Earnings Call Transcript - ITGR Q2 2025

Operator, Operator

Thank you for your patience. My name is Dina and I will be your operator for today’s conference. I would like to welcome everyone to the Integer Holdings Corporation Second Quarter 2025 Earnings Call. I will now turn the conference over to Sanjiv Arora, Senior Vice President of Strategy, Business Development, and Investor Relations. You may begin.

Sanjiv Arora, SVP, Strategy, Business Development, Investor Relations

Good morning, everyone. Thank you for joining us, and welcome to Integer's Second Quarter 2025 Earnings Conference Call. With me today are Joe Dziedzic, President and Chief Executive Officer; Payman Khales, President and CEO-elect and Chief Operating Officer; Diron Smith, Executive Vice President and Chief Financial Officer; and Kristen Stewart, Director of Investor Relations. As a reminder, the results and data we discuss today reflect the consolidated results of Integer for the periods indicated. During the call, we will discuss some non-GAAP financial measures. For reconciliation of 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. Diron will then review our adjusted financial results for the second quarter of 2025 and provide an update on our full year 2025 outlook. Joe will come back to provide his closing remarks, and then we will open up the call for your questions. With that, I'll turn the call over to Joe.

Joseph W. Dziedzic, President and CEO

Thank you, Sanjiv, and thank you to everyone for joining the call today. In the second quarter, we delivered another quarter of strong year-over-year results. Sales increased 11% on both a reported and organic basis. Our adjusted operating income grew 15% as we continue to expand margins. And our adjusted earnings per share grew 19% year-over-year to $1.55. For the first half of 2025, we delivered a strong above-market performance, with sales increasing 9% and adjusted operating profit increasing 14%, or 1.5 times the rate of sales growth. With the first half now behind us, we are raising the midpoint of our adjusted operating income and EPS outlook. We are maintaining our sales outlook midpoint given our high visibility to customer demand while tightening the sales range. At the midpoint of our full year outlook, we expect to grow sales 8.5%, adjusted operating income 14%, and adjusted EPS 20%. It is an exciting time at Integer because we have a strong pipeline of new products concentrated in faster-growing end markets. Our margins are expanding as a result of our manufacturing and business excellence initiatives, and we continue to acquire and integrate tuck-in acquisitions that add or compound differentiated capabilities. 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 Diron.

