Conference Transcript - ITGR 2026-06-16

Rich Newitter, Analyst — Truist Securities

I'm Rich Newiter, MedTech Analyst at Truist Securities. Thanks to everyone tuning in to join us and everyone in the room. Our next fireside chat is going to be with Integer, and we are very fortunate to have Integer's CEO and President Payman Kales and CFO and Executive Vice President Darren Smith. Welcome to both of you. Thank you.

Peyman Kales, CEO

Good morning, and thanks for having us.

Rich Newitter, Analyst — Truist Securities

um so a lot of a lot of topics uh to cover uh payment but um i thought a good place to start just since it's the freshest and newest area and we're all focused on it it's been about six weeks since the announcement that there's a strategic review um you know we're not asking you to get ahead of the process but you know would love to kind of just hear uh you know has the breadth of the composition of the interested strategic parties that you had referenced on the 1Q call. Is that skewing strategic, financial, PE, both? Is there anything you can kind of tell us about that and any updates since the announcement? Yeah, sure. So again, thanks for having us, Rich.

Peyman Kales, CEO

So what I can comment on in general is what we will be publicly disclosed in April, and that's the fact that given the heightened level of interest in Integer, our board is doing their fiduciary duty to make sure that they are looking at exploring all options to maximize shareholder value, which is the reason why we announced the strategic process. We made the announcement public, you know, because, you know, given the number of interested parties, we recognized that it would be difficult, if not impossible, to keep this confidential. So we wanted to put it out there so that we could talk about it. But we also said that we're not going to provide interim updates. But what I can say is that our process has begun. And, you know, we said that the duration of it is not measured in years. You know, something like this is more in months. And we won't have any further updates, unfortunately, Rich, until such time that there is.

Rich Newitter, Analyst — Truist Securities

Okay. Can you maybe give us just some broad strokes parameters? Because this is a question that's come up, you know, in the last six months as well, when you kind of had some of the first signs of needing to reset based on visibility on ordering patterns in the fall of last year. You know, should you be a public company? Can you do this as a standalone as optimally as you, you know, could as a private company? So I guess the question here is what's the framework that anchors kind of the decision of, you know, Go it alone, stand alone versus doing something else, and why now, if you will?

Peyman Kales, CEO

Yeah, I mean, the framework, ultimately, again, the board of a public company, their responsibility is to make sure that they look at all options to maximize shareholder value. That could be in a public setting. That could be in a different type of setting. So our board is going to explore and see whether there is another path. And, you know, they'll make the decision, make the decision accordingly. The answer as to the why now is really because of the amount of interest that we have received in integer in recent months that, again, you know, our board is doing their duty or exploring any other options.

Rich Newitter, Analyst — Truist Securities

That's helpful. And then maybe just one last one. I'm not even sure if this is the right question to ask. but you know is there is there any consideration or how are you protecting your customer base and key talent just they read all the same headlines and you know anytime there's a change or or of this type of magnitude um or transaction pending or something like that there's always risk so what can you tell us about you know your ability to preserve continuity yeah it's a great question

Peyman Kales, CEO

it's a great question and it's a thoughtful question obviously to the point that you made anytime there's change. But what I would, let me just start with, change in our industry is not unusual. I mean, you know, companies go through changes, whatnot, and our customers and the employees recognize that. But we and I, in particular, have been very open with our employees as to the reasons, you know, why we might be doing this and, you know, making sure that they recognize that, you know, we have a strong business and that no matter the outcome of this process, our first obligation is to the patients and then the customers that we serve. And this is how we deliver value irrespective of the form and shape that we're in and they all understand that and recognize that and we've had similar conversations with our customers again we value we deliver value to our customers if we can help them solve the problems that they need to solve to deliver value to their customers and you know the patients that they serve so so we reckon we've communicated to them that that nothing is changing from that in that regard and and we we have not receive any expressions of concern or otherwise so business as usual business as usual absolutely

Rich Newitter, Analyst — Truist Securities

yeah so let's get into the business uh you know there's been some moving parts uh uh over the last uh six to nine months maybe just you can help the audience understand what's you know you had two two guidance changes uh one in the on the third quarter call november of last year and then a second one on the 1Q update here in 2026. Just help us understand what your broader growth algorithm is and then what led to the revisions and how they're different from the November one

