Integer Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 26, 2023

Key Takeaways

  • Integer delivered Q3 organic sales growth of 18% with adjusted operating income up 39% and 240 bps margin expansion, and raised full-year guidance to 15% sales growth and 25% operating-income growth.
  • Completed the acquisition of certain assets of NeuroCo for $42 million (net $37 million after tax benefits), an immediately EPS-accretive deal expected to generate $20 million of sales synergies by 2027 and bolster neurovascular capabilities.
  • Generated $62 million of Q3 operating cash flow and $37 million of free cash flow, reduced net debt by $38 million to 3.1× EBITDA, and maintained capital expenditures at $100–120 million.
  • Advanced Surgical, Orthopedics & Portable Medical sales declined 13% in Q3, and non-medical Electrochem sales fell 25% as volumes normalized after supply-chain recovery gains.
  • Achieved positive pricing this year to offset material and labor inflation, and expects to maintain a roughly price-neutral stance in 2024.
AI Generated. May Contain Errors.
Earnings Conference Call
Integer Q3 2023
00:00 / 00:00

There are 7 speakers on the call.

Operator

Hello, and welcome to the Integer Holdings Corporation Third Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I will now turn the conference over to Mr. Andrew Sen, Senior Vice President, Strategy, Business Development and Investor Relations.

Operator

Please go ahead.

Speaker 1

Good morning, everyone. Thank you for joining us, and welcome to Integer's Q3 2023 earnings conference call. With me today are Joe Dzic, President and Chief Executive Officer and Dyrin Smith, Executive Vice President and Chief Financial Officer. As a reminder, the results and the data we discuss today reflect the consolidated results of Integer for the periods indicated. During our call, we will discuss some non GAAP financial measures.

Speaker 1

For reconciliation of these non GAAP financial measures, please refer to the appendix of today's presentation, today's earnings press release and the training schedules, which are available on our website at integer.net. Please note that today's presentation includes forward looking statements. Please refer to the company's SEC filings for a discussion of the risk factors that could cause our actual results to differ materially. On today's call, Joe will provide his opening comments and will share some exciting news regarding the strategic acquisition. Tyrone will then review our financial results for the Q3 3 and provide an update on our full year 2023 guidance.

Speaker 1

Joe will come back to provide his closing remarks, and then we will open the call for your questions. With that, I will turn the call over to Joe.

Speaker 2

Thank you, Andrew, and thank you to everyone for joining the call today. First, I would like to congratulate Dyrin Smith On being appointed our Chief Financial Officer, Diren joined Integer in 2021 as our global FP and A leader. He brings strong manufacturing and operational finance experience to the CFO role with a leadership style that is collaborative and candid. Dyran is focused on enabling the business to deliver excellence for our customers, which will lead to great results for investors. I look forward to partnering with Dyren as we execute our strategy to earn a premium valuation.

Speaker 2

Before I provide an update on Integer, I'd like to take a moment to remember our long time sell side analyst from KeyBanc, Matt Michon, who passed away unexpectedly on September 8. Matt was greatly respected within our industry. He was always energetic, thoughtful and brought a sense of humor to what we all do every day. He will be missed and our hearts go out to his family, friends and colleagues. Transitioning to our earnings call.

Speaker 2

We delivered another quarter of strong year over year results. Sales grew 18% organically from robust customer demand across our targeted growth markets. Our adjusted operating income grew 39%, while expanding margins by approximately 2 40 basis points compared to last year. We were able to deliver more products to our customers than our prior guidance assumed. We expanded margins from volume leverage as well as efficiencies gained from an improving supply chain.

Speaker 2

Based on continued strong customer demand, we are raising our full year outlook again. At the midpoint of our guidance, we expect full year sales to grow 15% and adjusted operating income to grow 25% year over year. The strategy that we began implementing in 2018 is producing above market sales growth with a pipeline to sustain growth at 200 basis points above the market. We are expanding margins in 2023 and remain confident we can achieve our strategic financial objective of growing operating income at 2x the rate of sales growth. We expect to achieve this through the execution of our manufacturing excellence strategies and further stabilization of the supply chain and direct labor environments.

