Q3 2020 Integra Lifesciences Holdings Corp Earnings Call

Good day and welcome to the Integra Life Sciences third quarter 2020, <unk> financial results call. Today's conference is being recorded at this time I would like to turn the conference over to Mike Bollinger. Please go ahead Sir.

Thank you Samantha.

Good morning, and thank you for joining the Integra Lifesciences third quarter 2020 earnings conference call.

Joining me on the call are Peter Arduini, President and Chief Executive Officer, Glenn Coleman, Chief Operating Officer, and Kari Anderson Chief Financial Officer.

Earlier today, we issued a press release announcing our third quarter 2020 financial results.

The release and corresponding earnings presentation, which we'll reference during the call are available at Integra life Dot com under investors events and presentations in the file named third quarter 2020 earnings call presentation.

Before we begin I'd like to remind you that many of the statements made during this call may be considered forward looking statements.

Factors that could cause actual results to differ materially are discussed in the company's exchange Act reports filed with the FCC and in the release.

Also in light of the ongoing cobot uncertainty, we're disclosing more information today for investors about recent current and anticipated future business performance and we would join a typical quarterly earnings call.

On September 29, the company announced it had entered into a definitive agreement to sell its extremity orthopedics business to Smith <unk> nephew.

The transaction is expected to close at or around the end of 2020.

He will discuss the strategic rationale for this transaction later in the call.

Lastly, our comments today will include certain non-GAAP financial measures reconciliations of any non-GAAP financial measures can be found in today's press release, which is an exhibit to Entegris current report on form 8-K filed today with the SEC.

With that I'll now turn the call over to Kerry for review of our third quarter performance Kerry. Thanks, Mike and good morning, everyone I'd like to start with a brief summary of our third quarter highlights on slide four.

Third quarter total revenues were $370 million, representing a decline of 2.3% on a reported basis and a decline of 1.5% on an organic basis compared to the third quarter of 2019 I revenue performance was at the high end of our preliminary range communicated on October six.

Our Q3 revenue represents a 43% sequential increase from Q2.

Well part of this increase was due to deferred or delayed surgical procedures. During the second quarter. We are also confident that much of the strength was a direct result of commercial programs and strategies as well as operational enhancements, we put in place to drive more consistent and sustainable growth.

We saw broad based improvement across our franchises performance did vary by product line.

On our second quarter call, we noted that our recovery in capital equipment would lag the rest of the portfolio.

And while Q3 sales of capital did improve by over 50% on a sequential basis capital was still down 30% year over year as health care systems continue to reallocate resources during the pandemic.

We exclude the impact of capital from our third quarter performance, our total organic growth was roughly flat.

And despite the slower capital recovery, we were quite pleased with our final third quarter sales results, especially in the U.S., where organic revenue increased 1.7% driven by the strength of our own kiichi business.

We were also pleased with our profitability measures. Our Q3 EBITDA margin was nearly 28% an improvement of 370 basis points compared to the prior year.

And our adjusted earnings per share of 80 cents represents a nearly an 18% increase.

These metrics demonstrate our earnings power as we returned to revenue growth improve our product mix and manage our operating costs now.

Now if you'll turn to slide five I'll review this record performance ever see us domestic [noise].

Reported revenues for the third quarter were $239 million, a decrease of 4.2% on an organic basis from the prior year.

Well, we'll neurosurgery sales were down only 3.4% on an organic basis strong recovery from the decline of about 26% in the second quarter.

Sales in neuro monitoring and C. S S management increased low single digits.

This growth reflects strong sales of leading products such as our anti microbial catheters in our surface programmable Dallas.

Yeah listen draw access and repair were down low single digits in the Q in Q3 led by a strong sequential recovery in the U.S.

Advanced energy sales were down mid teens, primarily as a result of lower capital sales, which as I discussed earlier I still being impacted by budget constraints as hospitals deal with the cobot pandemic.

It was it's just specific timing of our capital sales recovery remains difficult to forecast. There are positive signs first capital sales improved on a quarterly sequential basis, and we continue to have a strong funnel of opportunities.

Second sales of consumables directly tied to the capital recovered nearly 2019 levels, implying improved utilization and the potential for strong future demand.

Additionally, we do not believe the competitive dynamics of the market have changed meaningfully during the pandemic.

Downturn or instruments franchise declined about 7% on an organic basis in Q3 and meaningful improvement compared to the 46% decline in Q2.

As a reminder, sales of some instruments are mostly class closely tied to hospital budgets and surgical procedure volumes.

International sales and DSS were down high single digits in the quarter.

Growth in both Japan, and Canada was offset by slower recovery in or indirect markets, including Latin America and parts of Greater Asia.

Moving to the O.G.T. segment on slide six.

Revenues were $131 million, representing an increase of 3.8% on both an organic and reported basis.

Sales in the U.S. showed an even stronger recovery and grew over 7%.

Third quarter sales in one reconstruction were flat versus the prior year.

Sales of Integra skin primatrix nerve amniotic tissue using <unk> increased in aggregate mid single digits during the quarter.

Growth in these products was offset by performance in surgical reconstruction, which declined mid teens year over year, but improved sequentially from Q2.

We expected a slower recovery in this part of the business, especially outside the U.S. just some plastic reconstructive surgeries are treated as less urgent and therefore are returning more gradually.

The strength, we saw in our inpatient and outpatient one reconstruction business was driven in part by programs and strategies, we implemented to drive more consistent and sustainable growth in these channels.

For example, we have partnered with leading surgeons across our bone reconstruction segments to both increase our customer engagement through educational webinars.

And enhance the clinical components of our commercial sales training.

We've also been working with key opinion leaders and strengthen our positioning of Primatrix and integra skin, helping clinicians clinicians differentiate each products relative to others in the market.

We've also introduced risk sharing programs and contracting strategy, both of which take advantage of the extensive clinical data supporting integra products.

And use our scale to address several health economics can play in managing complex wounds.

What has become clear during cold days when access to health care facilities is often limited is that our strong relationships and proven clinical history had become an advantage relative to many competitors, who lack our scale and experience.

Moving to private label third quarter sales increased 17% benefiting from both are recovering in procedures as well as timing of customer orders compared to the prior year.

Orthopedic sales increased 5% in Q3.

On our August earnings call, we indicated that ortho sales showed the strongest second quarter improvement among our franchise or franchises and this momentum continued into the third quarter as deferred procedures were completed.

I'll now review, our third quarter performance on slide seven of our key PNM components in cash flow.

[noise] our performance across the P.N. Alan in the third quarter represents strong execution by our manufacturing facilities and continued expense management.

Adjusted gross margins were 68.6% compared to 67% in Q3 of 2019.

Gross margin benefited from ongoing cost management measures as well as positive geographic and product mix with notable strength in the U.S. and within Durban reconstruction business.

We expect our product and Geo mix to return to more normal levels in our manufacturing costs to increase slightly as we continue to ease cost controls all of which will likely result in fourth quarter gross margins that decline sequentially, but remained higher than prior year levels.

