Integer Holdings Corporation Stock

We have Payman Khales.

Khales.

Khales, President and CEO; and Diron Smith, Executive VP and CFO.

So maybe just to start out, one question that I get a lot, and I don't have a good answer on is, like, trends on in-sourcing from some of the bigger medtech strategics. Is this a trend that's increasing? Or how are strategics thinking about in-sourcing versus outsourcing some of the manufacturing?

Sure. And thanks for having us, Travis. And you got most of the letters right in Integer. So yes, it's good to be here.

Apologies.

Yes, no worries at all. So if you really think about what our customers are focused on, the OEMs, their primary focus is to bring, develop and bring to market the next generation of therapies. They need companies like us to help them with that design development in terms of the manufacturability, in terms of making sure that they are putting their efforts and focus where they can generate the most value, which is getting with physicians, trying to mature the therapies, trying to get over the regulatory hurdles.

We don't really see a trend towards in-sourcing. In fact, we see the trends that are more positively towards outsourcing because that companies like us with the scale and breadth of capabilities that we have, with the technical expertise that we have that can help them bring all this product together, helps them bring products into market faster, which is the reason why we believe that our OEMs need companies like us to bring products to market faster. So hence, we see the trend more towards outsourcing than in-sourcing.

Okay. That's helpful. And when you think about your position in the market, some other -- your competitors are private or part of the larger companies. And so just like how do you think about your market position and kind of where you excel and kind of share is it increasing or not?

Yes, sure. I mean we are a leader in the industry. We've got tremendous engineering and technical expertise and capability, which is what delivers a lot of value, but we also have a lot of scale in manufacturing. We have a global footprint. So as we think about our focus, which is primarily a CDMO, the entirety of our focus is to do what we do, which is to deliver value to our customers. We're not a division of a bigger company, if you will. The entirety of what we do, the focus, the capital allocation, the investments that we have is dedicated towards what we do. So we believe that we are well positioned to continue to grow in the space.

Okay. That's helpful. And then on the last earnings call, you announced a strategic review. Maybe just to start out why announce this now and more broadly?

Sure. Integer, as a leader in this space has always had interest by other parties. That interest has been heightened in recent months. We've had a relatively large number of parties that have expressed interest in Integer. We believe that's because of our leadership position in the space, because of how integrated we are in the medtech ecosystem. We are heavily embedded in some of the largest OEMs in this space. We have deep and broad relationships with them. So we are an attractive company. And given the level of interest, the heightened level of interest that I mentioned, our Board, as their primary fiduciary duty, they want to make sure that they look at all ways and all avenues that we can deliver value that -- our Board can deliver value to shareholders.

So this is the reason why we're doing this now. I would tell you that -- this means that they're exploring all options with an open mind. It doesn't necessarily mean that there will be a certain outcome nor is the Board necessarily focused on a certain outcome. We're going to be exploring it. And if there's a path to deliver value to shareholders, our Board would consider that. If the decision is that, look, our stand-alone strategy is a better path to delivering value for shareholders, well, then we'll do that.

And how are you thinking about timing? I think you said months, not years.

Well, it's actually -- yes, it's certainly not weeks, it's months, but not years, yes. I mean, yes, it's -- I can't give you a specific timeline, but it's not going to be measured in years.

What are some of the steps that kind of need to be taken by the Board at this point as part of the strategic review?

Well, we have -- as we mentioned in our press release, we have an adviser that's Goldman. They have launched a process. We are in the early stages of that, and we'll go through the process and evaluate all proposals and make a decision -- our Board will make a decision as to whether there's a path forward.

Okay. So it's basically, you kind of -- you probably have a plan for stand-alone strategic value and kind of where you think your valuation is over time or if you execute your stand-alone plan versus what the other options are?

Yes. I mean we have a strategy that our Board believes in. We believe that, that strategy has demonstrated that it can deliver value. We continue to be confident in that strategy. This is just about evaluating whether another option might be able to enhance that value for our shareholders.

Okay. Makes sense. And then what do you think caused the increased interest in Integer at this stage?

Well, we believe that, as I mentioned earlier, we are an attractive player in the space. We've demonstrated a lot of capability and ability to deliver at above-market performance. I mean 2026 is a little bit of a transitory year of headwind, but we fully expect to get back to above-market performance in 2027, and I believe we're being noticed.

I mean when you think about the strategic review timing, like why not -- you're kind of in an air pocket at the moment. Why not wait until you get through the air pocket to do a strategic review?

Yes, it's purely because of the level of interest that we've had. Our Board wanted to make sure that if there are a lot of interested parties that they evaluate any potential other option that might exist.

Okay. That's fair. And then kind of post Q1, there was a kind of a lowered outlook for growth, mostly due to changes in EP products, not PFA, I believe, and some broader risk adjusting in the numbers. Maybe talk about some of the kind of outperformance in Q1 and explain the lower outlook?

Yes, sure. For Q1, we delivered in line with expectations. We were on the higher end of the expectations with both of our product lines, C&V and CRM&N contributing to that. So we delivered in line with expectations. The reason behind the lowering of the guidance was that we had some -- a few of our customers lowering their forecast for a few electrophysiology products. These are products that are primarily used in electrophysiology procedures. There are a number of products that are used in this type of procedure. We participate across all the products in that -- in a typical procedure from access to the body to navigating transseptal crossing, mapping, diagnostics and ablation.

So these products were more related to all the steps before getting to the ablation. And we believe the reason for that is because after 2 years of really fast growth in the electrophysiology space, with the introduction of PFA, go back about a couple of years ago, this technology has very rapidly disrupted the space. We estimate according to what our customers tell us that about give or take, 80% of the procedures in the U.S. are now utilizing PFA as opposed to some legacy products, which is an incredibly fast pace of adoption.

So if you think about that level of disruption and what that has brought with all the OEMs try to understand what their needs for products are. We are now we believe we are entering a period of stabilization and normalization that allows our OEM customers to have a better view of what products they need and how much of the products that they need. And they've decided that they might have a little bit too much product on hand, and they're adjusting that. We believe that to be short term in duration.

And then what kind of gives you the confidence that you said kind of stabilizing or kind of at this point, be able to forecast that it's not going to get worse from here?

Yes. So we have -- we get forecast from our customers, and this is a forecast reduction for the second half of the year for the reasons that I mentioned for some adjustment. We -- in the discussions that we've had with our customers, we believe that this is a one-time adjustment. And the products -- I should mention that the reduction is not a result of a competitive loss or share loss or in-sourcing. We continue to be the supplier for these products. And based on the discussions with our customers, we believe that to be a one-time.

It's multiple customers?

It's multiple customers, multiple products.

Okay. And I think one point you wanted to make, it's not really a pulling of business. It's more of just a change in orders near term, right?

Yes, that's what we believe, yes.

And why do you think customers are doing this now versus kind of 3 months ago?

Yes. It's a great question. We've had those conversations. I believe that it is a result of what I mentioned to you that with some of the stabilization, normalization and the better visibility that our customers have, they've decided that they need to adjust their production plans. And as a result, they've adjusted their forecast on us based on the products that they have on hand.

Do you think they're taking a different view of the market, EP market?

No. I mean if you listen to some of the leaders in the space, the growth in this -- in the EP space continues to be strong. The estimate that the leaders have put out there is somewhere in the mid- to high teens for 2026. Procedure volumes, that's a total growth rate, which also has the impact of price, PFA price in it. Procedure volumes, there are some commentary out there by some of the leaders that are in the low double digits. We believe that the EP market continues to be robust and strong.

Do you think the customers are taking a different view on their share outlook at this point or not related to that?

Yes. I don't believe it is related to the share outlook. I think because it's a number of customers and as I mentioned, the number of products, we believe that it's a result of an adjustment -- that's mostly tied to inventory levels.

Okay. Of the lower guide this year, how much was related to the EP versus the broader risk adjustment?

Yes, there were some puts and takes there. I would say that more than half of it was EP, but we also put a layer of risk adjustment additional, as we mentioned.

And why was there a thought to kind of derisk the rest of the guide on the other part of the business?

Well, we don't take lowering of guidance lightly. Obviously, we've had some variability in the EP space, in particular, since we had an adjustment in October of last year, a very different circumstance, of course. We've had an adjustment now. Although we don't have line of sight to any additional pressure either in EP or elsewhere, we thought it was prudent to put a little bit more risk adjustment in the guide.

And go back to the guide lower a couple of quarters ago in EP. So this is completely unrelated to that, those numbers are unchanged and kind of tracking as expected?

Yes. The reason for the adjustment of the guidance in October was that we had 3 products that were new to the market that after a strong period of ramp, our customers told us that those products are not getting the rate of adoption that they had expected. Hence, we had a lowering of the revenues in 2026 in relation -- when compared to 2025. Those products, the EP products that we're talking about here, but also all 3 products are tracking to our forecast and the forecast that we have, the commentary that our customers give us and the purchase order coverage that we have that substantiate the guide that we have for these products.

And so that lower in EP was really related to more share outlook, right, in terms of what those customers thought on the share position in those products?

Are you talking that the 2 EP products?

The 2 EP products from 2 quarters ago.

Yes. Those EP products were not being adopted as well as some other products that were in the market.

Right. Okay. And then how do you think that carries into next year on those products?

We see these products as continuing to be steady as continuing to have a place in the market, again, as our customers are telling us. We're not counting on any growth from these products in 2027. We expect them to continue in 2027.

Okay. And then in left atrial appendage, do you have some exposure there?

Yes.

And so there are kind of 2 segments of the market concomitant and there's stand-alone. One's been slowing dramatically having an impact on the total market, how is that impacting kind of your outlook?

Yes. The exposure that we have to LAAC is smaller. We have some exposure to it, but it's not a meaningful contributor to our growth or, if you will, headwinds in this case.

And then same thing in CRM and neuromod, anything kind of stand out? You had a decent quarter there in Q1. Just anything to call out there and sustainability there?

Yes. As I mentioned earlier, both of our product lines delivered as expected. We had CRM that came a little bit stronger. As you know, we have some headwinds related to neuromod because of the one product that was offset by CRM. But yes, both product lines did well.

And then the PMA portfolio, still expecting, I think, 15% to 20% growth there?

Yes. At the end of 2024, we had communicated that the size of that portfolio had reached $125 million from when we started many years earlier in 2018, that was $10 million. So that portfolio has had a very strong growth. We, at that time, communicated that we expect that portfolio to grow at a CAGR of 15% to 20%, as you pointed out, over the next 3 to 5 years. That continues to be our expectation.

And what gives you the confidence that, that's going to happen?

We have the performance of the products that are there in that portfolio. We have some new product launches that are scheduled both in 2027 as well as in the coming years. When we look at the potential of those products and even when risk adjusted, we have confidence that we can get to 15% to 20% CAGR.

Are there a lot of new customers coming your way in that market -- in that business? Just thinking about all the new companies launching products and getting approvals and stuff like that.

Yes. We have a group of about 40 customers in that grouping. The development cycle and the sales cycle for these products is quite long. So the products that are -- that have launched and are expected to launch in the near future are products that have been in development for years and years. Obviously, we have more customers, we have, give or take, 10 of those 40 customers that have products in the market right now. So we have another more than a couple of dozen that are behind these. So we believe we are well positioned for the coming years in terms of new product launches.

And those customers, as they grow, would still be reported in that business. So some of those customers are probably more sizable than others?

Yes. Obviously, the plan is -- and our hope is that all of those products and customers are successful. Some of them have been quite successful, have had a lot of growth, and we hope and expect that that's going to be the case for most.

And how is the pipeline of like kind of new customers, I don't know maybe in that business or other businesses, too, if you think about signing up, you obviously have your big 3 customers, but like kind of the new start-ups, I guess, in medtech.

Yes. So we have -- we are heavily embedded in the largest medtechs, but we also have exposure and we focus on some of the emerging innovators because of the opportunity that they have for growth. We balance those. We make sure that we put our efforts where we believe where the most opportunity will be with the most innovative and promising technologies. So yes, we -- our pipeline in general, as measured by product development sales has continued to grow over time. Since 2017, that pipeline has grown 300%, which means it's 4x bigger. So with more products and the more complex products. And we've communicated that 80% of what's in that pipeline is geared towards the faster-growing market. So we're pretty excited about what's in our pipeline.

Any markets you'd call out in terms of like there's -- obviously, RDN could be a big and you have exposure there, but anything else you'd kind of call out that could be a big growth driver for you?

We have -- so we're not counting on one product to substantially and meaningfully move the needle for us. We have -- one of the strengths that we have in our business is the diversity of our portfolio, both in the existing product portfolio that we have, but also in terms of what's in our pipeline. So not one program in our existing portfolio or future is expected to drive more than a few percentage points of our total revenues. It's a number of -- diversity of the products that gives us the confidence that even if 1 or 2 of these products are not successful, there are more behind them that we believe that can be successful.

Yes. And I think there was a [Audio Gap ] getting more visibility in the growth algo. A couple, I guess, guidance lowers over the last year, maybe questions that. So just if you think about the go-forward and you're predicting the business and I guess you have the pipeline that you can see that we can't see, but anything else you'd kind of call out that kind of gives you confidence that this revenue growth that you're forecasting in the out years is going to sustain?

Yes. Maybe just a comment on the customer concentration. Our -- we have disclosed that our top 3 customers in alphabetical order are Abbott, Boston Scientific and Medtronic. And the other customers that we haven't disclosed 4, 5, 6 and 7 are some of the very big names that you would recognize. So obviously, as a leader in the space in the CDMO space, we have to have a big presence with the leading companies on the globe because otherwise, we can't be a leader in this space. But what I would highlight is that with these customers, we have hundreds of different programs. We participate in most, if not all, of their businesses, be it cardiovascular, cardiac rhythm management, neuromodulation. And we have a variety of different programs, anything from components to complex subassemblies to complete finished products.

So we have a very highly diversified portfolio with these customers. We're heavily embedded in them. So that's, I think, when we look at the diversity that we have with the leaders in the industry, and we continue to expand our businesses with them. When we look at the strength of the emerging customers and the numbers that we have, we are pretty excited about the potential of our business.

Okay. That's fair. And then maybe more of a 2026 question. So decline in revenues, low single digits in the first half and expect to return to market growth in Q4. So just help us understand that transition in '26.

Sure. So we -- the biggest part of the headwind that we have is in the first half of 2026 because the 3 products that are giving us headwinds in particularly grew very strongly in the first half of 2025. As we go through 2026, that headwind becomes less and less, and it becomes substantially less in the fourth quarter. So that's what gives us confidence that we will get to market growth. When you adjust for production days, we have an unusual calendarization where we have 5% less production days in the fourth quarter, 5% more in the first quarter. So when you adjust for production days, we expect to get to market growth rate. And that would be our exit rate into 2027, which with the launch of new products that we expect, we are confident that we can get to 200 basis points over market.

Yes, why go ahead and say 200 basis points above market in '27 at this stage?

Well, this is our strategic objective, one of our strategic objectives to outgrow the market. We have delivered on this strategic objective in recent years. 2026, we believe, is a transition year. And given what we have visibility to, we are confident that we can get to this level, 200 basis points over market in '27. So we thought it was important to communicate that.

And then when you think about that 200 basis points above market in '27, you obviously have an easier comp as well. And when you think about you have new products launching, what are kind of the underlying drivers of how much of it is share gains versus market versus easy comp?

Well, the algorithm that we have is that our WAMGR, Weighted Average Market Growth Rate is 4% to 6%. This is our markets. And our underlying business performs at that level. We expect it to perform at this level in 2027, which is going to be our exit rate in -- when we exit the fourth quarter in 2026. And we have new product launches that when you layer that on top of it, we believe that we'll get to 200 basis points.

Okay. That's fair. And then we saw CPI today. Inflation a little higher and there's obviously a lot of worry in medtech on inflation and supply chain again after 2022 and the memories there. I'm just curious what you're seeing in your business from all the stuff that's going on in the macro.

Yes, sure. I mean we are watching as everybody is the conflict in the Middle East that's causing some inflation. So the most obvious, I guess, source of inflation would be fuel prices and freight. We have limited exposure there because a lot of our customers are big companies and they have their own logistics. So typically, they pick up products from our manufacturing facility. So our exposure to the products that we ship is limited. We have more incoming freight, which is, again, in the whole scheme of things, is not material.

We are watching very closely any inflation related to resin-based and plastic-based products. We're also looking at potential disruption in supply. We don't believe that there is a high risk of supply disruption for those, just given the diversity of the supply base that we have. And we don't believe that any inflation at this point be is going to be material for 2026.

How -- what percent of resins is your cost of goods sold? Low single digits or mid-single digits, something like that?

Yes. We haven't disclosed it in that. But what I would tell you is that we have -- the components, the raw material that we use is both resin-based and metal based as well as others, but we haven't really broken it out that way.

And then computer chips or memory or anything like that, there's no exposure there, right?

No. I mean we don't -- we primarily do not manufacture hardware. If you think about, we are more on the disposable side, the catheters, whatnot. There are some, for example, PCBAs and some of the products that we manufacture. But generally speaking, our exposure to chips is limited.

Okay. And same kind of rare earth, I guess, metals, there's some inflation there. Is that -- is it really more resins, not really on the metal side?

In normal metals, what we use in our products is both precious metals and non-precious -- excuse me, precious metals and non-precious metals. The precious metals are either buy-forward or spot market price that get passed on to our customers. Obviously, we wouldn't buy precious metal only to sell it at a loss. So that's a pass-through. And we're not seeing any unusual inflation in non-precious metals.

Okay. And then how are contract structures that you can pass through and do pricing increases for higher cost?

So about 70%, give or take, of our business is under some sort of a long-term agreement. And we usually have mechanisms in those agreements that are different based on the contract, but there are usually mechanisms that stipulate when and how cost inflation can be passed on. There's typically a threshold that if you go above which, then now it triggers some other calculation as to how you pass on. And I would highlight that about 30% of our business that is not under contract, we do have more flexibility there.

Okay. Makes sense. And then just bigger picture on the margin outlook. You're still below kind of pre-COVID levels. What -- is there a path to get back to those 2019 levels and how?

Yes, Travis, I'll step in here. Yes, we definitely see a path to returning back to, call it, 2019 levels. At that time, our gross margin was kind of in the 30% range and our operating margin was in the 18% range. And we see no structural reason why we're not able to return to that. Our focus on growing the margin is kind of 2 key pieces. One is our Integer production system, which is where we have continuous improvement, our version of lean, reducing direct material costs through scrap reductions as well as direct labor efficiency and improvements.

And that's where we expect to see gross margin expansion in that area as well as through fixed cost leverage, both in the overhead as well in the OpEx line. So at this time, we don't see any hurdles or obstacles to returning to that. We haven't shared kind of what the timeline for that specifically looks like. But we also don't see that as a limiting factor where we will potentially be able to exceed that as we continue down our efficiency path.

