Q4 2022 Integra Lifesciences Holdings Corp Earnings Call
Okay.
Yeah.
Thank you for standing by and welcome to Integra, Lifesciences fourth quarter and full year 2022 financial results call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone.
I would now like to hand, the call over to Chris Ward Senior Director Investor Relations. Please go ahead.
Thank you Latif.
And thank you for joining the Integra Lifesciences fourth quarter and full year 2022 earnings conference call.
Joining me on the call. This morning are you onto White, President and Chief Executive Officer, Jeff Mosley, Chief Accounting Officer, and Matthew Awesome, IR, Vice President corporate SG&A Investor Relations and Treasurer.
Earlier today, we issued a press release announcing our fourth quarter 2022, and full year 2022 financial results.
Release, and corresponding earnings presentation, which we will feature during the call are available at Integra life Dot com under investors events and presentations in a file named fourth quarter 2022 earnings call presentation.
When we began I would like to remind you that many of the statements made during this call maybe 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 SEC and in the release.
Also in our prepared remarks, we will refer to both reported and organic revenue growth organic revenue growth excludes the effects of foreign currency acquisitions divestitures as well as discontinued products unless otherwise stated all disaggregated and franchise level revenue growth 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 integrity current report on form 8-K filed with the SEC.
That I will now turn the call over to young.
Thank you, Chris and good morning to all of you joining us today.
I will take you through our accomplishments and financial results for 2022, as well as our clients and financial guidance.
23.
Please turn to slide four.
1022.
Charles just for all of us, especially from the macro environment.
I'm proud of our colleagues for having demonstrated themselves to be responsible stewards of our business in a challenging economic and supply environment.
We remain focused on doing right by our customers and patients while delivering on our financial commitments to our shareholders.
Met our full year organic growth targets exceeded our original adjusted EPS guidance at.
Our strategic initiatives and bolster its key capabilities.
So let me start by highlighting several of these accomplishments in 2022.
Key new product introductions commercial optimization and strategic M&A.
It has only expanded our portfolio, but also strengthens our capabilities to capitalize for girls.
And our carbon and specialty surgical division important line extensions to our coosa portfolio with the recent launch laparoscopic tip.
Cleveland's a harpoon taper in late Q4.
Although with a direct contribution to our revenues in 2003 from these products there'll be modest.
They illustrate the continued differentiation of our product line with new functionalities that enhanced utility.
Acknowledging platform.
We also lost your alright evacuate surplus coagulation.
In the U S. As we continue to partner with surgeons to address their needs and expense the overall platform.
And our tissue technologies deficient, we lost newer Gen. Three D unique midcap nursery pad called it.
We also successfully completed the integration of the <unk> project.
Towards the expansion of our wound reconstruction sales team.
Plant a year ago, we return to a cell portfolio to growth.
Growing double digits in the second half of 2022.
Now that micro matrix cytology outbreaks.
Integrated it's our wound care business, we are well positioned for strong sales growth and to deliver on our long term expectations for that business.
We made substantial progress on our PMA for the use of search you mentioned, an implant based breast reconstruction.
We remain on track with your approval timeline, we discussed during the last earnings call. That's a recent Jpmorgan health care conference.
In December we acquired strategic innovation Associates RCI.
So you're a sharp and innovative resorbable synthetic mesh.
But as a result, we strengthened our strategy for the high growth breast reconstruction market.
I will do resolve and search amounts, we havent foster securing the first and second PMA products in the markets.
And by offering two distinct product solutions to plastic and reconstructive surgeons.
<unk> built a leading position by addressing various clinical contracting and economic needs across different sites of care.
Yeah.
So that was the first deal that came from a new M&A again in March.
Which we completed in connection with our in depth reviews quite divisional product market strategies.
But our game Boltzmann have laid out clear roadmaps, where and how <unk> been able to contribute to our growth strategy.
Finally in line with our focus on differentiated regenerated technologies should be divested our non core traditional wound care business or TWC.
The third quarter of last year.
And listen to what the Florida and commercial priorities, we continue to build out capabilities in our operations and organization.
