And so you just got – you got to think about the demand on us relative to procedure volume timing, and so if customers increase their manufacturing, and they increase their orders on us, then we’ll deliver that for them. And given our primarily sole source nature, we ultimately get whatever their end market demand is.
Craig Bijou: Thanks guys.
Operator: Your next question comes from the line of Kristen Stewart from CL King. Please go ahead.
Kristen Stewart: Congratulations on a good quarter and thanks for taking my question. I was wondering if you could just share a little bit more further details on in InNeuroCo and Pulse technologies, how they performed in the quarter and expectations for the year? And then any update on your thinking on M&A perspective?
Joe Dziedzic: Certainly, so InNeuroCo and Pulse are off to a great start. They both had strong first quarters. It’s always good when they come out and meet or exceed the plans that you have for them in the first couple of quarters. We’re seeing operational synergies. There are benefits and things we’ve learned from how they operate. We think we’ve been able to share some of the things we do, but it’s very much been a two-way sharing, and we believe we’re going to see synergies – operational synergies in the year. From a commercial standpoint, we have a strong pipeline of conversations and activities with customers that we believe is going to help us accelerate those businesses, and we’re very excited about having them be part of Integer. The integration thought process is well underway, and we’re excited about what they bring to the business, and we expect to see organic growth accelerate from those two businesses when we get into 2025.
Kristen Stewart: And then just thoughts on the M&A landscape.
Joe Dziedzic: Yes. Great, great. Sorry, missed your second part. We continue to curate a number of opportunities in our pipeline. We never stopped that process. The variable really is when do we have the debt leverage capacity to be able to do an acquisition. We ended the first quarter at 3.4x leverage, and that’s after the two acquisitions in October of last year and January of this year. So we’re well within our strategic range of 2.5x to 3.5x. Based on cash flow and EBITDA growth, we would expect to have more capacity in the second half of the year to continue to do the tuck-in acquisitions, while maintaining that leverage. We think we’ve got a competitive advantage in being able to curate the opportunities for these tuck-ins with founder-led or individual-owned businesses, and we’ll continue to execute the strategy that we think has been working well for us.
Kristen Stewart: Great. Thanks very much.
Joe Dziedzic: Thanks Kristen.
Operator: Your next question comes from the line of Nathan Treybeck of Wells Fargo. Please go ahead.
Nathan Treybeck: Hi. Thanks for taking the question. Joe, just a high-level question. How are you thinking about your long-term outlook of 4% to 6% market growth plus 200 basis points above this. You had said this frameworks several years ago, and it seems maybe this kind of change the new industry developments like PSA and the tricuspid therapies. Could this potentially mean a higher structural growth rate for your business? Thanks.
Joe Dziedzic: That’s a great question, Nathan. And I would say, absolutely, the – ultimately, over time, as the mix of the business shifts into a higher percentage in the faster-growing end markets that we’ve been targeting, we would absolutely expect the [wham-gur] if you will, the weighted average market growth rate of our sales mix to increase the market growth because when we define market growth, we use our sales mix. So I absolutely would expect over time as the amount of sales we have in electrophysiology and structural heart, neuromodulation, neurovascular will absolutely increase our wham-gur. Having 80% of our development programs that we’re working with customers on in those targeted growth markets will absolutely lead to that faster wham-gur.
What it will also do is it will continue that pipeline of new programs that allow us to stay at least 200 basis points above that wham-gur because that’s our ultimate measure of success is, are we growing faster than the market, that’s how we know that we’re winning. So it’s a great point. And yes, over time, the mix of sales will absolutely lift the wham-gur of the business, which will lift the total, say, organic sales growth rate.
Nathan Treybeck: Okay. Thanks for that. And how are you thinking about gross margin in 2024? Can you talk about the cadence relative to the 28% in Q1? You previously talked about pricing being flattish in 2024, but are you able to take price to offset any lingering inflation? Thanks.
Joe Dziedzic: So our pricing for the year is largely established, but there still will be some pockets of opportunity as the year progresses, but we’re comfortable with where we are on the flattish pricing for 2024. And we would expect to see some continued gross margin improvement throughout the rest of the year. At midpoint, we’re at 91 basis points of operating margin, adjusted operating income, margin improvement, and we would expect some of that to come from gross margins, but we also work very hard to control the operating expense, SG&A and the R&D expense that we keep after recovering some from our customers. We’ll work to get that operating expense leverage as well. So we would expect it to come for both gross margin and operating leverage.
Nathan Treybeck: Okay. Thank you.
Joe Dziedzic: Thanks Nathan.
Operator: [Operator Instructions] Your next question comes from the line of Joanne Wuensch of Citi Group. Please go ahead.
Felipe Lamar: This is Felipe Lamar on for Joanne. Just quickly, I was wondering if you could just touch on like just how like internal and external investments are that you’re making to build up the portfolio? I guess how you’re seeing consolidation of share across your customers as you kind of expand your portfolio? Thank you.
Joe Dziedzic: Certainly, if the question is about internal and external investment, I’d point to the CapEx investments that we’re spending this year, which is still at a slightly elevated level because of the two Irish facility expansions that we’ve talked about. Maybe from a CapEx timing, I already expect the first half CapEx to be high in the second half to step down because we take possession of those two facilities middle of this year. And so we will have finished the build-out of those facilities. So CapEx, from a run rate standpoint, will step down in the second half. You can see the first quarter is higher than average level. From an external investment, if you mean the acquisition or inorganic, the two acquisitions we just closed, we’re very excited about.
And we would expect to have more debt capacity as we get into the second half of the year. And maybe the question about what we’re seeing with customer or supplier consolidation, we continue to see our customers and hear from them that they want fewer, stronger, more strategic partner suppliers. We think that plays to our strength. We think we’re incredibly well positioned to help them consolidate the supply chain, whether it’s through the acquisitions or whether it’s through continued vertical integration, even if we’re not doing a finished device vertically integrating components and doing subassemblies or a significant portion of the device from an assembly standpoint gives us vertical integration capabilities that are – we view a competitive advantage, and we think it enables us to accelerate our top line while helping our customers execute their strategies.
Felipe Lamar: Great. And then on operating margins, I mean you were able to extend margins about 200 bps in the quarter. I’m just wondering like where did you have the most success? And where do you see the most room for opportunity for the rest of the year? Thank you.
Joe Dziedzic: Certainly. Well, it was a combination of the improving supply chain and directly return over enabled us to recover some of the inefficiencies, while also now annualizing some of the prices to pass through – the inflation pass-through that we did last year. And as the supply chain and labor environment continues to stabilize, we’re working some of those inefficiencies out. I would also just point out that we don’t expect to have 26% growth in operating profit for the year, the 13% to 20% remains our estimate for the year. And it’s really every quarter in 2023, on a sequential basis, we improved on our operating profit and our margin rate, and we would expect to see that continuous improvement throughout 2024 as well. So we’re working on that steady continuous improvement approach and would expect 2024 to follow a similar pattern.
Felipe Lamar: Thank you.
Joe Dziedzic: Thanks for the question.
Operator: There are no further questions at this time. I will now turn the conference back over to Andrew Senn for closing remarks.
Andrew Senn: Okay. Great. Thank 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.
Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.