Speaker 2

It is an exciting time at Integer because demand remains incredibly strong. We have a robust pipeline of new products concentrated in faster growing end markets and we are making the investments needed to deliver sustained growth, including tuck in acquisitions. Earlier this month, we completed the acquisition of certain assets of NeuroCo, A company specializing in neurovascular catheters. And NeuroCo brings deep design expertise and manufacturing capabilities And high growth neurovascular catheters that are primarily used in the treatment of ischemic strokes and intracranial aneurysms. They developed and currently manufacture a portfolio of aspiration catheters and a portfolio of neurovascular radial access catheters For the industry leading OEMs, we acquired a NeuroCoat for $42,000,000 plus potential earn outs for achieving specific revenue targets through 2027.

Speaker 2

The effective purchase price is approximately $5,000,000 lower after considering the net present value of cash tax benefits resulting from the acquisition structure. We expect sales synergy of approximately $20,000,000 By 2027 from a NeuroCo's design and development team supporting our existing pipeline of neurovascular catheter opportunities. The transaction is immediately accretive to EPS. 3 of the high growth markets that Integer targets are highlighted in the blue box on this Chart structural heart, electrophysiology and neurovascular. We have the breadth and depth of capabilities needed to serve our customers in these faster growth markets.

Speaker 2

And as the demand for neurovascular catheter outsourcing accelerates, Integer is now even better positioned To capitalize on this high growth market, neurovascular catheters are technically complex and include neurovascular guide catheters, aspiration catheters and radial access catheters. The acquisition of a NeuroCom is completely aligned with our strategy to add or strengthen differentiated capabilities that enable us to provide innovative solutions to our customers in high growth markets. I'll now turn the call over to Diren. Thank you, Joe. Good morning, everyone, and thank you again for joining today's discussion.

Speaker 2

I'll provide more details on our Q3 3rd quarter results are not impacted by our acquisition of the NeuroCo, while the full year outlook includes this acquisition. We continued our first half momentum through the Q3, delivering another quarter of strong performance. With sales of $405,000,000 Energir delivered 18% year over year sales growth on both a reported and an organic basis, which excludes the impact of currency fluctuations. Our sales performance reflects the continued strong customer demand across our targeted growth markets and the ongoing improvements in the supply chain environment. We delivered $81,000,000 of adjusted EBITDA, up $18,000,000 compared to the prior year or an increase of 28% and adjusted operating income increased 39% or $18,000,000 versus last year.

Speaker 2

As we continue to make progress on our year over year margin expansion, adjusted operating income as a percent of sales increased by 2 40 basis points versus prior year to 15.9 percent driven by volume leverage and efficiencies gained from the continued improvement in the supply chain. With adjusted net income of $43,000,000 we delivered $1.27 of adjusted diluted earnings per share, up $0.32 or 34 percent from the Q3 of 2022. I will touch on the year over year growth and adjusted net income in a few moments. Diving deeper into our sales by product line, we delivered strong year over year growth in our C and V And CR M and N product lines in the Q3 of 2023. Cardio and Vascular 23% sales growth in the Q3 compared to a year ago.

Speaker 2

This double digit growth was driven by continued strong demand across all markets, Growth in key products such as guide wires, new product ramps in electrophysiology and structural heart and supply chain improvements. Cardiac Rhythm Management and Neuromodulation's 3rd quarter sales increased 22% over the Q3 of 2022 With double digit growth in both cardiac rhythm management and in neuromodulation. This was driven by strong demand, double digit growth from emerging customers with PMA products and supply chain improvements. Advanced Surgical, Orthopedics and Portable Medical saw a 13% decline in the Q3 versus a year ago, driven by execution of the planned multiyear portable medical exit announced in 2022 And low double digit decline of Advanced Surgical and Orthopedics. And lastly, Electrochem, our non medical segment, declined 25% from a year ago, returning to a normalized run rate after previously higher sales from the supply chain recovery.

