Q2 2021 Integra Lifesciences Holdings Corp Earnings Call
Okay.
[music].
Good day and welcome to the Integra Lifesciences second quarter 2021 financial results call today's call.
Call is being recorded at this time I'd like to turn the call over to you Mike Beaulieu Director of Investor Relations. Please go ahead.
Thank you Stephanie.
Morning, and thank you for joining the Integra Lifesciences second quarter 2021 earnings conference call.
Joining me on the call are Peter Arduini, President and Chief Executive Officer.
Glenn Coleman, Chief operating Officer, and Carrie Anderson, Chief Financial Officer.
Earlier today, we issued a press release announcing our second quarter 2021 financial results.
Along with the release and earnings presentation, which we will reference during the call is available at Integra life Dot com under investors events and presentations.
File named second quarter 2021 earnings call presentation.
Before we begin I'd like to remind you that statements made during this call maybe considered forward looking factors that could cause actual results to differ materially are discussed and the Companys Exchange Act reports filed with the SEC and and the release.
Also in our prepared remarks.
And as we will make reference to both reported and organic revenue growth.
Organic revenue growth excludes the effects of foreign currency acquisitions, and cleaning any cell divestitures, including the sale of our extremity orthopedics business as well as just because of discontinued products.
Unless otherwise stated all disaggregated and franchise level revenue.
<unk> the rates are based on organic performance.
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 Integra is current report on form 8-K filed today with the SEC.
With that I'll now.
The new grow all over to Peter.
Thank you, Mike and good morning, everyone I'm pleased to report strong results. This morning, reflecting the continued momentum and the business, which enabled us to raise our full year guidance.
If you'll turn to slide 5 and the deck I'll begin with the review of our second quarter performance.
Total revenue.
Turn the call of $390 million, representing reported growth of 51% and organic growth of 49% compared to the prior year.
Of our growth rates were above the high end of the guidance. We provided in April and represent organic growth of approximately 3.7% compared to 2019.
The gradual recovery of our business, coupled with growth acceleration and products launched over the last 18 months drove much of our strong performance and the second quarter sales.
Sales were particularly robust across the vast majority of our franchises in both segments.
Sales of capital equipment and products and some of our indirect markets.
Are still early in the recovery and showing encouraging trends based on feedback from our commercial teams, we expect year over year improvement and the second half, especially with respect to capital.
Profitability was also very strong and the second quarter with EBITDA margins of nearly 26% and adjusted.
And earnings per share of <unk> 79.
Higher revenue favorable mix and integration savings drove much of our performance offset somewhat by normalization of our expenses.
As a result of our first half performance and our expectations for a recovery to continue through the second half.
Raising our full year 2021 revenue guidance by $15 million and our full year adjusted earnings per share guidance to a new range of $2.98 to.
The $3.5.
At our May 20th of Investor Day, we laid out a path to achieving our long term targets.
Following the.
Causing the integration the divestiture of the extremity orthopedics business and most recently the integration of ACL Integra is out of an inflection point.
With 2 highly focused business segments, and neurosurgery and regenerative tissue technology.
I'd encourage you to visit our website and watch our Investor day webcast members of our leadership.
We're being presented detailed strategies market opportunities and catalysts to support our long term targets.
As we illustrated in our presentation of our operating model drives how we run the company on the day to day basis and ensures the alignment of priorities and consistent execution of the companies and our strong position both strategically and.
The ship typically.
Please turn to slide 6.
On June 24th we announced a leadership transition.
After an incredible 11 years I'll be stepping down as president and CEO of Integra to run the health care business at GE.
Our board has appointed a special committee retained an executive.
Search firm and initiated a formal process to identify a successor, including both internal and external candidates. The process is moving swiftly and we remain committed to a seamless transition by the end of the year.
The company has an outstanding leadership team capable of executing our strategic plans.
Operator, and we have a deep pipeline of new products to drive market growth and market expansion for years to come.
Our strategy, which was developed by this management team and has a has the full support of the board is backed by a strong operating model and we have the financial strength and flexibility to successfully execute our plan.
I am confident that this strategy coupled with this management team will deliver faster top line growth and consistent profitability and with that I'd like to turn the call over to Glenn to discuss our accomplishments and performance and the second quarter and more detail Glen.
Thanks, Pat and good morning, everyone. Please turn to slide 8.
And as Peter indicated our second quarter operating performance was better than expected.
And I'd like to highlight a few of the factors that contributed to our results and some of the progress we made during the quarter, including an update to the catalyst we discussed at our May investor.
Our performance and the second quarter sequentially increased 30.
$30 million or 8% and.
And was led by a recovery of our core portfolio of products, and neurosurgery and instruments Burns and trauma and surgical reconstruction.
This recovery was broad based with total organic growth of approximately 3.9% and the U S and 3.2% outside the us compared.
And to 2019.
Growth outside the US was strongest and Asia Pac led by Japan, and China, both of which grew double digits versus 'twenty, and 2020 and 19.
Excluding our indirect business outside the U S. Our international organic growth was approximately 8.
And compared to 2019.
Turning to yourself all the critical components of the integration were completed ahead of schedule.
And our commercial teams are increasing penetration into existing and new accounts.
Having said that the integration of the sales force during the pandemic has been more challenging than.
8 per head as a result of continuing restrictions on access to hospitals and surgeons, leading to a slower start.
We expect these disruptions to be short term and nature since in person sales calls and cases are increasing monthly.
Harry will provide additional details on our outlook and a few minutes and we remain confident and our.
Our long term growth expectations for the <unk> portfolio.
Turning to new product introductions of controlled market release of Sterling. Our next generation intracranial pressure monitor will begin in the third quarter.
Sterling will provide enhanced accuracy usability and advanced data analytics results.
Resulting in better patient outcomes.
We have seen a high level of interest from physicians and with our large global installed base are excited to get this rollout underway.
There are a surge of scope is another high priority product offering and we plan to place a limited number of surge of scopes and the third.
As part of the clinical evaluation.
As we discussed in detail at our Investor day. The initial therapeutic area. We're targeting with your war of platform is minimally invasive cranial tumor removal using our proprietary scope and instruments.
And this evaluation will be leveraging our K.
Third quarter relationships at select sites to generate clinical evidence and gain insights. We believe will help to find protocols for minimally invasive neurosurgery.
We expect us work to position us for a broader commercial launch and the second half of 2022.
We also remain on track to leverage this technology.
The platform customized for surgical intervention and interest of repo hemorrhage R. I C H cases.
The combination of our scope and extraction device has the potential to redefine the standard of care.
Our U S based mirror registry, which is designed to collect clinical evidence and I C. H cases is currently.
And progress and we look forward to providing a more detailed update later this year.
It is an exciting time as we have a robust list of short and midterm catalysts to drive market expansion.
I'll wrap up with a few comments on the prime matrix CFU study and marriage and 3 day.