Our adjusted EBITDA margin was 27.9% compared to 24.2% in the prior year like.

Like our gross margins and our EBITDA margin benefited from revenue mix and ongoing cost management measures.

Operating expenses were held below 95% of prior year levels, despite revenue coming in stronger than expected.

Fourth quarter operating expenses are expected to increase sequentially from the third quarter, but still remain below 2019 levels.

As a result, we anticipate or fourth quarter EBITDA margin to be sequentially, lower but still higher than that of Q4 2019.

Third quarter GAAP EPS was 30 cents compared to a GAAP loss of 32 cents in the prior year.

Recall that last year's GAAP loss was due to a $60 million in process R&D expense associated with the rebound therapeutics acquisition.

She was three adjusted EPS was 80 cents compared to 68 cents in the prior year, reflecting an increase of almost 18%.

Diluted shares outstanding were down slightly in the third quarter benefiting from the accelerated share repurchase program completed earlier in the year.

Operating cash flow in the third quarter was approximately $70 million driven by higher earnings and stronger DSL performance.

If you turn to slide eight I'll provide a brief update on our capital structure.

As of September 30 years, our net debt was $1.2 billion and our consolidated total leverage ratio improved to 3.2 times compared to 3.4 times in Q2, driven by higher earnings and cash flow.

With the divestiture of the ortho business expected to close at or around the end of 2020, our consolidated total leverage ratio should improve further and we expect to be near the low end of our targeted operating range of two and a half to three and a half times.

At the end of the third quarter cash and cash equivalents were $396 million and we have approximately $1.2 billion in undrawn revolver capacity.

The company does not have any credit facility principle repayments due until June of 2021.

Now with that I will turn the call over to Glen.

[noise], Thanks, Gary and good morning.

I'm, sorry, I don't find some additional color.

[noise] and discuss some of the factors that may affect on all fronts in the fourth quarter.

Sequentially organic sales in our international business.

30%.

All major regions showing improvement in the third quarter.

[laughter] varied widely based upon the severity of the pandemic.

Compared to the prior year organic so outside the U.S. decreased 9% tonnage.

<unk> declines in our indirect forms.

Well I.

Okay, but many of the new product introductions from 2019 continues to drive things this year, including SCUSA consumables for example house and derision.

Well I read in Asia Pacific has the best performance and I see this company average.

Once again, Japan by the way was named coming from a number of these new product launches and the successful completion of our general surgical business or an indirect model.

Our direct commercial team.

Sales in China were down slightly in the third quarter compared to the prior year and improved significantly from Q2.

Based on current trends, we expect <unk>, Japan, and China to show year over year growth in the fourth quarter.

[laughter] sequentially, but was down high single digits compared to the prior year.

All major countries HM off the second question I had was well.

There are many which returned just like me in a third quarter driven by <unk> performance Durgin and for example valves.

Oh, Spain, and the UK Y axis. These countries have been slower to recover than other parts of Europe.

Indirect taxes declined double digits compared to the prior year.

Finally, as a result, so early in the cockpit outbreak with Latin America has seen a largest clients.

For the remainder of the year respect indirect markets continue to recover slower than our direct markets.

As a reminder, in direct [laughter] Park in Greater Asia.

Latin America, and the Middle East.

Turning to offering some form in the third quarter.

Supply chain and manufacturing facilities completed strategic operational investments.

I wont be more supply and want to sell my capabilities.

Tissue manufacturing sites and the Atlanta companies.

The man and gross.

[noise] Howard a few advances we made in our product pipeline.

Before doing so I want to stress the context in which our teams are succeeding.

Oh, yes, more and progress is being made in the face of unprecedented headwinds created by Congress.

As we walk through the product pipeline keep in mind. These advancements have occurred since then.

Among the many product development activities to a Harvard work environment.

[music].

Let's start with the technologies Therapeutics acquisition.

Just a reminder, just to name a hands on time or to enter into both the minimally invasive nerve surgery market and the interest level Hemorrhaged I see huge mark.

On a minimally evasive side the development programs for the oral surgery platform are going well.

We are advancing to the next generation sort of just go with the design that has a larger channel for multi instrument views and improved visualization.

[noise], we recently demonstrated this platform technology with key opinion leaders when it is yes, it could but the minimally invasive opportunity I mean elegant redesign disposable school.

Yeah, I see each opportunity. We've also begun work with a group of select Kao wells to enhance the design of the device.

Oh, yes, and I see huge programs are on track toward additional program days I mean.

[laughter] to contribute growth within our long range planning period.

Hi, [laughter] born with our next generation E. B D development program, which came out of the ARCUS acquisition.

You know because of this technology, creating a device that combines the benefits of our existing in back to school anti infection technology was index. So <unk> patented technology proven to reduce the potential for catheter destruction due to thrombus formation.

We recently moved into the prototyping phase of development.

[laughter] potential future applications for this technology in other parts of our product portfolio.

At a later time look forward to sharing more details with you about these and other exciting product and clinical developments.

Since the launch of sounding like I knew I see p., nor a monitor.

As well as regenerative tissue research plant ramps that are advancing current technologies and win new clinical studies, expanding utilization options in nerve repair plastic and reconstructive surgery and wound care.

The bottom line here is that the long term future of integrity is not being compromised by the short term challenges posed by the pandemic.

Looking ahead to the fourth quarter were not providing formal guidance given the ongoing uncertainty.

To me the pandemic is not worsened significantly we anticipate the U.S. orthopedics and tissue technologies business to continue to grow on a year over year basis.

This thing along with a steady recovery in or surgery.

Well I guess to model a scenario in which the fourth quarter returns to 2019 sales levels for the company as a whole.

That said, we remain cautious given the current spike in common cases in a number of countries.

Secondly, in Europe, including France, Italy, and Spain.

This hospital capacity becomes constrained there was risk we could be down mid single digits year over year.

Which would be approximately flat compared to the third quarter.

Our base case scenario continues to assume the worst of the comp impact is behind us the risk of a solid recovery will likely continue at least through the first quarter of 2021.

This risk of variability just might be higher than some of our indirect markets.

How many recovering at a slower rate than other parts of our business.

Well capital budgets remain constrained in the current environment.

As a result remodeling capital sales to increase sequentially orders.

Born or we do not expect the same level of capital sales in the fourth quarter that we experienced last year.

And with that I would now like to turn the call over to Pete.

Thanks, Glenn and good morning, everyone. If you turn to slide 10, I'd like to start with some comments about the recent announcement to divest our orthopedics business.

On September 20 doors, we announced the signing of a definitive agreement to divest the extremity orthopedics business dismisses out.

Oh, the orthopedics industry consolidation moves towards bigger and more fully integrated companies. It became evident that divesting our portfolio to a larger company with a highly complementary set of products made the most sense for all parties involved.

Following this divestiture, we will have a more focused portfolio that allows us to increase investments in our core neurosurgery and tissue technologies businesses.

Those investments will strengthen our existing leadership positions and fun pipeline opportunities to drive future growth and expand our addressable markets.