Speaker 2

Further product line details are included in the appendix of the presentation on our website at integer.net. Q3 2023 adjusted net income increased a total of $11,000,000 compared to the Q3 2022. Strong sales and related operational improvements delivered $16,000,000 of the increase, minimally offset by foreign exchange rate fluctuations as well as higher interest and taxes. Year over year interest expense increased only $1,000,000 as the higher market based interest rates were mostly offset by the benefit from the lower fixed interest rate convertible notes issued in January of this year. Additionally, as we described in the 2nd quarter earnings call, The primary driver of our higher adjusted effective tax rate in Q3 2023 compared to the prior year is the expiration of the 10 year Malaysian tax holiday.

Speaker 2

In the Q3 2023, we generated $62,000,000 in cash flow from operations, up $35,000,000 from a year ago and $6,000,000 higher than the prior quarter. This strong performance was driven by higher sales volumes, improving margins And our continued management of working capital. In the 3rd quarter, we generated $37,000,000 in free cash flow, inclusive of $25,000,000 of capital expenditures. 3rd quarter year to date, we have generated $125,000,000 in cash flow from operations And invested $83,000,000 in CapEx, resulting in $42,000,000 of free cash flow. Net total debt in the 3rd quarter reduced by $38,000,000 sequentially, and our net total debt leverage at the end of the 3rd quarter was 3.1 times our trailing 4 quarter adjusted EBITDA well within our strategic target range.

Speaker 2

Now let's spend some time discussing our updated outlook for the full year 2023. As Joe mentioned in his opening remarks, With our continued strong performance, we are raising our full year 2023 outlook. Our updated outlook is inclusive of our recent acquisition of Inuraco. Starting with sales, we are increasing our outlook by $45,000,000 to 15% year over year growth at midpoint With a sales range of $1,575,000,000 to $1,595,000,000 An increase of 14% to 16% versus last year, up from our previous guidance of 11% to 13%. Our outlook for 2023 adjusted EBITDA is 18% to 21% growth year over year with a range of $302,000,000 to outlook by $11,000,000 at midpoint and expect 2023 to be between $235,000,000 $243,000,000 reflecting a strong year over year growth of 22% to 27%.

Speaker 2

At the midpoint of 25%, our adjusted operating income is growing at 1.6 times the rate of sales growth. Adjusted net income is now expected to be between $151,000,000 $157,000,000 reflecting a year over year growth of 16% to 22%, up from our previous guidance of 10% to 15%. This delivers an Expected adjusted EPS outlook between $4.47 $4.67 a growth of 15% to 20% year over year. Our latest view of the adjusted effective tax rate is projected to be between 17.5% 18.5%. We continue to see strong performance quarter after quarter, which has given us confidence to raise our outlook for sales and adjusted operating income as a percent of sales again.

Speaker 2

Since our initial guidance this year, we have raised our sales outlook at midpoint by $100,000,000 including $5,000,000 for the InurowCo acquisition in the 4th quarter. Additionally, we have increased our adjusted operating income as a percent of sales by 50 basis points since our initial guidance in February And now expect a 113 basis point improvement year over year for the full year. We expect cash flow from operations between $185,000,000 to $205,000,000 This includes an expected full year impact of $30,000,000 to $35,000,000 from accounts receivable factoring to support capacity investments in our Irish manufacturing facilities, which we shared during our February earnings call. While 2023 sales are $100,000,000 higher than our initial guidance, We are maintaining our outlook on capital expenditures of $100,000,000 to $120,000,000 Additionally, we expect to generate free cash flow between 75 $95,000,000 Inclusive of our $42,000,000 acquisition of Inuerto, we expect our 2020 3 year end net total debt to be between $925,000,000 $945,000,000 which is approximately flat to up $20,000,000 from the end of Q3 2023. We expect 4th quarter free cash flow to mostly offset the purchase of Aduraco, resulting in an expected net total debt leverage ratio at year end well within our target range of 2.5 times to 3.5 times our trailing 4 quarter adjusted EBITDA.

