Integer Holdings Corporation (NYSE:ITGR) is a leading medical device contract development and manufacturing organization primarily serving the cardiac rhythm management, neuromodulation, and cardio and vascular markets. The company has demonstrated impressive financial performance, with annual revenue of $1.60 billion, annual net income of $90.65 million, annual operating cash flow of $179.62 million, and annual free cash flow of $59.69 million.
Recent Developments
In the latest quarter, Integer reported revenue of $436.2 million, up 9% year-over-year, driven by strong performance in its Medical segment. The company's Cardio & Vascular (C&V) product line saw a 10.9% increase in revenue, while Cardiac Rhythm Management & Neuromodulation (CRM&N) and Advanced Surgical, Orthopedics & Portable Medical (AS&O) grew 9.3% and 4.4%, respectively. The Non-Medical segment, which accounts for only 2% of total revenue, declined 19.3% year-over-year.
Financials
Gross profit in the quarter increased 12.8% to $119.4 million, with the gross margin expanding 92 basis points to 27.4%. This margin expansion was driven by the company's continued focus on manufacturing excellence initiatives, which have led to improvements in direct labor turnover, direct material scrap production, lower overtime, and direct labor efficiency.
Integer's adjusted operating income grew 20% year-over-year, outpacing the top-line growth, resulting in a 211 basis point expansion in adjusted operating margin to 12.9%. The company's adjusted net income for the quarter was $45 million, or $1.30 per diluted share, up 14% from the prior-year period.
The company's strong performance in the first half of 2024 has led it to raise its full-year profit outlook. Integer now expects adjusted operating income to be between $275 million and $293 million, reflecting year-over-year growth of 14% to 21%. At the midpoint of $284 million, this implies a 108 basis point expansion in adjusted operating margin compared to 2023.
Business Overview
Integer's Medical segment, which accounts for 98% of total revenue, continues to be the primary driver of the company's growth. Within the Medical segment, the C&V and CRM&N product lines, which together represent 91% of total sales, have delivered impressive performance. On a trailing four-quarter basis, C&V sales increased 17% year-over-year, driven by double-digit growth across all markets, new product ramps in electrophysiology and structural heart, and the recent acquisitions of InNeuroCo and Pulse Technologies. CRM&N sales grew 11% year-over-year, fueled by high-single-digit CRM growth and double-digit neuromodulation growth from emerging PMA customers.
The company's strategic focus on tuck-in acquisitions has also contributed to its growth. In January 2024, Integer acquired Pulse Technologies, a technology, engineering, and contract manufacturing company focused on complex micro machining of medical device components. The acquisition of Pulse further enhances Integer's end-to-end development capabilities and manufacturing footprint in targeted growth markets. In October 2023, the company acquired substantially all of the assets of InNeuroCo, a leader in neurovascular catheter innovation, which complements Integer's existing capabilities and market focus.
Liquidity
Integer's strong balance sheet and cash flow generation provide ample financial flexibility to support its growth initiatives. As of the end of the second quarter, the company had $34.1 million in cash and cash equivalents and $1.12 billion in total debt, resulting in a net total debt leverage ratio of 3.2 times trailing 12-month adjusted EBITDA, well within the company's target range of 2.5 to 3.5 times.
Outlook
Looking ahead, Integer is well-positioned to continue its growth trajectory. The company expects sales in the second half of 2024 to be higher than the first half, driven by new product ramps, increased guidewire capacity from its Ireland expansion, and continued growth from emerging PMA customers. Additionally, the company's robust pipeline of tuck-in acquisition opportunities and its focus on operational excellence initiatives provide a solid foundation for future margin expansion and shareholder value creation.
Conclusion
Overall, Integer Holdings Corporation has demonstrated its ability to consistently deliver strong financial performance, driven by its diversified product portfolio, strategic acquisitions, and operational efficiency improvements. With a solid balance sheet, ample liquidity, and a promising outlook, the company appears well-positioned to capitalize on the growing demand in the medical device industry and continue its track record of shareholder value creation.