We will also significantly reduce the complexity of the organization and pick up efficiency gains beyond the financial benefits.

Importantly, accessing the orthopedics business is accretive to our organic growth and EBITDA margins, which one has shareholder value and keep us on a path towards achieving our long term growth and profitability targets.

Finally, this transaction will improve our financial flexibility.

We will have the ability to meaningfully reduce our leverage ratio and to pursue strategic M&A from a stronger financial position.

If you turn to slide 11, I'd like to expand on the benefits of the divestiture from both a financial and business simplification do.

This page outlines pro forma financial metrics, excluding the orthopedics business.

Based on their financial performance over the last two years the exclusion of orthopedics would have added approximately 50 basis points to our organic growth.

Reduce our operating expenses as a percentage of total sales by approximately 170 basis points.

An increased our EBITDA margin by over 140 basis points.

On the right side of the slide we give examples of how the divestiture will simplify our business.

The orthopedics business generated about 6% of our total revenues, but accounted for approximately 15% of our total inventory value and a similar percentage of total company S.K. use.

These metrics may not directly translate into accretion to the bottom line, but they demonstrate a disproportion amount of investment orthopedics business has required without the benefits of scale.

Relative lack of scale has also impacted our sales productivity or diseases with significant which was significantly lower than our other businesses.

I was a more focused company all of our attention will be concentrated on two main businesses. Our cogs in specialty surgical segment, where we already have global scale and tissue technologies, where we have a differentiated regenerative portfolio with leadership positions.

We are confident that the strategic decision to divest orthopedics and optimize our portfolio result in faster growth higher profitability increased agility.

On behalf of everyone at Integra I'd like to thank Pete regarding senior Vice President for Orthopedics, all the members of our extremity orthopedics leadership team and our colleagues around the world for their dedication and focus over the years.

Even during these challenging times the orthopedics team has demonstrated an unwavering commitment to our customers and patients and we wish them well moving forward.

If you now turn to slide 12, I'll provide a summary of key messages and a few closing remarks.

We're pleased with our performance in the third quarter, we effectively executed multiple strategies and programs all aimed at driving growth and advancing our leadership positions in both nerve surgery and tissue technologies.

As a company we've taken advantage of the current environment to Reimagine, our future by Reprioritizing and accelerating select programs, but position Integra gross and 2021 in New York we.

We've been told by the digital training and educational platforms.

His clinical and R&D programs and invested in improvements in multiple manufacturing facilities and.

We accomplished all this while improving our financial flexibility and bolstering our ability to pursue M&A, which has always been and will remain a core part of our growth strategy.

As Carey mentioned in her opening remarks, our third quarter profitability metrics demonstrate our earning power.

With the acceleration in growth improvements in our product mix and the management of our costs, we have a clear path to achieving our long term targets, which we introduced in 2017. They include 5% to 7% organic revenue growth, 70% gross margins 28 to 30.

<unk> percent EBITDA margins and double digit earnings growth and as I just discussed the divestiture of orthopedics business only enhances our collective focus by reducing our complexity and increases our confidence in achieving these goals.

I told you last quarter, we intend to emerge from this pandemic as a stronger company.

Based on what we've achieved over the last nine months, we are well positioned for 2021 and beyond.

That concludes our prepared remarks. This morning look forward to providing you with another update on our fourth quarter earnings call in February.

Thanks for listening and operator would you know please open up the line for any questions.

Thank you at this time, if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question well pause for just a moment to allow everyone an opera.

Maybe to signal for questions.

Our first question will come from Raj Denhoy with Jefferies.

Hi, Good morning, I'm wondering if maybe I could start with the you know the commentary around the fourth quarter. You know you mentioned you could possibly get back to 2019 levels, though there's a lot of moving parts. We all appreciate your I'm curious as you sit here now looking at how the business is progressing thus far what's your level of confidence in getting to that that 2019.

Level or do you think are still there's still a chance we're going to be perhaps negatively growing here in the fourth quarter.

You're right, it's Glen I I would just say that our comments on the fourth quarter or really based upon a series of potential outcomes that could play out for us.

Obviously October so far has trended in line with what we were expecting obviously, there's uncertainty in November and December.

But I think if trends continue to be positive for us like we've seen over the last several months, we can get back to 2019 sales levels.

Obviously, if we see a resurgence of the virus.

Oh, I see you beds being held for Cobiz patients.

For all of procedures, you know, we see that potentially putting us into the negative growth year over year in the mid single digit range potentially if things got worse.

But so far things have kind of positively in the month of October. We also very positive around our tissue technologies business keep in mind, a big part of that is outpatient don't require coded patients to occupy I see you beds. You saw the growth you put up this quarter, we actually feel quite good about.

The fourth quarter, regardless of how things play out there.

Oh I also think hospitals are much better prepared for this next wave and resurgence.

Between the green zones actually having more eyes you beds. We're also not seeing a direct correlation of the spike in cases too bad.

I see and utilize meaning a lot of these patients are younger patients don't require hospitalization, so and we're keeping a close eye on things, obviously right now I wouldn't even call. It a range for Q4, but a series of outcomes that could play out and we do see a scenario that gets us back to flat.

In 2019 levels and if things do get worse in the months of November and December we could be down a few points to you know down mid single digits overall, and again that would keep us flat to where we landed in Q3.

No I appreciate there's a lot of uncertainty you know me Pete one for you just on the long term outlook now that youve divested or where you are in the process of divesting orthopedic from do you have the slide of your long term goals. You know the EBITDA margins are still laid out is 20% to 30%, but as you've noted, but what's the Phoenix was you know was dilutive to your.

EBITDA margins up until now.

And so I'm curious whether that represents you know just you have an updated yet or whether this is some indication that you know you're perhaps continue to reinvest in the company, perhaps at a higher level I mean, we really shouldn't expect profitability to expand too much beyond what you've outlined already.

Yeah Raj. Thanks for the question look I think to your point. These are the goals that we laid out that have not changed into 2017, and we've always had the range on EBITDA for the point that you're leaning towards which is we are focused as a growth company and growth takes investment I think.

The great part about hopefully see investors see in the third quarter is the fact that we were touching the bottom end of the range now we obviously were squeezing some expenses, but as you've heard we also we're investing in the most important programs and not starving any of those were making sure that all of that was moving forward at the levels that could.

And you know orthopedics can be a great business. If you have the right skill. We unfortunately never achieved I think where the business is heading obviously the company has scale and will do well, but for us divesting. It clearly gives us an opportunity to have much our confidence that we will be in the 28.

30% range, but if I look at our portfolio and you think about interest rebuilt hemorrhage.

Moving neurosurgery into a minimally invasive platform.

Moving into broader cases into plastic and reconstructive surgery, a further upstream into tissue regeneration.

Regeneration or further expansion into nerve those need to be fed it as we see how that portfolio plays out I think the range of 28 to 30 is that represent that if we see an opportunity to invest in areas that are going to drive is closer to that 7% or higher we're going to take that opportunity to end.