Speaker 2

With that, I'll turn the call back to Joe. Thank you. Thanks, Byron. Integer is having a strong year With 3rd quarter year to date sales up 18% and adjusted operating income up 29%, including raising guidance the last two quarters. We continue to execute our strategy to deliver sustained above market growth with expanding margins.

Speaker 2

We have a strong pipeline of new products And continue to invest in differentiated capabilities both organically and inorganically to sustain above market growth. We closed another accretive tuck in acquisition in a high growth market. We remain focused on delivering for our customers and the patients they serve to generate a premium valuation for our shareholders. Thank you for joining our call this morning. I'll now turn the call back to our moderator for the Q and A portion of our call.

Operator

Thank you. Your first question comes from the line of Craig Bijou with Bank of America. Your line is open.

Speaker 3

Good morning, guys. Thanks for taking the question. And Diron, congrats Making the role permanent. Look forward to working with you. And congrats on a great quarter.

Speaker 3

So Let me start with the very strong growth that you guys have seen in the quarter and over the last really several quarters. And I know you talked a little bit about the drivers of that, but I wanted to see if you maybe expand upon some of your comments. What would you attribute the growth to? Is it the end markets that are growing faster? Are Do you think you're being utilized more by existing customers?

Speaker 3

And or is it new customer adds?

Speaker 2

Great. Good morning, Craig. I'll start with thank you. And we do have incredibly strong growth, 15% growth at midpoint, Up from 12% that we had guided to on our last call. And I will point to a number of things.

Speaker 2

There is not 1 or 2 things driving it. And I'll address I do think we do think the industry is probably growing faster than the mid single digit, which are the markets we serve have a long term growth rate of mid single digits. We think the industry is growing faster than that. As we get more of our customers reported results, we'll shape our view of what we think The industry is doing for the markets we're serving. But I'd point to emerging customers for us, which we characterize emerging customers as our earlier stage neuromodulation customers and we've highlighted in-depth the number of customers we have in early stage development programs And we've mapped them out through the clinical regulatory and product introduction phases.

Speaker 2

We highlighted that last year 2022, We had about $50,000,000 of sales with 9 of those customers that are in product introduction or launch phase. And that by next year 2024, we would expect that $80,000,000 to $100,000,000 so doubling. And we're seeing the growth that we would expect in 2023 in that mid in between 2022 and 2024 Growth rate that we set up double. We're seeing that growth. That's a couple of 3% 2% to 3% of our year over year growth this year.

Speaker 2

All the new products that we've been working on from the pipeline of development work that we've been doing, we've highlighted A number of times how our pipeline of development programs has gone up 2 30 plus percent over the last 5 years and that we've shifted that mix 80% of those programs in those faster growing end markets that we're targeting, structural heart, electrophysiology, neurovascular, neuromodulation, We're seeing those new products being introduced and launched into the marketplace. That's driving at least a couple of 100 basis points of that year over year growth. The acquisitions we've done, Oscar and Aaron, they are accretive to the integer level of growth rate. So that's order of magnitude, call it, 100 basis points roughly. We're making a big investment in our Irish facility that's focused on guide wires because demand in guide wires which is almost all minimally invasive procedures require at least 1 sometimes multiple guide wires.

Speaker 2

The industry demand is being reflected in the demand on our guide wire business, Particularly the facility in Ireland that we're adding 80,000 square foot expansion to, to take it to 200,000 plus square feet. We're seeing strong guide wire demand. We did have a little bit of volume we talked about at the end of last year beginning of this year that shifted Out of 2022 and into 2023 that was about $15,000,000 to $20,000,000 So you add up all these things and you get to 15% For the year, which we think is incredibly strong growth, we think we're growing faster than the market and we think we're growing meaningfully faster than our target at 200 basis points in 2023. When we think about long term growth rate, we still think the markets we're serving are growing in that mid single digit over the long term. We'll have a better view at the end of this year when we see all of our customers reporting by the markets that they report in.

Speaker 2

We'll have a view of what we think the market is. But I'll close with its widespread strength across a number of different elements of our strategy that we're executing. We believe we're outperforming both the industry and our targeted 200 basis points above the market. And your question about new or existing It's existing customers and then the early stage customers. I won't say they're new.