Peyman Kales, CEO

to the 1Q. Sure. So we, at our third quarter earnings in October of last year, we provided a preliminary guidance for 2026, and that was as a result of the visibility that we had at the time that we had received that three products that had had a strong ramp in 2025 were going to have a sizable decline in 2026. Although we normally issue guidance for the current year in the February of this year, we viewed it as a responsible thing to do and the transparent thing to do for us to provide that guidance early. Those three products, two of them were in the electrophysiology space and one of them was neuromodulation. And the reason behind the decline was not because of any change in our supply arrangement with our customers. There was no insourcing, no competitive loss or share shift, et cetera. It purely had to do with the rate of adoption in the market of the three products our customers had anticipated a higher rate of adoption but once the products were in the market for some time they realized that that was not the case and hence they adjusted their forecast accordingly the uh the the change in april of this year was also primarily because of some products in ep although different products are not ablation products um and and the reason i think that the primary reason for for these two events that you're talking about rich are because there's been a lot of change in the ep space over the past couple of years when pfa was launched started ramping say two two and a half years ago i mean the landscape changed very quickly you know the technologies used i mean two and a half years ago there was very little no no pfa use but now in the u.s 80 of the procedures give or take are using pfa so so the whole industry went through a very rapid change which made it a little bit more unpredictable than usual and and that's kind of the result of what we're seeing. But specifically, the few EP products that we're talking about this year in April were as a result of our customers during this period of uncertainty, buying a little bit more products so that they have more products on hand to make sure that they're not losing any procedures. But we learned that as things are stabilizing, they're now realizing that they might have a little bit too much inventory in the hand and they're adjusting it accordingly.

Rich Newitter, Analyst — Truist Securities

Got it. So, is there any overlap of the actual customers, not the products, but the customers from the November to the April? Is it possible that it's the same customer or is it different customers?

Peyman Kales, CEO

So, in October, we said customers and in April, we said customers. So, an overlap is possible.

Rich Newitter, Analyst — Truist Securities

Okay. Got it. um and then i guess one of the one of the things you said uh you know well actually integer had been viewed you know yes quarter to quarter you could always uh have some lumpiness uh in any given part of the business but there were always offsets elsewhere and when you looked over a multi-quarter period things smoothed out and you were what i have characterized as a fairly steady eddy within the context of that near-term lumpiness that smoothed out. I guess, has something changed structurally just in the business? You guys have been grooming the portfolio. You're more concentrated, faster-growing subsegments in certain markets. Is there something that just inherently makes the business more susceptible to this type of thing going forward?

Peyman Kales, CEO

There's nothing that has structurally changed. I mean, we've communicated, and that continues to be the case, that most of our revenue we have visibility to through some sort of a forecast, typically a 12-month rolling forecast that we get from our customers. And we've also communicated that our order book, which we refer to as backlog, was and has been at the end of April and has been for a number of quarters in the kind of $700 million range. So if you do the math, that's about a quarter and a half of orders, so that gives us good visibility. So that visibility has now changed. I mean, kind of going back to some of the dynamics that I highlighted within the EP space, I think that's been the primary driver of some of this variability. And again, if you think about when PFA was launched, how quickly the landscape changed and how quickly the technology changed. you know even the players uh in terms of who's who's who's now the primary versus whatnot that's really what's behind most of some of this variability that we've seen we don't expect that to continue and to the point that you made um you know in terms of it being uh being a steady eddy and whatnot we hope and expect um you know to go back to to uh to a a more normal if you will cadence. But I would point to some of the changes in the EP market, some of the variability that

Rich Newitter, Analyst — Truist Securities

we've seen. So you basically pushed out a return to market growth by a quarter. I mean, you originally entered the year with, hey, we're going to start to get back to market growth in the back half of 2026. And now, you know, you've pushed that out a quarter. Now it's the 4Q, right, not the back half. And then there's a return above market at some point still in 2027. But I would have guessed, you know, maybe that got pushed out by a quarter too. I guess my question is, why is a one quarter push out for those objectives the right amount? Because when we had the original guidance reset in November, I remember asking the same question. How have you handicapped to make sure that you've captured this and, you know, you have the confidence that you'll get back to the reacceleration trajectories when you do? And it sounded pretty confident at the time. Things don't always go to plan. You pushed it out a quarter, but how do we handicap for what you don't know over the next three months? And could there be something else? So How have you either changed your philosophy or approach to the guidance, knowing that this happened, you know, within a quarter? And how can you give us confidence that it's not going to be, well, we were off by a quarter and it's a two-quarter push out, you know?