Best at it but the fact that we keep the range says that you know in todays state we feel quite confident that we can get to a 30% EBITDA margin and maybe make the opportunity to run a 28 to 30, if we see faster growth in our future that's how I'd frame it up for you.

Okay, great. Thank you.

Thank you.

Thank you. Our next question will come from Dave Turkaly with JMP Securities.

Hi, good morning, and congrats on the a sequential improvement Pete.

Pete you know maybe to follow up on Roger's question from a high school side and in the Slide you mentioned patient confidence I guess I'd just love to get your thoughts sort of updated for now on where that stands and.

Obviously, we saw the improvement off of Ah Tucuman in the.

In the numbers, but I'm curious is if you have any comments about where that now stands and what you anticipate moving forward.

Yeah, I'll comment and then see if Ah that's going to carry one add to it I think you know.

You can think of our own personal views I think it's in the second quarter. There was a lot more paranoia about going out and moving around obviously third quarter improved and even fourth quarter I think for the good and bad of it I think people are getting out more and.

And so I think the confidence component and today's study state. We think is reasonably good meaning that patients aren't afraid to go back and get procedures done at this point I think was the concern is that if there were a significant increase spikes in related deaths or complications that moving.

Back into a scenario that folks you know wouldn't get procedures done we think goes up but if you look at our tea business. As an example, you know part of that business is a merchant procedures, so folks that might about burns or trauma cases that business. Obviously it doesn't have a huge component that's associated.

With patient confidence, but on the wound care chronic side. It does and I think we're seeing that get back to more normalized level and on the neurosurgery Freud.

A good from a patient confidence standpoint, there are some there, but there's going to be a whole lot more about what's your doctor says is the you know time horizon, you need to get yeah, and that's more predicated on does a hospital system out the availability of price you badge, which in our neuro business. We've always been open about is heavily core.

Related over 70% of the procedures need to have an ice you bet as a follow up and what's different about Q2, what changed in Q3, and we still believe even with surgeons that will happen. In Q4 is all of our hospital partners have just gotten significantly better about managing a the pandemic either changing.

Her work flows the use of different protocols, the utilization of different pharmaceuticals and.

So I think that bodes well for our situation, but you know our job here is to kind of paint a picture of what the potential outcomes are based on a very tough situation and maybe something that might be more probable which is in between which we think we've done here. This morning.

Thank you for that I.

I know you mentioned for the gross margin the strength the cost containment in the geographic and product mix.

Just curious is there any color or any comments you did you'd care to make on pricing I I imagine things haven't changed much but I was just curious if.

In this new World anything had changed that's noteworthy thanks a lot.

Hi, Dave. Thanks, you know I'm not not a lot has changed on the pricing front I think is pretty stable.

And consistent with what you've seen the last few quarters. So.

Really no changes on the pricing front.

Thank you.

Thanks.

Thank you. Our next question will come from Ryan Zimmerman with anti aging.

Thank you.

So Glenn I think you made a comment back in the second quarter. That's suggested hospitals are holding about 10% to 20% of their ass you capacity for Cove. It and you know we saw called it obviously subside in the third quarter, but now starting to pick back up in flare up again. So I'm just wondering if you could comment a follow up maybe to Russian days questions as in third quarter did you see it.

That dynamic consistently so I guess I'm trying to understand whether that was still a material headwind and performance was better in spite of that or partly benefitted from the lack of that hold enough capacity and I see you.

Yeah. It's a good question Ryan Thanks, I would say, we're still saying Ah I see you guys being held 10 15, even 20% certain markets around the world, especially in Europe. So that's really where I'd highlight that it's being held for coated patients, but in many of those systems, they're not at maximum capacity, so they're holding up but.

Many cases are not deferring procedures.

But yeah. They are still in some cases holding.

15% to 20% on a pad site were not see any impact on our business just given the fact that they have enough beds today and as I mentioned before in my previous comments.

In many cases some of these countries have added a number of additional pets. So they've actually added thing [noise].

I see you guys and increase their capacity to handle more patients so [noise].

That's pretty much.

Summary of a situation there.

Okay.

Great and then just a follow up for me I have a few years back when I think about integrated you restructure the entire otcs salesforce by sales channel, but one of the areas that was always tied to extremity or there wasn't nerve repair and so you know prior to the pandemic I think your discuss building a separate sales force in this space and so I'm curious if you could.

Comment on where that stands and kind of where do you think peripheral nerve repair.

It's in your portfolio today.

Hey, Ryan its Pete yes, so peripheral nerve we think has a very bright future for us we take there's lots of interesting opportunities out of the traditional upper extremity wounds as you're well aware of different nerve renovation opportunities and things of that area.

Earlier this year really the end of last year earlier. This year, we actually had created a dedicated channel we didn't make a big deal about it at the time, but we have a dedicated channel in place and we also are set up and structures that.

Scouting it lets say a discovery team is tied into our rune reconstruction group. So it had been operating separately from our extremity orthopedic team for for some time and your memory is quite good when we did separate channels at first it was still part of that organization and then.

Last year, we fully separated it out and we're already seeing some good traction relative to the dedication.

As you well, though even though some of these are orthopedic surgeons they tend to be more focused on micro surgery and it kinda that's what they do for a living [noise].

[noise] got it thanks for the color.

Sure.

Thank you. Our next question will come from Kayla crime, well the truest securities.

Hi, guys. Thanks for taking our questions and so I mean, you grew adjusted EBITDA margin year over here I would just love to get your thoughts about how you're thinking about the company's stock comp cost structure going into next year.

I mean, it seems like margins may come down a bit in Q4, but I mean are there areas in the TNL were cut back cost during the pandemic you know that perhaps you realize you don't need to spend on going forward and can now provide a benefit to the bottom line its revenue stabilizes into next year.

Yeah, I'll take your call him and I think it's a good question and I think it continues to go back to our long term or planning.

Planning objectives of getting to 28% to 30% margins. Obviously, we demonstrated that we could touch that here in the third quarter and that certainly was cost management I would say as we turned the corner into 2021, a couple of things number one the opportunity is for us to continue to manage our costs in light of <unk>.

Acts that Glen talked about and Pete talked about about your digital trends I'm thinking about traveling entertainment differently in in this new world. So there are opportunities to think about our cost differently on the slide that we presented on the ortho business really talks to the fact that there is a a lot.

Large amount of cost that basically go away with that business and that actually is another business to our margins as we think about 2021 without the ortho business. A couple of other things I would I would say on the gross margin line can you saw that here in the third quarter is a significant impact a favorable <unk> mix.

Both gone on from a geography standpoint, but more importantly from a product mix standpoint, and ortho or the the T. T part of O T T. The tissue technology piece, you're talking about gross margins in excess of 80%.

So as we've restored the supply of that product line and we start to recover here and we had really great results here in the third quarter. That's the power of favorable product mix that you're seeing come through in the third quarter. So as we think about next year and beyond we would expect teach it to even be stronger than that.