<unk> of July 15th the online journal of wound care published the results of a prospective randomized controlled trial of our prime matrix and ADM for treating hard to heal diabetic foot ulcers.
This multi center study enrolled over 225 patients and found that prime matrix demonstrated statistically and clinically significant.
The results.
Feeling more defused and 12 weeks versus standard of care.
Yeah.
And the second half of 2000 and 'twenty, 1 we'll be sharing this important new clinical evidence with commercial payers.
And in effort to significantly expand the outpatient reimbursement for prime matrix.
Finally nurturing.
And 3 day, our innovative solution for peripheral nerve repair remains on track for a 2022 launch.
The original <unk> unique inner matrix has of course channels to accelerate and nerve regeneration.
This product will expand our portfolio of leading wraps and conduit and provides access to a larger portion.
The fast growing nerve repair market.
We have accomplished a lot and the first 6 months of 2021, which gives us the confidence to raise our full year guidance.
Now I'll hand, the call over to Kerry to provide a detailed review of our second quarter financial performance Gary.
Thanks, Glenn and good morning, everyone I'd like to start with the summary.
Many of our second quarter highlights on slide 10.
Second quarter total revenues were $390 million, representing an increase of 51% on a reported basis and 49% on an organic basis compared to the prior year.
Compared to 2019 organic growth was 3.7% and the quarter.
<unk> and was broad based including positive organic growth in both segments as well as in both of our U S and international markets.
Revenues were approximately $12 million above the high end of the guidance range.
Adjusted gross margins and the second quarter was 68, 1% and an improvement of 190 basis.
Points compared to 2020, and and improvement of 70 basis points compared to 2019.
These gains were driven by a better than expected recovery and our revenues and favorable U S product mix, including the addition of HL.
Our Q2, adjusted gross margins came in slightly better than expectations.
But as mentioned on our Q1 earnings call, our adjusted gross margins and the first half were impacted by higher manufacturing costs related to tight labor supply.
We are also experiencing longer lead times for select source materials, resulting and some increases in freight.
These labor and supply chain challenges will likely.
And just persist into the second half and will keep us near the lower end of our full year adjusted gross margin range of 68, 2% to 68, 5% debt was provided during our Investor day meeting.
Consistent with this outlook the second half adjusted gross margin should be modestly higher than the first half.
We premiered closely watching material cost inflation and have supply contracts to largely reduce near term exposure any significant inflation risk will factor into our continued thinking about opportunities to pass along these impacts through pricing.
Q2, adjusted EBITDA margin of 25, 9% improved 500.
Third and 50 basis points from the prior year and benefited from the higher revenue and higher of just adjusted gross margins.
EBITDA margin also benefited from the ACL commercial cost synergies.
These benefits were partially offset by higher operating expenses, which are gradually increasing following the reduced levels of spending and the same.
And last year and response to the global pandemic.
We expect a further gradual increase in spending and the second half and investing for growth for new product plans further geographic expansion and clinical studies.
Due to the slower ramp up expenses expenses and the first half we now expect a full year.
<unk> EBITDA margin slightly above the high end of our May Investor day range of 24, and 5% to 25%.
Adjusted earnings per share for the second quarter was 79 cents compared to 33, a year ago I'll provide an update on our full year adjusted EPS and.
And a moment.
And finally, the second quarter operating cash flow was $91 million, our highest level and the companys history.
If you turn to slide 11, and I will now review the second quarter performance of our CSS segment.
Q2 revenues and CSS were $257 million and.
And increase of 51% on a reported basis and approximately 50% on an organic basis from the prior year.
Both global Neurosurgery and instruments sales increased double digits on an organic basis compared to 2020.
Within neurosurgery sales and each of our franchises increased double.
It is recovering from the Covid related impact of 2020.
Compared to 2019, CSS sales increased approximately 4.5% on an organic basis.
Sales and advanced energy CSF management, and dural access and repair all increased between low to high single digits organ.
The digitally compared to 2019, while neuro monitoring was slightly down.
Second quarter sales and instruments increased nearly 4% compared to 2019 on an organic basis.
International sales and CSS increased double digits across all regions compared to the prior year.
Compared.
<unk> thousand 19 international sales increased double digits, and Asia Pac, but declined low single digits and Europe is there was variability and our recovery, especially in our European indirect markets.
Moving to our tissue technologies segment on slide 12.
Q2 sales and tissue technologies were 100.
Third to $33 million and increase of 50% on a reported basis and 47% on an organic basis from the prior year.
Second quarter sales and wound reconstruction increased 52% on an organic basis compared to 2020 with all major product families increasing double digits.
And we look at our performance compared to 2019 sales and wound reconstruction increased mid single digits and was led by Integra skin and surge of men and our burn trauma and surgical reconstruction markets.
Sales and private label increased double digits compared to 2020, driven by a recovery and demand from our partners.
And compared to 2019 sales declined low single digits due to order timing and 2019.
If you turn to slide 13, and I'll provide a brief update on our balance sheet capital structure and cash flow.
Operating cash flow and the quarter was $91 million and free cash flow was $85 million.
Free cash flow conversion was 125% and the second quarter, reflecting a benefit from higher earnings and lower capital spend due to timing.
We do expect capital expenditures to increase during the second half of the year, but likely will remain the low $60 million for the full year.
For operating cash flow for the first 6 months of the year was strong at $160 million with free cash flow of $147 million and over 100% free cash flow conversion.
And Q2, we repaid $100 million of debt, while still ending the quarter with the cash balance of 300.
Third $97 million.
Net debt at the end of the quarter was $1.1.7 billion and our consolidated total leverage ratio was 2.4 times and improvement of over half a turn from December 31 of 2020.
Turning to slide 14, I'll provide an update to.
Consolidated revenue and adjusted earnings per share guidance, and the third quarter and full year 2021.
For the third quarter, we forecast revenue has to be and the range of $382 million to $389 million.
Representing reported growth of approximately 3% to 5% and organic growth.
And of 5% to 7% compared to 2020.
And for the full year 2021, and we are increasing our revenue guide by $15 million to a new range of 154 to $1.5 $5 billion.
This upward adjustment reflects a full flow.
Flow through of the full second.
Of our conferred revenue beat at the midpoint of our original guidance range the.
The new range represents reported growth of 12% to 13% and organic growth of 13% to 14% compared to 2020.
Embedded in our full year guidance is a new revenue range for HL of $70 million to $74 million.
Quarter.
We are actively working to improve access and existing and new customer accounts as well as expand resources and territory coverage we expect.
Sequential quarterly sales improvement and the second half of our <unk> and our year 2 accretion targets remain on track.
Our strong performance and other.
And of our CSS and TT business more than offset the slower start with HL and as a result, we have raised our full year revenue guidance by $15 million.
The midpoint of our revised guidance range represents the second half organic growth of approximately 7% compared to 2020 and 5%.
Parts of the 2019.
Turning to adjusted earnings guidance for 2021, and we expect third quarter adjusted EPS to be and the range of 71 to 74.