Diron Smith, Executive Vice President and CFO

Thank you, Joe. Good morning, everyone, and thank you again for joining today's call. I'll provide more details on our second quarter 2025 financial results and provide an update on our 2025 outlook. In the second quarter of 2025, we delivered strong financial results. Sales totaled $476 million, reflecting 11% year-over-year growth on both a reported and organic basis. Organic sales growth removes the impact of our Precision and VSi acquisitions, the strategic exit of the portable medical market, and foreign currency fluctuations. We delivered $99 million of adjusted EBITDA, up $9 million compared to the prior year or an increase of 10%. Adjusted operating income grew 15% versus last year as we continue to make progress on our year-over-year margin expansion. Adjusted operating income as a percentage of sales expanded 50 basis points year-over-year to 17.1%, comprised of approximately 10 basis points from gross margin and 40 basis points from operating expense leverage. Adjusted net income for the second quarter 2025 was $55 million, up 23% year-over-year, while adjusted earnings per share totaled $1.55, up 19% from the same period last year. Turning to our sales performance by product line. Cardio & Vascular sales increased 24% in the second quarter 2025, driven by new product ramps in electrophysiology and incremental sales related to the Precision and VSi acquisitions as well as strong customer demand in neurovascular. On a trailing 4-quarter basis, C&V sales increased 17% year-over-year with strong growth across all targeted C&V markets, driven by new product ramps and acquisitions. For the full year 2025, we continue to expect C&V sales to grow in the mid-teens compared to the full year 2024. Cardiac Rhythm Management & Neuromodulation sales increased 2% in the second quarter of 2025, driven by strong growth from emerging PMA customers and neuromodulation and normalized CRM growth, partially offset by the planned decline of a neuromodulation program. Back in 2020, we announced the planned decline of this program, and we expect 2025 as the last year of decline. On a trailing 4-quarter basis, CRM&N sales increased 5% year-over-year, primarily driven by strong growth from emerging PMA customers and neuromodulation. For the full year 2025, we now expect CRM&N to grow in the mid-single digits compared to the prior year. Our expectation of mid-single digits growth is higher than our prior range of low to mid-single digits based on the strong order visibility we have to the balance of the year. Product line detail for other markets is included in the appendix of the presentation, which can be found on our website at integer.net. In the second quarter 2025, we delivered $55 million of adjusted net income, up $10 million versus a year ago. This increase was driven mainly by operational improvements, which include higher sales volume, manufacturing efficiencies, operating expense management, and acquisition performance. We also benefited from lower interest expense as a result of our convertible debt offering in March 2025 as well as a lower adjusted effective tax rate. Our adjusted effective tax rate was 19% for the second quarter of 2025, down from 20.7% in the prior year, and we now expect our full year 2025 rate to be within the range of 18.5% to 19.5%, lower than our prior outlook of 19% to 21%. In the second quarter, we experienced an FX headwind of $3 million or $0.09 of adjusted EPS. This is primarily due to the weakening U.S. dollar and its impact on U.S. dollar-denominated receivables in our foreign entities. In our outlook, we have assumed no further weakening or strengthening of the dollar in relation to other foreign currencies, and we continue to enhance our hedging program to mitigate the P&L impact of foreign currency fluctuations. Additionally, the year-over-year increase in adjusted weighted average shares outstanding drove approximately $0.04 reduction to our adjusted EPS. In aggregate, second quarter 2025 adjusted net income is up 23% year-over-year, and adjusted earnings per share is up 19%, both growing much faster than our 11% sales growth, a very strong performance in the second quarter. In the second quarter of 2025, we generated $44 million of cash flow from operations. Our CapEx spend in the second quarter was $19 million, which is in line with our full year outlook. As a result, free cash flow was $25 million in the second quarter, an increase of $9 million from the prior year or a 55% improvement. At the end of the second quarter, net total debt was $1.204 billion, which is a $25 million decrease compared to the first quarter 2025 ending balance. Our net total debt leverage at the end of the second quarter was 3.2 times trailing 4-quarter adjusted EBITDA, within our strategic target range of 2.5 times to 3.5 times. As Joe mentioned earlier, we are raising the midpoint of our adjusted operating income and EPS outlook while maintaining the midpoint of our sales outlook and tightening the sales range on both the high and low end. We expect sales to be in the range of $1.850 billion to $1.876 billion, an increase of approximately 8% to 9% versus last year. Given our strong first half sales and visibility to customer demand in the second half, we believe $1.863 billion is the appropriate midpoint of our outlook. On an organic basis, we continue to expect sales growth to be within the range of 6% to 8%, which is approximately 200 basis points above our underlying market growth rate estimate of 4% to 6%. For adjusted EBITDA, we now expect a range of between $402 million to $418 million, reflecting growth of 11% to 16%. We now expect adjusted operating income between $319 million and $331 million, representing growth of 12% to 16%. This is an increase of $4 million on the low end and $2 million at the midpoint from our prior outlook. For adjusted net income, our outlook range is between $222 million and $231 million, an increase of 21% to 26% versus 2024. This is also an increase of $2 million at the midpoint, reflecting the higher operational performance, lower adjusted effective tax rate, and the first half foreign currency headwinds below operating income. Lastly, we expect adjusted EPS of between $6.25 and $6.51, which is a growth of 18% to 23% on a year-over-year basis. This is a $0.05 increase at the midpoint. Our outlook assumes an adjusted weighted average diluted shares outstanding of 35.5 million shares for the full year 2025. In regards to the tariff landscape, we continue to expect a negligible impact in 2025, well within our range of $1 million to $5 million. Our expected reported sales growth of 8% to 9% for 2025 includes inorganic growth of approximately $59 million from the Precision and VSi acquisitions, offset by an approximate $29 million decline from the previously announced Portable Medical exit, which is expected to be completed by the end of 2025. We expect second half 2025 reported sales growth to be approximately 8% at the midpoint, with similar sales growth rates in the third and fourth quarter. We expect adjusted operating income as a percentage of sales to increase throughout the remainder of 2025, driven by continued improvement in manufacturing efficiency and sales growth outpacing our growth in operating expenses. At the midpoint of the outlook, adjusted operating income as a percentage of sales is now expected to expand 86 basis points in 2025 compared to the full year 2024. This is a 10 basis point improvement since our prior outlook. We continue to expect cash flow from operations to be between $235 million to $255 million, which represents a 20% year-over-year increase at the midpoint of the outlook. Our outlook for capital expenditures is unchanged at $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 $120 million and $140 million, which represents a 30% year-over-year increase at the midpoint. We expect our 2025 year-end net total debt to be between $1.115 billion and $1.135 billion, and we expect to end the year with a leverage ratio within our target range of 2.5 times to 3.5 times trailing 4-quarter adjusted EBITDA. With that, I'll turn the call back to Joe. Thank you.