And the last piece I would leave you with is that she may agreement on that is that a again a teaming agreement we have with Jane Jane we will start to move off of that and tried to transfer manufacturing entity here in the fourth quarter, but mainly through 2021, you'll see a list of that as well Pete you have some more commentary just a this data.

Hi level carriers to add is that we as a leadership team challenges our whole company I used the word in the script Reimagine, specifically, because we actually asked every function throughout the company to rethink about how they might run their areas how many they might run it at a lower cost structure.

I think most folks realize we've invested heavily and I T systems. The last five years, we have one global ERP platform.

And I would say during this cobot window, we pressed the envelope on utilizing some of these systems that we put in place that we might not have been as aggressive about maybe in years past and I think we've come up with some pretty interesting ideas, whether it be on the commercial front mentioned digital tools for training and development and some of those I think are going to.

Stay with us for a long time, I don't see us going back.

And I do believe they will have benefits in the future and driving our profitability, but probably even more so in our agility, which is a big part of what we're trying to do is be a company that can move quickly and take advantage of opportunities as they as they arise.

Great Super helpful. On and then I guess, you know remember sitting here at the end of October I'm. Just curious if you might be able to provide a little bit more detail on what you saw and you sort of accident Q3 into this month and then what you're hearing specifically from your customers about the hospital Capex purchase.

Thing environment, I think you guys gave a little bit of detail, but you know just how how they're thinking about sort of budgeting heading into into 2021. Thanks. So much.

The kids plan I would say relative to October I think going and we say isn't it pretty much trying to in line with our expectations and plans. So we didn't see any difference in terms of the trend lines. Obviously, there's more uncertainty as we look ahead for November and December but I think October came in as we had expected.

You know relative to capital that's really that's been an area, where we've seen declines even in the third quarter and as I mentioned in some of my prepared remarks, we do expect capital to improve sequentially in the fourth quarter. However, do expect it to be down year over year to one real big positive on the capital front is our final.

And we do see a strong funnel, there's definitely opportunities for us to move hard it's really going to be dependent upon when hospitals have budget dollars and see some of the financial constraints left and when that happens I think we're going to be a good position to capitalize on what we are expecting our capital business, which represents maybe 67% of our global.

Sales.

To be down.

In the fourth quarter.

Oh Oh.

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21, thank you.

Thank you. Our next question will come from Matthew O'brien with Piper Salmon.

Hi, Good morning, guys. This is actually I drew on for Matt. Thank you for taking the questions.

I just wanted to push a little bit on the ortho divestiture for a second here. Obviously when you guys did cause had been part of your reason was that you felt that scale could be a bit of a competitive advantage for integra.

Obviously, the ortho business is a much smaller chunk of overall integra, but you do give up a little bit of scale there.

The question is you know what made you feel that it was the right time a decision to go forward with that transaction and then I guess you know does that have anything to do with it for ability of that business and maybe expectations for a lingering impact from COVID-19.

I would just say when.

When we do find scale I think it's a really important word we always use as we use the word relevant and so just adding more things into the grocery bag doesn't necessarily give you relevant scale relevance here in those cases does she get leverage R&D you could revenue.

Leverage platforms.

So we have quite a bit of leverage that takes place between our regenerative platforms between neuro as well as within Ti dirge endures deals or the related items a nerve products. So that's the correlation and we just didn't have that with the orthopedics business.

There's nothing associated with the exit of orthopedics to do with Cove. It I think as you would know many of these processes don't happen in a six month period, there's a lot of foresight and time that goes into that and ER. We had clearly allowed ourselves to have optionality over the last couple of years to see if the right out.

Sets could come in but I think one of the biggest decisions was is that applying that investment dollars towards T T or expanding our near neighbour opportunities with the neurosurgery or instruments clearly looks to be a better return for the company then pursuing a orthopedics.

Play, which would have a much higher investment portfolio based on where we were starting as well as the men. The comments that I mentioned, which were about the size and consolidation that's taking place as you know a few years ago. Many of the players with the extremity orthopedics, where small or midsized companies.

Today.

With the acquisitions and consolidations, that's changing and so we felt this was clearly the best thing for those employees and also that business and really positions us well for accelerating growth and profitability over the next couple of years.

Okay that makes perfect sense and then my follow up is you know you've talked a little bit about working to get the supply rightsized on your tissue business.

You know I guess, how would you characterize your ability to meet demand at this point and then how should investors be thinking about the contribution.

From that tissue business over the next few years as it is it fair to assume it's in that.

High single to low double digit growth in a normalized environment like Youve discussed before thank you.

Yeah, I'll say don't have Glenn comment on supply, but yeah were you know a high single low double digit is what we're definitely positioned for within the GE portfolio a lot of that is tied to our new products, but specifically.

Where we are here with supply so Glenn why don't you talk little bit about supply yeah. I think overall, we're in great shape. When you look at our regenerative supply one of the silver linings I've told it was you know with the reduced demand, we actually are able to build supply even faster build safety stock levels up despite the cost reductions.

Going through but.

The other nice thing is we've made some investments in these plans to build more capacity as we move forward.

No I think about our Wassa plant, which make Serge Matta primatrix anything about Memphis, and amniotic business or we can actually now build more product.

We've actually built more safety stock.

For those who are trying to their products. So were in very good shape and as Carey mentioned you guys. It sales start to ramp up with our regenerative products. These are very high margin products for us 80% plus so we're well positioned not just to capitalize on the topline, but also to show that favorable mix and actually drive higher gross margins moving forward.

Thank you.

Thank you I when its question will come from Shagun Singh with Wells Fargo.

So much for taking the question I wanted to get your thoughts on 2021, if possible. So consensus is looking for about 50 basis points of growth in 2021 voice is 29 PM level and it looks a little conservative just given your commentary that your portfolio is not that easy to Florida, but I think you said about.

He do 45 days only you know capital seems to be you know it looks like it would continue to improve sequentially into 2021, and then you have fully ramped we didn't capacity that would allow you to gain back about 200 to 200 basis points of growth that you could not realized in 2019. So I'm just curious to get your definition react.

I couldn't hear it and what would prevent you from growing inline video and IP outlook over 2019 levels next year is its school would be on the one side here.

So should go to like the way you're thinking, but I think there's a lot of you know, there's obviously a lot of risk out there as it goes into the beginning of next year I mean for US you know as we've outlined for Q4 and we also mentioned about what the first quarter looks like I mean, the real question for us for 21 as well.

We have 11 months 10 months to 12 months six months of normal see next year and I'd say so much of that is going to be determined between now and mid December I think for us understanding how well this country, but countries around the world handle the second wave of Cove. It is.

Got to have a big determination on it you know today as we mentioned you know we think that first quarter is not going to be a normal first quarter, you know what that actually means I'm not sure. We know at this point in time clearly businesses like on our T.T. side of the business because were not primarily at hospitals were.

When we are it's because of an emergency probably has a little bit more of a consistency in its growth profile and neurosurgery has a little bit more of a constraint because bids but I do think one thing that's different about this period of time versus in the spring was is that as long as the.