How do you think about like before you were talking about op income growth 2x revenue growth?

Yes. Payman had mentioned our -- one of our strategic financial objectives is growing sales at 200 basis points above the market. Our second strategic financial objective that we have reiterated as early -- as recently as February was to grow our operating income at twice the rate of sales growth, and that is still a strategic objective. Again, from a process and how we look at that from an algorithm perspective, it's volume leverage, Integer production system as well as maintaining a relatively flattish outlook on price as well.

And then how much investment is needed in the SG&A line? R&D line on the OpEx side?

Yes. On those 2 lines, we grow those -- our outlook would say we would grow those significantly lower than sales growth. If you take the RD&E line, what that really is -- fundamentally is our customer supported and funded development where we work with them. So a lot of our incremental growth in the development pipeline has brought higher cost, but also more reimbursement and funding as well. So that line, we see being relatively flat, growing much lower than the rate of sales. And then SG&A, we're fairly well funded there. It's not a -- we don't have a large sales force as an example. So it's also another area that we're able to grow slower than the rate of sales.

And how do you think about kind of free cash flow generation and improving that?

Yes. Free cash flow generation for us, there's a couple of key pieces. One is certainly our level of capital expenditures we feel that the organic spend in our CapEx is at kind of the right level for a growing business kind of in that 5% to 6% range. And then the fall-through from there on free cash flow, one of the areas that we're focused on is our working capital improvement, particularly around some of the accounts receivable areas. So that's an area of improvement for us. And then gross margin expansion as we see our operating margin and gross margin expand, we expect to see that improve our free cash flow as well.

And then use of free cash flow proceeds like returning capital to shareholders? Or how do you think about buyback versus M&A and all the other avenues?

Yes. Just from an overall capital allocation, our priorities have been organic. First and foremost, we feel that that's the best return. Secondly, around M&A, primarily tuck-in M&A to build further capacity or capabilities to support the long-term growth of the business. That remains a priority for us. And then share repurchase has been a more opportunistic approach, which we took in fourth quarter as well as first quarter of this year, doing $100 million repurchase on our $200 million authorization. As of right now, we have no further share repurchase currently in the outlook.

Okay. That was my list of questions and Payman, if you have anything you wanted to close with.

No. Well, thanks again to you and the whole BofA team for hosting us. I would just reiterate that we have built over the past 8, 9 years, a very robust and resilient business. We have continued to grow in this space and at above market rates. We believe that the 2026 headwinds are transient, they're short term. And we look forward to getting through the next few quarters and getting back to above-market performance in '27.

Great. Thanks for coming.

Thanks for having us.

Thank you.

Good morning, and thank you for standing by. Welcome to Integer Holdings Corporation's First Quarter 2026 Earnings Call. My name is Kate, and I will be your conference operator today. [Operator Instructions] Please note, this call is being recorded. I would now like to turn the conference over to Kristen Stewart, Director of Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining us, and welcome to Integer's First Quarter 2026 Earnings Conference Call. With me today are Payman Khales, President and Chief Executive Officer; and Diron Smith, Executive Vice President and Chief Financial Officer. This morning, we issued a press release announcing our first quarter 2026 financial results. We have posted a presentation to accompany today's call on the Investor Relations page on our website at integer.net. On today's call, Payman will provide opening comments. Diron will then review our adjusted financial results for the first quarter of 2026 and our financial outlook. Payman will provide his closing remarks, and then we'll open the line for your questions.

As a reminder, the results and 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 reconciliations 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.

With that, I will turn the call over to Payman.

Thank you, Kristen, and thank you to everyone for joining the call today. This morning, we announced our first quarter financial results, which were in line with our February outlook. Sales were up 0.5% on a reported basis versus last year. As expected, our first quarter sales performance primarily reflected the decline associated with the 3 new products, which we first discussed last October as well as the exit of our portable medical business. On an organic basis, sales grew 1.3% versus the prior year. Our adjusted operating income declined 230 basis points, driven primarily by lower fixed cost absorption. This was at the midpoint of our prior outlook commentary. Adjusted earnings per share totaled $1.20, benefiting from lower interest expense, offset by the decline in adjusted operating income.

We also announced this morning that we were updating our 2026 outlook ranges to reflect the recent customer forecast updates and further risk adjustments we have made. We now expect reported sales to be in the range of down 1% to 3% compared to the prior year. On an organic basis, we expect sales to be flat to down 1%. We continue to expect a 3% to 4% headwind from the 3 new products. The outlook for these 3 products has not changed. Customer purchase orders and forecast updates are tracking in line with this outlook. We now expect organic sales, excluding the 3 new products, to grow approximately 3% to 4%. This is compared to our prior outlook of 4% to 6% and driven by recent customer forecast updates and further risk adjustments across our portfolio.

As a reminder, we received purchase orders from our customers, and those typically provide us with strong visibility for the next 1 to 2 quarters. In addition, we continuously communicate with our customers and most of them regularly share rolling 12-month forecast. Our customers adjust their forecast higher or lower based on their manufacturing plans. Therefore, we typically risk adjust the forecast with a balanced view of the risk and opportunities. The recent customer forecast updates primarily affect the second half outlook for a few products in electrophysiology. Given our recent experience of reductions outside the 3 new products, we further risk adjusted our outlook across our portfolio to minimize the risk of additional forecast erosion.

With regards to electrophysiology, over the last couple of years, this market has been very dynamic with the rapid adoption of Pulsed Field Ablation or PFA technologies, which added complexity to forecasting. Understandably, OEMs wanted to ensure sufficient availability of various products used in EP procedures to be prepared for a wide range of potential adoption scenarios. This contributed to increased variability in forecast and ordering patterns. We appear to be entering a period of normalization in the market. We believe there is a clear view of the market dynamics and needs for various EP products. As a result, certain customers have adjusted their forecast for a few products. We expect the impact of these updates to be short term, primarily impacting the second half of 2026. These reductions are not due to in-sourcing or a shift to alternative suppliers. We continue to manufacture these products for our customers.

The electrophysiology market continues to be an attractive high-growth market opportunity for us, and we believe we are well positioned. We have strong relationships with the leading players in the market, a broad product portfolio and a strong new product pipeline. Our focus and investments have enabled us to significantly grow our EP business over the past several years. While we are seeing some pressure in 2026, we expect our EP business to contribute to our above-market growth in 2027 and to our growth profile over the long term. And finally, I want to emphasize that we do not take the outlook change lightly. Our outlook reflects additional cost reduction actions underway to mitigate the impact on our bottom line results that do not compromise our ability to service our customers, deliver on our 2027 sales outlook commitments or affect our longer-term growth potential.

I will now turn the call over to Diron to review the first quarter results and 2026 outlook in greater detail.

Thank you, Payman. Good morning, everyone, and thank you again for joining today's call. Our first quarter financial results were in line with the outlook commentary we shared in February. First quarter sales totaled $440 million, up 0.5% on a reported basis and up 1.3% on an organic basis. As a reminder, organic sales growth removes the impact of acquisitions, the strategic exit of the portable medical market and foreign currency fluctuations. We delivered $85 million of adjusted EBITDA, down $7 million compared to the prior year or a decrease of 7%. Adjusted operating income declined 14% versus last year, and our adjusted operating margin contracted 230 basis points to 13.9%, both in line with our February outlook. Adjusted net income was $41 million, down 10% year-over-year. Adjusted earnings per share totaled $1.20, down 8% versus the same period last year.

Turning to our sales performance by product line. Cardio & Vascular sales increased 1% to $262 million in the first quarter of 2026, which primarily reflected lower electrophysiology sales from the 2 new products we have previously discussed. This was consistent with our expectations. On a trailing 4-quarter basis, C&V sales increased 13% to $1.110 billion, driven by growth in electrophysiology, contribution from acquisitions and strong demand in Neurovascular.

Cardiac Rhythm Management Neuromodulation sales increased 5% to $168 million in the first quarter 2026. Cardiac Rhythm Management growth was partially offset by the previously communicated headwind in neuromodulation. This was consistent with our expectations. On a trailing 4-quarter basis, CRM&N sales increased 2% to $677 million. Cardiac Rhythm Management growth was partially offset by the planned decline related to an early spinal cord stimulation customer. Product line detail for other markets is included in the appendix of the presentation, which can be found on our website at integer.net.

I'd now like to provide more color on the first quarter's profit performance compared to the prior year. In the first quarter 2026, adjusted net income decreased by $5 million and adjusted earnings per share decreased by $0.11. Consistent with our expectations, the primary driver of our operational decline was lower fixed cost absorption, which affected our gross margin performance. We remain focused on effective cost management, reducing variable costs given the lower sales level and being disciplined in our overhead and operating expense management.

Operating expenses were flat versus the prior year, including a decline in selling, general, and administrative expenses and a slight increase in research, development and engineering expenses due to the timing of milestone achievements for customer-funded new product development. As a reminder, the first quarter of the year typically has fewer milestones as compared to later in the year. Interest expense was $4 million lower than the prior year, which contributed $0.10 per share, reflecting the savings from the convertible debt offering completed in March 2025.

Our adjusted effective tax rate was 19% versus 17.4% in the first quarter of 2025. We continue to expect our full year tax rate to be in the range of 16% to 18%. The adjusted weighted average shares outstanding in the quarter decreased by 2%, reflecting our share repurchase activity. In the fourth quarter 2025, we completed a $50 million share repurchase of approximately 700,000 shares. And in the first quarter, we completed an additional $50 million share repurchase of approximately 600,000 shares. The lower weighted average share count contributed $0.02 to adjusted earnings per share.

In the first quarter 2026, we generated $25 million of cash flow from operations, down $6 million from the prior year, primarily reflecting lower adjusted net income and reduced accounts receivable factoring. CapEx spend was $24 million, which resulted in free cash flow of $1 million. At the end of the first quarter 2026, net total debt was $1.264 billion, an increase of $74 million, primarily driven by the $50 million share repurchase executed in the quarter. Our net total debt leverage at the end of the first quarter was 3.2x trailing 4-quarter adjusted EBITDA within our strategic target range of 2.5 to 3.5x.

As Payman noted, we are updating our 2026 financial outlook ranges to reflect recent customer forecast updates and further risk adjustments across our portfolio. For the full year 2026, we now expect reported sales to be in the range of $1.805 billion to $1.835 billion. On a year-over-year basis, we now expect sales to be down 1% to 3% on a reported basis and flat to down 1% on an organic basis. We have also adjusted our profitability outlook ranges. Given the lower sales outlook, we anticipate further margin pressure and are taking additional near-term cost actions to mitigate the profit impact, which are contemplated in our revised outlook.

We now expect our adjusted EBITDA to be in the range of $375 million to $399 million, down 1% to 7% versus the prior year. We now expect adjusted operating income to be in the range of $285 million to $305 million, down 5% to 11% and adjusted net income to be in the range between $200 million and $220 million, down 3% to 11% versus the prior year. Lastly, we now expect adjusted earnings per share of between $5.83 and $6.40, flat to down 9% versus the prior year.

Taking a closer look at our sales outlook. As I mentioned, we expect sales to be down 1% to 3% on a reported basis and flat to down 1% on an organic basis. As we previously shared, our organic outlook is being impacted by lower sales of the 3 new products. We continue to expect the headwind to be approximately 3% to 4% to our 2026 reported growth. We now expect organic growth, excluding the 3 new products, to be approximately 3% to 4%. This compares to our prior expectation of 4% to 6%, reflecting the impact of recent customer forecast changes and further risk adjustments we have incorporated across the portfolio.

We expect an inorganic decline of approximately 1%, which reflects the now completed Portable Medical exit slightly offset by contribution from acquisitions and foreign exchange. We now expect C&V sales to be flat to down low single digits compared to the prior year. This compares to the prior outlook of flat to up low single-digit growth and is due to the recent customer forecast updates that primarily affect our second half outlook for electrophysiology.

Regarding our CRM&N outlook, we continue to expect sales to be flat to up low single digits. This growth rate includes the previously communicated headwind from one new neuromodulation product, which is unchanged. In other markets, we now expect a decline of approximately $34 million to $36 million versus our prior range of $30 million to $35 million. The year-over-year decline is primarily due to the Portable Medical exit. As a reminder, other markets sales are primarily related to a manufacturing service agreement with the purchaser of our former Advanced Surgical and Orthopedics business and are outside our targeted markets.

In the second quarter, we expect sales to increase sequentially versus the first quarter, resulting in a first half reported sales decline of approximately 2% to 3%, which is in line with our prior outlook. The first half decline in reported sales primarily reflects the significant reduction in sales related to the 3 new products as well as the exit of the Portable Medical business. We continue to expect nominal sales to ramp sequentially throughout 2026. We expect organic sales to return to market growth in the fourth quarter normalized for fiscal calendar production days. As we have previously shared, we have fewer production days in our fourth quarter as compared to the prior year, which represents an approximately 5% headwind to our sales growth rate. We expect our second quarter adjusted operating income margin to improve 80 to 140 basis points sequentially versus the first quarter, and we expect operating income margins to improve sequentially throughout 2026.

Turning to our cash flow and debt outlook. We now expect cash flow from operations to be between $185 million to $205 million, a $15 million decrease at the midpoint of the outlook, consistent with the change in our profitability outlook. We continue to expect capital expenditures of between $95 million and $105 million or approximately 5% to 6% of sales. As a result, we expect to generate free cash flow between $85 million and $105 million. We expect our 2026 year-end net total debt to be between $1.185 billion and $1.205 billion. We expect our leverage ratio to be within the targeted range of 2.5 to 3.5x trailing 4-quarter adjusted EBITDA in 2026.

I'll now turn it back to Payman for his closing remarks.

Thank you, Diron. In summary, we continue to view 2026 as a transition year. We expect the product headwinds we've discussed to be short term in duration. The long-term fundamentals of our markets and our business remain strong. The medical device markets we serve continue to present an attractive opportunity, and we are focused on high-growth markets such as electrophysiology, structural heart, neurovascular and neuromodulation. We are a trusted partner to the world's top medical device companies and emerging innovators.

Our strategy includes engaging with our customers early in the design and development of new products, helping them to accelerate their timeline to market by solving complex engineering challenges and designing for scalable, high-quality manufacturing. We have significantly increased product development sales in recent years, and this has yielded a robust and diverse pipeline. This pipeline, when combined with our underlying business, supports our return to organic sales growth 200 basis points above the market in 2027.

Before we transition to Q&A, I would like to address this morning's separate announcement that our Board has initiated a strategic review. Our Board is highly confident in our strategy and our long-term objectives to grow sales above market, expand margins and remain disciplined within a targeted leverage range. At the same time, the Board and the management team continuously evaluate opportunities to enhance shareholder value.

As a respected and well-positioned CDMO serving the medical device industry, interest in Integer has historically been strong and has intensified in recent months. Given this recent heightened interest, the Board and the management team believe now is the right time to consider all opportunities to maximize shareholder value, which may include continuing to execute our stand-alone strategy. As is typical with this type of process, there is no deadline or definitive timeline set for the completion of the strategic review, and there is no assurance that the review will result in any transaction or other outcome.

I want to emphasize that this review does not change our overall focus, which is being a strategic partner of choice to our customers and advancing their goals through our industry-leading engineering and manufacturing and with a relentless commitment to quality, service and innovation, nor does this change our focus on delivering on our financial commitments.

We will now turn the call over to our moderator for the Q&A portion of the call.

[Operator Instructions] Our first question comes from Matthew O'Brien with Piper Sandler.

I guess, Payman, for the first one, the second cut on the EP side here announced this morning, can you just talk a little bit more about that? Is that more a function of a market slowdown or inventory work down? Or are there additional products that are not ramping as fast as expected now and the next new headwinds that you're seeing within EP?

Yes. Matt, thanks for the question. So let me expand on that a little bit. So let me clarify first that the adjustments that we're talking about are not related to the 2 products that we had talked about previously. The forecast, the purchase orders that we're tracking and the outlook for those products has remained unchanged. We also do not believe that there is an impact of the market. The market is normalizing. It is slowing down. If you listen to the leaders in the industry and through our own research, we expect the EP market to be in the range of mid-teens to high teens in 2026. This is slower than what it was last year, which was north of 20%, but it is still a very strong market, and we expect it to continue to be very strong in the future in the double digits in the coming years.

The products that we're talking about are primarily used in electrophysiology procedures independent of the technology used, whether it's PFA, whether it's RF or other technologies. As we've mentioned before, we participate across the procedures in EP. And these are some of the products that we believe that as the market is normalizing, as our customers have a clear view of what their needs are and they're adjusting their production plans, they have adjusted their forecast on us, and that's what this reflects. As I highlighted in the prepared remarks, this is not a loss of contract in-sourcing or any other change in the supply arrangement, and we believe the impact to be temporary.

Okay. Appreciate that. And just to put a finer point on that, you're saying basically this is not a new PFA catheter that's being impacted. It's maybe some of the accessory products like Crosser or mapping catheter or something along those lines that are kind of normalizing? Is that the right way to frame it?

Yes. I mean the way we had previously discussed it, we had not specified the 2 products, what they were. We had just talked about 2 PFA products. That outlook has not changed. These are products that are used -- primarily products that are used in ablation procedures. As you pointed out, there are different types of products that are used in the procedure. And that's the primary source of the impact.

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

I was hoping you could expand a little bit more on the announcement of the strategic review. More specifically, just interested kind of what it was that led you to make this decision? And then how you're thinking about the tangible next steps regarding some of the outcomes that you mentioned in the press release?

Yes, of course. So we -- I would like to start with our Board and management continue to believe and have confidence in our strategy. We've demonstrated that our strategy is delivering results. We have built a very strong pipeline, a very strong set of capabilities that our customers depend on for their success. And we believe that we have an excellent strategy. And as a result, look, over the years, there has always been interest in Integer, and our Board believes that we can deliver the best shareholder value by continuing our stand-alone strategy.

But in recent months, there has been a heightened level of interest in Integer. And our Board, of course, wants to make sure that we explore all options to see what can deliver the most value for shareholders, which is the reason why we're announcing this process now. In terms of the next steps, obviously, we will go through a process, and we will see what the outcome of that process is. As we mentioned, there is no guaranteed outcome with this, and we don't necessarily have a specific time line.

All right. Great. Then I just wanted to ask a little bit more about the long-term dynamic. I note that you reiterated the expectation that you expect to return to above-market growth in 2027. Just to put a finer point on that, are you still defining your market as 4% to 6%, even though the 2026 guide assumes 3% to 4%, excluding the new headwinds? And then kind of what gives you the confidence or visibility to reiterate that 2027 directional guidance, just given some of the changes in the last few quarters?