Peyman Kales, CEO

So just going to recap what you said. I mean, we've said that we expect to get to organic growth of market, you know, in the fourth quarter when adjusted for production days. That's what we've highlighted. And again, the visibility that we have is based on the forecast and the order books. And we do risk adjustment. I mean, to the point that you made, there was some forecast reduction that we talked about for EP that was primarily the reason why we adjusted the guide down for this year. But we also mentioned that, again, given this variability that we've seen primarily in the EP space, we added a little bit more risk adjustment in our APL guidance just to make sure that if there are any unforeseen events which we don't have visibility to, which we said we don't have visibility to, that it's accounted for.

Rich Newitter, Analyst — Truist Securities

Okay. That's helpful. So there is a, quote, placeholder for what you don't know on some level incrementally?

Peyman Kales, CEO

There's some. We built in some, you know, within reason.

Rich Newitter, Analyst — Truist Securities

Got it. And just to be clear, nothing you're seeing that suggests there's something more structural at the end market level from your customers, whether it's EP or elsewhere, or even kind of an in-house manufacturing to outsource manufacturing, there's no bigger structural changes that could be at play here?

Peyman Kales, CEO

No. We don't see a trend towards insourcing. We continue to believe that the trends toward outsourcing continue to be favorable. Again, as evidenced by the pipeline that we continue to foster and grow, we've communicated our product development sales, which is an indicator of that. That continues to grow. So that highlights that our customers are coming more and more to us to do that kind of thing. we don't see anything structural changes i mean so so you you mentioned ep obviously the ep market has gone through this transformation but even with the slowdown uh you know the projections are that the ep markets you're going somewhere in the mid to high teens which is a very strong growth rate um uh and and there are some pockets i think out there for example you know some companies like sleep apnea has some head glands and whatnot but but remember that our portfolio is very diverse and uh we we participate in a wide range of therapies and no one specific product makes up more than a couple of two three percentage of our revenues so so given that diversification and you know given the visibility that we have to the to the underlying best core business and the new product launches uh we feel uh we feel confident about the uh the projections that

Rich Newitter, Analyst — Truist Securities

we have so it's interesting it sounds like ep was a little bit about which players you happen to be tied to in their forecast horizons in a growing market. So that can be a little more idiosyncratic to you without the EP market going broadly through some massive deceleration phase. But there are some other medtech markets that have actually seen some actual slowdown, like urology, neuromodulation, you mentioned hypoglossal nerve stimulation, watchman, left atrial appendage closure. Can you quantify even if directionally your exposure to any of these other categories?

Peyman Kales, CEO

Yeah, I can say that we have exposure to them, again, given the broad range of therapies and the broad range of customers that we have relations with. We have exposure, again, net-net, when we look at the total portfolio, the new product launches, and we balance out what some of the head moves

Rich Newitter, Analyst — Truist Securities

might be, we believe Mapping easier comps from 2026, how much of its actual new product launches in the pipeline that will be realized?

Peyman Kales, CEO

It's a little bit of a combination of everything that you said. So let me try to break it down for you. In terms of the comps getting easier, we had a strong ramp of these three products in the first half of 2025. So the comps are the most difficult in the first half of this year. But as we navigate 2026, the comps become sequentially easier. So as we enter 2027, we don't expect those comps. And as it relates to the three products, we're also not counting on any meaningful growth from these three products in 2027. So we don't anticipate that all of a sudden they're magically going to get back to growth.

Rich Newitter, Analyst — Truist Securities

um so so when we if you but you you assume they stop getting deteriorating uh yes you have

Peyman Kales, CEO

stabilization the the information that we have suggests that these products are not going away that um that you know they have a place in the market but we're not counting on any meaningful growth you know certainly not uh you know the topic growth that we saw in 2025 um and then so so when you think about then the underlying business that we have uh as we get into you know 2027 which are wangers about 46 percent and then you add to that the product launches that we have scheduled in the second half of 2026 and during 2027 uh we we expect to get back to