Major Metro cities stay reasonably consisted we're a high percentage of the big Neurosurgery facilities are we think that that bodes well for our business not to say that obviously increases in rural areas are or don't affect us, but they don't affect at the same level was where the cost.

And Tracy one of our big neuro sites or so I think you know, we're not going to say a whole lot more on 21 right now mainly because you know its.

It's not really the time, but honestly it really comes down to seeing how the next two months kind of play out just because of obviously everything we're all reading within the in the World News.

I got it that's helpful. And then you know my other question is on M&A and capital allocation. I believe you have a you know you have indicated that you're looking for things like technology tuck ins in euro and you've made reference to distribution partners partnership, especially in Asia that people are evaluating could you give us an update there and then I'm going to read.

Side could you discuss the current landscape and if you think would has the potential to act as a consolidator in this highly fragmented and Mike and thank you for taking the question.

So I'll I'll come it's just on the on the region and then maybe Glenn you can take the the other question, but I I would say look I think I don't know if region or is any different than any other markets within a co bid relative to consolidation I think for the most part is I look.

You know pure companies and everyone in med tech or even touching into the bio area that you know folks you're going to come out of this fine within this sector. So I don't know if this is necessarily going to be a component for that for us as a company clearly having a more focused portfolio and look.

Looking for acquisitions to plug into it I mean, it's it's rather evident we will be focusing on tissue technologies and also technologies or indoor products that will fit within the the bag of neurosurgery and so to that point Glenn you may want to talk about some of the partnerships and things wouldn't they get though yeah.

She mentioned she got we are working on some distribution partnerships outside the U.S. and one of the nice things about the Cognigen acquisition isn't it's really given us scale and a number of markets big channels direct channels and.

And that would include both Japan and China.

I'm pleased to say that we actually just closed and signed our first distribution deal for a neuro products.

China and so that's going to be launched here as we move into 2021 that will be a nice complementary product with back to school that were already selling.

In the country and all have a differentiated offering versus whats on the market today. So we've actually got some success.

Help us go into 2021, we.

We are working on other deals within China, and I would expect we'll have more to share.

In the near future around that in addition, we're working on some distribution deals on the regenerative side as well in Europe, and we're getting close to getting a couple of those completed.

Again, I think it's important to note you know we're able to now leverage these larger channels. These larger in country presence, we have because of.

The scale that we have in certain places around the world and we plan on capitalizing that and filling in the bag for a wrap so in many cases I went adding a lot of incremental resources by adding revenue and profitability as we drop these products into the bag.

Thank you so much.

Thank you. Our next question will come from Steven Lichtman with Oppenheimer.

Thank you Hi, guys you talked about the building pipeline and I realize several of them are medium to longer term I was wondering for 2021, what new product drivers would you still say our sort of stand out opportunities as you look out over the next 12 to 18 months.

Yes, Steve I say first and foremost we intend on re launching starlink or ice CP or nor a monitor and the first half of 2021, so that's going to be a nice contributor to growth for us.

We're actually going to be launching at the end of this year.

He knew lumbar Sean for the Japanese market called LAPIS, So that's going to be a nice contributor for international team moved.

Moving into 2021, Yeah, we talked about some of these platforms being longer term and that's really we're going to see some of that benefit when you think about the rebound acquisition as an example, but we do intend on doing a commercial launch.

Well, the tumor area and having a minimally invasive surgical product can I start just scope.

And just 2021, so we'll see some of those benefits roll through in 2022.

And then shortly after that we plan on having an IC age commercial launch with that same.

Technology platform, when we bought the new surgeons scope. So these are not that far out there I'm going to start to see the benefit of some of the revenues coming in from these two products.

But those would be the ones that I would highlight.

On the tissue side, we're working on getting more clinical data pulled together more indications for some of our tissue products I think that's going to help.

As well when you look at yeah, we called new product launches, but also new indications for existing products and no more to come on that but we're quite excited about a couple of things we have working.

Which should start to benefit us towards the latter half of 2021, I don't know and I think it's it's fair to say Glenn just playing off your tissue comment that amnio itself plus is a new launch product. So now has adequate supply we're getting really good feedback on the product. This is the threep wide product, which there really isn't a comparative product.

Out in the marketplace for handling and healing characteristics and that our surgeon that MACRA poorest product.

Which is a larger size sheet verse.

Versions of this bovine dermis product that actually increases vascularization and it's been a little sluggish this year, primarily because it's in the plastic and reconstructive area in hernia upper chest wall reconstruction, but we clearly see this product is being received very well and believe that.

That will be a driver in the future as a as Quintin mentioned.

Got it thanks, guys and then carry your free cash flow was with solid it's still a tough end market and now in Threeq can you talk about your outlook there and the drivers you're seeing you know certainly talk to margin expansion. What other activities do you have going on that sort of keeping that free cash flow conversion or you know at a very high level.

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Yeah. It was certainly the margin performance and the higher revenue and earnings levels was a significant contributor to Q3 cash flow. He has so performance was actually quite strong.

Our dsos were where Ah below 16 hadn't been below 60 cents. The cotton acquisition, some real nice performance there on the collection side as well I do wish that Q4 cash flow to come down sequentially on ask again on as we moderate a bit more there on the DSL performance, but overall I would say you know that.

The cash contributions are the cash requirements of some of the common integration now are behind US now as I think about 2021, Steve you're going to have that replaced by some cash needs. He Wendy are but the good news is that it's not you know that's not forever. That's like you know a couple of year push to get you R&D or comply.

Yet there, but I would say that the free cash flow power of the company definitely you can see that in Q3 with just the earnings or conversion there on the higher earnings. There. So managed working capital continue to focus on that not just on Dsos and inventory turns and D.P.O. These were actively working on extending supplier payments there.

Proactively went there with our suppliers, but just speed to higher earnings power I think will come through and continue to show well in our cash flow.

Great. Thanks Kerry.

Thank you our needs question will come from Robbie Marcus with JP Morgan.

Oh, thanks for taking the question.

Was wondering if you could talk about the current thoughts about future M&A here. You know you have the divestiture coming up I, it's been a while since the cotman deal that business has been nicely integrated in this environment, where prices are pretty high but you have the right balance sheet in good shape, how should we think about M&A going forward.

[noise] Yeah, Robbie Thanks for the question. So as you recall last year. We did two small deals we did probably the biggest technology platform deal that was the rebound and the Aurora scope that will now have two products coming out of that are advancing well I would say, we wouldn't rule out deals as such.

If they enhance the overall capability.

But we're taking a look both you know and private and public opportunities you know as we've talked about in the past many of the opportunities that do arise for us are built over a long term relationship with principles that we've been talking to it's not unlike us to actually you know in a given month.

You know multiple discussions ongoing with different folks sometimes they lead to some of the partnerships that Glen had mentioned or where we might be a distribution partner and sometimes they may end up in advancing this closer towards a an acquisition so.