Which reflects a sequential improvement and adjusted gross margin.
For the full year and we are increasing adjusted.
EPS to a new range of $2.98.
The $3.5 representing growth at the mid point of approximately 23% compared to 2020 and 10% compared to 2019.
With that I'd like to turn the call back over to Pete for some closing remarks. Thanks, Kerry if you turn.
Compare 15, and I'd like to summarize a few of the exact words.
Our first half performance and Covid recovery were very strong and when coupled with our outlook for the second half of it gives us confidence to raise our full year outlook on both the top and bottom line.
We'd all hope that the pandemic would be completely behind us as we begin the second half.
Half of the year, but it's now clear that the lingering effects are going to be with us globally for the coming months.
We're seeing very healthy recovery trends across all of our businesses and geographies and we remain optimistic about the strong second half of the year and the recovery in 2022 or.
Our teams.
The smart thing to a hybrid environment and while we are returning to a more returning to more in person meetings will continue to leverage all of the digital tools that we've implemented over the last 16 months.
And the second quarter and many parts of our business exceeded pre pandemic levels, our new products will drive growth and 21.
And beyond and we believe many of these products from both neuro and regenerative tissue business represent breakthrough technologies that will deliver better patient outcomes through innovative therapeutic advances.
We look forward to the launches of Sterling, our neuro critical care and monitor and the lower scope of <unk>.
First product from our.
So the database of surgical platform each of these products raises the bar and the respective markets and advances our leadership position within neurosurgery.
For the second half of the year, we remain focused on execution, we've sharpened our strategy and put in place the operational capabilities and leadership team to drive faster.
Oster growth and greater value for shareholders and 'twenty, 1 and into the future. So that concludes our prepared remarks, thanks for listening and and operator, if you wouldn't mind. Please open up the lines for questions.
Thank you and if you'd like to ask a question. Please signal by pressing star 1 on your telephone keypad.
And the speaker phone. Please make sure your mute function is turned off.
So all of your signal to reach our equipment and again you May press Star 1 to ask a question. Our first question comes from Steve Lichtman with Oppenheimer and company.
Hi, good morning, guys.
I guess first question I wanted to touch on was Sterling with the launch pending here in <unk>.
Can you give us a sense of what the the outlook on the rollout is you've talked in the past about us.
A lot of potential targets out there of both old cognate and systems and competitive systems.
How are you seeing thorough link potentially contributing to growth and the second half and and then into 2022.
And Steve, It's Glenn and good morning, and all.
I'll start off and maybe.
Maybe just first highlight some of the differentiating features of Sterling and why we're excited about it first and it's.
The more accurate and other products that are on the market that has less micro sense of draft and Marc compatible.
The sensor durability of the flexibility as.
Some of the market so it doesn't.
And have kicking or bending because it you can coil and you can tunnel at and surgeons really liked that capability and then it's got this advanced data presentation, which think of it as of wave form on the actual of product versus point and time reading. So you can measure I C. P burden over time.
And measuring that pressure and having some historical data can really informed clinical decisions, which is an important part of this.
And new product rollout and keep in mind why we're excited about it and in addition to those features as we of the largest neuro sales force that's going to be rolling this out.
So in terms of the launch itself, we're gonna do of controlled market release here and.
And the third quarter.
Both in the U S and the handful of sites outside the us. So don't expect a lot of revenue and the third quarter associated with the controlled market release, we expected and pivot, though to a full market release and the fourth quarter. We do have some pent up demand. So we should see a nice uptick in revenues and the.
The fourth quarter once we move.
Moving to a full market release, what I really like about this product, though as you know we talk about hitting peak year of sales 3 to 5 years out and that's probably where we'll be in the US market you know in 2020.5 or 'twenty 26 of the nice thing is though we're gonna that'd be launching in China around that same timeframe, which would drive additional growth for.
And next 10 years, when we look at Sterling. So we see a real nice path here for a number of years relative to the Sterling the growth that's going to bring to us not just on the upfront capital purchase but also of the disposable side of this as well so.
Hopefully that gives you some color and how we're seeing it but there's probably something close to the ninth.
<unk> thousand units out there that we could replace.
Almost half of those are in China. So that's why we're excited about the longer term aspects of non.
Just the next 3 to 5 years, but the next 10 years, we have a real big opportunity here too.
Great and the install base and take market share from others that are and the market today and I think it's fair to say as well I mean.
Really the both our existing installed base and most of the competitive installed base is over 10 years old and some of these items are out the 15 to 18 and so there's clearly a need I think a lot of you know that this idea of cerebral pressure.
Swelling is 1 of the most critical metrics and so having.
And all the features Glenn talked about some pretty big deal. So I'm more excited about what this can represent really over the next 3 to 5 years.
Got it great. Thanks, and then just secondly, you know with the higher sales performance and the first half the EBITDA coming in higher U. That's translated as Karan mentioned on the on to cash.
Having you do you anticipate the the the use of cash in terms of M&A the to pick up again here in the coming quarters.
Are you comfortable now with the leverage ratio, where you could see some we could see some more tuck in M&A and the technology side.
Yeah, I think Steve Youre right on in terms of and understand.
Cash and we've got a lot of flexibility on the balance sheet now with you know our target leverage window, usually 2 and a half the 3 and a half and we're at 2.4 times now and so really good flexibility to get us to be opportunistic on M&A I'll, let Glenn talk about you know some of the areas that we're focused on on the on the outside but M&A as always.
And prominently and been part of our capital allocation strategy, we want to continue to be opportunistic on the M&A and it certainly can support that with the with the balance sheet. Glen you know, it's it's great to see the the performance of the cash flows of the business over the past 6 months to 9 months and the caring team have done a real nice job and.
So that does provide a lot of flexibility and and we take a balanced approach to it so what I mean by that is.
While the investments are needed to fuel growth and the actual core business, including the catalyst that I walked through and some of my prepared remarks, and then obviously M&A is a big part of that as well.
And as we talked about during the Investor day acquisitions.
And the integrations are a core competency for us as a company and so as we look at the M&A landscape right now.
We're focused on doing tuck in acquisitions, I'd love to be able to get a couple of done before the end of the year.
But what happens and see how that plays out we're looking at adjacent opportunities and neurosurgery.
And with our regenerative business and then still looking at international partnerships from so not necessarily going out and acquiring technologies, but licensing deals.
Where we can leverage our large commercial channels and places like Japan, and China to name 2.
But listen we're going to remain very disciplined on M&A.
Got great cash.
Flows as we talked about during our prepared remarks, we've got a number of things that are and the pipeline, but you know expectations around valuation and are quite high right now so off and see how some of that plays out but.
Or and a really good position from a balance sheet and flexibility point of view.
Great. Thank you guys.
Thank you and our next question comes from Dave <unk> with JMP Securities.
Hey, good morning.
Good morning.
Just to start with the you know you mentioned a sell and I think you highlighted sort of restricted access.
In terms of the the delta of the 13 or so million.