Yes, no problem. Yes, our markets continue to be 4% to 6%. And the reason that we are seeing 3% to 4% this year is because of some of the headwinds that we believe are temporary for the reasons that I mentioned that are primarily in the EP space. So in terms of our growth, our return to growth above market in 2027, as we mentioned, we expect to get back to market growth in the fourth quarter of this year. That will be our exit year into 2027, which is what we expect. And we -- our product -- new product launch schedules, that continues to be very strong. We've talked about that we expect to have new product launches in all of our growth markets in the second half of 2026 as well as 2027. So when you combine the underlying market growth, which we expect to continue to be at 4% to 6% with the addition of NPI, we have confidence that we can get to 200 basis points over market. So I do want to highlight this.

The EP market continues to be a very strong market for us. In fact, in the first quarter, our EP business, excluding the 2 new products, had very strong performance. We believe that our performance in EP in 1Q was above market. When you exclude the 2 new products, which, of course, have had an impact. And we have a strong pipeline in electrophysiology, and we believe that this portfolio will continue to give us tailwinds and not only in 2027, but also beyond.

Our next question comes from Richard Newitter with Truist.

I have 2. Just maybe the first one, I think you gave some explanation for the forecast reduction. It was clearly some discrete EP areas that were not linked to the prior ones that led to the original reduction. So that's one. And then you also mentioned that you took the opportunity to further risk adjust some other areas that felt like as just in case. if you could elaborate on that, what is a discrete forecast reduction in your updated guidance versus what is an adjusted risk adjustment factor and for what? And is it because you think there's something there for that placeholder, if you will? Or is it just to be conservative? And then I have a follow-up.

Yes. Rich, the -- let me confirm the first part of your question that, yes, as you pointed out, the EP reduction, which was the primary source of the forecast adjustment was not related to the 2 other products that we had discussed. The risk adjustment is because we are seeing, as we mentioned, some variability within the EP market after a very dynamic period over the past couple of years and the normalization of the market, we are seeing some forecast adjustments that our customers have a better handle of the market and their needs. We wanted to be prudent. Our guidance philosophy is still to be to take a balanced view, but we have biased it more towards risk adjustment just to minimize the risk of further forecast adjustments as we navigate this period of variability.

Okay. So just to follow up on that before I get to my second question, you're saying that the further risk adjustment above and beyond the forecast reduction you received was related to the EP areas that you're highlighting right now. Is that right?

It's across the portfolio. And I think part of the question that you had asked, Rich, was whether we have visibility to further potential reduction and erosion. The answer is no. We wanted to make sure that we further risk adjust as we see some variability. That is across the portfolio, not only in EP, just to minimize potential further reduction.

Our next question comes from Nathan Treybeck with Wells Fargo.

Can you share if your wallet share in EP is expanding? Is it stable? Is it declining? And then is your 2027 algorithm dependent on EP reaccelerating? And if so, what would drive that?

Nathan, we have a very strong portfolio in electrophysiology. In fact, that portfolio has expanded substantially in recent years. And that is because of the technologies that we've developed, the participation that we have in the EP portfolio with the major players in the industry. So that is a very strong portfolio for us. In terms of whether our share of wallet increasing or decreasing, we have a very strong portfolio. We believe that we are and expect to be a leader in the CDMO space in EP. We -- as I mentioned earlier, we believe that these headwinds are short term in nature. There are adjustments to a period of variability. And we expect contribution of the EP market -- our EP portfolio to our above-market performance in 2027 and beyond. I do want to highlight that the 2 products that we had previously discussed, we are not counting on any contribution of those 2 products for our growth in 2027. But we believe that our EP portfolio in general as a whole will be a contributor to our growth above market in 2027 and beyond.

Great. And to your response to Rich's question, it seems like you risk-adjusted other parts of the C&V portfolio outside of EP. Can you just talk about the trends you're seeing in those markets? Is there anything specific you would call out?

Yes, nothing that I would call out specifically, Nathan. This is in recognition that we've gone this period of somewhat volatility. Obviously, in the third quarter, we had an event with 3 products that had an adoption challenge. These products that we're talking about is more, we believe, an adjustment to the normalization of the market. We wanted to make sure that we were prudent that we were more measured and further risk-adjusted our portfolio still within a balanced view to minimize further risk of erosion in the event as a normalization continues, there could be some other adjustments. Now I do want to continue to highlight that we believe that our markets continue to grow at 4% to 6%. We expect to get to 4% to 6% in the fourth quarter. And with the product launches that we have and the exit rate, we expect to get back to 200 basis points in 2027.

Our next question comes from Andrew Cooper with Raymond James.

Maybe first, you talked about sort of a broader breadth of kind of challenged areas right now within EP. And yet you still talk about the end markets and the EP markets, in particular, still growing like you thought. So what's driving this mismatch? What gives you confidence that this is short term and not something that's a little bit more structural? And kind of how do you think about that at a higher level?

Sure. Andrew, the -- maybe to preface my answer, I would just highlight the fact that we are in the supply chain of our customers. So what that means is that what we sell to our customers are things that likely go into their production sometime 1 to 3 quarters ahead. So there's a little bit of a difference in terms of what our customers sell into market and how they forecast on us. And there's a little bit of a variability there. Our customers sell products on a regular basis, and they adjust, if you will, their forecast on us based on what they see happening in their business, how much product they have on hand, what is their production plans, et cetera, et cetera.

So if there is a little bit of a variability, that is normal in normal times, I would call it. This is the reason why we typically point to a rolling 4-quarter look for our business because it takes away, it smooths out some of those potential lumpiness as customers adjust their production needs and then put it on us. This adjustment, we believe, is a little bit unprecedented because of the very rapid change in the EP market caused by the disruption of PFA. Our customers have tried to make sure over the past couple of years, understandably, that they have all products on hand to make sure that they can maximize their opportunities depending on what their customers and physicians use.

Well, now the market is normalizing. The growth rates have normalized a little bit. The market itself has stabilized. So the visibility has become clear. And we believe this to be an adjustment to the order patterns, which we believe is onetime and short term. We don't expect it to be something that will continue in the long term.

Okay. So maybe just a quick follow-up on that and then tag on a second question. Sounds like maybe you're pointing to some of this might be inventory management at the customer level as they do sort of mature into that more stable environment. Is that a fair takeaway from what you just said? And then secondly, maybe for you and Diron as well. But last quarter, you talked about continuing to spend, continuing your plans sort of regardless of some of these near-term headwinds. Has any of that changed at all? How do you think about the spend and the development work, et cetera, that you have in mind moving forward? And what would have to happen to change that if the view hasn't changed yet?

Yes, sure. So let me -- on your first part of the question, whether there's inventory, yes, there's some. So I think that's likely some of that. I think maybe -- let me start the answer to your second question, and then I'll ask Diron to chime in a little bit. We have a strong pipeline. We continue to invest in our business. We continue to expect to get back to strong performance in 2027 and beyond. So we want to make sure that although we are very -- in a very disciplined fashion, managing our costs that we're not making large changes, if you will, in that to protect our future growth. But I'm going to have Diron chime in and add some more to that.

Yes. So Andrew, thank you for the follow-up call -- a follow-up question. Yes. As Payman mentioned, we're continuing to maintain our disciplined cost management. We shared previously that we were not going to make any structural changes to the business given the lower sales volume and the return to market growth and the 200 basis points above growth in 2027. I would say, philosophically, that is still aligned. But we are looking to be more aggressive on the cost actions and the disciplined cost management but still ensuring that we're not going to damage the ability to return to market growth and the above market. So we are looking to be more aggressive, and we have included that into our forecast and outlook that we have shared.

Our next question comes from Travis Steed with Bank of America.

I wanted to go back on the EP market comments. You were talking about the market was north of 20%, now it's kind of mid- to high teens. But I think a lot of the slowdown has been kind of revenue per procedure, at least that's what we thought at least and would think you're more exposed to volume. And I don't know, like are customers expecting volume in the EP market to slow more from here? I'm curious what kind of volume growth does your 2027 guide assume at this point?

Travis, you are correct that in the past couple of years, a lot of the growth in the market has been because of the price as PFA products have kind of taken over a little bit at a higher price in the market at the OEM level, and it's a little bit less for us. You are correct there that price has been a big factor in the market growth. And the 15% to, I would say, the mid- to high teens that I talked about that our customers talk about. But obviously, that also takes into account their ASPs and their average sale prices. So there is an element of price there.

Specific to your question about procedure volumes, yes, procedure volumes are a little less than that, but we still see them as being very strong. Somewhere in the -- close to the high single digits to low double digits, 10% to 12% is kind of what we see procedure volumes. So we consider that to be strong, and we expect it to continue to be strong.

And kind of the follow-up question on inflation kind of coming back to investors' minds again after 2022. I'm just curious if you could remind us how you guys have managed inflation, how you expect to manage inflation, expecting the impact from here, kind of what your -- what kind of things you're exposed to that we can watch from a macro perspective?

Sure. Some of the things that I can point to, obviously, the conflict in the Middle East is causing some inflation across the board. I mean I will start maybe with one of the obvious areas, which is fuel prices. It's relatively limited for us, Travis, in terms of impact. The majority of our customers, because they have strong logistics in place, they pick up product from our manufacturing facilities. So our exposure to fuel prices, if you will, is limited. We are very closely watching our supply chain for 2 things, obviously, for inflation, as you pointed out, but also for any potential disruptions. We believe that the potential disruption is minimal, and we don't see a risk of disruption at this point. And the inflation that we see is not something that is material for our outlook and that we believe it is manageable. So it is not a source of concern for us at this time.

Our next question comes from Joanne Wuensch with Citi.

Looks like a lot of attention has been paid to EP for good reason. But I'm curious what you're seeing in the CRM and neuromod side of the business and how you're seeing that progress?

Yes. No problem. Joanne, our CRM business is performing well. In fact, in the first quarter, our CRM came slightly ahead of expectations. So it continues to perform well. Our neuromod business, as you know, and as we've talked about, is affected in 2026, primarily by a reduction of the one product. So obviously, that has given us some headwinds in 2026. But -- so our neuromod business is expected to be softer in 2026. While we continue to expect neuromod to grow, for example, our emerging customers with PMA products, those products are primarily in the neuromod space. And although we've had a few quarters of softening, we still expect that portfolio to contribute -- to grow at 15% to 20% in that horizon of 3 to 5 years that we have provided previously.

Our next question comes from Suraj Kalia with Oppenheimer.

So Payman, I just want to go back to the fundamental question at hand. In your comments, you talked about the attractiveness of med tech markets, normalization in second half, the Board's confidence in the company's strategy. So Payman, the timing of the strategic review seems a little bit hard to digest, especially given where the stock is. Can you help us thread the needle why now? What's driving this? I understand the outside interest, but just if you could just help us understand the different moving parts here.

Sure. Happy to do that, Suraj. So yes, I would like to reiterate that both the Board, management and myself have strong confidence in our strategy, in our pipeline and the future of the company. Our Board has a fiduciary responsibility to always make sure that we are maximizing shareholder value. And although we believe that the strategy that we have is we can do that. Given the heightened interest that we've had in recent months, we believe and our Board believes that now is a good time to explore those strategic alternatives to see whether there is an opportunity to maximize value for shareholders. The outcome of that exercise could be something, some sort of a transaction or could be a determination that our stand-alone strategy is the best way to generate value for shareholders. This is the reason for doing this now is because of the heightened interest that we have received in recent months.

Got it. Diron, one question for you. I'll hop back in queue. What percent of your costs would you say are fixed versus variable? And I mean company-wide. Part of the reason I ask is if the Iran war is prolonged and the economic uncertainty lingers, what switches can you turn off temporarily? And then by the same token, how long does it take to turn them on again? Just trying to understand how to model it given the macro level dynamics that are going on.

Yes. Thank you, Suraj. Yes. Look, when you look at our overall footprint as a manufacturer, certainly, we have an amount of fixed cost in our OpEx level, both in the structural elements of supporting the organization. There's a bit of discretionary costs in there, but I would say the OpEx is a highly fixed portion of the business. And then certainly, in gross margins, you're going to have a mix of variable costs between your direct material, your direct labor as well as in your fixed infrastructure for the manufacturing footprint. As an example, rent, repairs and maintenance, utilities, things of that sort. So I think you got to -- you kind of have to look at the fixed versus variable structure when you kind of look at those splits to do the modeling aspects of it.

When it relates to dynamics such as conflict in the Middle East or other areas, we look to manage the variable costs very, very closely with our volumes, our sales volume, and that's how we've been managing through this dynamic as well. I think when you look at the sales profile, one of the key things is understanding whether you believe that to be a more longer-term impact or call it, 1 quarter. We've talked about some of the variability that we see at the CDMO on a quarter-to-quarter basis.

Our products are not simple products, right? They're complex, which is why we bring great value to our customers. And so as a result, there's a training element for direct labor. So there's an element where that is not turned off and on, on a dime, right? You got to make sure you spend the right time to get the labor trained. And so as you look at the individual quarter variability, that's where we're able to leverage that workforce and look at that. So I think hopefully, that helps you understand a little bit of the nuances of as a complex manufacturer, some of the elements that we have.

Thank you again for joining us today. You can access the replay of this call as well as the presentation on Integer's investor website at integer.net. This concludes today's conference call. You may now disconnect.

Good morning, and thank you for standing by. Welcome to Integer Holdings Corporation's Fourth Quarter 2025 Earnings Call. My name is Audra, and I will be your conference operator today. [Operator Instructions]

Please note this call is being recorded. I would now like to turn the conference over to Kristen Stewart, Director of Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining us, and welcome to Integer's Fourth Quarter 2025 Earnings Conference Call. With me today are Payman Khales, President and Chief Executive Officer; and Diron Smith, Executive Vice President and Chief Financial Officer.

This morning, we issued a press release announcing our fourth quarter and full year 2025 results. We have posted a presentation to accompany today's call on the Investor Relations page on our website at integer.net.

On today's call, we will provide an update on our strategy, review our adjusted financial results for the fourth quarter and full year 2025 and discuss our financial outlook. After our prepared remarks, we will open up the line for your questions.

As a reminder, the results and 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 reconciliations 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 results to differ materially. With that, I will turn the call over to Payman.

Thank you, Kristen, and thank you to everyone for joining the call today. This morning, we announced our fourth quarter and full year 2025 financial results. Through diligent execution, the Integer team delivered sales and adjusted EPS towards the high end of the outlook range we provided in October.

For the full year, sales increased 8% on a reported basis and over 6% organically and adjusted operating income increased 13%. Adjusted EPS increased 21%, reflecting the higher sales, improved profitability and effective capital management. In the fourth quarter, we repurchased $50 million of our common stock.

In addition, this morning, we announced our intention to initiate an accelerated share repurchase program to repurchase approximately $50 million under our existing share repurchase authorization. Our share repurchase program reflects the confidence of the Board and management in our strategy, financial position and ability to generate strong free cash flows.

We also issued our 2026 financial outlook. We are maintaining the midpoint of the reported sales range that we shared in October and narrowing the range. We expect the reported sales to be down 1% to up 1% and organic sales to be flat to up 3%. This outlook continues to include a 3% to 4% headwind from 3 new products due to lower-than-expected market adoption.

Excluding the 3 new products, our underlying business is expected to grow 4% to 6%, in line with the market, underscoring the durability and the strength of our core portfolio. We continue to invest in our key growth initiatives and capabilities that support our long-term strategy, while being disciplined with our near-term expense management.

For 2026, we expect adjusted operating income to be down 5% to up 1% and adjusted EPS to be down 2% to up 6%. The fundamentals of our business are strong, and we remain focused on executing our disciplined growth strategy. We have a robust and diversified pipeline and when combined with the strength and durability of our underlying business, we remain confident in our ability to return to 200 basis points above market organic growth in 2027.

Before Diron reviews our financial results, I'd like to provide an overview of our business and an update on our strategy as we typically do on our fourth quarter call and discuss why I remain confident in our ability to deliver value creation for our customers and shareholders.

Integer is a leading medical device contract development and manufacturing organization, serving the largest global medical device original equipment manufacturers and emerging innovators. Our vision is to improve patients' lives around the globe, one device at a time.

We accomplished this by advancing the goals of our medical device customers through industry-leading engineering and manufacturing with a relentless commitment to quality, service and innovation. Our global scale manufacturing and R&D footprint allows us to serve our customers effectively and efficiently around the world.

We offer one of the industry's broadest and deepest portfolio of capabilities and product offerings across the Cardio & Vascular, new modulation and Cardiac Rhythm Management market. With this, we can meet a wide range of our customer needs throughout the product life cycle, help them bring products to market faster to simplify their supply chains.

Integer is well positioned to create long-term value for shareholders. We have a proven track record of financial performance, delivering strong results through the execution of our disciplined growth strategy. The medical device industry is an attractive end market, supported by durable growth drivers, and we continue to focus on several high-growth markets where we have a strong competitive advantage.

We are highly differentiated in the industry with deep technical expertise, broad capabilities, innovative technology, and scalable global manufacturing. We have a robust and diversified product development pipeline oriented to high-growth markets with the world's top global medical device companies and many emerging innovators.

Our high-performance culture is a competitive advantage centered on customer centricity, innovation and operational excellence. In addition, we are disciplined with our capital management. We are investing to support our growth while maintaining a strong balance sheet and prioritizing long-term shareholder value creation. While select new product heads are expected to impact our 2026 outlook, we remain confident in our ability to return to above-market organic sales growth and margin expansion in 2027.

Now let's take a closer look at each of these areas. The medical device market remains highly attractive, underpinned by long-term growth drivers. Within this landscape, we are focused on the Cardio & Vascular, neuromodulation and Cardiac Rhythm Management markets, which are expected to grow in the mid-single digits.

Our strategy centers on investing to continuously expand our differentiated capabilities and partnering with our customers early in the design and development stage of new products. We are focused on new products in targeted high-growth markets, including electrophysiology, neurovascular, structural heart and neuromodulation. By engaging early in the development process, we help our customers accelerate innovation and drive successful product launches.

We have dedicated growth teams responsible for leading product line strategies in our highest priority markets. These cross-functional teams bring deep expertise in our key markets, including customer needs, therapies, products, global trends and competitive landscape.

They continuously refine our strategies to address the evolving market dynamics and ensure our customer success. In addition, the growth teams guide and prioritize investments in capabilities and capacity to support long-term sustainable growth.

In recent years, we have invested both organically and inorganically to expand our capabilities in our targeted high-growth markets. These investments are designed to enhance the value we deliver to our customers to support their long-term success, which includes speed to market, a reliable and global supply chain and the highest quality products.

We have made many capability investments in recent years, and some examples include advanced automation, laser processing, extrusion, complex assemblies, miniaturization and catheter process platforming. We have also invested to expand our rapid prototyping capabilities, which allows us to help customers bring their products to market faster.