Joseph W. Dziedzic, President and CEO

Thanks, Diron. We delivered strong growth in the first and second quarter, with sales up 9% and EPS up 17% in the first half of 2025. We are successfully executing our growth strategy to meet our financial objectives of growing organically above the market, while expanding margins and maintaining our targeted debt leverage. We are confident this sustained level of performance will produce a premium valuation for our shareholders. We will now turn the call over to our moderator for the Q&A portion of the call.

Operator, Operator

Our first question comes from Brett Fishbin with KeyBanc Capital Markets.

Brett Adam Fishbin, Analyst

Just wanted to start off on the full year organic growth guidance update. Just based on the 2Q upside here, would have maybe expected a revision, a positive revision to the full year, just given where you are year-to-date. So I was just hoping you could maybe walk through the bridge of the organic performance in 1H versus what you're expecting in 2H?

Payman Khales, President and COO-elect

Yes. Good morning, Brett. This is Payman Khales. I hope you're doing well. I hope the audio is okay. We had some technical difficulties. Can you hear me well?

Brett Adam Fishbin, Analyst

Yes, you're coming through clear. No technical difficulties through the call on my end.

Payman Khales, President and COO-elect

All right. Great. Excellent. Let me address your question about the organic performance in the second half of the year. For the year, we are still targeting the midpoint of our guidance range. In the second half, we grew at 9% and are projecting 8%, which brings us to approximately 8.5% or $1,863 million at the midpoint. I'd like to highlight that we had a strong second quarter from a revenue perspective. Several factors contributed to this. We launched new products successfully, and there were some shifts in customer demand within the quarter. Some of the demand that was expected in the third quarter moved into the second quarter. Additionally, we experienced the full execution of demand from the expansion of our New Ross facility in the middle of last year, which contributed to higher demand in the second quarter than we anticipated. Overall, this strength drove our second quarter results. Initially, we projected second quarter growth in the high single digits, but we achieved around 11%, which represents a difference of about 200 basis points or roughly $10 million. Each of the factors I mentioned contributed a few million to that 200 basis point increase. For the second half of the year, we anticipate growth of 8%, maintaining our guidance at 8.5% at the midpoint and $1,863 million. Additionally, in the fourth quarter, we will face tough comparisons, as we experienced strong growth of 11% last year. Nevertheless, we believe that achieving $1,863 million at midpoint for the year is a strong performance.

Brett Adam Fishbin, Analyst

All right. And then just one follow-up question. In CRM and in neuro, another quarter, 2% growth, but it sounded like the full year outlook is actually improving a little bit from low to mid-single digits to mid-single digits. I was curious if you could maybe give a little more color there if it's coming from some of the new product ramps in neuromodulation or if you're seeing a little bit of a better like end market dynamic in CRM or anything else there?

