Integer Q1 Earnings Call Highlights

Key Points

• Integer reported Q1 results roughly in line with prior guidance but lowered full‑year guidance, now forecasting reported sales of $1.805–$1.835 billion and adjusted EPS of $5.83–$6.40 with organic sales expected flat to down ~1%.
• The board has initiated a strategic review amid intensified interest in the company, though management says there is no timeline and no assurance the review will result in a transaction.
• Management highlighted margin pressure from lower fixed‑cost absorption and electrophysiology (PFA) forecast volatility, is implementing additional near‑term cost actions, and has continued share repurchases (~$100M completed) with net leverage at 3.2x.

Integer NYSE: ITGR reported first-quarter 2026 results that management said were in line with the outlook it provided in February, while also lowering its full-year forecast to reflect updated customer forecasts and additional risk adjustments across its portfolio. The company also disclosed that its board has initiated a strategic review process.

First-quarter results track prior outlook

President and CEO Payman Khales said first-quarter sales rose 0.5% year over year on a reported basis and increased 1.3% organically. Khales attributed the quarter’s sales performance primarily to “the decline associated with the three new products” previously discussed by the company, along with the impact of exiting the Portable Medical business.

Diron Smith, executive vice president and CFO, said first-quarter sales totaled $440 million. The company posted adjusted EBITDA of $85 million, down $7 million, and adjusted operating margin contracted 230 basis points to 13.9%. Adjusted net income was $41 million, down 10% year over year, and adjusted EPS was $1.20, down 8%.

Khales said adjusted EPS benefited from lower interest expense, which was offset by the decline in adjusted operating income. Smith added that interest expense was $4 million lower than the prior year, contributing $0.10 per share, reflecting savings from a convertible debt offering completed in March 2025.

Segment performance: C&V steady, CRM offset by neuromodulation headwind

Smith said Cardio & Vascular (C&V) sales increased 1% to $262 million in the quarter, “which primarily reflected lower electrophysiology sales from the two new products we have previously discussed.” On a trailing four-quarter basis, C&V sales increased 13% to $1.11 billion, driven by electrophysiology growth, acquisitions, and strong demand in neurovascular.

Cardiac Rhythm Management & Neuromodulation (CRM&N) sales increased 5% to $168 million. Smith said CRM growth was partially offset by the previously communicated headwind in Neuromodulation. On a trailing four-quarter basis, CRM&N sales increased 2% to $677 million, with CRM growth partially offset by “the planned decline related to an early spinal cord stimulation customer.”

In response to a question on CRM and neuromodulation, Khales said the CRM business “is performing well” and came “slightly ahead of expectations” in the first quarter. He reiterated that neuromodulation is being pressured in 2026 by “a reduction of the one product,” but added that the company still expects its neuromodulation portfolio—particularly emerging customers with PMA products—to contribute to growth in the coming years.

Margin pressure tied to fixed-cost absorption; buybacks continue

Smith said the year-over-year decline in profitability was driven primarily by lower fixed-cost absorption, which weighed on gross margin performance. Operating expenses were flat versus the prior year, including lower SG&A and a slight increase in R&D and engineering expenses due to the timing of milestone achievements for customer-funded development work.

The adjusted effective tax rate was 19% compared with 17.4% in the prior-year quarter, while the company maintained its expectation for a full-year adjusted tax rate of 16% to 18%.

Smith also highlighted continued share repurchases. After completing a $50 million repurchase of approximately 700,000 shares in the fourth quarter of 2025, Integer completed an additional $50 million repurchase of approximately 600,000 shares in the first quarter of 2026. The lower share count contributed $0.02 to adjusted EPS, Smith said.

Cash flow from operations was $25 million, down $6 million, and capital expenditures were $24 million, resulting in free cash flow of $1 million. Net total debt ended the quarter at $1.264 billion, up $74 million, primarily due to the quarter’s $50 million share repurchase. Net leverage was 3.2x trailing four-quarter adjusted EBITDA, within the company’s strategic target range of 2.5x to 3.5x.