Rich Newitter, Analyst — Truist Securities

200 basis most of our market in 27 got it um okay and then uh i'm just curious because one one newer market that maybe isn't quite inflecting at the moment, but has the potential to is renal denervation. Just curious, you know, can you quantify or size your exposure to that emerging market in any way? And how significant could that be? Yeah, I mean, as we've said,

Peyman Kales, CEO

over time, we have exposure to RDN, and we believe that there's a potential over the long term. I mean, the market size potentials have kind of varied a little bit based on different estimates, but a key player recently mentioned that they view that market as being about $100 million. Now, consider that our opportunity is based on the cogs of our customers. And so it's a smaller portion of the total market. And it's not, you know, we have participation in it. It's not a meaningful part of our portfolio. And while we believe that this is something that can potentially give us tailwind, it's not something that's going to move the needle necessarily in the immediate future.

Rich Newitter, Analyst — Truist Securities

Helpful. Darren, maybe we can pivot to you a little bit. But, you know, so given the amount of the revenue outlook reduction that we saw in the 1Q, I was actually pretty impressed. The EPS reduction was disproportionately better or less bad than at least we would have expected. What's allowing you to do this? And is the risk, you know, at all that you've eaten into some of the margin cushion or cut into muscle?

Darren Smith, CFO

Yeah, thanks for the question. I think first and foremost, you know, we've talked about managing through this air pocket that we have. And one of the things that we've talked about is, you know, we run the business for the long term. We see this as a short-term headwind, and we are not going to make any significant structural changes that are going to impact our ability to return to market growth in the fourth quarter or above market in 2027. So from that perspective, no, we don't believe we've cut into any muscle. and we've been very conscientious of that making sure that where we're where we're maintaining our cost discipline it's in the right areas and continuing to invest in the areas that are extremely important to that growth algorithm um one of the things that we we do have in our favor is a our kind of remaining quarter of interest expense savings from the convertible note that has also helped to offset that and then just overall cost discipline in the areas that are less impactful to that growth algorithm. And that balance, we believe, is what's contributing to our ability to kind of mitigate the impact. Obviously, it's not where we'd want to be on the profit side, but we think we're mitigating it to the right level. Got it. And then maybe

Rich Newitter, Analyst — Truist Securities

just help us think about, you know, you've talked about operating profit growth two times the top line level as your broad strokes kind of target. Clearly, that's not going to apply as you're going through this transition period. But when can we expect that kind of operating leverage

Darren Smith, CFO

algorithm to kick back in? Yeah. I'll first state that that's our strategic objective, right, is to be two times or have our operating income grow at twice the rate of our sales growth. that remains our strategic objective um as you've said 2026 is not a year where we're going to see that given the sales decline um we we have not formally given any guidance on 27 and are not prepared to do so here today but what i will kind of point to is in you know kind of recent years um we we have achieved that 2x in certain years and in the years we haven't we've been you know one five one six times one seven and so as we look forward it's going to remain our strategic objective I would say some years we're going to invest differently and we may be a little short of that other years we expect to be able to deliver on that okay but and again you didn't

Rich Newitter, Analyst — Truist Securities

I heard you you did not provide official 27 guidance but it sounds like there should be some some comfort that you know if it's not two two times maybe it's a floor ish of one and a half

Darren Smith, CFO

to do or something like that i think what i would point to is again the cost discipline that we've put in place this year um you know we expect to maintain that cost discipline um to to enable us to maximize you know what what that operating income would look like on on the return got it

Rich Newitter, Analyst — Truist Securities

and and just anything else you know there's been some macro changes middle east and and the war there or the the the conflict there um anything on fright or or fuel or anything that's crypt in since the outlook you issued on the 1Q call?

Darren Smith, CFO

Yeah, in the 1Q call, we had included and contemplated kind of the conflicts and some of the impacts on the cost pressure. I'll remind the audience that our customers primarily manage their freight and logistics, so a lot of any impact is actually going to be on that side. And any impact that we're seeing, I'll call it on the inbound freight or logistics or some of the raw materials, you know, we've included that in our outlook. Got it.

Rich Newitter, Analyst — Truist Securities

I think you executed 100 million of the 200 million authorization during the fourth quarter and one first quarter period. I don't think you have further buybacks in your outlook. Is that correct? Yes, that is correct. And, you know, I think you have insinuated that you think intrinsic value is higher than current market value for your shares. And I'm just curious, is there going to be, is there just a pause here during the review process or how should we think about buybacks as part of the capital allocation and to what extent does the review process influence that?