We're looking for for the year now and I'm just curious it.
Is that should we think of us like head count turnover, some as well and I know, there's a lot going on and the biologic space, but when you say that are you talking about duplicative folks or how should we just kind of think about that specifically is it they can't get in and where is it that there's going to be fewer reps.
So Dave it's clear and let me let me take a shot at this 1 so I think first off he felt it was a great asset and has it really a nice synergistic fit into our overall business.
In terms of the integration itself all of the integration activities are on or ahead of schedule and all the functional areas are really running well.
And so think about it is the 2 plants that we inherited quality organization distribution all of the back office function, that's all going really well.
Let me take you back to the beginning of the year and 1 of the key assumptions that we had was we had to do with sales force integration in order to get this business to be profitable as.
The Standalone business this was not a profitable business.
And I would just tell you that that sales force integration has actually gone really well.
The short term challenges that we're facing us.
And as our reps are hanging off the relationships and selling these new products, it's been more difficult to get face to face in person selling.
Versus a virtual environment and I think as we start to see more and more access being lifted and and getting access into the hospital theater that's.
And that's going to really help to get the momentum we need for the salt business, but it's been a challenge because we have had restricted access and the good news is month to month, we are seeing improvement and.
Having.
And said that the sales will come on the sales growth will happen and so we feel quite confident around the ACO business like I mentioned before it's a great fit and 1 of the nice things and positives around this is also the fact that it's the name of must have new conversations with our existing portfolio and complex wound and surgical reconstruction and you saw that performance.
As the business.
And the current quarter you know if you just look at our U S sales performance, we grew over 20% and our prs or plastic plastic and reconstructive business mid single digit growth and wound reconstruction and the us and so getting some positive benefits and the base business as well so kind of I know if you want to add anything to that.
And our back of the way I look at it and and.
And everything that Glenn mentioned and that from a guidance perspective and looked at with English and the second half.
And we are you know we had a slower start and ACL. So the guidance reflects the improvement from the second quarter, but a slower ramp of the rest of the year. It doesn't change my outlook for.
And for 2022 and hitting our accretion targets. So everything is on track there, but we've derisked the second half and because of the fact that the rest of the business. The organic base of the business is really performing really quite nicely. So when you think about guidance, we took guidance up by $15 million a sell came off a little bit.
And just underlying base organic business was up $28.29 million embedded in that guidance.
Yeah.
Great. Thank you Brian.
Color.
I guess as a follow up.
Pro and the <unk>.
Instruments, you're cognizant of that has been.
Really strong and.
But the.
Kind of kind of always.
Thought of it was sort.
And of lagging but.
Have you sort of look at the performance.
Some of the things you've called out the CSF total access.
I mean do you think these markets are so the story.
Or is it your portfolio or I guess, just any thoughts around some of the strength there. Thank you.
Yeah.
In Q1, and those were certainly the neuro side of the business was a little weak and it was mainly due to some of the surgeries that we saw in the winter time and went in with the storms and in February so a little bit weaker on the procedure side of the business and our expectation was the second quarter, we would see some improvement and the neuroscience of the business.
And the feed your base of pieces of the business, which we absolutely did we saw that in burn and trauma and surgical reconstruction as well.
And then instruments.
Particularly and the Doctor office side of the instruments side saw some nice the lift as well, whether that's deferrals of pent up demand, it's really hard to know.
The Peter but I'm sure there was a piece of that debt, we benefited and in the second quarter, but ultimately saw some nice recovery and we think it bodes well for the second half of the year of day. There are parts of the business that are still not at 100% like capital like our indirect markets and so as we move into the second.
And have I think and moved to more getting everything on all cylinders I think it bodes well for us for a strong second half a day.
But I would just add you know keep in mind, you know and 2019, we watch the number of new products coming out of the common portfolio of that have a multi year ramp to them and then COVID-19 hit and so we never saw the benefit of that for a second year ramp.
Which we're starting to see now so in addition to these procedures coming back we look at our CSF portfolio of number of the service valve enhancements that we rolled out the tool kit.
Our surgical headlamp.
And in Japan, all of these products are really gaining momentum now that we're coming out of Covid and so that's another driver of what Youre seeing.
Terms of the stellar performance and our neurosurgery business.
Thank you.
Okay.
Thank you and our next question comes from Kayla Crum with true Securities.
Great Hi, guys. Thanks for taking our questions. So I guess just at the midpoint of of your third quarter guidance.
Seeing the you know you're assuming and stepped down from Q2 and to me that that makes sense and because of the traditional seasonality, but you're also effectively assuming that Q3 is the only up about 2 per cent relative to the third quarter of 2019, and I think you know your goal is to or has been you know to grow the business of.
Higher than that so I you know can you just walk me through sort of how you're thinking about your guidance specific to the third quarter and just some of the puts and takes there.
Yeah, Kayla and I'll take that 1 and and I think youre thinking about and exactly correct. If you look at her of historical patterns of seasonality typically Q2, Q3 us about flattish.
Because theres, a theres European holidays U S holidays, and summer vacations that happened and that's kind of comprehended within our guidance. There. In addition, again I do think that we benefited from some deferrals from pent up demand and the second quarter as it relates to some of the performance as I as I responded to Dave's question.
And so as you if you normalize that you kind of get to that flattish type of of Q3's number and I would say at the low end of our guidance. We are you know.
Do comprehend and some variability related to recovery as it relates to continuing.
Delta variant and impacts potentially some variability and the vacs.
Of the nation range.
And at the same time, we did take down a sell a little bit within those numbers, which implies a 6% organic growth compared to 2020 on the base business. So we think Q3 is set up nicely and certainly the trends that we've seen thus far would support that and but overall I think you've got.
And about it correct Kayla.
Okay, great and that makes sense and then you know you guys are lifting guidance for the full year, but you know as you've mentioned you're cutting the ACL contribution you know the base business is doing a lot better than expected, but I mean, what is it that is performing so much better than then you go to the expected.
And the organic business and then what gives you confidence that you can recover those lost revenues and in a cell you know over the next sort of 12 to 18 months. Thanks for taking the question.
Yeah, so relative to the full year guidance numbers and why we were confident and our base business really seeing and across the board and our disposables.
And we're thinking of this is so.
Outside of the capital.
We've seen real good strength and our dural repair business, we've seen good strength and our CSF management business and instruments has come back very nicely and on the.
Tissue side of the business, we're seeing some really strong growth both on the wound reconstruction side as well as our Prs side. So.
I would just say.
And in general all of those areas of doing quite well. The 2 laggards are still the indirect mortgage piece of the Carey mentioned and capital, which both are actually showing positive trends, but are still not where we'd like them to be in terms of our normal spending environment. Peter I know if you want to add anything to us I would just thank you and on the neuro bigger picture side. If you remember the charts curious should I mean last.
The most about where it fits on the scale of elective versus the emergent and it's obviously 1 of the first in line of emergence. If you look at our 2 businesses. The first sales reps that really could get back into the hospital and the O R. By far was our neuro team because those procedures and some level of kind of necessity.