Its been important for us to be able to get the balance sheet in a position where we can move on some of those opportunities and we believe we're at that point.

I would say that clearly within neurosurgery things that completely keep building out that portfolio or of interest, but we still have many products that could plug into that business area and that our near neighbors things similar to what we had talked about with what the surge of scope enables us to do.

I think in our instruments portfolio or there are clearly other handheld instrument is there's instruments that move further up the value chain. There's other ways of taking a look at how we could actually help the hospital ER manner.

Manage and operate in that space as well.

And in tissue technologies.

When you play in an area that the touches into.

At wall reconstruction upper chest reconstruction and wound care plastics area, we actually have quite a few different areas that we could move to it. So I would say in all of these were clearly looking for deals that would be accretive to our overall growth.

As well as our profit, but we wouldn't shy away from a technology that they have a short term dip that then could give US you know really increased confidence in our longer term goals. So you know I would say over the next a year or so I think it's going to be important for us, particularly with our focus to be able to to keep bringing in.

Tuck in deals into the into the fold and that's really what our T. focuses is tuck in acquisitions.

Great I appreciate the color and maybe just a quick follow up on Ross's question earlier on you know on the adjusted EBITDA guidance at the JP Morgan Conference. This year, you did put out 30% up from the 28 to 30 in and now it's moving back down.

Even with the orthopedic divestiture. So how should we think about a the difference in thinking from January to now is that all due to co bid or are there other fundamentals and Tom. Thanks.

Yeah, Robbie there's no change in our numbers I mean, weve used a charge that said, 30% aspiration or 28 dirty our commentaries always been 28 to 30 from I think December of 2017, when we had the actual meeting so your takeaway should be you know exit of orthopedics.

Only helps us only helps us get closer to 30% we may run closer to 28, if we find some investments that drive is closer to the seven or even better organic growth range, but if were running in the five to six range, our probability to getting to 30% EBITDA margins I think are high.

Year to date for sure without orthopedics than they were when we had it so that's kind of how I would frame it up.

Thanks, a lot.

Thank you. Our next question will come from Matt Miksic with credit Suisse.

Hey, Thanks for taking the question. So just one on on your Oh T T or Ah orthopedic divestiture and I see you had highlighted the greater impact on your on your business from inventories related to this orthopedics business.

That's true I think.

Even for scale models in those end markets, it's kind of an inventory inventory heavy model.

Did a consignment cetera, I was wondering if you could provide any directional color on the the other potential benefits for the model going forward in terms of you know working capital burden image returns, maybe you know a free cash flow conversion or as it pertains to your long term targets there and then I had.

One follow up.

Yeah, I would say, Matt I'm definitely not only from a piano perspective that we'll see the benefit and we obviously highlighted on this slide that the amount of Opex operating expenses that went towards this business. It's certainly on the bat burning goes away a lot lower on the overall efficiencies are they.

Individuals on in terms of just the amount of.

Yes, workload that the team had with the ortho business.

You know that focus now turns to the two core businesses, but the reason why we highlighted inventory is exactly that point in terms of some of the free cash flow conversion that it. It did if you think about that the investment not only in inventory, but the investment in fixed assets, including instrument sets and you take that into consideration.

And divesting that business and freeing up that that investment cycle is significant and so he he will help not only from an EBITDA profile perspective, but also from a free cash flow perspective, Matt.

Great. Thanks, and then just maybe one follow up I know you touched on this earlier in the in Q and they about to them. So that the surgeon coated cases, and what that might mean et cetera, but.

Maybe just simply if you could talk about what the.

Not that we're expecting anything like you to but but.

So what were some of the effect on sort of wound and outpatient.

And how might that be different this time or maybe how was it different in July and August and some of the hot spots, we saw flare up.

And then kind of the same you know Pete I think you mentioned the fact that many hospitals are sort of built out there.

I see you capacity in the interim in addition to all the other things that you know they've learned it changed the way they deal with these patients and maybe what what's different this time potentially particularly on but any anything else incremental in in in neuro. Thanks.

Yeah, I think we kind of touched on this one a little bit are ready, but I I would just say hospitals being much better prepared having more actual ice you beds available.

To me that's made a huge difference and so even though there's a resurgence in a spike in cases and you see some of that over the summer months, we did not see the impact on our business up procedure is getting tougher and I.

Ah things continue to trend along as we had expected.

Does that mean it could change in November and December of course, it could but I think this preparedness by hospital factors more I see you beds.

Yeah patients' willingness to come back into the system I think all have been positive trends that.

You know, we don't expect to get back to those Q2 levels and don't expect to see broad locked out and shutdowns and.

Procedures being deferred in any meaningful way Oh, you may see some of those take place in certain countries in certain spots in the country or certain hospital system within the U.S., but they.

They seem to be more selective very isolated at the moment I love to see how that plays out over the next couple of months, but to me that's what's what's different.

And I would just just to add I think we've mentioned this but within the second quarter orthopedics might about a little bit more pent up demand and maybe some of the instrument juries, but a lot of or other business has been you know run rate business for the most part there's clearly all the businesses had some pent up business from Q2, but.

It's not a significant amount and the better operations within all the health systems. You know just gives us confidence is clearly a lot of T.T. is into known hospital environment. So that has its benefits, but even in the hospital environment to tell a medicine now with the visits going through the roof.

If you have a chronic wound or you have an issue that may need to have an m. O'brien you may need to come in for something related to neurosurgery. The fact that you can now have you know more tell visits and the Doctor can have an idea I discussion with you talk to you you need to come in we do think that's also increased and will change kind of the most.

Keep up how people react here, even if it does get much tougher within the fourth quarter.

Great. Thank you for the color.

Thank you. Our next question will come from Travis Steed with Bank of America.

Hi, Thanks for taking the question just one quick clarification I think early the Q and have heard you say October was actually positive, though just wanted to clarify that there's still uncertainty for November and December but did you actually see some growth in October.

Yeah relative to October I think the only thing myself as is trending in line with our plants. So we didn't see any difference in terms of what we were expecting in October versus how October has played out we're not commenting specifically on any numbers for the month of October.

Okay. No that's fair and then if you if you look at the new Integra portfolio right.

Excluding the ortho business, where do you think your weighted average market growth is not today.

Excluding the ortho business and just how that compares to the the 5% to 7% long term growth target that you have and I'm, assuming that your mom goes a little bit below that so what gives you confidence you can grow your market over the long term.

Well again, I think as we look at our neurosurgery RCM SaaS business. We've indicated we think we can go a 3% to 5% over the long term and with these new product launches and all the work we've done around our channel I would say that you know we would expect to hope we'd be at the higher end of that range.

Given some of the opportunities we have with M.I.S., along with IC age. So yeah, we still see that as kind of a 3% to 5% overall growth rate, but are targeting the higher end of that range. You know I mean, orthopedic and tissue business I think we've we've talked about high single to low double digit range and ortho is obviously part of that and yet.

