Yahoo Finance Integer Holdings Corporation (NYSE:ITGR) Q1 2024 Earnings Call Transcript
Integer Holdings Corporation (NYSE:ITGR) Q1 2024 Earnings Call Transcript April 25, 2024
Integer Holdings Corporation beats earnings expectations. Reported EPS is $1.14, expectations were $1.12. Integer Holdings Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2024 Integer Holdings Corporation Earnings Call. [Operator Instructions] I would now like to turn the call over to Andrew Senn, Senior Vice President, Strategy, Business Development and Investor Relations.
Andrew Senn: Good morning, everyone. Thank you for joining us, and welcome to Integer's first quarter 2024 earnings conference call. With me today are Joe Dziedzic, President and Chief Executive Officer; and Diron Smith, Executive Vice President and Chief Financial Officer. As a reminder, the results and the data we discuss 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 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 Diron will then review our adjusted financial results for the first quarter of 2024 and provide an update on our full year 2024 outlook. Joe will come back to provide his closing remarks, and then we'll open up the call for questions. With that, I'll turn the call over to Joe.
Joe Dziedzic: Thank you, Andrew, and thank you to everyone for joining the call today. We appreciate the sell-side analysts who have initiated coverage on Integer over the past year and welcome Kristen Stewart from CL King, who initiated coverage of Integer last month. We had a strong start to 2024 with sales growing 10% year-over-year and adjusted operating income up 26% or 2.7x the rate of sales growth compared to the first quarter of 2023. In addition, our adjusted earnings per share grew 31% year-over-year and gross margin expanded 120 basis points versus first quarter 2023, primarily due to the execution of our manufacturing excellence initiatives and an improved supply chain and direct labor environment. We are reiterating our full year outlook.
We continue to expect sales growth of 9% to 11% and adjusted operating income growth of 13% to 20% versus 2023, a strong year-over-year increase. We are also confirming 2024 adjusted earnings per share of $5.01 to $5.43 and free cash flow of $85 million to $105 million. The strategy that we developed in 2017 and began implementing in 2018 is now producing sustained above-market sales growth and margin expansion. We also continue to manage our debt leverage within the range of 2.5 to 3.5x trailing four quarter adjusted EBITDA, while executing our inorganic growth strategy. 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 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: Thank you, Joe. Good morning, everyone, and thank you again for joining our discussion today. I'll provide more details on our first quarter 2024 financial results and provide an update on our 2024 outlook. We started 2024 with a strong first quarter. Sales of $415 million delivered 10% year-over-year growth on a reported basis and 6% on an organic basis, which excludes the impact of our recent InNeuroCo and Pulse acquisitions, the strategic exit of the portable medical market and foreign currency fluctuations. We delivered $81 million of adjusted EBITDA, up $15 million compared to the prior year or an increase of 22%. Adjusted operating income grew 26% versus last year, more than 2.5x the rate of sales growth. We continue to make progress on our year-over-year margin expansion.
First quarter 2024 adjusted operating income as a percent of sales was 15.2%, which represents approximately 200 basis points of improvement versus a year ago. Adjusted net income for the first quarter of 2024 is $39 million, delivering $1.14 of adjusted diluted earnings per share up $0.27 or 31% from the first quarter 2023. C&V and CRM&N product line sales, which represent approximately 91% of our total sales, continued strong year-over-year growth on a trailing 4-quarter basis in the first quarter of 2024. For our Cardio and Vascular product line, trailing four quarter sales increased 18% year-over-year with double-digit growth across all CMB markets, driven by strong customer demand and sales from the InNeuroCo and Pulse acquisitions. Cardiac Rhythm Management and Neuromodulations trailing four quarter sales increased 12% year-over-year, primarily driven by double-digit CRM growth from strong customer demand and double-digit neuromodulation growth from emerging PMA customers.
Further product line details are included in the appendix of the presentation on our website at integer.net. To provide more insight into our first quarter 2024 performance, we delivered $39 million of adjusted net income, up $10 million versus a year ago. Operational improvements, which include improved manufacturing efficiencies and operating cost leverage, delivered $10 million versus first quarter 2023. While improvements in our adjusted effective tax rate were more than offset by higher interest expense and slightly unfavorable foreign exchange. On a tax-effected basis, adjusted total interest expense was approximately $1 million higher than last year. This is primarily due to a higher average debt balance during the period, driven by funding for the acquisitions of InNeuroCo and Pulse technologies using our available revolver capacity.