Joseph W. Dziedzic, President and CEO

Brett, it's Joe. As you noted, CRM&N had sales growth of 2% in the first half of the year. Our guidance for the entire year is positioned in the mid-single digits, so the second half needs to achieve high single-digit growth. There are two main factors contributing to this. First, neuromodulation is expected to improve in the second half due to customer demand, and second, we experienced a planned decline in IPG customers in the first half, which will ease in the second half, reducing its impact. This brings us approximately halfway from the 2% growth in the first half to the high single-digit growth expected in the second half, aligning with the mid-single-digit guidance. Additionally, Cardiac Rhythm Management is also projected to increase in the second half. The changes in demand patterns from our customers are influencing this. It's important to note that we believe viewing our sales trends on a rolling four-quarter basis gives a more accurate picture of our business trajectory. As Payman mentioned, there can be fluctuations each quarter based on how customers plan their operations. Most of our products are sole-sourced and shipped directly to customer manufacturing facilities, where they are used in devices that appear in procedures 4 to 9 months later. Thus, a rolling four-quarter perspective helps to filter out the noise and variability present in any single quarter. As for the full year, we are on track to meet our initial guidance of 8.5% sales growth, amounting to $1.863 billion. Organic growth remains consistent for the year, with slightly higher second-quarter sales than anticipated, but this does not alter our outlook for the entire year.

Operator, Operator

Your next question comes from the line of Joanne Wuensch with Citi.

Joanne Karen Wuensch, Analyst

If I mathematically do this correctly, it sounds like the second half of the year should be still strong in cardiovascular and you raised the second half of the year for CRM, but maybe you narrowed the full year revenue guide. Does that mean your other markets are declining maybe a little bit faster than expected? I'm just trying to essentially get to the same question of how do you deliver such a really strong second quarter and then sort of talk down the top end of your range.

Payman Khales, President and COO-elect

Joanne, this is Payman. Thanks for the question. So let me answer the mathematical question, if you will, and then I'll try to add some color. So at midpoint, our CRM&N guidance is 5%. C&V is mid-teens, which we're looking at 15%, and other markets is down $32.5 million. So that's because of the visibility that we have to the customer demand with the backlog that we have, which is still in the range of about $700 million. That gives us good visibility. So this is what's guides us and why it makes us believe that the midpoint of $1,863 million is the appropriate place to be.

Joanne Karen Wuensch, Analyst

And as my second question, is there any inventory management that is happening from your customers in the back half of the year and as you go into 2026 as you think about managing tariffs?

Payman Khales, President and COO-elect

Yes. So inventory, going back a couple of years, Joanne, the second half of 2023 is when OEMs started sending some letters to their suppliers, effectively saying that, look, they're going to be adjusting their inventory after some period of supply challenges. And over the last couple of years, I would say that the inventory management is kind of more normalized. And now I think it's important to understand one dynamic. So even when customers have been managing inventory, it's not that they're overstocking everything. So obviously, they're overstocking some things and some other things that are needed for their production might be understocked. So that's kind of what drives a little bit of variability. And I mentioned earlier, we had a little bit of a demand kind of coming from 3Q to 2Q. These are some of the things that kind of drive that. But really stepping back and kind of looking at things, the backlog that we have, the visibility that we have, and the guidance that we provided takes all of that into account, Joanne. So we think that $1,863 million, 8.5% at the midpoint is appropriate. I think the second part of your question was related to tariffs. For tariffs, it's a dynamic landscape. Obviously, the tariff situation changes, including recently. We have maintained and continue to maintain that the impact on our business would be minimal. We are still iterating that range of $1 million to $5 million. We've mentioned that we are working to make that as close to 0 or 1 as possible, and that continues to be our plan. But our range of $1 million to $5 million of potential tariff impact has not changed.