Close to high cost manufacturing facility in France, and outsourced select back office activities.
It enabled us to increase profitability and redeploy our resources to our strategic imperatives.
We strengthened our organization with key executive leadership additions, including the appointments of Mark just our company's first chief Digital officer as well as Harvey in the St. Louis heading up our international business and as the first executive few P located outside the U S.
We also added talent more broadly.
Particularly within our strategic marketing manufacturing and quality organizations.
To strengthen our innovation capabilities and operational efficiency.
We continue to invest in talent development across the organization focused on the further stepping up engagement and inclusion to maximize the potential.
The potential of our organization.
And our culture, we have embraced sustainability as a guiding principle and how we produce and deliver lifesaving technologies to surgeons.
And patients, while providing financial returns to our shareholders.
We formalized our sustainability roadmap last year, when we issued our inaugural ESG report.
Our commitment to our culture was once again called out by several external organizations.
Recognizing integra for being a great place to work.
Clearly, we accomplished a lot for the year I belief.
Positions us well for 2023 and beyond.
Let's turn now to slide six with the highlights of our 2022 financial performance.
Despite the challenging environment, we delivered solid results for the year and as I stated before I'm proud of our colleagues for skillfully navigating through these hurdles in 2022.
Our full year revenues were 1.56 billion approximately 1% growth on a reported basis.
I felt that TWC divestiture.
$38 million or 250 basis points unfavorable impact from foreign exchange.
Baird.
Last year.
We delivered four 2% organic for the year exclude.
Excluding southern Linc organic growth across the remainder of our business was approximately four 7% demonstrating.
The strength of our diverse portfolio.
Throughout the year, we saw consistent demand recovery in our markets and procedures ended the year at.
Near pre Covid levels.
Can you provide us a solid foundation for 2023, yes, we further mitigate supply challenges and prepare for the relaunch of <unk> by the end of the second quarter.
We delivered above our February guidance range.
Full year adjusted earnings per share of $3.36 representing growth of five 7%.
We overcame both higher than expected FX headwinds as well as the second half selling cycle impacts.
We increased our EBITDA margin by 40 basis points, while continuing to invest in both our operations and key strategic growth priorities.
We also delivered solid cash flows for the year with $264 million in operating cash flow and 17, 9%.
Free cash flow conversion.
Please turn to slide seven now for additional insights into our fourth quarter revenue performance.
Fourth quarter total revenues were $398 million, representing a decrease of one 8% on a reported basis inclusive of the $11 million unfavorable impact from FX and the impact of the TWC.
Sure.
On organic basis, we delivered two 9% growth compared to the prior year.
Overall, we saw solid the mantra recovery across our various segments and key product lines.
Including double digit growth from a cell.
However, with the growth across our business in the quarter was tempered by supply challenges several critical and normalization of private label corners.
If you turn to slide eight well take a deeper dive into our CSS revenue highlights for the fourth quarter.
Reported fourth quarter revenues in CSS were $265 million, an increase of one 8%.
Organic basis from the private prior year.
Clothing, certainly organic growth was three 5% across the remaining parts of CSS portfolio led by CSF management and advanced energy product lines.
Global Neurosurgery sales were up one 8%.
Then that CSF management group low double digits, driven by growth of our programmable house pulse.
Energy grew low single digits, driven by cost of capital and small type sales.
Dural access and repair was down low single digits as a result, our supply challenges, including packaging material availability.
And you're more of a thing declined mid single digits due to settling.
Sales of instruments grew low single digits in line with our long term growth expectations for this franchise.
And international sales of CSS increased low single digits with mid single digit growth coming from Japan, China, and our indirect markets.
Moving towards tissue technology segment on slide nine.
It forces Q4 sales and tissue tech, where $133 million, an increase of 5% on an organic basis from the prior year.
Once reconstruction grew eight 2% on an organic basis compared to 2021.
Solid performance across the portfolio.
Led by Integra skin property metrics micro matrix and shut down.