Our adjusted effective tax rate was 18.1% for the first quarter of 2024 compared to 19.8% in the prior year. Our lower adjusted effective tax rate compared to the prior year was primarily due to discrete tax benefits recognized upon vesting of restricted stock units during the first quarter of 2024. We continue to expect our adjusted effective tax rate to be between 19% to 21% for 2024, as discussed in our previous earnings call, this is mostly driven by the recent adoption of the OECD Pillar 2 framework by the EU member state establishing a minimum effective tax rate of 15% as well as the residual effect of the Malaysian tax holiday expiration. In the first quarter of 2024, we generated $23 million in cash flow from operations, up $17 million from a year ago.
The improvement driven by higher sales volumes, improving margins and effective management of working capital was partially offset by higher annual bonus payments, which are made in the first quarter of every year. Our CapEx spend of $29 million in the first quarter is on track to our expected full year spend of $90 million to $110 million. As a result, free cash flow in the first quarter was a usage of $6 million. Net total debt ended at $1.1 billion for the first quarter of 2024, an increase of $162 million compared to the fourth quarter 2023 ending balance. This increase was driven by the approximate $140 million acquisition of Pulse Technologies in January of this year. Net total debt leverage at the end of the first quarter 2024 was 3.4x trailing four quarter adjusted EBITDA, which is within our strategic target range of 2.5x to 3.5x.
As Joe mentioned in his opening remarks, we are reiterating our 2024 outlook for sales, profit and cash. We expect to deliver sales in the range of $1.735 billion to $1.770 billion, an increase of 9% to 11% versus last year, with organic growth of 6% to 8%, which is 200 basis points above our underlying market growth rate estimate of 4% to 6%. In addition to our organic growth, we expect the InNeuroCo and Pulse acquisitions, partially offset by the portable medical market exit, to contribute 3% inorganic growth. We anticipate adjusted EBITDA between $355 million to $375 million, reflecting growth of 15% to 21%. Similarly, we expect adjusted operating income to grow 13% to 20% to between $272 million and $290 million. At $281 million, which is the midpoint, adjusted operating income as a percent of sales is expected to grow 91 basis points compared to the full year 2023.
We expect adjusted net income between $171 million and $185 million, which is growth of 8% to 18% compared to the prior year with adjusted earnings per share of $5.01 to $5.43, which is growth of $0.34 to $0.76 versus 2023. First quarter 2024 results were in line with our expectations. We further expect the first half of 2024 sales to grow high single digit year-over-year with sales continuing to increase throughout 2024 from new product introductions and emerging PMA customer growth. We expect adjusted operating income as a percent of sales to expand throughout the remainder of 2024, driven by continued improvement in manufacturing efficiency and sales growth outpacing our growth in operating costs. Similar to our outlook on profit and loss, we also reiterate our cash flow outlook and net total debt projections for 2024.
We expect cash flow from operations between $185 million to $205 million, which represents an 8% year-over-year increase at midpoint of outlook. Our outlook for capital expenditures remains at $90 million to $110 million as we continue to invest in organic capabilities and capacity. As a result, we expect to generate free cash flow between $85 million and $105 million. Inclusive of our approximate $140 million acquisition of Pulse Technologies in January of this year, we expect our 2024 year-end net total debt to be between $1.010 and $1.030 billion, which is up $60 million to $80 million year-over-year. We expect to end the year with our leverage ratio within our target range of 2.5 to 3.5x trailing four quarter adjusted EBITDA. With that, I'll turn the call back to Joe.
Thank you.
Joe Dziedzic: Thanks, Diron. With our strong start to 2024, we are reiterating our outlook of 9% to 11% sales growth and 13% to 20% increase in adjusted operating income. The execution of our strategy, both organically and inorganically is producing results as we continue to demonstrate above-market sales growth with expanding margins. We remain focused on executing our strategy to create a premium valuation for our shareholders. We will now turn the call over to our moderator for the Q&A portion of the call.
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