Operator, Operator

Your next question comes from the line of Nathan Treybeck with Wells Fargo.

Nathan Treybeck, Analyst

Just wanted to go back to C&V. It sounds like there was some pull forward of demand in Q2. Can you just talk about if this was rapid building of inventories either for electrophysiology and neurovascular and then there's going to be a steady drawdown of that inventory in the second half? I'm just trying to understand kind of the parts for the deceleration in the second half. And also, can you confirm the mid-teens guidance for C&V is not organic?

Payman Khales, President and COO-elect

Yes, thank you, Nathan, for your question. I'd like to provide some additional insights. First, C&V experienced strong performance in the second quarter with a reported growth of 24%, an organic growth of 18%, and a 17% increase on a trailing full quarter basis. This is how we prefer to evaluate our business performance. Several factors contributed to the success of C&V, including new product launches and strong customer demand in neurovascular. Regarding your question about the quarter-to-quarter variability, this is due to a combination of smaller factors leading to some growth. Variations in demand between quarters and months are natural and part of our business dynamics. In this instance, demand shifted from the third quarter into the second quarter, which is not unusual. We typically see some fluctuations associated with new product launches, which go through launch, ramp, and stabilization phases. Considering all of these elements, this explains why we performed better in the second quarter. Our annual outlook remains unchanged, with our expectations for C&V still being in the mid-teens, and this figure is for total reported growth at 15%.

Nathan Treybeck, Analyst

Okay. That's very helpful. Payman, just at a high level kind of as you're stepping into the CEO role, are there any strategic priorities you're beginning to kind of formulate? And are there areas of improvement that you have your eyes set on?

Payman Khales, President and COO-elect

Thank you for your question. I've been with Integer for eight years, and I've been part of the leadership team focused on our strategy, which we've been honing over the last eight or nine years. I plan to keep refining and implementing this strategy to achieve superior market growth and faster margin expansion. Key elements of our strategy include developing capabilities, targeting growth markets, and improving margins through manufacturing excellence. I am committed to continuing these initiatives, as they are vital to our business and success. We've also discussed that pursuing tuck-in acquisitions is essential for enhancing our capabilities while keeping our leverage within a manageable range of 2.5 to 3.5 times.

Operator, Operator

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

Craig William Bijou, Analyst

I wanted to start with a follow-up on the Q2 performance. I apologize for asking again, but I'm trying to understand if you can quantify how much of the 11% growth versus the high single digits was due to a pull forward of orders or perhaps better-than-expected performance. I'm trying to grasp what the surprise was or what aspect of the outperformance was influenced by the pull forward.

Payman Khales, President and COO-elect

Yes. Thank you for the question, Craig. Let me answer that. So let me first maybe ground us on the numbers. I think as you pointed out, the growth that we had in the quarter of 11% was a little bit higher than the high single digits that we had talked about. So that's about 200 basis points. And if you take that, do the math on the 200 basis points on the quarter, that's about, give or take, $10 million of revenue. It's not a substantial revenue. So normally, there are puts and takes within every quarter. There's some demand that goes into the next quarter, some comes in. But in this quarter, that little variability and every single one of those things that I talked about is just a few million bucks. But in combination, it kind of drove that $10 million. So there was a little bit of the demand change and shift from a few of our customers on a few programs, every single one of them small. In combination, it drove about 200 basis points of revenue growth.

Craig William Bijou, Analyst

Got it. Thank you, Payman. That's helpful. So then you guys had a pretty strong quarter, a very strong quarter in C&V. You called out the electrophysiology product ramp. So can you just help us understand how that rolling 4-quarter growth in EP has trended over the last several quarters? So has that accelerated? And I assume it's outpacing overall C&V. But just wanted to get your perspective on how sustainable the EP growth specifically is over the next several quarters.