Darren Smith, CFO

Yeah, let me start just kind of what our capital allocation kind of priorities are because where they stand today is where they have been in the past. we we prioritize first you know generating free cash flow that we believe is acceptable to to run and and support the the business and its growth uh objectives and outlook um and from that what's our primary um first priority is really around organic investment so making sure that we have the right capital expenses and and investments in either overhead or op x to support that growth algorithm and supporting our customers and delivering their products so that's always been our first priority and we believe that we have the right level there our second priority has been our tuck-in M&A strategy and that continues to be our second priority so we remain active in the in the space you know it's it's still a very fragmented market and there's still a lot of opportunities and so we stay very close to our target list and and nurturing those relationships And that remains a high priority for us, although right now we're primarily focused on executing here as we manage through the air pocket. The third piece is then the opportunistic share repurchase. And I'll say that because when we announced the $200 million, we announced it as an opportunistic approach, and we still remain in that opportunistic mindset. At this time, we do not have any future share repurchases in the outlook.

Rich Newitter, Analyst — Truist Securities

Got it. Maybe just going back to the strategic review process, you've said multiple times, months, measured in months, not years. I guess, why make that, why put a time restriction on it?

Peyman Kales, CEO

This, I think the statement was an answer to the question. You know, how long would that take? And obviously, look, we don't know how long these things make, but they typically don't last weeks. They typically don't last years. is typically months, which is kind of the reason what we categorized it. We had not articulated a timeline. I think that was a response to the question.

Rich Newitter, Analyst — Truist Securities

Okay, got it. That makes sense. And then this is a tougher question to ask you, but we're trying to ask all the companies that we have the opportunity to have a fireside with during this conference. We get mixed signals on kind of what's going on in the underlying utilization procedure and MedTech product consumption backdrop. We hear some, you know, there have been some negative anecdotal data points from hospitals on utilization trends. In the backdrop, we're all aware of ACA subsidy expirations and Medicaid cuts that we entered this year with. Most medtech companies, you know, aren't calling any major kind of procedural headwinds out. We had some weather in the first quarter, but I'd love to just hear, you know, could you guys be a canary in the coal mine at times given that you're you know you're getting forecasts from all the companies that we cover anything that you're hearing or seeing that's brewing obviously ep has some inventory dynamics but that's not necessarily end market issues but anything that you know you're hearing seeing without getting into any specific customers that's alarming or suggestive of a utilization slowdown in a meaningful way uh no nothing i

Peyman Kales, CEO

I mean, look, we read the same reports that you do, obviously, and, you know, we're connected with our customers and that we have those discussions. Other than some events that are public, you know, for some areas like sleep apnea, for example, and some other things, which are, again, you know, those are parts of our business, not the totality of our business. um the the going back to you you kind of gave the answer in the question the guidance the guidance that we have is really kind of taking a balanced view of the forecast that we have from our customers um the the order book that we have and then kind of doing some risk adjustments and looking at opportunity views and coming up with a range this is this is our philosophy and you know because we have a we believe we have good visibility uh that's what that's what the basis

Rich Newitter, Analyst — Truist Securities

of our guidance is and and are you seeing any other pockets in your customer mix or base where you're seeing uh you know maybe there was some excess inventory build and they're dialing it back or taking a pause on replenishing like i'm just trying to get a sense for whether there could be some signs of some slowdown coming and and excess inventory is probably the most

Peyman Kales, CEO

you know logical way to try to read that we we're not seeing anything that's unusual i mean obviously inventory management was a bigger deal going back a couple of years over the past couple to three years just uh you know going through the you know the covet era you know you know people build some inventory although we believe that we manage that uh in a balanced way you know at a time that you know supply and labor was a little bit more challenging we were working with our customers very closely to make sure that we can meet the needs of the patients everywhere and not having one company, for example, build inventory while shortchanging another one. So, we work very closely with our customers. So, we don't believe we were as affected by that inventory build, but there was some element of it that, you know, in recent years that we outgrew. As we are, as I'm looking at the inventory situation in 2026, we don't believe there's

Rich Newitter, Analyst — Truist Securities

anything unusual there okay that's great I think we're right at the the marker here for time thank you payment there and really appreciate your participation thank you