We're pleased with the accelerated momentum of asos, delivering double digit growth in the quarter and for the second half of the year as we finalized <unk>.
The creation of a cell and benefited from the increased capacity and productivity of the combined sales team.
Sales in private label work down 4% for the quarter compared to 2021.
You may recall that we saw double digit drop in private label through the first half of the year.
Because our partners increased their safety stocks.
Their supply chains.
We have since seen decent inventory levels begin to normalize.
Was hoping and lower sales versus the prior year.
Okay.
Turning to slide 10.
I'll cover the highlights of the P&L for the fourth quarter and full year.
Adjusted gross margin in Q4.
66, 3% down 50 basis points compared to 2021.
More than expected as our supply chain challenges impacted some of our higher gross margin products.
We also saw impacts from the <unk> recall.
And inflation.
Our Q4 adjusted EBITDA margin was 27, 6%.
Compared to 26% in the prior year.
Significant improvement of 160 basis points.
We carefully managed our operating expenses by restructuring and redeploying overhead costs to investments in our key strategic growth drivers.
Our disciplined spending management allowed us to improve our full year adjusted EBITDA margin by 40 basis points.
Just at the earnings per share for the fourth quarter with 94 sets up 10 cents versus 2021.
Our full year adjusted EPS grew by five 7%.
Careful spending allowed us to offset the full year effects as.
As far as well as the settling could recall headwinds and also.
Enabled us to deliver full year EPS above the high end of our original guidance.
If you turn to slide 11 for a brief update on our balance sheet and cash items.
Operating cash flow in the quarter was $85 million and free cash flow $71 million with 90% free cash flow conversion.
The full year basis operating cash flow was $264 million.
Our free cash flow was $222 million.
As of December 31st our net debt was approximately $1 billion in total leverage ratio was two two times below our target range of two five to three times.
The company had total liquidity of $1 76 billion, including $457 million in cash and the remainder available on the revolver.
Our revolving credit facility.
The strong cash flow, we have been able to pay down debt.
And return additional value to shareholders as we execute it's $825 million share repurchase at the beginning of 2022.
And commenced a $150 million share repurchase in 2023.
With 20.
2022 behind Us, let us know.
For 2023, and turn to slide 11.
Okay.
What will drive it background in 2023 is a further acceleration of growth strength of margin accretion.
Stepped up investment in strategic initiatives to support future growth.
The revenue side as I mentioned earlier, we exited the year with procedures near pre COVID-19 levels.
Providing us a solid foundation for growth in 2023.
Our outlook reflects this procedural demand.
Along with the gradual improvement of supply.
Including sourcing reliability components and packaging.
We also expect overall demand for our products to further grow and we are excited at the prospect of relapsing settling at the end of second quarter.
Our new products are expected to contribute to the company's growth.
Along with your absorb your friend from CF are most ranking.
Since acquisition.
We intend to drive profitable growth in 2023, but strong gross margin improvements.
Driven by favorable product mix.
Focus on price capture and increased efficiencies within our manufacturing sites.
We will also benefit from the full year impacts of our TWC divestiture.
And the closure of our high cost manufacturing sites in France.
But that's profitable grocery willing to reinvest in our business by stepping up our strategic investments in strengthening our core capabilities to position ourselves well for future growth.
This key growth accelerators include first PMA readiness for search events endorsed shop.
I mean execution on the clinical studies delivery of the PMA submissions and preparation of our relevant manufacturing sites.
To produce PMA level products.
Second further advancements of our Aurora platform, and lastly, enhanced generation of clinical evidence to support regulatory approval and strong reimbursement.
Portfolio.
<unk>.
We will also invest in the expansion of our international business and our first digital pilots.
Turning to slides 13 to translate these drivers into financial expectations for 2023.
For the full year, we expect our revenues to be in the range of $1 $6 2 billion to one $6 billion to $1 billion, representing reported growth of two 9% to 4% and organic growth of 4% to five 2%.
Our revenue range accounts for a 40 basis points headwind from FX, which reflects the lower impact compared to 2022.