Payman Khales, President and COO-elect

Yes, thank you for the question. Electrophysiology is one of our four growth markets, alongside structural heart, neurovascular, and neuromodulation, and we are enthusiastic about all of them. Over the past several years, we have consistently invested in and developed our capabilities and pipeline to surpass market performance, which we believe we have achieved. Specifically regarding electrophysiology, we have been active in this field for many years and have developed significant capabilities. There is considerable excitement in the market currently, particularly with pulsed field ablation, which is driving growth and benefiting patients. We are thrilled about this technology as it provides favorable conditions for us. Our involvement in electrophysiology spans the entire procedure, not just the ablation technology. We are also active in access, guidewires, transseptal sheaths, diagnostics, and, of course, ablation itself. This broad participation includes pulsed field ablation, and we have strong momentum and a solid pipeline in this area. In response to your question about market performance, we believe we are indeed outperforming the market. If you examine our trailing four-quarter results in cardiovascular, you will see that they are a significant contributor to our growth, and we remain optimistic about our momentum moving forward.

Operator, Operator

Your next question comes from the line of Richard Newitter with Truist Securities.

Richard Samuel Newitter, Analyst

Could you share your thoughts on the overall performance and the P&L, particularly regarding the differences between the third and fourth quarters? It seems that the additional growth we saw, approximately 200 basis points, primarily came from the third quarter, and I assume that's where you have the clearest insight. I'm curious about the level of visibility you have beyond the next 3 to 5 months. With the tougher comparisons in the fourth quarter, it appears there were some factors that boosted results in the third quarter. Are there specific details we should consider? Can you discuss the consensus that needs addressing? It seems like we should anticipate possibly lower-than-usual performance or growth in the third quarter, while the fourth quarter, adjusted for comparisons, should align with your expectations.

Payman Khales, President and COO-elect

Yes, Richard, thanks for the question. Let me provide some details on the first half and second half of the year before addressing your specific question about the third quarter. Regarding our guidance, we haven't changed our midpoint, which we believe is appropriate at $1,863 million, representing an 8.5% growth rate. In the first half, we experienced a growth of 9% and are projecting an 8% growth for the second half. We anticipate that growth will be roughly equal in both the third and fourth quarters, suggesting about 8% for the third quarter. Aside from the minor variations I mentioned, which are typical for our business, we have good visibility into demand and a steady backlog around $700 million. This gives us strong visibility for the remainder of the year, which is why we maintain our guidance of 8.5%, or $1,863 million, as a suitable target.

Diron Smith, Executive Vice President and CFO

And if I could add just on the cadence to the bottom line that you were asking about. This is Diron, by the way. On our AOI specifically, we've delivered up about 14% in the first half. At midpoint for the full year, that would suggest 14% as well. So we see the second half growth on AOI being very similar to the first half growth. And when you look at that on a quarter-by-quarter basis, we shared in the earnings presentation that we expect our AOI as a percent of sales to grow each quarter to get a little bit better in third quarter and get a little bit better in the fourth quarter to deliver on the full year, which, again, at midpoint, if you were to pick up and use that as a reference, that would be at 17.4% of sales. So we see the kind of the AOI cadence as being a gradual improvement quarter-to-quarter both on a margin basis as well as on nominal dollars of AOI basis.

Richard Samuel Newitter, Analyst

Okay. That's helpful. Just to make it even simpler, we all have 3Q and 4Q estimates, there's a consensus out there. All else equal, if we were to take $10 million out of the back half and put it into 2Q, would you have us take $5 million and $5 million from each of the 3Q and the 4Q? Or do you take most of it from the 3Q and leave 4Q? How would you have us do that?

Diron Smith, Executive Vice President and CFO

Yes. I think when you look at the sales guidance, and again, if you kind of referenced what we had on the presentation specifically, we've shared that we expect the year-over-year growth in 3Q and 4Q to be very similar. And at the midpoint, again, that would suggest a second half growth of around 8%. So the third quarter and fourth quarter sales cadence would be very similar at the 8% for both 3Q and 4Q year-over-year at the midpoint.

Brett Adam Fishbin, Analyst

Thank you for the follow-up.