Sure, obviously people only out of a certain time to wait on the many of these procedures and then as things opened up T be eyes of traumatic brain injuries and those type of procedures have increased and so we.
We think again with the breadth of our product portfolio, that's going to continue and then with this addition of these new products.
And that's going to continue the fuel and so we're actually not quite of good spot but.
And in some cases had a 6 month running start over and kind of a T T as far as access from at least our perspective of the world Yeah, and I would just say too and why we're confident in raising our guidance as we are seeing better than expected performance and our direct markets.
And inside the U S, which have outperformed and we're expecting that to continue so certain markets and.
Asia, such as Japan, and China that we've talked about are performing really well, we expect that to continue and certainly in the.
Direct markets in Europe are also outperforming and so are we.
And just highlight the international performance, it's been quite good.
And we're expecting that to continue.
Kelly you also had a question of yourself and you just repeat that.
Yeah sure I'm, just you know what what gives us confidence that you can recover those those lost rather and he was in Asia all of them again over sort of the next 12 to 18 months going into next year.
Yeah, no it isn't.
And we.
I think this is of great asset of the.
Team has done a real nice job in terms of the integration work the issue that we're facing at the moment of the short term just because of the.
And ramp access being challenging and not being able to do face to face and the person selling and I think that will subside over.
Over the next few months and we'll start to see better performance.
And sequentially in the business and then moving into next year, you'll start to see the growth that we expect and so.
And we're very confident that this is of great asset and that will work through the short term challenges that are really caused by COVID-19 at the moment.
Thank you. Thank you.
Thank you. Our next question comes from Matt Music.
I think with credit Suisse.
Yeah.
Great. Thanks, Thanks, and good morning.
And and I should say congrats the on on the opportunity and good luck to the the team and sorting out succession, but look forward to.
Seeing that all.
The come into play so.
Couple of follow ups just on.
I'm sorry to ask after the Ace L J.
Changes in the and the ramp access comments that you made but.
And since we haven't heard a lot of that.
The type of those types of challenges from other folks and the space.
Just to maybe clarify is this the difference between.
Between you point out emergent and critical ICU cases for cranial surgery and so on being some of the first cases that came back we hear a lot about.
Reps and ortho and.
The spine and cardio.
Being also given access but is this the difference between sort of rep support for acute care surgeries is 1 thing but.
Reps and.
Access to selling new products or bringing new products 2 of new call point.
And just.
A different set of priorities around it and Thats and Thats Whats you are facing I don't want to put words in your mouth and I'm just trying to understand the difference.
Yes, Matt it's a very good question. So first of all of the emergent and nature of neuro.
It is definitely the need for a surge and to ask for a rep to.
Okay.
And the invited and more often and neurosurgery the and the rest of our portfolio. So that's clearly some of it but to your other point US are really important 1 here is if you have if you're a rep. That's been in and account and you inherit of new product either of NPI that we created or 1 that we buy their.
And they had to be some time for discussing with doctor there needs to be some time to get it on the shelf, particularly if it wasn't us stocked item. It was of carried an item and so that takes a little bit more time and the case of HL look we transitioned to us in the midst of Covid, we knew that and.
And the January time period.
And we handed off and certain territories of the product from and legacy <unk>, 2 and Integra Rep and the Integra rep needs to get in and see those doctors that were using it with the access to those doctors was reasonably limited for really most of the first quarter and and most are into the second is now opening.
Their needs and you have to be going and Thats really at the core.
Core of it I think it is equalized out now, but as Cary said.
And our guidance reflects the.
The increase and the second half, but we're also kind of positioning it in such a way that we want to make sure that we come back appropriately and I think longer term for this product there's no.
And why it won't be a wildly successful products and our portfolio of it compliments everything we do and we.
We had a slow start, but we'll get it fixed and the back up where we expect to be here as we head into 'twenty 2.
That's great and then 1 follow up if I could on on margins.
So.
No reason I appreciate the color on sort of the mix and <unk>.
Progress on the gross margin line and.
Great to see sort of the.
It sounds like slightly better expanding opportunity and EBITDA can you talk a little bit about the the ACL.
The reduction and expectations.
Feels like maybe you were clear about this as sort of the headwind to gross margins.
Is there anything else happening and the integration process that's coming in.
Better or worse or different whether it's related to the pace of the slowness of the access or anything else that you can comment on in terms of EBITDA contribution.
And specifically from a cell.
Yes, Matt I would say from the gross margin perspective, and it actually was additive.
And it comes and very healthy high gross margin and our portfolio. So it does support of.
The favorable mix of as it continues to grow so as we.
And it's done.
Moved from the second quarter, and we start to see a big of ramp and obviously get back on track in 2022. It will continue to drive favorable mix. So from that perspective, it's a it's contributing to some gross margin.
And then on the just overall of what I'd call SG&A type of synergies.
Jeans, where we've accelerated that and we're well on track on that and <unk>.
And seen some benefit of that and the second quarter. So it is definitely tracking ahead of schedule in terms of realization of our synergies remember that business. When we acquired it it was breakeven.
And part of what we needed to do was.
And to rightsize the business a big piece of that was on the sales channel.
And obviously, we look we've achieved the was there was the synergy as Glenn mentioned, we're well on track and I've seen the benefit and our second quarter numbers. So yeah.
Yeah, I mean, certainly from the dollar perspective, you lose a little bit when you don't hit the revenue, but overall.
The margin and.
Mixes is favorable.
Great. Thank you.
And.
Thank you. Our next question comes from Anthony Petrone with Jefferies.
Great. Thanks, and I want a second Peter congratulations on the move and also good luck of the team.
The mezz as the transitioning gets underway and maybe 1 just on the broader strategy. It sounds like from the prepared remarks, Peter as it relates to.
Your transition the board really has a mindset, where we're the strategy that has been in place over the last several years, which has largely been a portfolio of reshuffled.
Strategy is going to remain intact, but as you look ahead.
Does that accelerate does it slowed down maybe anything from the board level as they are thinking about this transition and all of a couple of follow ups.
Yes, Anthony I think I think we've kind of communicated pretty much everything I can relative.
From that standpoint.
The the from a board standpoint, obviously, we are of very active integrated board, they're heavily involved with our strategy and and again a big part of what we've been trying to do over the last ex years was to bring assets in or only keep assets where.
Where we know we can be a strong player and the reason for that is because as hospitals continue to consolidate competition consolidates, having areas, where you can have a leadership position. We think is the way the future growth both top and bottom is going to come in and I think we've been able to demonstrate that so from that standpoint.
I think the board is obviously very much aligned.
On the future standpoint, we have obviously adjacency areas to neurosurgery and you could argue that from the neck up we have expertise at some level and so there's lots of interesting scenarios there and on T. T. Now whether you know as we mentioned at the.