Speaker 2

They might be new to introducing something to the market, but we've been working with them For a number of years, in the particularly the emerging customer neuromod space. So the strength is widespread and we It's demonstrated outperformance versus both the industry and versus our targeted 200 basis points faster than the markets.

Speaker 3

Great. Thanks for all the details, Joe. My second question, There is a thought that a lot of the OEMs build up inventory to higher than traditional levels Over the last couple of years, mainly to protect against some supply chain disruptions, and that inventory will eventually be worked down. So I guess my question to you is that I just I guess I wanted to get your reactions to that thought process and that may just be an investor perspective. But wanted to get your reaction.

Speaker 3

And then is that a potential risk as you look out several quarters or into next year to your growth?

Speaker 2

So we don't see it as a risk because we believe we have built in exactly that already into our Q4 guidance. What when we study the orders we receive from customers in a pretty granular level by plant, by product, by customer, SKU level and then we work with our customers to interpret and understand what that signal means. The good news is we're still sitting on about $1,000,000,000 of orders in hand, that ship over the next mostly 12 to 15 months. So that gives us pretty good visibility. And one thing we're seeing here with our Q4 and we've incorporated this already into our guidance, We're seeing what we would characterize as a normal pre pandemic level of year end inventory planning by customers.

Speaker 2

Every year we see in Certain products, certain parts of our customers' businesses, what we interpret as they're managing inventory because they've got goals and targets And metrics to hit. And we're seeing what we would characterize as a normal level of that activity, which to us is a good sign because it signals that inventory levels might be at a healthy level for our customers and they're doing what they used to do before the pandemic. And so we feel like we've already built that into our Q4 guidance And that's been factored in. And so we don't see a risk of a meaningful maybe correction that there might be a

Speaker 3

Thanks. Thanks for taking the question, Joe, and congrats on the quarter.

Speaker 2

Thanks, Craig.

Operator

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

Speaker 4

Hey, this is Phil on for Matt. Congrats on the outstanding quarter and Byron congrats. I know we're looking forward to working with you. For starters, I can just on the pricing environment for you guys. I don't know if you disclosed how much price contributed to the growth in the quarter.

Speaker 4

But if you don't want to provide a specific number and I apologize for putting you on the spot. Can you just talk about your ability to take price, how durable you see this Moving forward as we look at 2024 and beyond.

Speaker 2

Phil, thanks for the question. Thanks for joining. And no worries, I'm putting this on the spot. It's our job to tell you our strategy and how we're executing it. From a pricing standpoint, What we've conveyed communicated this year is we have positive price.

Speaker 2

I would characterize it as it's an increase year over year, Which is very different than what we've historically had. Typically, we've been a 1% to 2% price down business. In 2022, we were right at 1% down and this year we're actually positive. But the reason we haven't quantified it or emphasized it is, We raised prices very specifically to cover the cost increases or some of the cost increases we've experienced in both labor and material. That's how we explain it to investors I'm sorry, to customers.

Speaker 2

That's how we quantified it. And ultimately, that was our objective is to get it enough price to cover some or all of that material and wage inflation and that's what we've done. It hasn't been to expand margins in the spirit of strategic partnership And ensuring we maintain a strong new product development pipeline with customers that's how we approach pricing. We expect going forward we're a price neutral ish business. We believe going forward based on the agreements we have in place that we can manage that On a looking forward basis, which is a meaningful change from where we've been historically.

Speaker 2

So that's how we think about price looking forward.

Speaker 4

Thanks for the color. And I guess just one last quick one from me. Given the investor interest in this category, How do you think of GLP-1s impacting some of your end markets and business in both the near term and longer terms, if at all?

Speaker 2

Great question. Well, I'll start with since the select trial was announced in early August, the MedTech space looks like it's down 15% to 20%. So I think there's certainly been an investor impact in perception. When we study the markets that we believe and that our customers say We'll be more heavily impacted by GLPs. It points to bariatric surgery and diabetes, Which are negligible.