Operator, Operator

Your next question comes from the line of Matthew O'Brien with Piper Sandler.

Matthew Oliver O'Brien, Analyst

I don't want to dwell too much on the upper end of the guidance, but I feel it's necessary since the stock has dropped a bit this morning, which I believe is mainly due to that. You did lower the top end of the guidance by 100 basis points on a reported basis. I'm not clear if Diron mentioned whether this reduction is related to currency. However, considering this decrease and the slight deceleration on a two-year basis for the latter half of the year, it raises questions about whether there's a product-related issue, particularly in C&V, which has been performing above the corporate average for some time. Is there something specific you're highlighting here, or should we not be overly concerned? Once again, the top end of the guidance has indeed fallen by about 100 basis points on a reported basis.

Payman Khales, President and COO-elect

Yes. I will address a couple of your questions. This is not related to currency. The guidance and the ranges we discussed are based on reported figures. Regarding your general comments, we've narrowed the range based on our current position, but the midpoint remains the same. As you noted, there is a deceleration going from 9% in the first half to 8% in the second half. It's worth highlighting that last year's growth in the fourth quarter was 7% higher than the average of the first three quarters, with a strong growth rate of 11%. We're facing a tougher comparison in the second half because of that. Additionally, our New Ross facility began increasing demand in the middle of last year when capacity came online, and now we're approaching the anniversary of that as we enter the third quarter. Thus, the comparisons are somewhat different. However, our guidance remains unchanged in terms of the midpoint; we just narrowed the range due to the good visibility we have for the year.

Matthew Oliver O'Brien, Analyst

Got it. And then just a product-related question. You mentioned PFA and being associated with that category on multiple levels. There was a pretty favorable reimbursement update within the hypertension space with the renal denervation recently. Is that a category where you have exposure and could potentially be another driver as we head into '26 and '27?

Payman Khales, President and COO-elect

Yes, that's a great question. Renal denervation is a promising technology that many have been developing for several years. We believe it has strong potential to benefit patients and is approaching commercialization. As you mentioned, the reimbursement landscape is evolving, and currently, it represents a small market since it’s still emerging. Our expertise in electrophysiology can be applied to renal denervation, and while our current exposure is limited due to the market size, we anticipate that as the market expands in the coming years, it will provide us with some advantageous growth.

Operator, Operator

Your next question comes from the line of Andrew Cooper with Raymond James.

Andrew Harris Cooper, Analyst

Maybe just first, a little bit different of a tariff question. Just want to kind of hear the latest, understand the minimal direct impact. But has there been any change in your conversations with your customers given they likely are facing a little bit more of that headwind on trying to pass it through as you're talking about extending contracts or extending partnerships? Has there been any change from their tone that you would kind of link to tariffs?

Payman Khales, President and COO-elect

Thank you for your question, Andrew. First, I want to emphasize that our exposure to tariffs is minimal, as you've noted. Regarding customer discussions, we are working to reduce the impact of tariffs while ensuring full compliance with regulations. Much of our interaction with customers revolves around this topic. We've mentioned some logistical adjustments; for instance, products manufactured in Mexico used to enter the U.S. and then be shipped internationally, but now we can direct ship to various locations. There's been considerable conversation about logistics in that context. Additionally, about 70% of our business is secured through contracts, which provides us with clear terms. We are committed to collaborating with our customers to minimize their impact as much as possible.

Andrew Harris Cooper, Analyst

Okay. That's helpful. And then maybe just one more on PFA, a little bit different of an angle here. I know kind of why you can't and won't give too much specific on too specific of a customer, but can you help frame if we look across that PFA landscape that we think is likely to get or be getting a little bit more competitive, how much variability is there in the amount of content you have on one player's catheter versus another? Or kind of another wording, how many dollars might you see on your most penetrated catheter relative to maybe another player where you have less content and less part of that bill of materials?