<unk> day, moving broader than wound care is a big opportunity, we've talked about breast and I've talked about nerve probably talked about hernia, we've talked about other areas within plastics all of those have accretive margins and growth rates and so I think you know who.
However, it comes into the the role I think they'll have plenty.
Any of opportunities with the base business to continue to grow and are pretty nice palate to expand into other faster growing areas and I think that's kind of al I see it and and I think I can't speak for the board, but I think.
The board is very much aligned with what we've laid out and at this point and time.
Thanks for that.
And again, congratulations to you and the team and good luck on the trade. Thank you.
And the follow up would be on margins just going back to the <unk> target the 28% to 30% adjusted EBITDA margin for 2023, just trying to get a handle on that just given the Asl revision.
And Eric.
Where does the margin profile set in that <unk> target.
Perhaps in the near term as a headwind, but the offset certainly Pete you mentioned, the new product categories.
Aurora surgeon and breath, Sarah length of course, those all seem to be set.
<unk> EBITDA margin tailwind to just maybe the complexion and mix as you approach that debt debt, 28% to 30%.
Where do they sell now sit in that equation, and where the new products contribute and that equation. Thanks again.
Yeah, Anthony and I'll take that 1 and.
And as we mentioned the HLA our expectation.
And as much of what we will be back on track and 2022.
That's our expectation for our accretion.
And being additive and in the year 2 there's nothing that would suggest that we will not hit that target in terms of the.
Out of it from an EPS perspective and.
And at it favorably contributes to our margin.
<unk>, both in gross margin as well as the SG&A cost savings that we've been able to achieve.
Think about the long term, 28% EBITDA margin of 70% gross margins all of those levers are still intact.
And so as I just as a reminder of just refresh on what those levers are starting with gross margins.
And a number of things that continue to be tailwind for us and gross margins and.
Let's start with the mix piece of those those those pieces first of all of them and.
And you think about revenue recovery as we mentioned not all of our portfolio and yet at 100% indirect capital still have positive of.
The growth opportunity.
And there are some and.
As Glenn mentioned, Cerro link that should be a very nice 'twenty to 2020.2 lift for us as we think about next year in terms of revenue as well as margin opportunity for us.
You have overall, the TT side of the business, which has higher margins than CSS and so.
For the and that business continues to recover including ACL, bringing strong favorable mix to that and then as we again wind down out of those discontinued products that carry lower margins all of that is helping and 1 last lever on the gross margin side is around manufacturing productivity.
Productivity efficiency.
As of 2 big initiatives. There 1 is exiting the TSA agreement with the carbon integration at the end of the year that will provide some gross margin lift as well as we're closing a facility in France by the end of 2022, which help it will should help us well and then we've got just the overall just SG&A.
And we got a leverage as our revenue recovers productivity improvement so all of that split and allows.
That allows us to stay on the path of the 28 per cent type of EBITDA margin.
And I would just highlight the fact that these new product introductions and these key catalysts that I walked through and some of the prepared remarks are all accretive to the company average and so when you look at those.
The growth drivers and the short to midterm those are all going to be a nice tailwind for us relative to our margins.
Thank you again.
Thank you. Our next question comes from Ryan Zimmerman with <unk>.
Hey, good morning, Thanks for taking the questions congrats.
And the team.
So just wanted to ask.
On the margin side, a little bit of care of you mention just some of the inflationary pressures that you're seeing and higher freight costs and you talked a little bit of vouchers and.
And you know potential for price of wondering where you can specify kind of where you can pass that along specifically within.
Out of category versus maybe other areas, where you where you intend to absorb some of those inflationary pressures.
Yeah, So right now and I'd say the biggest impact is around the tight labor market.
And you know certainly the a couple of different things, we have open positions and our factories of open positions and our SG&A.
And the areas, where it is where it's happening in our factories that creates some idle capacity cost because of the fact that you don't have you don't have a full team as you're trying to ramp up production.
However, it helps on the SG&A side, because you don't have all of your positions filled and the second area on the labor side is and we are seeing some select wage pressure.
G&A at certain sites, where we're trying to ramp up and we think about Boston as an example, that's an important side is where it is we're trying to ramp up there and seeing some wage pressure there.
In terms of the supply side, it's really right now limited to just.
And just a longer lead times as it relates to select source.
<unk> areas that create some amount of our expedited freight costs that we're dealing with but for the most of point I think we've been successful we've got long term contracts, we have opportunities to offset some of that internally with the initiatives. So we haven't seen a lot of what I'd call material inflation yet.
It's something we're watching very very carefully we do have the opportunity to price.
Ben success successful, there and I'll I'll have Glenn maybe talk a little bit there is our approach to price, but I would say we have the opportunity both on the CSS side as well as the TT side.
And look at opportunities to pass through in terms.
And the pricing Glenn Yeah, no. The only thing I'd add is first on the the cost side, yes, we are seeing some obviously headwinds as it relates to cost pressures, but I want to recognize our global operations and procurement teams they've done a real nice job to identify and number of cost savings initiatives over the last 12 months to offset.
Some of these.
Pressures and so I want to recognize the team.
It's been working hard to you know.
Minimize the impact of what you're seeing.
As it relates to our pricing and you know again, there's opportunity for some limited price increases given the increase and the materials that we're seeing coming into our sites and Carrie mentioned, we're fortunate and that we've got.
Some longer term contracts, where we can offset some of the short term headwinds around this but.
I would anticipate and certain cases will have some select price increases to also mitigate the effect.
And both sides of the portfolio.
Got it thank you Glen and Glenn for you I mean, the follow up just.
Cause if you could give us kind of of state of the state on Prime matrix, just fine, but the study I mean, you know in terms of kind of covered lives and and where you're at and where you need to get to and.
And how to think about.
The reimbursement strategy with prime matrix given the study.
Yeah, So keep in mind, we had pretty good reimbursement.
And prior to the study and so think of that us over 100 million covered lives, but we really didn't have a lot of covered lives with the commercial payers and so.
What this does for us with this clinically and statistically.
And sheet of data that is significant and the results are showing significant improvement and D of few closure and.
It looks versus the standard of care enables us to now go to the commercial payers over the next 6 to 12 months and.
And increase the amount of reimbursement and so you can think of it as doubling the amount of covered lives what I just said as the rough order of magnitude and so that's obviously going to open up more sales opportunities and more revenue growth for prime matrix and it's bit of.
12, and it's been very well received both inpatient and outpatient and so there should be.
A real nice opportunity for us as we move forward, but again think of it of doubling the amount of covered lives.
Once we get through you know go into all of these commercial payers and getting reimbursement.
And and.
Just to put a finer point.
And that is the last 1 I mean.
And over.
What period and your mind.
So the the base number of covered lives today has over 100 million sort of going over 200 of man.
And over call it 12 months.
And it's fair to say and 12 months, we'll have never going to have from from a reimbursement perspective and place.
And I think.
Yep. Thanks.
Thank you and your next question comes from Robbie Marcus of JP Morgan.