As we have shared in the past, we have expanded a number of our manufacturing and R&D facilities to support our growth. For example, we have expanded our Salem, Virgina facility, where we performed laser processing and micro machining and plan to further expand our Alden, New York facility, which supports the CRM&N implantable devices.

In addition to physical capacity expansions, we have ongoing continuous improvement initiatives to optimize our existing footprint. In parallel, we have executed several strategic tuck-in acquisitions that have strengthened Integer's position in high-growth markets and added specialized high-value capabilities.

For example, InNeuroCo significantly enhance our capabilities in Neurovascular. technologies deepened our capabilities in micro machining and strengthened our pipeline across several high-growth markets such as electrophysiology, leadless spacing, neuromodulation and structural heart.

And our 2025 acquisitions greatly enhance our coding capabilities and furthered our vertical integration strategy. Integer is a partner of choice because we are differentiated by our technical expertise, rock capabilities, innovative technologies, scalable manufacturing and exceptional customer service.

We support our customers' success throughout the product life cycle from concept to commercialization, enabling innovation, accelerating feed to market and simplifying our customer supply chains. We have unparalleled subject matter expertise across a broad range of technical disciplines. We are leaders in design for manufacturability, and we have deep product design and regulatory expertise.

We are known for our capability breadth and end-to-end solution. We have a comprehensive portfolio of engineered components, complex subassemblies and finished devices. Our innovative technologies include an extensive set of proprietary materials and processing capabilities as well as in-house advanced manufacturing and automation.

We also offer innovative market access and delivery products. We have robust manufacturing and quality systems across the global footprint. Our customers recognize our ability to seamlessly transition their critical products from the development stage to scale production to support their growth. Product development sales are the compensation we receive from customers as we partner with them to design and develop new or next-generation products.

Generally, and increasing product development sales means we are working on more programs, larger programs, more complex programs or a combination of the 3. We believe product development sales are a good indicator for the size of our development pipeline and that's the leading indicator of the contribution from new products to future growth.

Since 2017, product development sales have increased more than 300% and approximately 80% of our development sales are for products in higher growth markets. This momentum highlights both the strength of our customer relationships and the strategic focus of our portfolio.

Our deep and broad pipeline includes many exciting programs that are focused on targeted high-growth markets. To highlight a few, our pipeline includes participation in devices used in electrophysiology procedures, including ablation, structural heart delivery systems and components for structural heart implants, neurovascular therapies to treat both hemorrhagic and ischemic stroke, renal denervation and neuromodulation devices designed to address a wide range of conditions.

Our robust and diverse pipeline supports our expected return to above-market growth in 2027. We didn't see our M&A, our pipeline of emerging customers with PMA products primarily within the neuromodulation market continues to be robust. We are engaged with 40 customers across development phases.

As these life savings and life-enhancing products move through regulatory approval and into the manufacturing ramp phase, Integer benefits from accelerated sales growth. Sales from customers in the product introduction and launch phases have grown from $10 million in 2018 to approximately $125 million in 2024.

Looking ahead, we expect this category to grow at 15% to 20% compound annual growth rate over the next 3 to 5 years, contributing to our ability to grow above market. Our people and our culture are central to our success. Integer has a high performance culture that focuses on delivering value to our customers and our shareholders.

We recently refined our operational focus areas to customer success, operational excellence and leadership impact. Customer success recognizes that Integer's success depends upon our ability to enable our customers to achieve their goals and objectives. Operational excellence reflects our focus on continuous improvement at all levels of our organization to ensure we meet our customer needs effectively and efficiently while creating value for our shareholders.

Leadership impact reflects on our ongoing investments in developing strong leaders to continuously raise the bar on performance. As part of our operational excellence focus, we continue to advance the Integer production system, our lean-driven operational framework integrates advanced engineering and manufacturing and continuous improvement practices to deliver consistent high-quality medical device manufacturing that drive customer success.

To further enhance effectiveness and efficiency as part of our Integer operating system, we are launching a multiyear program to modernize our ERP platform. This investment is expected to strengthen our operational capabilities, improve productivity, enhance working capital management, accelerate commercial time to market and position Integer for long-term scalable growth.

We have dedicated a cross-functional team of top talent to execute a measured and phased implementation over the next several years. We continue to be disciplined with our capital management to drive sustainable long-term value creation for our shareholders. Our capital allocation framework includes organic investments including capital expenditures to enhance our technology capabilities, automation and capacity, tuck-in acquisitions to expand our capabilities and presence in high-growth markets and opportunistic share repurchases.

We have maintained a disciplined approach to capital management for many years now. Since 2021, we have invested 5.8% of sales and capital investments and over $700 million in tuck-in acquisitions. In November, our Board authorized a share repurchase program of up to $200 million. In the fourth quarter, we repurchased $50 million of our common stock and today, we announced our intention to commence a $50 million accelerated share repurchase program.

Looking ahead, we expect to continue investing both organically and inorganically to support our growth objectives and reinforce our competitive position. Our strategy of being positioned in the right market investing in differentiated capabilities, getting designed in early new products and high-growth markets, creating a high-performance culture and remaining disciplined in our capital management has delivered strong financial results.

Since 2022, we have grown sales at a 12% CAGR, well above our market while expanding our margins by nearly 400 basis points and maintaining our leverage ratio within the 2.5 to 3.5x range.

While 2026 is expected to be impacted by temporary headwinds, we are laser-focused on executing our strategy to achieve our long-term strategic financial objectives. These objectives are: Growing sales 200 basis points above market, growing adjusted operating income twice as fast as sales and maintaining a net debt leverage ratio of 2.5 to 3.5x.

Now with that, I'll turn the call over to Diron to review our financial results and our outlook.

Thank you, Payman. Good morning, everyone, and thank you again for joining today's call. Our fourth quarter sales and adjusted EPS were at the high end of our outlook ranges that we communicated in October, reflecting strong execution by our global team. Fourth quarter sales totaled $472 million, reflecting 5% growth on a reported basis and 2% growth on an organic basis.

Organic sales growth removes the impact of acquisitions, the strategic exit of the Portable Medical market and foreign currency fluctuations. We delivered $106 million of adjusted EBITDA, up $11 million compared to the prior year or an increase of 11%.

Adjusted operating income grew 10% versus last year as we continue to make progress on our margin expansion initiatives. Our adjusted operating margin expanded by 74 basis points to 17.6%, driven primarily by improvement in gross margin.

Adjusted net income for the fourth quarter 2025 was $62 million, up 22% year-over-year, while adjusted earnings per share totaled $1.76, up 23% from the same period last year, both reflecting interest expense savings from the convertible note offering in March 2025.

For the full year 2025, we delivered strong financial results. Sales totaled $1.854 billion reflecting 8% growth on a reported basis and 6% growth on an organic basis. We delivered $402 million of adjusted EBITDA, an increase of 12% versus the prior year. Adjusted operating income grew 13% versus 2024, and our adjusted operating margin was 17.3%.

Adjusted operating margin expanded 76 basis points, reflecting gross margin improvement and disciplined expense management. Adjusted net income for the full year was $226 million, up 23% year-over-year, while adjusted earnings per share totaled $6.40, up 21% from the same period last year.

Turning to our sales performance by product line. Cardio & Vascular sales increased 11% to $284 million in the fourth quarter 2025, driven by the Precision Coatings and VSi Parylene acquisitions and strong demand in neurovascular. On a trailing 4-quarter basis, C&V sales increased 17% to $1.107 billion with strong growth from new product ramps in electrophysiology, contribution from acquisitions and strong demand in neurovascular.

Cardiac Rhythm Management & Neuromodulation sales decreased 2% to $167 million in the fourth quarter 2025 as Cardiac Rhythm Management growth was offset by a decline in neuromodulation, primarily driven by lower demand from select emerging customers with PMA products. On a trailing 4-quarter basis, CRM&N sales increased 1% to $669 million with CRM and Neuromodulation growing at market, offset by the planned decline of an early SCS neuromodulation finished implantable pulse generator customer, which was announced in 2020.

Product line detail for other markets is included in the appendix of the presentation, which can be found on our website at integer.net. For the full year 2025, we delivered strong adjusted net income and adjusted earnings per share performance. Adjusted net income increased by $43 million or 23% and adjusted earnings per share increased by $1.10 or 21%, both growing much faster than our 8% sales growth. Operational improvements accounted for $30 million or $0.86 per share and reflected the benefits of higher sales volume, manufacturing efficiencies, operating expense management and acquisition performance.

Interest expense was $14 million lower than the prior year, which contributed $11 million after tax or $0.33 per share, reflecting the savings from the convertible debt offering completed in March 2025. Our adjusted effective tax rate for the full year was 17.2%, down from 18.3% in the prior year, primarily reflecting tax benefits from R&D investments, lower interest expense and stock-based compensation.

These improvements were slightly offset by higher foreign exchange pressure, which reduced adjusted net income by $2 million or $0.07 per share and an increase in adjusted weighted average shares outstanding, which reduced our adjusted EPS by $0.11.

In the fourth quarter 2025, we generated $55 million of cash flow from operations and our CapEx spend was $27 million. Free cash flow was $28 million in the fourth quarter. For the full year 2025, our cash flow from operations totaled $196 million, a $9 million decrease from the prior year. Our CapEx spend was $91 million or approximately 5% of sales. This resulted in free cash flow of $105 million, an increase of $5 million versus the prior year.

At the end of the fourth quarter 2025, net total debt was $1.190 billion. Our net total debt leverage at the end of the fourth quarter was 3x trailing 4-quarter adjusted EBITDA, which is at the midpoint of our strategic target range of 2.5x to 3.5x.

Turning to our financial outlook. The 2026 outlook we are sharing today is tighter than our preliminary outlook shared in October of last year. We are holding the midpoint of our sales growth and the high end of adjusted EPS growth from our October preliminary outlook.

For the full year 2026, we expect reported sales to be in the range of $1.826 billion to $1.876 billion, down 1% to up 1% on a reported basis. On an organic basis, we expect sales to be flat to up 3%. We have proactively aligned our cost structure with expected manufacturing volumes.

As we expect the 3 new product headwinds to be short term and we continue to support our growth initiatives, we are not making structural changes in our organization. We expect our adjusted EBITDA to be in the range of $391 million to $415 million, down 3% to up 3% versus the prior year.

We expect adjusted operating income to be in the range of $304 million to $324 million, down 5% to up 1%. We expect adjusted net income to be in the range between $216 million and $232 million, down 4% to up 3%. This range incorporates an expected adjusted effective tax rate of 16% to 18% for the full year, with the first quarter slightly above the full year rate.

Lastly, we expect adjusted earnings per share of between $6.29 and $6.78, down 2% to up 6% versus the prior year. Our outlook reflects the reduction in outstanding shares from our fourth quarter share repurchase and an estimated impact from the $50 million accelerated share repurchase that we announced today.

Taking a closer look at our sales performance. As I mentioned, we expect sales to be down 1% to up 1% on a reported basis and flat to up 3% on an organic basis. We expect continued growth across the vast majority of our portfolio. However, as we communicated in October, our organic outlook is being impacted by lower sales of 3 new products, 2 in electrophysiology and 1 in neuromodulation.

We continue to be our customer supplier of these products, but market adoption has been lower than anticipated. These products represented nearly 6% of total sales in 2025 and we expect the sales of these 3 products to be significantly lower in 2026, resulting in an approximate 3% to 4% headwind.

Excluding these 3 new products, we expect our underlying sales to grow approximately 4% to 6%, which is in line with the market. We also expect an inorganic decline of approximately 1.3%, which reflects the now completed Portable Medical exit, slightly offset by contribution from acquisitions and foreign exchange. Our product line outlooks remain consistent with our October preliminary outlook. We expect C&V sales to be flat to up low single digits, reflecting the impact of 2 new products in electrophysiology. We expect CRM&N sales to be flat to up low single digits, reflecting the impact of the new product in Neuromodulation.

In other markets, we continue to expect a decline of approximately $30 million to $35 million, primarily due to the Portable Medical exit. We expect organic sales to be down low single digits in the first half and return to market growth during the second half, consistent with October preliminary outlook.

The first half performance primarily reflects the significant reduction in sales related to 3 new products, which were ramping during the first half of 2025 and are expected to be at a lower run rate in the first half of 2026.

For the first quarter, we expect reported sales to be flat to down low single digits. We expect nominal sales to then ramp sequentially throughout the remaining quarters. The quarterly sales cadence reflects a 5% tailwind in first quarter and a 5% headwind in fourth quarter due to year-over-year differences in production days. For the first quarter, we expect our adjusted operating income margin to decline 200 to 230 basis points versus the prior year.

We expect our adjusted operating income margin rate to improve throughout 2026 and expect to return to margin expansion during the second half of the year. We expect cash flow from operations to be between $200 million to $220 million, an increase of 7% at the midpoint of the outlook.

We expect capital expenditures of between $95 million and $105 million or approximately 5% to 6% of sales. As a result, we expect to generate free cash flow between $100 million and $120 million, which represents a 5% increase at the midpoint.

We expect our 2026 year-end net total debt to be between $1.170 billion and $1.190 billion. This reflects the estimated impact of the accelerated share repurchase program announced this morning. We expect our leverage ratio to be within the targeted range of 2.5 to 3.5x trailing 4-quarter adjusted EBITDA in 2026.

I'll now turn it back to Payman.

Thank you, Diron. In summary, the Integer team delivered a strong performance in 2025 with sales up 8% and adjusted earnings per share of 21%. While 2026 is expected to be impacted by temporary headwinds from 3 new products, the fundamentals of our business remains strong.

Our pipeline is robust and diversified, and when combined with the strength of our underlying business, we are well positioned to return to growth. We remain confident in our ability to deliver 200 basis points above market organic sales growth in 2027. We will now turn the call over to our moderator for the Q&A portion of the call.

[Operator Instructions]

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

Just wanted to start with the guidance on top line. I think most people will be encouraged to see a pretty stable outlook relative to last quarter, but we just wanted to touch on decision to lower the high end of the preliminary range? I think last quarter, you were at 0% to 4% organic, now 0% to 3%, so just a slight change.

But just curious what the incremental reason for that was? And if it has something to do specifically with what you saw in January or more about just the piece of the improvement into the second half of the year?

Yes, and thanks for the question. As you pointed out, we have maintained the midpoint of our guidance that we've narrowed the range. And really, I think what you're seeing is not necessarily related to any specific dynamics for January or anything like that. It's probably more rounding.

All right. Super helpful. And then just thinking about margins and really more of a 2027 question. So the 2026 outlook still implies some pressure. I think given that sales are expected to be subdued. But you kind of noted the expected recovery to above-market sales growth in '27 and then a return to operating margin expansion. So maybe just a little bit more on what drives the return to operating income growth above sales growth in 2027? .

Yes, sure. I think for 2026, as Diron mentioned in the prepared remarks, we're not making any structural changes to business because we have full expectations or we have expectations to get to above market growth in 2027. So as we progress throughout 2026, we expect to get to margin expansion in the second half of this year. In 2027, we will get back to 200 basis over market performance. We will continue to deliver margin expansion as we have as part of our strategy and as part of our Integer production system. Our long-term strategy has not changed to deliver 200 basis points over market and 2x margin expansion.

All right. Great. And then last one for me. I always enjoy the strategic update and some of the updates around the portfolio and PMA products. I think compared to last year, the total number of PMA products is up by 1. Just wanted to maybe ask about overall contribution from some of the products that have been coming through and like how you kind of expect those to perform this year. .

And then maybe a little bit like just more long term. It kind of seems like more of the future activity is still in the development and clinical phase rather than regulatory. So whether you'd kind of expect any of those to progress this year? And reach the market by '27 or if there's kind of like a little bit of a gap in some of the development products actually reaching commercialization.

Yes, no problem. The model that we have, what we've talked about that we expect this portfolio of products to grow 15% to 20% in a 3- to 5-year period. It takes into account all the dynamics that you talked about. We have a good pipeline. We have about 40 customers in this grouping, if you will, and we have really good visibility to the products that we're working on, a, number one, the products that are already in the market, we have expectations about the growth of those products will be. And then we have good visibility to the launch dates and the expected revenues that on a risk-adjusted basis give us confidence that we can grow at 15% to 20% in a 3- to 5-year period. So what you're seeing here in terms of adding one more customer in the launch phase, this is in full alignment with our expectations and has already been modeled in our projections.

We'll move next to Matthew O'Brien at Piper Sandler.

Maybe just a follow-up on the first question there on the reduction to the high end of the guide. I don't want to over -- I don't want to focus on this too much. But the organic number is down 100 basis points from flat to up 4% to flat to up 3%. And if I just look at the math on that, it's like $9 million or taking out at the midpoint by taking it down by 100 bps.

So what I'm really trying to get at is there's nothing from a new customer perspective, or existing customer perspective that's making you think, okay, you know what, we're going to get a little less revenue from somebody that we initially expected, and that's why we're taking the high end of the guidance range down.

Matt, no, there are no specific changes, as you were pointing out to customer forecast and whatnot. And the guidance that we have is in full alignment with our expectations and in alignment with what we had communicated back in October. So we have tightened the range around the midpoint that we had communicated. And again, the individual pieces, I think, at the top end is more -- is probably more rounding than anything else.

Okay. All right. Fair enough. And then as a follow-up, Diron, I just noticed the DSOs kind of on the fly here, but it looks like they're up kind of meaningfully at the end of Q4. Any real reason for that? And how do we think about that metric progressing over the course of this year? .

Yes, Matt. Certainly. Yes, on the DSO, we made a decision to limit the amount of accounts receivable factoring that we did at the fourth quarter. And that's really looking at maintaining our financial flexibility. As you can tell, our revolver does pay down any incremental cash that we would have generated through the factoring would have gone to further repay on our term loan A. So we thought it was a better use of cash to limit our factoring in the fourth quarter, which effectively raised the DSO from what you would typically seek.

We'll take our next question from Richard Newitter at Truist Securities.

Two for me. Maybe the first. It looks like, in addition to the organic guide getting narrowed towards a little bit at the top end, operating margin or the implied operating profit margin is also a little bit kind of below where the implied level was before? And there's a really, really steep year-over-year 1Q decline or bigger than what we were projecting. So if you could just maybe talk a little bit about the 1Q kind of the steep 1Q fall off there, especially if you have extra selling days helping the 1Q. And then within the context of margin, if you could also -- I think you had mentioned on the third quarter call, that you expected gross margin to improve year-over-year.

Can you maybe just break down the operating margin comments within the context of OpEx and gross margin?