Payman Khales, President and COO-elect

All right, Andrew, thank you for starting your question with I know that you can't divulge that, you know, specifics because I can't. Our customers would not be thrilled with me if I started just mentioning what we do for them. But let me do this. Let me talk about in a broader sense, in broader terms. Look, because of our presence and capabilities that we've had for many, many years in the EP space and because of the investments that we've made and the focus that we've had to build even more capabilities in the past 7, 8 years, we have a lot of presence in EP with the leading players in the market. So we have exposure to PFA in a broad sense. But again, I keep bringing us back to it is just what is really driving the growth, obviously, and the excitement is the technology itself because it's safer, it's better for the patient. But there are a lot of other products that we manufacture that are really driven by that momentum. So those are some of the products that we have had. Again, guidewires, access, sheathes that I've talked about. That is just part of the breadth of the portfolio that we have. So that growth is really across the procedure. But specific to PFA, look, we have good exposure to this technology with the leading players, whether it's a complex component or subassemblies or in some cases, finished devices.

Operator, Operator

Your final question comes from the line of Suraj Kalia with Oppenheimer & Company.

Suraj Kalia, Analyst

Payman, I have a question for you and one for Diron. Payman, I’d like to approach the topic of revenue pull-through from a different perspective. About 70% of your contracts are long term, correct? What percentage of those contracts are nearing renewal? Additionally, is the flexibility regarding deliverables in these contracts changing as your customers work to manage their top-line margins in the current environment? I realize that's a lengthy question, but I hope it makes sense.

Payman Khales, President and COO-elect

Sure, that's a great question, Suraj. I'll break it down into two parts. First, regarding the contracts themselves, they are multiyear agreements that don't all begin and conclude simultaneously, resulting in overlaps. We have contracts signed last year that last 3 to 5 years, and some are nearing expiration. On average, about 70% is under contract. These agreements outline the terms, including commercial conditions, to protect both parties and establish the rules for engagement. We aim to ensure we have protections in place concerning pricing and other commercial terms. Now, there are operational aspects as well. Yes, certain elements dictate our inventory forecasts, which can vary. Your question implies there may be some variability in the forecasts. Typically, contracts do not provide a very specific multiyear "take-or-pay" forecast. Our customers lack certainty about product demand and wouldn’t want to define it too rigidly. To operate efficiently, we rely on our customers to provide us with requirements, which they usually do, ensuring we are prepared. They typically give us a forecast 12 months in advance. The forecast from months 6 to 12 can vary more naturally, but as we approach the timeframe, it becomes tighter. The 1- to 3-month forecast is the most accurate, coinciding with our manufacturing and production plans, resulting in minimal variability. Generally, we have good visibility into our demand. The $700 million backlog we mention consists of specific orders detailing customer information, SKUs, and shipment months, providing us with clarity a few quarters ahead.

Diron Smith, Executive Vice President and CFO

Thank you, Suraj. The $700 million should be considered as firm orders from our customers, which include specific SKUs, quantities, and delivery requests. This represents our current order book. At the end of the year, this figure was about $730 million, and we are still around that level today. However, there is some variability in the time periods for which these orders are placed. Most of this $700 million pertains to the next two quarters, with some orders projected for three to four quarters out, and a few extending into five quarters based on demand. As mentioned previously, for new product launches, we request firm orders further in advance to plan our manufacturing ramp and align with customer demand. For standard products, we typically have a couple of quarters' worth of orders. This illustrates the timeframe of the orders. Additionally, since 70% of our business is under contract, most of this comes with some pricing agreement. We reflect these orders at the appropriate pricing tier, and while foreign exchange is accounted for, it's worth noting that nearly all of our sales are in U.S. dollars, leading to minimal fluctuations in our sales performance and order book.

Sanjiv Arora, SVP, Strategy, Business Development, Investor Relations

Thank you, everyone, for joining today's call. You can access the replay of this call as well as the presentation on our investor website at integer.net. Thank you for your interest in Integer. This concludes today's call.

Operator, Operator

Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.