Speaker 2

In fact, we don't really do anything to support diabetes and or bariatric surgery. And when we look at The markets we're focusing on to drive growth, structural heart and neurovascular, neuromodulation, electrophysiology, They would appear to have at least based on what our customers say and what the analysis thus far has been done, they would appear to be minimally impacted By GLPs, our demand remains strong in our targeted growth markets. We're not hearing or seeing customers say They are either changing orders or demand on us or expect to because of GLPs. You're hearing that on their earnings calls. And I In our order book and the demand we're seeing, we're not seeing that impact.

Speaker 2

And again, it's we're focused on procedures that treat structural heart, The defects of arrhythmias, cerebral aneurysms, pain management in neuromodulation, We're just not seeing an impact. Maybe it's too early, but our customers are not telling us they're expecting it. We're not seeing any impact in Both the order book or the development pipeline that we're working on. But it's certainly having an impact on the Evaluations of MedTech, that's clear.

Speaker 4

That's an understatement, but thanks so much and I'll hop back in line.

Operator

Thank you. Your next question comes from the line of Nathan Trebek With Wells Fargo, your line is open.

Speaker 5

Hi, guys. Congrats on a great quarter and Darren, congrats. I look forward to working with you. So just starting, we calculate your guidance implies Q4 growth of 7% to 8% reported. This includes a neuroco.

Speaker 5

One is, is this about right? And then in light of the strong growth in Q1 through Q3, is there conservatism build

Speaker 2

Great. Thanks, Nathan, for the questions. So you're right that It does imply 7% about 8% at midpoint growth on a year over year basis. NeuroCo is $5,000,000 of that, so it's 100 basis points year over year. I would highlight, if you look at the quarter splits for 2022, the Q4 of 2022 was about 11% higher than the average of the first three So just thinking about comps on a year over year basis, the Q4 last year was the highest.

Speaker 2

Year to date, we've got 18% growth, for

Speaker 1

the Q3 year to date. We're going

Speaker 2

to be we're estimating 15% at midpoint for the year. We think that's an incredibly strong year. I wish everything in life were linear and we could just have the exact same steady growth rate every quarter year over year, but life doesn't work that way. And so I think you're right in terms of the midpoint interpretation. We feel like we've got a pretty good handle on the Q4 given that we're Sitting here at the end of October, we've got a much more stable supply chain environment, still some pockets of disruption So we feel pretty good about our 400 ish midpoint of guidance sales for the 4th quarter.

Speaker 2

The demand remains very strong from customers. Again, I highlighted that we're seeing customers make their What we think are historically normal year end inventory adjustments and we've got that baked into our 4th quarter. We still think it's a strong year over year Q4 at high single digits. It's just not as strong as the 1st 3 quarters, but 15% for the year On the top line of 25% on the operating profit, we feel is a pretty strong year of outperformance.

Speaker 5

Okay. Thanks for that. And just in terms of so you noted that the supply chain has continued to improve. I guess, how would you characterize the supply chain and maybe the inflation environment relative to the first half? And maybe your For one to normalize if that could happen in 2024?

Speaker 5

Thanks.

Speaker 2

Yes. Great question on supply chain. So 3rd quarter Average supply chain impact versus 2Q was probably marginally better only because the Q2 was a meaningful improvement. So we entered the 2nd quarter In a tougher environment exited in a better environment in the 3rd quarter average was about what was better than 2nd quarter, but there's still pockets Of supply chain, we think this is probably the new normal and we're getting better and better every day at how we manage that and the mitigation actions that we Started a year and a half ago or some of those are starting to move into the execution phase and bring some of those benefits. So We are we do think we're getting better at managing supply chain.

Speaker 2

We think going forward we'll continue to improve on that. But we're operating as though this is the environment going forward. From a supply chain standpoint, our focus is on making sure that as Our direct labor turnover has improved that we continue to train our associates and become more proficient in what we do. And we think there's significant opportunity To gain greater efficiencies as we move into 2024 with the current supply chain levels as well as improving Execution in our manufacturing facilities and better trained associates that can drive the efficiencies that we expect to grow our margins.