Oh, great and thanks for taking the question 2 from me and maybe first carry you know we've we've touched on it a bit but I wanted to just dig into it a little further.
Particularly as it relates to the guidance raise and what's implied for third and fourth quarter. Here. You know the beat was the very nice beat but we're now looking at third quarter guidance that captures the street at the high end and what's implied for fourth.
The quarter was also capturing the street, but at the high and so I was just trying.
Trying to get a better sense of exactly what's going into it how much is conservatism versus lowered you know.
Thoughts on the second half how much of the impact us from lower a.
Well.
And if you know FX or anything else that played into the decision here.
Yeah, No no and I think it did not factor into any changed and are thinking there and so I'm. We're.
And we're not assuming any any significant FX <unk>.
<unk> and the second half of of the year, but I would look at it.
Again, I'll go back to the math equation and I said, you know of 15 million dollar range.
And within that embedded within that 15 million raises is taking a sell down about 13% to $14 million, which implies that the the base business. The organic base business is up $28.29 million.
So we've derisked.
So we've had a slower start I think Glen and Peter talked about that you know I I'm not sure that I would characterize it as as conservative I'd say, it's the balance I would say that we've derisked. The second half, we think that what we're seeing and the base business is really some really nice trends and.
Don't have the opportunity to see some further growth and indirect and capital as we exit the year and move into 2020..2 so you know I would look at it more some just some timing and you know I I answered it and <unk> question on the Q3 that the $3.82 to 389 dose capture some normal.
Risks and seasonality in the third quarter as well as maybe some pent up demand and the second quarter.
The base business is is the 6% organic growth and the third quarter compared to 2020, and some nice growth and the fourth quarter as well compared to either 2019 or 2020 of I think overall, we're very pleased.
Pleased with the performance of the business thus far.
Sorry, maybe I should've been a little clearer I meant more focused on the the bottom line.
Oh, yeah on the bottom line I would say you know the thing Ravi the to consider is that we'll probably see some additional normalization.
Of all of the Opex in the fourth.
Fourth quarter, and starting the third quarter and we have some.
About the second half we've got some investments we need to do around new product launches Glenn talked about Cerro link where obviously are looking.
Looking at our opportunities on the breast side, and so we want and continue to invest and Aurora So lots of new.
Communities, there that we want to continue to invest and growth with clinical studies. So I.
I would say the third quarter does comprehend some additional investments that we want to do and the third quarter am I think I think it you know I expect that our we've got plenty of room to make those investments, but it is a priority for 4 of us in terms.
And the investment from a gross margin perspective, Robbie I would say second half will be modestly higher than first half of I think some of the manufacturing pressures around the tight labor supply and some pressure on the the long lead times will continue to persist into the second.
And second half, but even with that said I do think that we'll see some modestly improvements and gross margin into the second half compared to the first half.
Ravi I would just add.
Glenn mentioned this earlier and we talked about at the Investor day, the 5 big kind of we view us breakthrough technology operating.
Opportunities that we have are all on track and what that means us do the ramp of their spend.
And here in the second half of which is great news because all of those of the opportunity for significant growth profile of everything from.
And a position to file a PMA for for breast too.
The discussion on Aurora, and so again, if you think about Aurora.
This is really the first platform that can be a regular use product to actually minimally basically remove of brain tumor and so the work with clinicians on all of the big names that you've heard and neuro institutes doing.
<unk> gone that how we customize our instruments, including Coosa and other things that's going to generate some added tweaks and work, which we want so that we can create this really differentiated custom set and then it gets in the case of that no. Other player out in the marketplace, we'll have something like that and so a lot of that work to optimize it.
Starts here with the Q3 for all of those.
Great. Thanks, and maybe just the 1.1 last 1.
And R&D you guided at the analyst day to get that up to 6% of sales and the next few years and.
You know it came in and lower than expected and or at least we expected.
And second quarter, how do we think about when we start to see that pick up and really what projects or is that going to be focused on yeah. I know it yeah. Robbie I think it's really consistent with Pete's comments that I would expect that you'll start to see the R&D investments and move.
Move up and the second half of year as we.
We again continue to advance some of those new product opportunities. So that would be my expectation is that consistent with the some of the spend increase that will be a piece of that will definitely be and the R&D side.
Great. Thanks, a lot.
Thanks Robby.
Thank you and your next question.
Comes from Matthew O'brien with Piper Sandler.
Good morning, Thanks for taking the question and I will just stick with 1 question and I'm, sorry to kind of beat a dead horse here on <unk>, but you guys you know.
Kind of swapped out of extremities for a cell and so theres a lot of attention on it and that's why I wanted to ask you a bit more of that was the 101.
Million dollar business back in 19, and I get the pandemic and.
Access to 2 accounts now, but now we're down about 30% as far as what that did in 19, and so I guess for investors as they are really focused on this asset.
Based on what I, just said can you give us any more just commentary about.
Sales rep attrition.
Account attrition versus what you had expected us at much better on those 2 metrics are you.
Are you guys is there anything on the accretion side of things seem to be moving faster. There. So maybe you are cutting a little bit faster and thats affecting the top line a little bit and then when do you think you can get back to.
<unk> hundred million dollars and sales and that business is that kind of 2023 or beyond thank you.
Yes, Matt. Thanks for the question just to set some of the groundwork on the $101 million reference point for yourselves.
Couple of things to keep in mind, we had about 1 month less of sales. This year. So when you look at that 30% reduction of obviously you should.
About 100 of that.
And then there are certain accounting for GPO fees that are different and integra versus how they were treating it so.
Those are 2 factors, but relative to the business itself listen I think the attrition has been as expected we've taken the necessary actions around synergize and the sales for us for us it's.
Really just around access and I think once we start getting better access and.
And these face to face.
Meetings and the second half of this year, we'll start to see the pickup and the business. So he will come and I'm very confident and that.
When we get back to something that's closer to $100 million of ought to talk about us we get into 2022, I don't think we're ready to commit to anything.
In fact, the other than expect to see a sequential improvement and the business and we expect long term this business to be growing in line with the overall tissue Tech business, which is 7% to 9% range.
Okay, Glen, but just to be clear youre, not seeing anything from and attrition perspective on the sales force side or accounts side competition and getting a little bit.
And more.
The weighted here I don't know if ti the analog you can use as well as far as how you did on the integration side, there, but and I think that went pretty well.
Yeah, and I'll just normal attrition, so nothing abnormal that we've seen and the first 5 months and we've owned the and I would.
Fair to say as you look at Q1 as of Q2, I mean, they're not comparable periods, because we didn't own.
Low for the full quarter, but and as you look at us and on a daily kind of run rate, we didn't see any deterioration in the business. We just didn't see the growth that we expected, but you know I don't.
And I don't think there is and with any deterioration from the first quarter to the second quarter. Adjusted we just have had more limited access and interest.
And it.
And it just didn't allow us to ramp as fast as we expected too.
Okay. Thank you so much.
Thanks, Matt.