Yes. Richard, this is Diron. I'll jump in here. Yes. As you look at our operating margin, we've talked before and Payman just mentioned a moment ago about not making structural changes in the business because we want to make sure we're well positioned to deliver on the return to market growth in the second half and the 200 basis points above market in 2027.

So as you look at that structurally, there's a level of fixed cost to absorb. And on the lower sales numbers, particularly in the first quarter, there's a little bit more of a challenge in terms of absorbing those fixed costs in the business in the quarter. So as we look at the model and we look at what our structure is on the sales guidance for fourth quarter -- I'm sorry, for first quarter, that's where we see the 200 -- 250 basis points of margin pressure there. And then as our sales kind of nominally grow throughout the remaining quarters of the year, we expect to see that operating margin rate grow as well.

So I think those are a couple of other critical pieces driving that, that overall kind of margin outlook for the year. As you know, we don't necessarily give guidance on our gross margins. But I think what we had said in the past was that we -- with the Integer production system, we expect to fully continue driving variable cost or variable margin expansion, so managing our direct material and direct labor and seeing margin expansion there.

While we still will see pressure depending on where we were able to land in the sales outlook on the fixed cost, that's sitting gross margin and overhead. So it's going to be a little bit of a mixed story within the gross margins.

Okay. That's helpful. And then just on the discrete products that you're calling out, I appreciate the full year to a 300 to 400 basis point impact, and it continues to be. I guess, we're a quarter in, since you last provided your preliminary outlook, we've seen results for the fourth quarter, especially in the all-important electrophysiology segment. Any characterization you can provide on your discussions with your customers on their views of the end markets that kind of took you by surprise in their specific products? And what can you tell us about your visibility today versus 3 or 4 months ago with respect to kind of how they're approaching their forecasting so that we can get confidence that 300 to 400 basis point impact is the right one, even beyond kind of the quarter ahead?

Yes, no problem. So the -- we finished the fourth quarter in full alignment with our expectations, how we had modeled things and the discussions that we have had since October with our customers and continue to have with our customers are in full alignment with how we model things. Just to step back a little bit, Rich. When we provided our guidance in October, we had done a lot of homework, if you will, working with our customers and using our own intelligence to try to come up with a different view of the forecast. And at that time, we talked about that we provided a wider range in our preliminary guidance that took into account different possibilities. And as we have worked with our customers, what is transpiring and we fully expect for -- what we expect for 2026 Is in full alignment with what we had modeled and what our customers are telling us. So the forecasting patterns, the ordering patterns are in alignment with the projections and what we are guiding.

We'll go to our next question from Travis Steed at Bank of America.

I wanted to ask on the Q1 revenue kind of flat to down low single digits reported. There's 5-point selling days to kind of 5 to 7x days, but I know there's an inorganic impact. So want to make sure I understand the actual organic Q1 to Q2 kind of bridge and anything you'd kind of call out on how you think about what's the kind of the onetime impacts and some of the recovery in your different businesses in Q1 versus kind of later in the year?

So we had -- in October, we had guided to a first half of the year being down in the low single digits and that we would grow to market growth throughout the second half of the year in 2026. That view has not changed. Let me just start with that.

And we still expect the same growth profile. Now talking about the first quarter, as you mentioned the impact of inorganic, yes, there's a little bit of an impact there. But the impact of acquisitions is minimal really there. But as you look at the first quarter and the fourth quarter, we just wanted to highlight that there is a 5% tailwind in the 1Q numbers, and there's a 5% headwind in the fourth quarter.

So when you look at that, when you adjust for that, the quarterly profiling is exactly as we had expected that we would start the year a little bit lower and then grow to market growth throughout the course of 2026.

Okay. And then maybe another kind of bigger picture question. As a new CEO, just thinking about how you're thinking about shareholder value creation and kind of the pros and cons of balancing kind of more shorter-term value creation, maybe the partnership route versus kind of more longer-term independent shareholder value creation.

Yes, it's a great question. And I think really the only way we can create value for our shareholders in a sustainable fashion, is to have a long-term view of our strategy and how we execute. I think we -- let me start with, I'm a strong believer in our strategy. I was there in 2018, when we started looking at creating our new strategy and refining and executing it. And as we have done over the past many years, we will continue to refine our strategy and execute on it.

We believe that we can be successful if we can position ourselves to deliver value to our customers and make them successful. That is the only way that that we can be successful in a sustainable fashion. So if your question is, both in terms of short term and long term, we believe, I believe that the only way we can create value is by continuing to executing our strategy, have a long-term view of what we need to do to deliver value for our customers, which is the only way that we can deliver value for our shareholders.

We'll take our next question from Andrew Cooper at Raymond James.

Maybe just first kind of diving into a little bit of the trajectory heading into 2027. You guided to the sort of Expo's challenging products being with the end market for the year, what happens through the course of '26 to get you from, hey, we're going to be kind of aligned with the market to stepping back up above in 2027? What has to happen? And maybe what changes throughout the year to get you there? .

So I think the first thing to consider is that our core business is very strong. We are saying that our core business is expected to grow within -- in alignment with the market. And by core business, I mean, our business, excluding the impact of the 3 products that we've talked about. So the rest of the business is strong and we expect that it will continue to be strong as we enter 2027.

In addition to that, we have new products that are expected to launch in the second half of this year and during the course of 2027. So when we look at the combination of these things -- and by the way, we no longer will have the headwinds associated with these 3 products. So will we consider all these elements together and considering the strength of the pipeline that we have, this is what gives us confidence to get back to 200 basis points over market.

Okay. Helpful. And then maybe following up on one from earlier as well. On the PMA products and the 15% to 20% goal, I know historically, you've only given an update to that number on kind of a biannual basis. But can you share what those new products generated in '25? And I asked that just with kind of in the back of my head, the thought of this one PMA product likely being a headwind there. So how do we think about making up for that in that 3- to 5-year outlook relative to maybe a little bit of a challenge here with at least one product?

Yes. These products, as we had mentioned, had strong growth in the first half of 2025. And then we had a slowdown, particularly in the fourth quarter as we had expected. Let me just also remind you that we had a very, very exceptionally strong growth from these products in the fourth quarter of 2024. So we also had some challenging comps. So net-net, I would say that these products grew in alignment, including the fourth quarter headwinds. These products grew within alignment of the market in 2025.

Next, we'll go to Nathan Treybeck at Wells Fargo.

I just wanted to touch on '27 again. Just assuming the product revisions are really just contained in the 3 products and you lap those headwinds in the second half of this year. And you obviously said you're now making structural change for the company. I'm trying to understand like why would the comps not result in '27 growth kind of above your formula of 200 basis points above market?

Well, our long-term strategic objective is to grow 200 basis points of our market. That's the reason why we're providing earlier than usual guidance for 2027 is because we want to convey the confidence that we have in our future growth prospects.

So we're just -- what we're conveying is that with the visibility that we have, we expect to get back to 200 basis points over market. As we get to this time next year, we will be able to provide a more specific guidance on 2027 growth.

Okay. And I noticed the end market table in your presentation. Just to clarify, is that the entire end market or just the areas you're exposed to? Because I see electrophysiology you have in mid-teens. I think some market estimates still have the market growing high teens for that time period of 2025 to be 29. So I'm just trying to understand if there's any kind of -- anything specific to Integer in that table.

Yes. The end market, we expect the end market to grow in the high teens, as you pointed out. In 2025, we expect the end market for you to be in the high teens to 20% range, and we expect that as in the 2026 to be kind of in the mid-teens.

Okay. But as far as the broad end markets, are you referring to just the broad end markets or the areas that you play in?

The broad end market.

We'll go next to Joanne Wuensch at Citigroup.

I put them upfront, since the third quarter, what has changed internally and how you think about running your business and communicating goals, et cetera, with the Street? And it's sort of in the public domain of activist involvement. And I'm curious if that has had impact on certainly my first question, which is how you think about goals and running the business?

Yes, Joanne, thank you for the question. So we -- let me answer your question holistically, because we believe in our strategy, we believe in how we run the business, our execution, the processes that we have, how we look after our customers and how we've been able to deliver value for our shareholders. and our confidence to be able to deliver value in a sustainable fashion for shareholders.

We're not changing anything in our business because we believe in our strategy and we believe in what we're doing. I think part of your question was about how we establish goals and expectations. The -- how we issue guidance and come up with those forecasts, as we've mentioned before, has a very balanced view of what we believe we can deliver. And then, of course, we kind of look at the downside and the upside of that.

And then collectively, we come up with what we think the expectations are. You're pointing out, I think what's implied in your question, Joanne, is the impact of the 3 new products that gives us some short-term headwinds as we've mentioned before, that is unusual, and that has to do with market adoption that really our customers were not expecting either. So that is an unusual event that we don't expect to continue.

I think to just go back to your second part of the question, we listen and talk to all of our shareholders, and we took their view into account, of course. But we are -- and I am a strong believer of our strategy and how we can deliver value for our shareholders.

We'll move next to Suraj Kalia at Oppenheimer.

Can you hear me all right?

Yes.

Thank you for all the comments on navigating these temporary headwinds. Diron, one question for you and Payman, one for you. I'll pose them both upfront. So Diron, I want to go back to your comments about not being able to absorb fixed costs in Q1. Maybe you could -- if you could give us some additional clarity on that, Diron, I presume you'll have visibility 6 to 9 months in advance. So the specific attribute about fixed costs not being observed kind of confused me. Any additional color would be great her. Payman for you, if I could pose this question. I know this is a hypothetical, but I'm just trying to connect some dots here. So let's say you have an ENT customer, Suraj, Incorporated, that pulls their demand on a certain product, right? You have to lower your stop your manufacturing, your sales go down, so on and so forth, right? But for whatever reason, the end customer comes back and says, look, I need to ramp back production of the new product. Does it require a new contract? Do you all have to switch manufacturing? Do you all keep spare inventory? I'm just trying to connect some dots vis-a-vis specifically an ENT customer. Any color there would be great.

Well, thank you, Suraj for the questions. Why don't we start with the question that you had for me, and then I'll ask Diron to get back to your first question. So in terms of high work, let me start with just philosophically, Suraj. We work very closely with our customers in recognition that we've talked about that the majority of our business is sole source. And ultimately, we see what the end market demand is.

So our customers work with us to give us a forecast based on their production plans. So whatever they have planned for their manufacturing facilities, we get some of those forecasts and orders months in advance because that's what they're planning.

If something were to change, we, of course, work with, so if they ask us to bring their forecast down, well, we work with them to do this in an orderly fashion. And what I mean by that is -- we -- our customers recognize because they also manufacture themselves that you can't stop a production, you can't have a cliff.

So they usually give us a ramp down and we work with them collaboratively to kind of work to see what makes sense so that in the event the hypothetical event that you mentioned that there would need to be a ramp down that we do this in an orderly fashion so that we don't cause a lot of inefficiencies.

And conversely, if you have to ramp back up, but we do the same thing. Obviously, if you have to ramp back up quickly, what there could be costs associated with that. And then we work with our customers. Again, we have a great partnership and relationship with our customers. We work with that.

To your specific question about whether there's a new contract, no, we have general contracts with the majority of all of our large customers, we've mentioned before that 70% of our business approximately is under a long-term contract. And all the provisions are spelled out in that. We move with the speed of business.

Every time something changes, we don't go and renegotiate a contract. Those things are already done. It's just a question of how we work with each other on a regular basis on a daily basis to make sure that both we and Integer can meet the needs of our customers and our customers work with us so that we can make sure we run our business efficiently.

Yes. And Suraj, just to maybe cover off on your question related to the fixed cost leverage. I think what you have to understand is, as a manufacturing company, we have a certain level of capacity and capability built out to deliver on our sales performance. So as you look at our sales level in the fourth quarter and the sequential movement from fourth quarter of '25 to first quarter of '26, you'll see a lower sales number and that still has to -- would have to absorb the full fixed cost used to deliver on the higher sales number. So this is one of the reasons that we always talk about Integer as a company that needs to be looked at on more of a rolling 4-quarter basis, because you do have that inter-quarter variability that you may have with sales with a little bit more fixed cost leverage at times, a little bit less than other quarters.

And so when you think about our guidance for the year, that's where you'll see that the operating margin is not as impacted on a full year basis in our guidance is, let's say, 1 quarter is we're we have the lowest sales for the quarter.

Thank you again for joining us today. You can access the replay of this call as well as the presentation on Integer's investor website at integer.net. This concludes today's conference call. You may now disconnect.

All right. I'm still Joanne, and I'm still here with the management of Integer and I'm very, very thrilled that both of you are joining us. So thank you.

I want to start off big picture. You've had a CEO transition recently, you did notice, I know. But I'd love if you could just sort of step back and talk about what you see coming in. Some might call it a rocky start, you might call it an opportunity, but I'm going to leave that for you to label.

Yes. Thank you for that, and thanks for having us. It's great to be here. I certainly see this as an opportunity, and I'm very bullish about our business. Let me maybe take this opportunity to tell you a little bit about our business and maybe give you some perspectives on why I believe that we are very well positioned to deliver premium shareholder valuation.

Maybe for those who may not be as familiar with Integer, we are a contract development and manufacturing organization. We're one of the largest in the world. We are very well positioned in the med tech ecosystem as a partner of choice for the most respected, largest and the most innovative companies, med tech companies in the world as well as some smaller -- a number of smaller companies and emerging customers.

Our focus in our business is on some of the fastest-growing markets in our space, which are electrophysiology, neurovascular, structural heart and neuromodulation. And our strategy, if I really want to simplify it is that we work to build differentiated and critical capabilities, both engineering and manufacturing so that we can better participate in novel therapies and we work to get designed in early. We engage with our customers early in the development cycle so that we can get designed in. And as products launch years later and ramp, hopefully, they're successful, we are successful with them.

And we build these capabilities through either organic means or very targeted strategic tuck-in M&A acquisitions. That's the primary reason why we make acquisitions is to build these critical capabilities. So as a result of this strategy, we have a very strong pipeline. This pipeline has grown every year. And how we measure it and communicate it as a leading indicator is our product development sales. If you think about it, when we work with our customers to help them with the design development of next-gen products, we get paid for that. And the more revenue that we have in that -- for the development, so that's an indication of the fact that, that pipeline is growing. And that pipeline is about 80% focused on these fastest-growing markets. So we've demonstrated that this strategy works by virtue of the fact that we've delivered above-market performance in recent years and expanding margins.

Now 2026, if I just want to talk about that for a moment, our core business is expected to grow between 4% to 7%, which is in line with our weighted average market growth rate of 4% to 6%, slightly above that in line or slightly above, but this is being offset by the headwinds that we have with 3 specific products. These products had strong growth in 2025, particularly in the first half of 2025 and they're not having the rate to market adoption that our customers had hoped and anticipated in 2026. That's what's given us headwinds. And this is not a result of a competitive loss or in-sourcing or any changes in the supply chain structure. This is purely a market adoption rate. And we see this as a short-term event because the comps are more difficult in the first half of '25 to '26, compared to '25. We see this primarily as a first half of 2026 pressure headwind. We expect to get to market growth in the second half of 2026 and to above -- back to above market growth given our strong pipeline in 2027.

So to conclude, I am a strong believer of our strategy. I was part of the team that developed it, have been executing it. I'm incredibly excited about our pipeline. Our business is very strong. Our core business continues to perform. This is a short-term air pocket, we call it, a 3-quarter headwind, and we fully expect to get back to growth in the second half of '26 and above market growth in '27.

So I want to just pause on like 14 things you said there. One piece of it is, I'm going to step back, even bigger picture. What do you think that you're going to do differently now that you've got the CEO title?

Yes. So we have built a very strong foundation, I want to continue building on that foundation. If you look at some of the focus areas that you said I talked about, what gives us that differentiation. If I want to step back and just think about what is it that our customers are trying to do? Because at the end of the day, we have to see the world through their eyes. What they're trying to do and what their customers are trying to do. This is kind of how we look at our customers' customers, what they're trying to do and back to how do we deliver value in that chain of value.

And what our customers are trying to do is to develop the next-generation innovative therapies. They want to focus on that. They want to focus on things related to reimbursement of whatnot, so that their products can be successful. Where we can deliver value to them is to be able to be the partner of choice that can help them with the design, development and manufacturing, to help them bring products to market faster, and in a cost competitive way. These are very technically challenging products. They can't afford to lose months or years in the development. So that engineering expertise is absolutely critical that -- those capabilities. We have built a lot of that. I want to make sure that we continue to strengthen that over time, either through organic means or M&A acquisitions. We'll continue to focus on the fastest-growing markets that we have.

Look, at the end of the day, execution is critical, quality delivery. Those are the table stakes that we continue to do well in. But being the most innovative CDMO on the -- in the world is definitely my vision.

And so I'm going to dig in a little bit on what happened on the third quarter call, but I do want to talk about some of the steps which you've done since then, which includes $200 million share repurchase program. What made now the right time to do that?

Yes. Look, Joanne, I think the Board authorizing the $200 million share repurchase is clearly showing their sign of how they believe in our fundamentals, our financial strength as well as our strategy and growth perspective. It really gives us another lever for capital allocation, right, with the stock reacting as it did from third quarter, we believe that the stock is undervalued and it gives us another avenue for capital allocation, continuing to balance organic investments, inorganic M&A as well as then being able to have this other lever to return and generate value for our shareholders.

When was the last time you did a share repurchase program?

We have not done a share repurchase program in the past, so this is really...

Most of your cash has been used for M&A, if I remember correctly.

For both organic investments and then inorganic investments, right, continuing our tuck-in M&A strategy.

Okay. So let's pause on the third quarter for a second or maybe for a bit more than a second. So one of the things that struck me as I was reading the press release and then we were doing our call and then the subsequent call back was it seemed as if these 3 headwinds happened over -- at some stage over a 90-day period. And so the question I have is, at what stage during the quarter, do you sort of look up and go, this isn't working or others communicate with you, they're changing their orders?

Yes. Let me take that one and let me maybe offer some context and background to this. So, as maybe I will start with that the 3 products that we're talking about did not impact 2025. It's purely a 2026 event. So we have delivered and plan to deliver in the remaining weeks effectively what our customers had asked and what we had forecasted that we would do.

We learned during the course of the third quarter that the 2 EP products, in particular, are not having the rate of adoption that our customers had hoped, which would impact on '26.

So let's just pause on that. So it's a product that's in the market, and they think you're going to sell X and then based on their feedback from their customers, they're willing going to sell X minus something?

Or said differently, they were selling X in 2025. But because of rate of adoption and maybe some competitive pressures, they expect to sell less in 2026.

Right. Okay. All right. So that's -- so both EP plus neuro or that's...