Speaker 5

Thanks, guys.

Operator

Nathan, do you have any follow-up questions at this time?

Speaker 5

No, I'm all good. Thank you.

Operator

Okay. Thank you. Your next question comes from the line of Joanne Wuensch of Citi. Your line is open.

Speaker 6

Hi. This is Felipe Lamar on for Joanne. Thanks for taking the question and congrats on the quarter. Just quickly as it relates to the use of cash, congrats on the acquisition of NeuroCo. But I'm just curious moving forward, how are

Speaker 5

you thinking

Speaker 6

about Cash allocation as you think about M and A or debt pay down? And then looking forward, are there any segments that you think are particularly attractive for as Tuck in M and A opportunities. Thank you.

Speaker 2

Hi. Good morning, Felipe. Thank you for the question. I'll start with we remain very committed to our 2.5 times to 3.5 times debt leverage. We ended the 3rd quarter at 3.1 times With the expected cash flow generation in the Q4 and in the Neuro acquisition which occurred in the 4th So that $42,000,000 outflows in the 4th quarter.

Speaker 2

If you look at the midpoint of our EBITDA guidance and the midpoint of the debt levels guidance that we gave, you'll see At year end, we still expect to be at midpoint at 3.1 times leverage. And so we feel like we have the capacity Just spend $200,000,000 to $250,000,000 a year on tuck in acquisitions. We have a robust pipeline of tuck in acquisitions that we are nurturing At any point in time, we're very excited about the NeuroCo. We think they bring very differentiated Design and development capability in the neurovascular market, which is a market that is we believe is transitioning to significantly more outsourcing Then has been the historical norm in that space. So we think that's a pocket of accelerated outsourcing.

Speaker 5

And we

Speaker 2

think adding the NeuroCo team and their tremendous Engineering group that has tremendous experience at designing and developing finished devices, and then manufacturing them. We think that to our pipeline of development programs very symbiotically and that we're expecting to double the size of that in the next 3 to 4 years based upon that pipeline that we think they can help us accelerate and execute. So we continue to look at tuck in acquisitions at 3.1 now and 3.1 at year end that gives us additional capacity. And Maybe a simple way to think about it is, if we grow EBITDA at the targeted growth rate of Profit growing twice as fast as sales that creates order of magnitude $140,000,000 $150,000,000 worth of debt capacity For acquisitions generating $100,000,000 of free cash flow years another $100,000,000 that's where you get the $2,000,000 to $250,000,000 of capacity every year and still maintaining the 2.5 3.5 times debt leverage. So we're excited about Aneuraco and excited about the opportunities in front of us for additional tuck ins.

Speaker 2

Thanks for the question, Felipe.

Speaker 6

That's helpful. Just on PFA continues to be a hot topic. So I'd just be curious if you can give us an update on where you are in developing those Thank you.

Speaker 2

Absolutely. We think we're incredibly well positioned in electrophysiology. We're highly vertically integrated today. We have significant experience in scaling complex EP products. We do everything from Components to subassemblies to finish device manufacturing today.

Speaker 2

We think we're what we do today is incredibly applicable to PFA and the new therapy that's coming out. We're excited about the new therapy. We're working on a number of programs in the space. We're excited for the therapy to come to market. We think it will have a tremendous impact on patients, both safety and potentially efficacy as well.

Speaker 2

We're well positioned and believe that it has a strong potential to be a tailwind for us. Like anything in life, it all comes down to Who gets to market first and who gets the most market share and what share of wallet we have with that particular customer, but we think we're incredibly well positioned for it to be a tailwind for us.

Speaker 6

Thank you.

Operator

Felipe, do you have any further questions at this time? There are no further questions at this time. I will turn the call back to Andrew Sen.

Speaker 1

Thanks, Sarah. You everyone for joining the call today. As always, you can access the replay of this call on our website as well as the presentation that we just covered. Thank you for your interest in Integer, and that concludes our call today.

Operator

Thank you for joining. This concludes today's conference call. You may now disconnect your lines.

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