Thank you. Our next question comes from Joanne Wuensch with Citi.
Thank you for taking my question. So many have been already answered.
Free briefly what kind.
And the CEO do you think is the right person for the next phase given how much progress you've made over.
And your tenure and then my secondary question with and again I'm going to apologize, but I feel like we're all circling the same question.
If you lower Asl Reis total revenue.
What is it that's giving you the confidence.
And that radius of the lower revenue is it new products is it momentum and the recovery.
And sort of like that would be helpful and thanks.
Yeah, Julien I'll take the second part of your question and I'll defer to Pete on the first part but and it.
Think in terms of the.
Your line business and.
It it's very broad base I think you know with the exception of the indirect markets and and capital that isn't yet at full recovery most of the other parts of the business has recovered very very nicely. The procedure based pieces of our business and neurosurgery as Glenn mentioned.
Under the disposable the consumable pieces of the business.
Our idea of key skim products surge of men products all of seeing some really nice rebound and growth and even instruments as I as I mentioned and my second quarter of prepared remarks here, 4% organic growth compared to 2019 and win win that's the business that would.
And the probably grows low single digits, so very nice performance there and so as we think about going into the second half I go back to all of US some of those those comments at Glen made about products that we launched and the middle of 2019, and we had about 7 products that we launched and the middle of 'twenty and 19 and Covid interrupted.
Rob did that opportunity to really see that nice ramp on them and that's what you're seeing us youre seeing a lot of those products really taking hold as the recovery comes back and so it's the combination of international growth and the combination of some N P is as well and and and certainly some pent up demand and defer procedures.
And I kept some of that recovery handcuffed in the second half, helping us and the in the first half as well Glenn anything else you want to add the only other thing I would highlight is and why we feel more confident and the second half of the year as capital is lag, but the <unk>.
The actual capital funnel of themselves are really strong right now so we've got a lot of things going on relative to trialing.
And advancing.
Our capital through the selling cycles, and so I believe once we start to see that open up we're gonna see of really a nice windfall on the capital and front and the second half of the year and again, that's lagged the first half of the year, but when I just look at the activity and I look at the progress in terms of the bundle.
It's the strongest I've seen and I've.
Very long.
Debt. So that's why we're also confident.
True.
You know look I would say the the key here is as the company is in very good shape I think for you follow the everything from our systems and the speed that we can access data as of close to the product pipeline.
Long time that we have and so finding someone that can come in and and obviously take what's here and be able to make it better but half of vision for the future of about how to find faster growth I think whereas we use this term inflection point for a reason the amount of things that need to be kind of fixed internally versus the.
Opportunities to take things and focus on them grow the scale is clearly tilted to more tools and the bucket to be able to focus on to help the company grow faster and and I think we talked about that and the Investor day, and I think finding the right leader that can come in and balance of the 2 of those is ultimately what.
The blind worked it's obviously the the board's decision to do so and find that and and I think theres a lot of interest and excitement about the company and and I think we'll come out here before the year's over with the with the right leader.
Thank you.
Yeah.
Your next question comes from Jonathan <unk> with Wells Fargo.
Thank you for taking the questions and then I'll I'll keep it brief given the time. So you indicated that the base business was up about 28, and 29 million how much benefit did you see from backlog in Q2, and 1 of your expectations for the second half and that with.
With respect to US capital of can you give us of the growth train and I'm, sorry, if I missed it relative to the double digit pace of decline that you had posted within advanced energy and Q1. Thank you.
Yeah, sure and I'll I'll take that in terms of the 28 to 29 million. The the question was regarding.
Thanks.
What was the backlog of college basketball.
Yeah, the backlog in terms of some of of that pent up demand. We you know I think there was a piece of that is hard to be able to quantify how much of the 12 million beats the upside of our debt. The high end of our guidance range came from deferrals of pent up demand but.
And certainly a portion of that did as we think about that the the surgical reconstruction side of our business was was down in the first quarter of year over year and it came back really nicely and the second quarter instruments, all really nice recovery and the second quarter. So certainly there was the elements of that that pent up demand benefit and the second.
<unk> quarter and.
As we think about the third quarter, we tended to try to normalize that and in our third quarter revenue guidance there, but overall, we're just seeing some nice recovery in most parts of the businesses and as Glenn mentioned really where we think the the opportunity in the second half will be seeing more normalization of capital.
Core really full pipeline of and expect capital to be a contributor which goes to your next question sugar and which as you know capital and the U S was still was down and the first quarter and it's still down in the second quarter about single digits high single digits, but sequentially. It was up from Q1 to Q2 and.
And seeing them us and so as we think about again going into the second half and seeing those full pipelines and capital gives us some some nice comfort that capital will rebound nicely and the second half coupled with the clinical launch of Cerro linked into Q3, and then following full market release in Q4.
Got it thank.
Thank you so much.
Okay.
Thank you and final question comes from Jayson Bedford with Raymond James.
Good morning, and congrats Peter I'll, just just a couple of questions that require I think pretty quick answers.
You mentioned restricted access is this restricted access.
This dynamic negatively impacting sales and your base tissue technology business.
No because again they have the existing relationship so it's much easier to do the sell with our existing portfolio. So we haven't seen that impact our base business, it's really around new products and and.
Obviously, the transition of the relation.
Steps from the AC.
The portfolio. So the answer is no.
Okay.
And then what is the level of discontinued revenue and implied in the organic growth guidance for the year and then also what's the assumption for FX and 21. Thanks.
Yeah for us.
For FX and the start with that you know what we saw probably 11 to 12 million of benefit of FX and the first half, we're not assuming a tailwind or a headwind and FX in the second half of the year, so depending on where rates go where we're not really counting on FX to be a benefit and the second half so about 11 to 12 million with.
Capex for the first half of the year and then for discontinued product I'm, just keen product revenue is and it's been a little bit higher.
And again as people continue to do some last time buys there so probably about a 10 to 11 million dollar type of of us year over year change and the discontinued revenue.
Revenue of about $20 million of revenue and discontinued products in 2020, and about $10 million to $11 million and 2019. So.
Essentially the year over year Delta us, probably about 10 of $10 million to $11 million.
Okay.
Thanks, Anthony is that our last question. Thank you. This concludes our question and answer session I would like to now turn the back Debbie our duty for closing remarks.
Thanks, Stephanie and thanks, everyone for your questions look I'll, just close by saying that there's never been a more exciting time at Integra, we're clearly out of the inflection point.
The accelerated scale and growth and really market leadership.
We're now aligned to the faster growth markets with the changes we've made and the discussions we've had on the pipeline and hopefully you can see that not only do we have a lineup of products with faster growth, but higher margins, which will drop through so thank you for your content.
Jude continue to debt interest and Integra look forward to speaking with many of you here and the near future and providing an update on our progress at the next quarter, but in the meantime, please enjoying your summer and that concludes our call. Thank you.
Thank you ladies and gentlemen. This concludes today's presentation you may now disconnect.
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