So it's the 2 EP products and neuro. In any given year, Joanne, it's not unusual for demand to go up and down for a certain product and -- or for 1 product, not to do as well or because they usually get offset. So one product changing is not an event. And we knew a little bit earlier about the 1 neuro product not doing as well, but that's just normal, course of event, those things get offset. But when we learned about the 2 EP products in the third quarter, now you have the stacking of 3 products. That's what -- that's highly, highly unusual in my tenure with Integer. We haven't seen 3 meaningful products, having strong growth in 1 year and a significant decline in the next.

But I would, if I may, also suggest that, that diversification of our portfolio, the fact that no one program that we have in our portfolio represents more than a few small percentage points of our total revenues in the, say, low single digits, it's a strength for us because we don't have -- if you were to imagine if we had products that were 10%, 15% of our revenues, and then you would have the stacking of those, obviously, that would be a structural change in the company. We have 3 meaningful products not performing as well, and we are saying that it's going to be a 3-quarter headwind. We're going to get back to growth and above-market growth. So I would like to suggest that this is actually the diversification of our portfolio is one of our strengths that allow us to easily weather these things.

So the fear, as I talk to investors is that you had 3 in the third quarter and then another pops up or then another pops up. So what are the checks and balances to ensure the consistency of the revenue stream?

Yes. Yes, of course. So maybe I can delineate between, say, our core business and maybe new products. And what I would say is that our core business, we get forecast from our customers. That tends to be fairly stable and steady. These are products that have been in the market for quite some time. Our customers know what these products are going to do, the expectations, they plan their manufacturing to give us rolling forecast. And look, there are ups and downs in this business. But generally speaking, it's fairly steady. We're talking about new products because new products are a little bit more difficult to predict in terms of what the true rate of adoption is going to be unless the product is actually in the market for quite some time.

Now let me also say that our strategy is to launch more innovative products so that we can grow. This is how the industry goes. This is how our customers grow. On aggregate, when you have more innovative products, you're going to grow. Within that, you have products that do well, products that don't do well, but on aggregate, you grow. We're talking about an unusual situation where 3 of them are going the other way at the same time.

So back to the question about what we do and what we can do. We already are very in tune with the market. We have product management teams. We talk to physician groups. We talk to our customers on a regular basis. We are very connected with our customers at all levels. We buy reports. And if we believe something that might not seem right, we have those conversations with our customers. But at the end of the day, the people that truly know best what's happening in the marketplace are our customers. They are the ones that have the products in the physician hand, they get feedback. And if they tell us, here's a purchase order for the next few months, deliver X, we deliver X. When they say, we want you to plan for X capacity, we do that.

But when a product launches, after the typical ramp period that happens at the beginning and once our customers start to get some feedback for the market, they always adjust up or down or steady. Again, we're talking an unusual situation, 3 products not doing as well. That's what we're talking about. It's unusual.

Yes. Yes. Well, the stock, share that...

Yes, we believe the stock is undervalued because our fundamentals have not changed. Our core business continues to do very well, very strong. I mean, again, taking the impact of these 3 products out. Our core business is still expected to grow 4% to 7%. So our pipeline continues to grow year after year. Our strategy is strong. This is an air pocket. Yes, our stock price is, we believe, is an overreaction.

So let's step back from this and take a look a little bit at the medical device space today. And I spend my entire life talking about new products coming to market, sort of like you do, too. And it strikes me that we're hitting a phase of multiple new products and multiple new iterations of them after years of R&D, would love your viewpoint?

Yes. We are incredibly excited about the markets that we're participating in. This is some of the most innovative times. I mean, if you look at -- we've been talking about electrophysiology, obviously, because of the 2 products that we're talking about, but electrophysiology has been doing phenomenally well. Obviously, PFA has been driving a lot of procedure volumes, and that market has been doing really well. Our EP portfolio has been doing phenomenally well over the past 4 or 5 years because we have presence in the whole procedure from access to.

So let's stop there for just one quick second because I think a lot of investors translated EP equals PFA. But you are saying now that you've got the portfolio of the electrophysiology. You've got the catheter, the guidewire, maybe RF, maybe cryo, definitely PFA. And how do we think about maybe navigation?

We have access to all of that.

All of it?

And mapping and diagnostics. I mean there are many, many steps. The ablation, and I know there's a lot of focus on PFA because it's an incredible technology. But that's the last step. But there's a lot that has to happen before you get to that step, and we have participation across all of that. So as volume procedures -- as procedure volumes grow, well, that gives us tailwinds. And even if you remove -- so our EP portfolio has grown above market over the past many years. In 2026, where we have the 2 headwinds, if you remove those, the rest of our portfolio is still growing at market, which is growing very strongly, double digits.

So this is not a structural thing. And then going beyond that, because we're talking a lot about EP, we see a lot of innovation going on in structural heart with tricuspid and mitral, for example, we have participation in the delivery system for those. Lots of innovation going on in the neuromodulation space with a lot of different exciting therapies. We've got a strong pipeline there. And neurovascular is something that's been a focus for us, and we've strengthened our capabilities through both acquisitions and internally, we are very excited about the market -- the strength of the market in the future and the customer relations that we have, the trends that tend to be towards outsourcing, we're very bullish about our business.

You participate also in renal denervation?

We do. We have exposure to RDN, which is very -- from a technology capability perspective, it is very similar to electrophysiology. So we are very well positioned for that. RDN itself is -- has a ton of potential. I mean, companies talk about that a lot. You put out a report this morning. We're very excited about that space. But it is something that's going to take time. It's not a meaningful part of our portfolio today, but we certainly believe it can be a tailwind for us.

Okay. Structural heart, you mentioned tricuspid, mitral, aortic?

We are less indexed towards TAVR. We are more focused on tricuspid and mitral and more specifically in the delivery systems for those.

Okay. So it's not the valve itself, it's the delivery system?

We try to focus on more on the delivery systems. Yes, we work with our customers to see where we can deliver the most value so that we can help them bring products to market faster. And we have developed capabilities where they can be of value to our customers. and we focused a lot on the delivery system.

And what about LAAC?

Yes. We have -- it's a great market. We have some componentry there, but it's not a big part of our business today.

So if you could educate me just a little bit, I'm company X and I say I need a catheter. How far in advance do I contract with you for said catheter? And you think my catheter can be something else. But I'm trying to think about our conversation when it starts. And then are you -- am I sending you -- if it's -- let's say, it's a mitral valve, am I sending you the mitral valve and you attach it to catheter? Or are you sending me back the catheter and I do the packaging on my side?

So maybe I can explain the process, if that's helpful a little bit.

Yes, please.

Yes. So, catheter, specifically minimally invasive, that would be a cardiovascular business. We're very focused on that. So -- and let's just say catheters can be highly, highly complex, can be not as complex, but let's just say kind of the middle of the road catheter. Typically, our customers, when they work on the next-generation therapies, they have a design in mind. And we work with them early to maybe build some prototypes for their -- think about engineers working in a lab, right, putting stuff together and very quickly, assembly, not manufacture -- not something that's manufactured, but you're trying to do a proof of design, if you will.

So our engineers, either they come to our facility, we go to theirs or we work -- that work goes on for quite some time. There's a lot of iteration that goes back and forth, about, look, this design, the steerability might not be, we need more torque here, we need more there. I mean there's a lot of tech talk that goes on back and forth. That can go on for quite some time until the design gets to a place that, okay, now the proof of concept is proving as viable. And that could take a number of years, by the way, until we can get there. So along the way, as the design gets more certain and closer, tighter, now we shift our focus to how do you manufacture this because that manufacturability and be able to scale effectively becomes very critical. That's a core competency that we have that our customers rely on.

Think about -- and these could be some true numbers. In a lab, the prototype stage, the catheter can take 8 hours to assemble. But you can do that when you're trying to make tens of thousands of them, right? It could be -- it should be measured in minutes, right? That takes a lot of thinking about the fixturing, the automation, how do you do that. That's where a lot of the expertise that we have. So over the years, once the design gets frozen per se, that's a tech talk for that. Then now we're getting to really get into the manufacturability of it. Now customers go and focus on their clinicals, they focus on the regulatory and they'll leave it in our hands to make sure that we take it to a place that is ready for manufacturability. And where they -- and they give us those launch dates in advance. So we work towards that in tandem so that when they're ready to go, they give us a go ahead and then we start ramping the product.

Okay. I have a question for you, Diron. How do you think about managing on the expense side as the company goes through this air pocket?

Yes, sure. There's really 2 levers for us when we think about it, Joanne, and I'll maybe step back to, call it, our typical margin expansion algorithm. And that's going to be generating gross margin expansion primarily through our Integer production system, which is our version of lean, and it's where and how we take waste out of the manufacturing process, be it direct materials or direct labor, getting more efficient in the manufacturing. We have teams of people that are simply focused on that in the manufacturing space.

And then the other part of the algorithm typically is the fixed cost leverage, either leveraging overhead or OpEx on higher volumes, growing those costs at a rate less than your sales growth. That's typically how we generate our margin expansion story.

So as we go into 2026 with some of the volume headwinds, we still fully intend to drive the manufacturing efficiencies through Integer production system. We are completely invested in that, and we're continuing to grow the maturity of the organization around that lean culture.

For the fixed cost, it will be a bit more of a pressure point. So we're going to be much more disciplined in how we manage the cost on the fixed cost side, the overhead and the OpEx during this kind of air pocket that we're in. So we're going to be focusing our investments on the areas that will drive growth in the second half of the year and support any product launches that we have that are going to be focused -- that will support then the 200 basis points above the market in 2027. That's where we're going to be focusing our investment in OpEx and/or overhead. But I want to be very clear, we're not making significant structural changes in our organization and our cost structure during this period because we do see it as an air pocket, and we want to make sure that we're ready to support the growth that we see coming in the second half.

So we should think about gross and operating margins lower in '26 versus '25?

So it will be a pressure point, right? We've talked about our sales outlook so far is down 2% to plus 2% reported, and we shared our operating margin being down 5% to up 4%. So on the -- if we see some more volume and we get on the higher end of the range, we should be able to leverage that volume to expand margins, but we potentially see some pressure on the downside on the low end of the case.

And so to get back to above-market growth and then to, I would assume, returning to growth in margins depending on whether you're down 5% or up 4%. Is that new contracts, new products coming in to fill this air gap? Or is this just sort of a normalization of the infrastructure?

I'm sorry, Joanne. Did you say?

To get to '27?

The above-market growth? Yes. So that's -- a key piece of that is our product launches. If you think about our overall algorithm, our kind of base business is growing at the WAMGR, the 4% to 6%. Our above-market growth is generally derived from new product launches from -- that we've won working with our customers. And so that's the key piece. We have some very exciting new product launches in the second half of '26 as well as into 2027 across our 4 targeted markets.

And so those are contracts that you already have for the second half of '26?

Yes. These are -- back to payments conversation about the development time line and the development cycle. We have programs that are in development for 3 to 5 and even for some of the PMA products upwards of 10 years. So these are things that we have been developing with our customers for a very long time.

Yes. Anything that's launching in the second half of '26 or '27 has been in development for years.

You know it?

Yes. Yes, we know it. We know what the product launches. These have gone through those early stages, and they're in the more mature phases. It is rare. Look, it could happen, but it is rare that something goes through very quickly. If it's a simple component or something, of course. But we're talking about generally, any product with any complexity, especially if it's a new therapy, we're talking about years of development.

And that's where we do our risk adjustment because, again, we are tightly connected with our customers on the launch timing, launch volumes. The risk adjustments that we look at there are more -- if there's a delay, maybe an approval delay or something to that effect, that's where we risk adjust those launches. But generally, at this point, they're very, very tight in terms of what the plan is.

Excellent. Where do you do your manufacturing?

Where we do our manufacturing? We have a global footprint. We do manufacturing in the United States. We have a number of locations in the United States, in Mexico, in Europe, in Ireland, in Central America, in Asia, in Malaysia. We have a global footprint for manufacturing.

So you know where I'm going with this. I'm trying to figure out with all of the changes which are happening globally, how do you think about manufacturing in what region?

Yes. So our manufacturing footprint is -- we have a strategy behind this, and it's based on a number of criteria, obviously. So we look at availability of expertise where we have centers of excellence. Some of the things that we do, it's highly complex and takes years of expertise. So we really value that expertise. That's our differentiator. So that's one criteria as to where do we want to have manufacturing for certain things.

Obviously, we want to make sure that we're cost competitive. Cost isn't necessarily in a certain country, we call best cost locations, best cost plants because you could have high-cost labor areas in the United States to be very cost competitive through automation and whatnot.

So we have a manufacturing strategy that determines what the footprint should be. But we also have to realize that med tech and our customers are global. So we also want to be close to where our customers are and operate. We have, for example, Ireland is a very large med tech hub. Well, we have a very strong presence there for that reason. We do manufacturing, but also engineering design because we want to be in those regions where the work happens. And so that's really the primary reason why we have this global footprint. I'll stop because I think you might have a follow-up on that.

No, no. I'm just -- it goes from my point of with tariffs, with globalization.

So yes. That's what I thought your follow-up would be the tariffs because the question that we've been asking and I anticipated you would ask...

I think I have asked too.

Yes, yes, you certainly have. What could happen if the tariffs. So because we actually feel our global footprint is a competitive advantage for us because tariffs -- so first, we have to see what's going to happen over time. Obviously, tariffs have been a very dynamic situation. And how -- what it's going to be a year, 2, 3 from now, something to be seen. But because it's a global structure, tariffs are not only one way, things coming to the U.S. There could be some reciprocal tariffs that are going outside.

So our global footprint allow us to kind of manage through that. Of course, working very closely within the guidelines. We try to mitigate tariffs as much as possible, and we've done that with our customers. But what I can tell you is this, although tariffs are something that have been discussed a lot. It's not a big exposure for us. We've talked about that for us would be somewhere in the range of $1 million to $5 million for us in 2025. We have ways within the guidelines to mitigate that for our customers, but also the things that we buy. The majority of the products that we buy, the supply for our products is U.S.-based. So we're not -- we don't have a big exposure. We have very little exposure to China, for example. So it's not a big thing for us.

But when we talk with our customers about next-generation products, the location of manufacturing is decided in those early stages. So think about if we're talking about a product with a customer now that's launching in 4, 5 years, we decide today where the manufacturing location is going to be collectively with our customers. We have not had any discussions with our customers today about, well, maybe the location should be X because potentially tariffs could be Y. That's not their primary factor. They want to make sure what is the most important rate of success for the product, for its competitiveness, where the expertise is.

So we don't see that as a big, big event today. Over time, once I think everybody understands what tariffs might look like, yes, but we are well positioned for that because of our global footprint.

I've been doing this long enough. I remember Wilson Greatbatch. And Integer has been formed through a series of acquisitions, consolidations. Does that continue?

In terms of us making acquisitions?

Yes.

Yes, that is a very important part of our strategy. What I would highlight though is that our strategy for acquisitions is mostly around tuck-ins with critical capabilities. The acquisitions that you're talking about that happened in 2014 and 2015, 3 companies coming together in short order, they were more transformative acquisitions. When Accellent in 2014 bought Lake Region and then Greatbatch bought that company of Lake Region. Those were transformative. We -- that is not part of our strategy today. We're looking more at tuck-in acquisitions, which are very targeted and really focused on critical differentiated capabilities within our business.

And you've also spun out several noncore. To my eye, you don't have anything else noncore to spin out, but I love your response.

Yes. We have -- we look at our portfolio all the time. You're correct. Not too long after Integer was formed in its current form, we coined the name Integer in early 2016 sometime. And in 2018, we divested an orthopedics Advanced Surgical business because we determined at the time that this was not the most strategic thing for us, the level of innovation, whatnot, capability there was not a differentiator. So we made a strategic decision to exit that in 2018. We made a strategic decision to exit our portable medical business, working with our customers over multiple years because we want to make sure that our customer had a continuous supply while they find alternatives. That happened over 3, 4 years. We're completing that this year. That's the external batteries and chargers, whatnot, where we didn't believe that the level of innovation was something that we wanted to participate in.

And then lastly, we exited -- we had a small business that was called Electrochem, which was batteries for nonmedical. We exited that in 2014. What we have right now, we are excited about, cardiovascular, cardiac rhythm management and neuromodulation. These are core. We're a pure-play medical company with some of these exits that we have and this is our portfolio today.

And how do you think about the integration of artificial intelligence in your manufacturing processes and in your product development?

Yes. It's very important. We have a focus on artificial intelligence. We have brought in an AI leader on board to kind of help us with that. AI has a lot of different uses, obviously, in the tech industry, it's a very different use than it is for us. But we're definitely looking at how do you use AI for efficiency overall in your business. That can be across the business. In manufacturing, we have a lot of automation, for example. And because of that, we have a lot of data. We have been launching systemically what's called manufacturing execution system. Think about it as paperless that we're building platforms over the years, we got a long plan that everything is like database.

And what AI needs is a lot of data. And we believe that we're well positioned just because of what we're doing to have that data and how do you bring intelligence into that, that can work with your automation. So we see that as an area of opportunity in the coming years for us.

One of the things, I think, in my conversations with investors is I hear a 3-quarter air pocket. And so if you think about the next 3 quarters, what are the progress reports that we should be looking forward to, to get back to your growth rate guidance for 2027?

Yes. The 3-quarter air pockets, we're talking about 4Q, 1Q, 2Q, right? And that's what we're talking about. We expect to get back to market growth in the second half. We have, as I mentioned earlier, Joanne, our core business continues to perform well, and we have good visibility, and we've demonstrated that it can be a predictable part of our business. That core continues to do well and grow 4% to 7%, we expect, as I mentioned.

What's going to get us to growth in the second half is primarily because we're going to weather the tough comps. Now there is some impact of new product launches that are going to happen in the second half of the year. But because of the timing of it, that contribution is not as big. It's mostly in 2027. We're very excited about '27 because when we step back and look at all the products that we have expected to launch half of '26 and '27 in all of our growth markets. And when we risk adjust them, we risk adjust them for, say, time of launch, if there's an issue with the launch, regulatory or whatnot or what if the set products don't do as well as we had hoped. When we risk adjust them and we take a balanced view, we are comfortable that we can get to 200 basis points of our market.

So Payman and Diron, when we're here next year and we're talking, what do you think we're going to be talking about? And for you, I'm going to add, what are we not going to be talking about?

Well, let's just say I'm going to be looking forward to that conversation. What we're going to be talking about is how we have got the company back to market growth in 2026, how we're excited about getting to above-market growth in 2027 and how we are confident that we're demonstrating that we're delivering value for our shareholders. I'll let Diron answer and then I'll get back to what we're not going to be talking about.

Yes. I think a key piece of it is, I think we'll be talking about the diversity of our portfolio and our sales base, allowing us to weather a storm where we did have this unusual event that we were able to weather it over a very quick period return to market growth in the second half and its payments at above market in 2027.

We won't be using the word air pocket.

Very good.