2026 outlook revised lower amid EP forecast changes and risk adjustments

Management updated its 2026 outlook ranges to reflect “recent customer forecast updates and further risk adjustments,” Khales said. The company now expects reported sales to be down 1% to 3% year over year, and organic sales to be flat to down 1%.

Khales said Integer continues to expect a 3% to 4% headwind from the three new products, and that “the outlook for these three products has not changed.” However, he said recent customer forecast updates “primarily affect the second-half outlook for a few products in electrophysiology,” and that the company further risk-adjusted its outlook “to minimize the risk of additional forecast erosion.”

Smith detailed the updated full-year 2026 guidance:

• Reported sales: $1.805 billion to $1.835 billion (down 1% to 3%)
• Adjusted EBITDA: $375 million to $399 million (down 1% to 7%)
• Adjusted operating income: $285 million to $305 million (down 5% to 11%)
• Adjusted net income: $200 million to $220 million (down 3% to 11%)
• Adjusted EPS: $5.83 to $6.40 (flat to down 9%)

Within the sales outlook, Smith said Integer expects organic growth excluding the three new products to be about 3% to 4%, down from a prior expectation of 4% to 6%, reflecting forecast changes and additional risk adjustments. He also said the company expects an inorganic decline of about 1%, reflecting the completed Portable Medical exit, slightly offset by acquisitions and foreign exchange.

By product line, Smith said Integer now expects C&V sales to be flat to down low single digits, revised from prior expectations of flat to up low single digits, due to the electrophysiology forecast updates. CRM&N guidance remained flat to up low single digits, including the previously communicated neuromodulation headwind.

Management discussed the electrophysiology market environment and forecast volatility tied to rapid adoption of pulsed field ablation (PFA) technologies. Khales said OEMs had sought to maintain availability across multiple products to prepare for adoption scenarios, contributing to variability in forecast and ordering patterns. He said Integer is now “entering a period of normalization,” and that certain customers have adjusted forecasts for a few products, which Integer expects to be “short-term, primarily impacting the second half of 2026.” Khales emphasized the reductions were “not due to insourcing or a shift to alternative suppliers.”

On the earnings call, Khales told analysts he did not believe the forecast changes reflected a broad market deterioration, describing the EP market as “normalizing” and expecting EP market growth “in the range of mid-teens to high teens in 2026,” versus north of 20% last year. He also said the impacted products were used in ablation procedures independent of technology, and described the issue as customers adjusting production plans as visibility improves. In another exchange, he said procedure volume growth was expected to be “close to the high single digits to low double digits,” citing roughly 10% to 12% as the company’s view.

Smith said the company anticipates “further margin pressure” from the lower sales outlook and is taking “additional near-term cost actions” included in the revised forecast. In Q&A, Smith said Integer was looking to be “more aggressive on the cost actions and the disciplined cost management,” while not making structural changes that would damage its ability to return to market growth and its targeted above-market growth profile.

Board initiates strategic review

Khales also addressed a separate announcement that the board has initiated a strategic review. He said the board and management remain confident in the company’s standalone strategy and long-term objectives, but noted that “interest in Integer has historically been strong and has intensified in recent months.” Given the heightened interest, he said the board believes “now is the right time to consider all opportunities to maximize shareholder value,” which may include continuing to execute the standalone strategy.

Khales said there is “no deadline or definitive timeline” for the review and “no assurance that the review will result in any transaction or other outcome.”

About Integer NYSE: ITGR

Integer Holdings Corporation NYSE: ITGR is a global provider of outsourced medical device design, development and manufacturing solutions. The company partners with leading medical technology firms to deliver complex components, subsystems and finished devices across a range of therapeutic areas. Its services encompass concept and product design, precision machining, microelectronic assembly, terminal sterilization and regulatory support, enabling customers to accelerate time to market and optimize product performance.

Integer's product portfolio is organized into two core segments: Advanced Delivery and MedTech.

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