At the end markets for ortho are going come in quite nicely, but we have not and have not demonstrated our ability to grow that business in the past I mean, if I look at our results I think the last time you posted growth was back in 2017 and that was kind of low single digit growth 2018, we were down 2019, we were kind of flattish so.

Well the end markets, we're growing in our hands. The ortho business was not growing and I think if we just look at now our tissue business and the increased focus we're going to have a tissue and regenerative technologies.

We should see an opportunity to grow that business and at high single digit range, maybe even double digits in certain years.

And that blended mix would get us into that 5% to 7% range overall, so our view on a organic growth long term targets, our ability to get there has not changed with divesting or though.

Okay. Thanks for taking the questions.

Thank you. Our next question will come from Jason Bedford with Raymond James.

Hi, Good morning, I joined the call late so I apologize. If these questions were covered earlier if they were you can honestly just kick me back to the transcript so.

Private label, you mentioned the timing of orders in the deck did you quantify this in the third quarter I'm. Just wondering if there were kind of stocking or catch up orders that may not recur.

Yeah, we didn't quantify it other than to say you end up at the end of the business Weve historically characterized as lumpy you know to go back to the second quarter in the third quarter of last year, and we were up in the second quarter like 15% we were down in the third quarter. So certainly part of the performance in Q3 was was an easy comp.

Because we were negative growth last year in the third quarter and coming in strong, but certainly there was some pent up demand on benefit in private label as well as some of the surgical and dental procedures on spine procedures, so because very nicely here in the third quarter, so it'll be a little bit lumpy.

On a as we normally would expect that but other than that it's just just yes, and some differences in timing like I said, mainly because of last year's negative growth.

Is this a good base to build on.

Yeah, I mean, we would still expect sequential growth in Q3, and Q4 again not barring a huge change in ER. The scenery externally on the call that out outbreaks overall, but I would say sequentially, we still expect to see an improvement from Q3 into Q4, but again you'll have some.

Lumpiness in that business, but we've always characterized it as kind of that mid single digit type of grower and you know and absent co that that's what we would expect some some quarters will be higher some quarters will be lower.

Okay.

And then just from a big picture standpoint.

Feel like you've exhausted the patient backlog or do you still think theres patients on the sidelines waiting to a benefit from Integra technology.

No I think there's still more backlog that we'll probably see in the fourth quarter, depending upon how things play out there's definitely still some more procedures that have not been completed or that have been deferred previously. So there is still some more backlog again for us it hasn't been a significant number I would say most of it.

Spend around good execution, but we did see some backlog pull through in the third quarter I would expect all things being equal if we don't see resurgence of the virus in any meaningful way, we'll see some of that kinda pull through in the fourth quarter, but there clearly is some areas a a backlog I point out. The UK is an example, where they have.

Haven't gone back to a normal recovery. There is some procedures that are being deferred and at some point those all tomo for someone forward. So.

I'll just use that as one example, but there are others as well.

Okay. Thank you.

Yes.

Thank you I want to ask question will come from Matt Taylor would you be yes.

Hi, Thanks for taking my question I just wanted to ask you what about the geographic trends and how that plays into your scenarios for Q.

Q4, and looking forward as you know looking at your comments in the script it looks like you're expecting some of the markets in Asia to do a little bit better you, maybe there's some risk in.

In Europe, but you haven't seen it yet and you asked is a little uncertain is that a fair characterization or can you talk about any of the recovery drug trends geographically.

Yeah, I think you're correct in how you've looked at it I mean, Japan, and China again, we'd expect to see growth in the fourth quarter, even though cobot is still impacting the business. There it's done quite well and you know this past quarter in Japan as an example, we posted another quarter of double digit growth.

So the business there is doing quite well, we wouldn't expect to see growth in both Japan, and China and those are obviously important markets for us in Asia.

In Europe in our direct marketing to probably be a bit of a mixed bag. We have to see how things kind of play out here, we did see some growth in Germany in Q3, but certain markets like the UK, Spain.

Italy to a lesser extent actually down year over year, I think our biggest concern outside the U.S. continues to be the indirect markets.

And in particular Latin America, so those are still down.

Double digits and keep in mind in total it represents probably 6% of our global sales. When you look at our indirect business business, we sell through distributors. So that's the area. We're looking at very closely but other areas like Canada, Australia are continuing to show good progress in the U.S. I think OTI tea.

Continued to show growth in the fourth quarter, we made that comment.

Comment in our prepared remarks, so oh Gee and in particular TT, we'd expect it to grow out here in Q4, and then see assess we'll have to see how things play out.

We did make some really good progress sequentially.

The third quarter, we were down slightly year over year, and Ah well have to see how the fourth quarter plays out but all in all the U.S. continues to hold.

Hold up quite well.

Well have to see how things play out, but that's how we look at it geographically.

But and one one follow up just totally different topic I wanted to ask you about tax and specifically if you've looked at what the impact could be if the Democrat tax plan is put in place you know ballpark numbers and what strategies could you used to mitigate some increases.

Intact, if that were to come to pass.

Yeah, I mean, it is difficult to know exactly what will happen on the tax side like you know if if the Democrats can take office Ah I would expect that the U.S. cash at Lincoln as higher and you know that you know I I you know it could be 20% type attack blended tax rate.

In the U.S. and so obviously, we have different tax strategies different structures around the world to take advantage of and and look at forward looking planning and we'll take advantage of that was where were actively working though some of those this year and to try to minimize that impact, but uh huh.

Only that time would would have an impact as it would most of our competitors and other other peers face here.

Thanks, Karen.

Thank you our last question will come from Ryan Zimmerman with anti gene.

Yeah, just a quick follow up sorry to run the call on you guys did complete an ass. Our earlier this year I know, we've talked a lot about growth on the topline, but with the capital with the dollar is you do have from the divestiture and where the stock price has gone is there any consideration I think there might still be some.

Room on the repurchase I just wanted to get your thoughts on I'm share repurchase or looking ahead over the coming quarters.

Yeah, you're right, we still have some capacity left about $125 million capacity on the on the Ah the share buyback that we could do I would say we've completed what we expected to do and what Weve announced and I I think to be consistent with with Pete and his remarks, Dan you know, we don't really like to be interested in some strategic M&A. So I think in terms of the price.

Already that's where we'd like to focus, but I would say with the improvement in me and take that that's consolidated net leverage that we've had going from 3.432, and then thinking about the ortho proceeds coming here and at yearend, we get into a range towards the end of that window. So we talked about a.

Sweet spot in our leverage ratio of two and a half to three and a half it really gets us down to that low end of that that targeted range, which gives us a lot more optionality to think about what we want to do in terms of whether we have something in the pipeline to execute on why do we want to do something else and again, we do have that as a lever on and because he's done.

Capacity left.

Thank you.

Thank you that concludes today's question and answer session Mr. Bowyer at this time I would like to turn the conference back to you for any additional or closing remarks.

Oh. Thank you. Thank you all for joining us today, and we look forward to catching up or in the near future.

Thank you. This concludes today's call. Thank you for your participation you may now disconnect.

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