Yes. It's something that we'll refer to as a past tense, and we're going to be talking about our future, the strength of our pipeline, which I'm incredibly excited about.

Both of you, thank you so much for joining us, and have a fabulous day.

Thank you for having us.

Thank you, Joanne. Appreciate it.

Good morning, and thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Integer Holdings Corporation Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Sanjiv Arora, Senior Vice President, Strategy, Business Development and Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining us, and welcome to Integer's Third Quarter 2025 earnings conference call. With me today are Joe Dziedzic, President and Chief Executive Officer; Paymen Khales, President and CEO elect; 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 our 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 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 results to materially differ.

On today's call, Joe and Payman will provide opening comments, Diron will then review our adjusted financial results for the third quarter of 2025 and provide an update for the full year 2025 outlook. Payman will then share our preliminary 2026 and 2027 outlooks and then we'll open up the call for your questions. With that, I'll turn it over to Joe.

Thank you, Sanjiv, and thank you to everyone for joining the call today. Today is my last call as Integer's President and CEO and my 64th and final as a public company CEO or CFO. As I reflect on the past 8 years as Integer's CEO, I am incredibly proud of what we've accomplished together. We've built a company with a clear vision, a compelling growth strategy and a strong values-based culture. When the CEO transition process began, I did not envision my last earnings call would include a reduction in our financial outlook. The recent customer forecast changes reflect the reality that not all new products achieve the level of success we expect or want. We expect this dynamic to be short-lived.

Despite this news, we are still delivering strong results over the last 3 years. Our sales are up 39% from 2022 to 2025 at the midpoint of our outlook. Adjusted operating income is up 77% and adjusted EPS is up 73%. Our strategy and execution have delivered. And despite what the next few quarters hold, we remain confident in our strategy because when measured over time, it is working. I'm excited for Integer's future under Payman's leadership. He has played a pivotal role in shaping and executing our strategy and fostering our high-performance culture. As the President of our Cardio and Vascular business for 7 years, Payman delivered outstanding results. doubling sales and improving profitability. Tomorrow, Payman will become CEO and join the Integer Board. Thank you for your support of Integer during the last 8 years. I am now officially passing the baton and turning the call over to Payman to lead the remainder of the call, including the Q&A.

Thank you, Joe. On behalf of the entire Integer team, we extend our deepest gratitude for your exceptional leadership and strategic vision over the past 8 years. Your unwavering commitment to excellence has made into your stronger, more innovative, better positioned to serve our customers and create value for our shareholders. The legacy you leave behind will continue to shape our future. I believe our strategy will continue to deliver for patients, customers and shareholders over the long term. I'm truly honored to step into the role of President and CEO.

With great enthusiasm, I look forward to leading into your in its next chapter of growth. We will build on the strong foundation that we've created and continue to advance our strategy with purpose and passion. We wish you well in your retirement. Now let's turn to our quarterly results and outlook.

We delivered a strong third quarter in line with our expectations. Sales grew 8% on a reported basis and 7% organically, reflecting solid demand and execution. Our adjusted operating income increased 14%, driven by continued focus on operational excellence and expanding margins. Our adjusted earnings per share grew 25% year-over-year to $1.79. Despite this strong third quarter, we recently received customer updates related to the adoption of new products in the market that we expect will impact the next 3 quarters. The magnitude of these changes on multiple products at the same time is highly unusual.

As a result, we are reducing the midpoint of our 2025 sales outlook by $16 million. This reflects recent changes in customer demand within our CRM&N product line primarily related to select emerging customers with PMA products. We are actively managing our costs to minimize the profit impact. As a result, we have reduced the midpoint of our adjusted operating income range by only $3 million and our adjusting EPS range by $0.02.

For the full year 2025, we now expect to grow our sales between 7% and 8% or 7.6% at midpoint. We expect adjusted operating income to grow between 12% and 14% and adjusted EPS to grow between 19% and 21%. All in, this is a strong performance for the year. We usually provide our outlook for the upcoming year during our fourth quarter call in February after the completion of our annual budgeting process. However, given recent customer updates, we are providing a preliminary outlook for 2026.

Based on the recent customer updates, we expect sales of 3 new products to decline in 2026, 2 electrophysiology products and 1 new modulation product for an emerging customer. The market adoption of these products has been slower than forecasted. We anticipate this will represent a 3% to 4% headwind to our total company sales for the next year. As a result, we expect organic sales in 2026 to be flat to up 4%. The impact of these specific products is expected to be more pronounced in the first half of 2026, leading to organic sales decline during that period. We anticipate a recovery to market growth during the second half as the new product headwinds moderate.

On a reported basis, we expect sales to be down 2% to up 2%. This includes the final decline in Portable Medical as we complete the delivery of the last time buy orders in the fourth quarter of 2025, which is a headwind of approximately 2% to our total sales in 2026. While our 2026 outlook is not where we would like it to be, we remain confident in the strength of our long-term growth strategy, our portfolio and the depth of our customer relationships.

Our continued focus on being designed into high-growth products early in the development process positions us well in the fastest-growing markets. Our product development pipeline continues to expand, fueled by close collaboration with our customers as they advance the next generation of medical technologies. Given the strength of this pipeline and our strategic positioning, we expect to return to above-market organic sales growth in 2027, which is consistent with our long-term financial strategic objective. I'll now turn the call over to Diron to review the quarter and the 2025 outlook in greater detail.

Thank you, Payman. Good morning, everyone, and thank you again for joining today's call. I'll provide more details on our third quarter 2025 financial results and provide an update on our full year 2025 outlook. In the third quarter of 2025, we delivered strong financial results. Sales totaled $468 million, reflecting 8% growth on a reported basis and 7% growth on an organic basis. Organic sales growth removes the impact of the Precision and VSI acquisitions, the strategic exit of the portable medical market and foreign currency fluctuations. We delivered $106 million of adjusted EBITDA, up $10 million compared to the prior year or an increase of 11%. Adjusted operating income grew 14% 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 approximately 80 basis points year-over-year to 18.4% comprised of 10 basis points from gross margin and 70 basis points from operating expense leverage. Adjusted net income for the third quarter of 2025 was $63 million, up 27% year-over-year, while adjusted earnings per share totaled $1.79, up 25% from the same period last year. On a year-to-date basis, we are delivering strong results with sales up 9%, adjusted operating income up 14% and adjusted EPS up 20%.

Turning to our sales performance by product line. Cardio & Vascular sales increased 15% in the third quarter 2025, driven by new product ramps in electrophysiology and incremental sales related to the Precision and VSI acquisitions as well as strong demand in Neurovascular. On a trailing 4-quarter basis, C&V sales increased 18% year-over-year with strong growth from new product ramps in electrophysiology and neurovascular, as well as contribution from acquisitions. For the full year 2025, we expect C&V sales to grow in the mid-teens compared to full year 2024, which is consistent with what we shared on our July earnings call.

In the fourth quarter of 2025, we expect C&V sales growth to decelerate from recent trends, reflecting a decline in the 2 new products in electrophysiology mentioned earlier. This is consistent with our prior outlook. However, we now expect this impact to continue into 2026, primarily the first half. Cardiac Rhythm Management & Neuromodulation sales increased year-over-year 2% in the third quarter 2025 and 4% on a trailing 4-quarter basis, driven by strong growth from emerging neuromodulation customers with PMA products and normalized CRM growth, partially offset by the planned decline of a neuromodulation program.

For the full year 2025, we we now expect CRM&N sales to grow low single digit versus 2024 compared to our previous expectation of mid-single-digit growth. This is primarily due to lower demand related to select emerging customers with PMA products. 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 third quarter 2025, we delivered $63 million of adjusted net income, up $13 million versus a year ago. This increase was driven mainly by operational improvements, which include higher sales volume, manufacturing efficiencies, gross margin expansion, 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 slightly lower adjusted effective tax rate.

Our adjusted effective tax rate was 16.3% for the third quarter of 2025, down from 17.2% in the prior year. We now expect our full year 2025 rate to be within the range of 17% to 18%, which is 150 basis points better than our guidance in July. This improvement is primarily due to an improved outlook regarding R&D tax credits given our higher R&D investments.

The year-over-year increase in adjusted weighted average shares outstanding drove approximately $0.02 reduction to our adjusted EPS. In aggregate, third quarter 2025 adjusted net income is up 27% year-over-year and adjusted earnings per share is up 25%, both growing much faster than our 8% sales growth, a very strong profit performance in the third quarter.

In the third quarter of 2025, we generated $66 million of cash flow from operations, and our CapEx spend in the third quarter was $19 million. Free cash flow was $46 million in the third quarter, flat with the prior year. At the end of the third quarter, net total debt was $1.158 billion, which is a $46 million decrease compared to the second quarter 2025 ending balance. Our net total debt leverage at the end of the third quarter was 3x trailing 4 quarter adjusted EBITDA at the midpoint of our strategic target range of 2.5x to 3.5x.

As Payman mentioned earlier, we are adjusting our sales and profit outlook ranges for 2025. Starting with our sales outlook. For the full year, we now expect reported sales to be in the range of $1.840 billion to $1.854 billion, reflecting growth of 7% to 8% on a reported basis. This 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. On an organic basis, we now expect sales to increase 5% to 6%.

Our updated outlook represents a $16 million reduction at the midpoint compared to our July outlook, reflecting reduced expectations for our CRM&N product line. As mentioned earlier, the reduction in CRM&N sales was primarily driven by reduced customer demand for select emerging customers.

For the fourth quarter, we expect reported sales growth of 2% to 5%. On an organic basis, sales are expected to be down 1% to up 2%. We have a more challenging year-over-year growth comparison as last year we benefited from new product ramps in both our CMD and CRM&N product lines. Consistent with our prior outlook, we expect lower sales in our electrophysiology business. The fourth quarter also reflects our reduced outlook for CRM&N. Even though we are adjusting our sales outlook, we continue to expect strong margin expansion driven by improvement in manufacturing efficiency and operating expense leverage.

At the midpoint of our outlook, we continue to expect adjusted operating income as a percentage of sales to be 17.4% in 2025, an 85 basis point expansion compared to the full year 2024. This would result in a 13% increase in adjusted operating profit, a strong performance for the year. For adjusted operating income, we now expect a range of between $319 million to $325 million, growth of 12% to 14%, reflecting cost management actions to minimize the impact of our lower sales outlook. While still maintaining the same low end of our previous outlook range, this represents a $3 million reduction at the midpoint.

For adjusted net income, we now expect a range of between $222 million and $227 million, an increase of 21% to 24% versus 2024, reflecting the strong operational performance, reduced interest expense and a lower adjusted effective tax rate. Lastly, we now expect adjusted earnings per share of between $6.29 and $6.43 which is a strong growth of 19% to 21% on a year-over-year basis. Our outlook assumes an adjusted weighted average diluted shares outstanding of 35.4 million shares for the full year 2025.

Given the changes in our profit outlook, we are also updating our cash flow projections. We expect cash flow from operations to be between $230 million to $240 million, which represents a 15% year-over-year increase at the midpoint of the outlook. We now expect capital expenditures to be $95 million to $105 million. As a result, we expect to generate free cash flow between $130 million and $140 million, which represents a 35% year-over-year increase at the [indiscernible].

We expect our 2025 year-end net total debt to be between $1.098 billion and $1.108 billion. This would result in a leverage ratio of between 2.7 and 2.8x trailing 4 quarter adjusted EBITDA, which is towards the lower end of our target range of 2.5 to 3.5x. And I'll now turn the call over to Payman to discuss our preliminary outlook for 2026 and 2027.

Thank you, Diron. Due to the recent customer updates reducing volume of select new product in 2026 because of lower adoption in the marketplace and its expected impact on our 2026 sales. We are sharing our preliminary 2026 outlook earlier than usual. We remain confident in our long-term growth based on our robust development pipeline and the strong visibility we have 2 new product launches. This is why we're also providing a preliminary 2027 outlook. We expect 2026 reported sales to be down 2% to up 2% versus 2025, which includes an approximate 2% headwind from the planned portable medical exit that we will complete in 2025.

On an organic sales basis, we expect to be flat to up low single digits. As I mentioned earlier, we recently received customer updates regarding 3 new products. Based on these updates, we now anticipate our sales for these 3 products to decline in 2026, which we expect to be a 3% to 4% headwind to our sales outlook. This offsets the expected 4% to 7% growth across the remaining portion of the business.

The new product headwinds will be more pronounced in the first half of 2026. As a result, we expect our organic sales to decline low single digits in the first half of the year, with a recovery to market growth in the second half of the year. We expect the inorganic headwind from the portable medical exit to be similar in the first half and the second half of 2026. From a product line perspective, we expect both C&V and CRM&N to be flat to up low single digits on a reported basis as we navigate the select new product headwinds. In other markets, we expect a decline of approximately $30 million to $35 million, primarily driven by the Portable Medical exit.

We're actively taking steps to align our costs with manufacturing volumes. Based on our preliminary assessment, we expect adjusted operating income in 2026 to range from a decline of 5% to an increase of 4% and adjusted EPS to range from down 6% to up 5%. As we look beyond 2026, we have a strong development pipeline with good visibility to new product introduction schedules over the next couple of years. Given the strength of this development pipeline, we expect to return to above-market growth in 2027.

We continue to expand our product development pipeline with a focus on getting designed in early to new products in higher-growth markets. Since 2017, we project that by the end of 2025, our product development sales will increase by over 300%. This is up from the 270% growth that we shared at the end of 2024. Our mix continues to be approximately 80% in emerging and growth markets and 20% in more mature markets.

We remain confident in our strategy and the long-term outlook for the business. The markets in which we compete are growing at a steady mid-single-digit rate in aggregate, and our approach is to secure early design wins in higher growth end markets. Approximately 70% of our sales are under multiyear agreements. In addition to driving strong organic growth, we plan to continue our tuck-in acquisition strategy while maintaining our leverage ratio within our targeted range of 2.5 to 3.5x.

We have demonstrated that our strategy delivers results over the long term and remain focused on execution while we navigate the next 3 quarters.

In summary, we delivered strong results for the third quarter, with sales growth of 8%, adjusted operating income growth of 14% and adjusted EPS growth of 25%. On a year-to-date basis, sales are up 9%, adjusted operating income up 14% and adjusted EPS up 20%. While we're updating our 2025 sales and profit outlook, and expect a more flattish sales performance in 2026. We are confident in our ability to return to 200 basis points above market growth in 2027, driven by our strong new product development pipeline. We will now turn the call over to our moderator for the Q&A portion of the call.

[Operator Instructions] Our first question comes from the line of Brett Fishbin with KeyBanc.

Just a couple on the early 2026, if you can hit on the specific headwinds in a second. I was just curious, the green bar that related to rest of portfolio, organic growth is 4% to 7%. And I was hoping you could maybe touch on that part of the plan, given the deviation from the typical 6% to 8% when looking at it, excluding some of those new product introduction headwinds?

Yes, let me take that question. So -- what drives above-market growth of the 6% to 8% that you talked about is the new product introductions. Without new product introductions, the rest of our portfolio will grow at the rate of market. Now the headwinds that we're talking about, these 3 programs that we've highlighted that have given us headwinds in 2026, they're actually declining in 2026, which is -- which normally that would have helped us drive growth and get to that 6% to 8% range. So it's -- when you remove new products, the rest of the portfolio is expected to grow at the rate of market.

All right. Helpful. And then maybe specifically on the cardio and vascular items. I was hoping you could elaborate just a little bit on kind of the nature of the expected headwinds, whether it's a matter of loss of customer share of wallet for either of the 2 programs or whether it's tied to actual end market demand on both sides there?

And then maybe I'll just squeeze in, like 1 quick follow-up. Just any thoughts on level of visibility into the return to market growth by 2H of next year, like how you get confident in such an improvement from, call it, like 2Q '26 into 3Q '26?

Yes, no problem. Thank you. So let me actually broaden your first question a little bit. I know your question was related to C&V. None of the products and customers that are talking about giving us headwinds either in 2025 or 2026 are loss products, loss of share in sourcing or products that are being pulled from the market. We are still the supplier for this part, and these products, all of them are still in the marketplace.

Now getting specific to your cardio and vascular question, the headwinds that we are seeing is related to 2 electrophysiology products that has strong ramp in the first half of 2025, that we had anticipated would level out and that sat down a little bit in the second half of 2025. And then we had visibility to the rate of growth kind of entering into 2026. These EP programs were scheduled to step up as we enter 2026.

What we learned during the course of the third quarter is that the market adoption of these products has been less than what we had anticipated. This is new news. And as you can imagine, with the changing production plans and whatnot, we were -- we have been in discussion with our customers, since -- during the course of the third quarter, entering into the fourth quarter to kind of get our arms around it and the outlook that we're giving you right now for 2026 is as a result of this reduction being forecast.

Now you talked about your second question being the level of visibility that we have. We still believe that we have very good visibility in our business. We have -- our backlog has remained steady. We entered the year at above $728 million of backlog and our backlog is still around the same number, around $730 million. That gives us good visibility. We have a rolling customer forecasts from our customers for 12 months. We still have that visibility. Now what brings into question is the change that we're talking about today.

And what I would like to highlight is maybe a little bit of a delineation between -- the -- some of the variability that we have in new product launches and how that can change over time as the products ramp, get into the market, get adopted at different rates and how our customers see changes that's what we're talking about. New product launches are inherently lumpy, if you will.

But generally speaking, we see some do better, some do worse, Net total is that we kind of end up in the range that we had anticipated. What is unusual in this case is that we have a number of these programs having a big magnitude of change all at the same time. That is unusual. Let me just add 1 more answer to the question. I think one of the questions that you had is, in the second half of 2026, we are going to be anniversarying the big ramp, the growth that we had in the first half of 2026, which gives us also confidence in getting back to growth -- of 2025, pardon me, the first half of 2025.

Next question comes from the line of Travis Steed with Bank of America.

I guess one, just -- is this a PSA product or an RF product that's changed in EP? And is it -- basically, it sounds like it's a customer who as of Q3 you didn't really know about it until Q3. I just want to make sure that's clear. And it sounds like it's a customer where they just have a different view of the end market demand, and that's really the only change in the EP side. Is that right?

Yes. So let me try to frame it in the context of 2 EP products. I can't be specific about the type of product, Travis, but it is 2 EP products. Now what you stated about the customer's learning about their demand is accurate. So what happened is that they had given us a forecast based on what they anticipated the rate of adoption in the market would be. There was a ramp period in the first half of 2025 and there was a leveling out and a little bit of a lowering as they were trying to gauge the rate of market adoption and their rate of sales.

And then we had a forecast entering into 2026 that would be then stepping up. What changed is that they came to us in the third quarter effectively telling us that the rate of adoption has not been as they had anticipated as a result, 2026 is going to be impacting.

