-growth markets. The CRM and neuromodulation segments also showed strong performance, with neuromodulation experiencing double-digit growth and cardiac rhythm management normalizing to low single digits.

Q: Could you elaborate on the acquisition of Precision Coating and its strategic importance? A: Joe Dic explained that coatings have been a strategic focus for Integer for a long time. The acquisition of Precision Coating and VSI Paroline allows Integer to vertically integrate and offer differentiated and proprietary coating services. This move is expected to enhance Integer's capabilities and help customers simplify their supply chains.

Q: How is Integer addressing potential tariff impacts, particularly concerning operations in Mexico? A: Joe Dic mentioned that while the specifics of potential tariffs are uncertain, Integer is preparing for their possible implementation. The company is making operational changes to minimize the impact on both itself and its customers. However, without knowing the exact structure of the tariffs, it is challenging to quantify the impact at this time.

Q: What is the outlook for Integer's emerging PMA product sales, and how does it contribute to growth? A: Joe Dic highlighted that Integer's emerging PMA product sales are expected to grow at a compound annual rate of 15% to 20% over the next 3 to 5 years. The company has increased its pipeline of customers in the development and clinical phases, which supports sustained above-market growth.

Q: Can you discuss the impact of new product ramps on gross margins and the outlook for 2025? A: Daron Smith, CFO, explained that the 11% organic growth in Q4 2024 included significant new product ramps, which required hiring and training new staff, leading to some inefficiencies. These are expected to improve over time. For 2025, Integer anticipates gross margin expansion through manufacturing efficiencies and operating leverage, contributing to the overall operating margin improvement.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.