Okay. And you didn't know about it until Q3, it sounds like?

We did not know about it until the third quarter. And as I mentioned earlier, when we learned about this, obviously, we work with them to try to understand the the rate of change, the magnitude, our production plans because, obviously, you can change your production plans very quickly. So these discussions also continued into the fourth quarter.

Okay. And is it a U.S. product or an international product? Or both?

We -- I can't be more specific than that Travis. I wish I could be. But because of the confidentiality that we have with our customers, I need to be -- I need to make sure that I can't be overly specific that the product is identifiable other than these are 2 products in the EP space. .

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

So it sounds -- I think I have an idea of what's going on in EP. Could you please explain if it was a similar dynamic that went on in neuromodulation, where things were supposed to ramp at a particular rate. And then in the third quarter, people came back and said, "No, no, that's not what's really going on." Is it a similar dynamic or a different dynamic?

We believe that it has to do with the rate of market adoption of select products in this space. So this book of business, our emerging customers with PMA product has done really well. over the past many years. We've talked about the rate of growth of this book of business. And as we entered in 2025, we continue to have very strong growth. In fact, I would even say into the third quarter, that book of business was growing well in the rate of 15% to 20%, and we had anticipated the same rate of growth in the second half that we had seen in the first half.

But what happened is that in the third quarter, some of these customers, we learned that the forecast that we had anticipated is not materializing for some of these customers. And we think what's happening is that the primary reason for the change is they are they're trying to align the purchases from us to match the market demand that they're seeing.

That's in both section sorry...

Apologies. So I think your question was to make sure that I'm asking your question accurately. I think your question was related to 2025 because the impact that I talked about is specific to the fourth quarter of 2025. Was that your question?

No. Actually, I thought you did agree explanation of EP, and I was curious if it was a similar explanation for neuromod.

It's similar in the sense that we believe that a handful of these customers are not seeing the rate of market adoption that they had anticipated. This is -- it's a similar dynamic from that perspective. Now the book of business of these emerging customers is still growing. It's growing in 2025, even with a decline in the fourth quarter. The rate of growth is going to be in the high single-digit rate, which is in alignment with neuromodulation -- so it is -- we think there are -- we think this is just a question of a handful of these customers chewing up what they've bought from us with what they're seeing in the marketplace.

Okay. Have you ever had an experience where you've had multiple customers, 3 in this case, sort of change their path in terms of their forecast and their ordering patterns with you? Or do you view this as sort of an aberration in your history of this business?

This is an aberration and is highly unusual. We see a rate of variation with new products. This is just normal. Our customers see that, too. And we always take a step back and we look at what do we think the outcomes would be for each of these new products. And we kind of calculate a low case, if you will, a balanced view on the low case and a balanced view on the high case and on aggregate, we provide our guidance based on that. Some products do better than others, but it usually washes out.

So what we're talking about today is a number of them happening at the same time with a high level of magnitude. This is highly unusual.

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

Joe, best of luck in retirement. So Payman, just -- and sorry to stay on this topic on the C&V side. But as I calculated, I think it's about a $70 million reduction to your outlook for C&V for next year for those 2 EP products. I don't know if that's exactly the right number, but is that split evenly between these 2 programs? And then you say emerging customers, is that people coming along that were outside of maybe the top 3, your big 3 that are -- that make up about 45% of total sales. Is that how we should think about it?

So with regards to your first question, the math that you did is generally in the ballpark, but let me remind you that, that would be for 3 products, not for 2 EP products. So we have 3 products that have given us headwinds in 2026. 2 in electrophysiology, 1 in neuromodulation. Your second question is related, I think, to the emerging customers with PMA No, these are emerging customers. That's why we put them in that bucket.

These are customers that have new products, emerging therapies. We have about 39 customers that we've been working with and we have development pipeline with. 10 of those customers have products that are in the market or in different phases of launch. So these are not -- we're not necessarily talking about new modulation with the big customers. This is generally the grouping of customers that are newer and more emerging.

Okay. And the same goes on the EP side. It's people that are emerging versus those that are maybe a little bit more established for you guys again, you've got customer concentration among 3 big providers out there that I think is just under half of total sales. So it's the people that are not in that top 50 for you guys, top 50%, it's other providers.

Yes. Our EP business is very broad. So obviously, we we have a good pickup business with the largest OEMs as well as others. So it's a pretty broad business that we have. And we have products across the procedure. So any ablation procedure has different steps into it from the access to body, from navigating the body from mapping, diagnosing and, of course, doing ablation. We have product across the board with a different range of customers. Beyond that, I hope you understand that I can't be more specific.

Got it. Okay. That's helpful. And then on the neuromod side, is it -- I guess, just kind of [ enjoy ] this question, it's an existing customer that is now seeing a little less adoption than they had expected. I mean, again, it would seem to be a pretty sizable customer. Is that a sizable amount of revenue that you hadn't been anticipating. So is that a fair assessment of kind of what's going on in the neuromod side too?

I think this is a question related to 2026. Is that correct?

That's right, yes.

Yes. So the 1 customer that you're talking about, yes, they had a sizable growth in 2025. and you're seeing less adoption in the market that they had hold. So they have a sizable decline in 2026.

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

Can you just give color on -- so these 2 EP products in the neuromod product, how long were they in the market? I'm trying to understand, was there an inventory build in 2025 that contributed to the sales growth and then the end market demand is just not panning out? Is that what happened?

So these products have been launched recently, and they have been ramping. Both of them had strong ramp in -- excuse me, all 3 of them had strong ramp in 2025. The EP product specifically had strong ramp in the first half of the year, in the first 2 quarters which is typical when our customers launch -- continue launching products, there's usually a period of ramp because they want to make sure they have sufficient product in their distribution channels as they get products out.

And then there was a leveling out, which was, again, expected than anticipated once our customers then kind of precede the launch and they wait to see what the rate of adoption is. And as I mentioned earlier, they're seeing less than rate of adoption. The -- which is why they changed their forecast on us for, which is primarily 2026 impact. The neuromodulation product was a similar scenario in the sense that they had strong demand and strong growth in 2025, but they are not seeing the rate of adoption and they're seeing headwinds in the marketplace, which is why we're seeing a decline.

Okay. And just to confirm the 2 EP products there from 2 separate customers?

I'm not at liberty to specify that again because we need to make sure that we maintain the confidentiality. So I had to be a little bit less specific in terms of how many customers, but I can tell you that there are 2 products.

Right. Right. So at a high level, I mean, the EP market is -- the outlook is for a pretty strong growth. It sounds like these were novel products and not tied to like existing procedures because the overall outlook is pretty positive and what we're hearing from the manufacturers is pretty strong growth. So I'm just trying to understand were these kind of products that were not tied to procedure volumes as they are right now?

These are -- so let me start with the strength of the EP market in general, you're correct. The EP market is very strong. We have seen very strong growth in our EP business over the past 4 or 5 years, actually, including in 2025. So we -- our EP business has done really well. because, again, you're referencing some new products. But even if you take any new products out of the equation, we have a portfolio that goes into a typical ablation procedure. So as the EP market grows, our business has tailwind because of that.

Now -- if we -- if then I come back to the impact of these 2 products, if I remove the impact of these 2 products, our EP business still grows at the rate of market, which is doing really well. So this is isolated to the impact of these 2 EP products.

Okay. And just the last one for me. As we think about your prior outlook for the PMA portfolio, you're targeting 15% to 20%, 3- to 5-year CAGR. Is this kind of no longer intact.

No, it is still 15%, 20% CAGR over the next 3 to 5 years. We do anticipate some shorter-term headwinds, as we mentioned a little bit in the fourth quarter and during the course of 2026. Let me maybe add a little bit of color in 2026. We have -- if you take the one customer that we mentioned -- that I mentioned earlier that has headwind in 2026. If you take that out, the rest of the portfolio still grows at the radar market, and we expect to get to above market growth in 2027 and beyond. And that's because new products that we have in the pipeline that are scheduled to launch and within that grouping of customers. We're not counting of any of the products that are giving us headwinds now to rebound in 2017. It's more new product launches that we're expecting.

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

I'm going to ask maybe 1 more on the EP side, similar to 1 that was already asked. I know you can't get into the specific products, but like mentioned, EP procedures aren't really inflecting away from expectations from a market perspective. So given you talk about that breadth of portfolio, is there any potential for you to recapture some of this volume elsewhere with other customers? And what would that look like? And when could we think about seeing that if or when it potentially could play out?

Yes. Thank you for the question. So we -- our EP business, I would reiterate, as I said earlier, is doing very well, excluding these 2 products that are giving us headwind. And then I would also add that we have new products that are scheduled to launch in the second half of 2026 and 2027. In fact, we have new product launches. I'll go a little bit more broad and then I'll come back specific to EP.

We have new product launch on schedule in every one of our growth markets in EP, in neurovascular, structural heart and neuromodulation in the second half of 2026 and 2027. So we fully expect that we're going to get back to growth. Now back to EP specifically, one of the reasons why we are confident that we're going to get back to growth is because we're going to be anniversarying the strong rate of growth that we had in the first half of 2025 in the second half of 2026. We're not -- we don't have those costs anymore.

And when you add the strength of our EP portfolio in general and some of the other product launches that are planned, we are confident that we're going to get to growth in the second half of 2026 and to above market growth in 2027.

Okay. Helpful. And then maybe a second one, just on margins and your ability to sort of offset the drag here looking for close to flat profitability similar to what you're expecting for revenue. So -- how do we think about the magnitude of potential cost out that you might be able to achieve here? Or is this, hey, we've got to be able to drive volume back to where we would expect and that's when we get back to more of that margin expansion like a typical year.

Yes. And Andrew, this is Diron. Just to confirm, you're referring to the 2026 margin?

2026, correct, sorry. Correct.

Yes. So when we look at the '26 profit, as you know, we have put in a range of our adjusted operating income of down 5% to up 4%. That range, first of all, to note is very consistent with our sales range that we have also provided. So we're matching the sales range with that. Our profit algorithm, essentially, we rely on operating expense leverage on volume as well as our as well as our gross margin expansion primarily from an Integer production system.

As you can imagine, the volume piece of that algorithm will be a little bit more challenging in 2026. But we still have a very strong foundational process in our Integer production system where we where we focus on direct labor efficiency, where we reflect a focus on direct material efficiency as well. And we believe that's where we'll still be able to drive continuous improvement and see margin expansion.

At the same time, with the lower volumes, we will be very disciplined in our cost management as we manage through these 3 quarters of headwind that we're facing. And so we believe next year, although down 5% to up 4% on the AOI range, we believe that we will be able to deliver on that, and we'll work to narrow that range as we get into February.

Okay. I'll stop there. And Joe, congrats and enjoy your retirement.

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

Maybe I want to just go back to the process that you guys have for forecasting the business. I appreciate your [ CMO ], things are lumpy. You're dependent on customer orders. Historically, I think you said you have 3 months or more visibility. And usually, things work out, right, when you don't have 3 customers coalescing at once. So the puts and the takes work out. But I guess just in light of the fact that this happened this year, can you talk to us about any of the processes that need to be changed for your forecasting or how you potentially took into account the possibility for something like this happening again next year with the guidance that you're providing, where you guys are more of a steady eddie even with some of the quarterly variability. So I'm just trying to get a sense for how much visibility and then with the outlook that you're putting out now in '26, how we should be interpreting that from a conservatism standpoint.

Yes. And look, as you can imagine, we have been reflecting on this a lot. And we get customer forecast and we get purchase orders, as you correctly pointed out, and we got great visibility by our backlog, which, again, as I mentioned earlier, still in the range of $730-ish million, which gives us good visibility at least 1.5 quarters plus and then tie that to the forecasting that we get from our customers. This is highly unusual.

We are looking at what our algorithm is and has been and how we calculate, if you will, our forecast has not changed. We -- for products that are in the longer term in our pipeline, we risk adjust those. Our customers tell us a certain range of outcomes. We look at that, we risk adjust those. And also, as you correctly pointed out, in sum total, they kind of wash out, and we usually end up in that range, that we expect 4 products that are longer, if you will, in the development cycle.

In the shorter term, our production plan is based on what our customers tell us. If the customers tell us to build and deliver X, that's what we will do. So what's unusual is that they came to us and revised their forecast that impacted a shorter term than we would normally expect. So again, we're talking about the unusual nature of multiple customers, multiple products, large magnitude all in a short period of time. We don't expect and anticipate that this will be a recurring thing. This is unusual.

Okay. And then -- hello, can you hear me?

Yes, yes, of course.

Sorry. Just maybe going back to the differences in the EP products, the electrophysiology projects and the neuromod projects. These are both products that were on the market and generating revenues throughout 2015 and in prior periods. These are not new and emerging PMA products where the PMA is about to get going or waiting for approval, correct? They just fall in the bucket of your PMA kind of R&D division. Is that right?

Both of these -- or all 3 of the products in EP and neuromod are products that have been in the market in 2025 and are still on the market and expected to be in the market in 2026. We are also the supplier for these products. In terms of the supply, nothing has changed it just has to do with the rate of adoption of the products that our customers are seeing.

Okay. And then just a follow-up on that. Are any of them finished good situations. I know you have -- you guys insert yourselves in many parts of the manufacturing processes. You can be very small slivers for different product areas. Is this -- are any of these related to finished goods where you have a bigger percentage of the overall manufacturing?

It's -- we have had a good portion. What I can be specific on is that we have a good portion of a bill of material beyond that, Rich, I can't be more specific.

Your next question comes from the line of Suraj Kalia with Oppenheimer.

Good morning, gentlemen. Joe, congrats on your retirement. Wish you the very best. Payman, can you hear me all right?

Yes, I can.

So Payman, Diron, a lot of things have been thrown in this call. So forgive me if this question is long, just hopefully, I makes sense here. So Payman, by definition, there are demand schedules established through which you'll come up with your backlog, right? You say your backlog is largely unchanged, but 2 EP customers have seen softness. So I'm struggling to reconcile the contractual arrangements versus the suddenness of the demand curve moving leftward.

I'm also struggling, Payman, just doing an exercise here, right? I'm trying to connect all the dots here on the EP side. So you're bullish about a new product in second half '26. Logic tells us that's [ world ]. BSX already has -- is in the market, right? But there are 2 customers that you'll have seen the demand schedule move left. I mean, logic tells me you are implicitly telegraphing it's change in Medtronic. I know it's a long question, payment. Help us understand because it's like suddenly a lot has been thrown in this whole story.

Siraj, I fully appreciate the question of what you're talking about. Yes, there are a number of moving parts, and that's what I keep referring as as being highly unusual for us. So let me talk specifically about your first question, which had to do with our backlog and our visibility to orders. Yes, customers place orders. Again, if we have about $730-ish million in backlog, that is about 1.5 quarter worth of orders, right? I mean, if you want to just kind of look at it on average. So that's where we have good visibility to.

Now let me highlight the following: we always work with our customers to meet their demand needs. If our customers tell us that they have purchase orders that they need us to then exceed and try to increase our capacity, we do everything that we can to do that, and we do the opposite as well. We try to work with them. If they come and tell us, look, I have more demand on you that I need, and I would like to scale that down. We work with them to do this in an orderly manner. And not necessarily look at, if you will, contracts and whatnot. We try to work with them to try to meet their demands and needs.

Now let me highlight and be specific that the impact of electrophysiology products is 2026. We don't expect an impact on that in 2025, and our C&V business is still expected to grow per our previous guidance, which was in the mid-teens. So that has not changed, that is purely a 2026 impact. And let me also highlight that we are mostly sole sourced in our business. And ultimately, we see the products that end up in the marketplace even though if there are fluctuations in the shorter term and a little bit of variability, where we are sole sourcing the products, we end up seeing that demand over time.

Maybe I think you had another question, Suraj, that was specifically a products and customers. And of course, you understand that I can't be more specific on those.

I totally respect, Payman and I hope you all appreciate. That's why all of us are trying to get bits and pieces here. So Payman, on the second part of my question, right, on the Q2 call, you'll add $5 million to $10 million, at least that was, if I remember correctly, pull-through in revenues. Payman, can you be a little more specific and tell us if it was specifically in EP?

And part of the reason I ask this is if you were already -- there was already a sense of softness brewing on the EP side. Ultimately, payment, it is hard to reconcile other company commentary in the EP space with what you are seeing, right, the RFA softness has already been telegraphed. I cannot imagine that is the reason for the softness. So logic tells us there's something growing in PFA. I'm just trying to connect all the dots here. Sorry for the lengthy question.

No, fully understand Suraj, thanks for all the questions. So let me try to address them one by one. The shift between 3Q and 2Q was multiple products. There were about 3 separate events that I had mentioned that were not specific to EP. So that was multiple products. With regards to what you're talking about the strength in the EP space, you're absolutely correct. The EP market is doing really well. And we have and in 2025, continue to do well and will do so in 2016 as well if you exclude the impact of the 2 products in question that are declining.

So our portfolio in the electrophysiology continues to do really well, and we expect it to grow at the rate of market in 2026, excluding the negative impact of these 2 EP products. And once we anniversary in the second half of the year, the impact of the ramp that we had in the first half of 2025, we fully expect to get back to growth for our total business but of course, in EP as well to the rate of market growth and then be above market growth in 2027. We see this as a 3-quarter headwind, in the fourth quarter and the first half of 2026, and we fully expect to get back to growth in the second half of '26 and above market growth in 2027.

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

One more follow-up here. But -- maybe just diving into this one other way. Can you share a little bit of context on the EP side of how much of this is lapping inventory build versus truly lowering how you and your customers think about the end market demand because I think that's the question we're all trying to get to. If these customers are slower, are you telling us the end market is a little bit slower and it's not getting made up for elsewhere, it's getting made up for in other customers that you don't work with or other players that you don't work with or kind of what is the situation there?

Because I think that's kind of one of the key pieces here. that all these questions are going to in terms of what's going on in the EP market versus specific customers given you are broadly exposed like you talked about.

Yes, I fully understand the question. And it's as an element of both. I mean our customers had a ramp. They got products from us. They're adjusting. They're getting real-time feedback as to the rate of adoption in the marketplace, what they're seeing those products doing and they're adjusting their demand on us. So it's probably an element of both.

And that's all the time we have for questions. I will now turn the call back over to Payman Khales for closing remarks.

Okay. Thanks, everyone, and I'd like to summarize our conversation today. We're facing a 3-quarter sales headwind, and we expect to return to growth in the second half of 2026. We have a strong development pipeline and expect to get to above market growth in 2027 and as I take on the helm, I'm excited to lead our team to deliver for patients, customers and shareholders. And thank you again for your time and interest in Integer.

Thank you again for joining us today. You can access the replay of this call as well as the presentation on Integer's investor website at integer.net. This concludes today's conference call. You may now disconnect.