As a result of the strengthening of major foreign currencies versus the U S dollars.
Over the past few months.
If you look in more detail at full year revenue.
Do you expect to see higher growth contribution in the second half of the year compared.
After the first half equity cure.
Mainly as a result of a number of 2022 timing items.
First as mentioned previously we expect a gradual improvement in supply, which will contribute more heavily to the second half.
Yeah.
Next we have the year over year impacts several inquiry call.
First quarter of 2022.
Anticipated re launching at the end of second quarter 2023.
Third we expect private label to continue to normalize in 2023, resulting in tougher comps in the first half of the year.
Lastly, we expect a larger contribution from our China business in the second half given the end of Rolling Lockdowns late last year.
Yes.
Overall.
At midpoint of guidance, we expect organic growth of approximately 3%.
First half.
Approximately 6% in the second half of 2023.
Our reported basis you.
We will see the timing from the TWC divestiture create another favorable comp in the first eight months of 2023.
Turning to our profit outlook for the year, we expect adjusted earnings per share to be in the range of $3.43.
The $3.51.
If you turn to slide 14 for a look at our guidance for the first quarter of two.
2023.
Well the first quarter, we expect revenues to be in the range of $370 million to $376 million.
Representing reported growth of approximately negative one five to flat and organic growth of 2% to 3.5%.
We expect first quarter to be most impacted by the year over year comps I highlighted before.
Turning to adjusted earnings guidance for the first quarter 2023, we expect adjusted EPS to be in the range of 72 to 76 cents flat year over year at the midpoint of the guidance.
If you turn to slide 15, I'll conclude with a brief look at our strategic pillars.
Summary of our prepared remarks.
Yeah.
As we outlined earlier this year, we have relative business or our five strategic pillars for 2023 and beyond.
The first two pillars are our biggest profile growth levers.
Stronger innovation for outcomes.
Up on our growth potential in international.
And broadening our impacts across the care pathways in the therapeutic areas on which we focus.
The last two pillars are key enablers, driving operational and customer excellence.
And cultivating a high performance culture.
Okay.
These five pillars, a great way to understand how and where we're prioritizing our investments to achieve our 2023 year results.
And building towards our long range plan.
Look forward to going deeper into our strategy and how we will execute I thought may 4th.
Yesterday.
Yeah.
So let's move on to the last slide slide 16 to conclude our prepared remarks.
2022, we're able to capitalize on the recovering markets without resilience.
Our first global portfolio of products and great brands.
Delivered about 4% organic growth for the full year and what was still a tough operating environment.
Our execution in 2022 points towards a clear path of organic growth within the range of our long range plan.
Utilizing a broad sets of operating levers, including price capture.
Efficiencies.
Careful restructuring and cost management.
We exceeded our profitability commitment for the year.
I mean, delivering additional value to shareholders in the form of share repurchases.
Our focused portfolio.
And a strategic acquisition and expect it to strengthen our position in one of the most.
Exciting growth markets.
Patents based press to construction.
We are positioned in 'twenty, and 2023 and beyond to accelerate organic growth rates.
And improve our gross margins.
For 2023, a portion of that margin improvement will be redeployed to investments in our growth catalysts, which will temper, our EBITDA and EPS growth.
However, these investments will further strengthen our core capabilities and operational resilience.
Building capability to develop and go live her life.
Life saving technologies and products for our customers.
Fueled to enable us to meet our long range plan targets.
So that brings us to the end of the prepared remarks, I will hand, it back now to Chris and the operator and mature Oscar Mayer and Jeff Most Brook are gonna Jordan for the Q&A.
Chris.
Let's see if we can open the lineup for Q&A. Please.
Yes. There is a reminder to ask a question you will need to press star one one on your telephone again Thats Star one one on your telephone to ask a question. Please standby, while we compile the Q&A roster.
Our first question comes from the line of Vik Chopra of Wells Fargo. Your question. Please.
Hey, good morning, and thanks for taking the question.
Just a couple for me I guess the first one is.
Can you provide an update on the CFO search what's the criteria for the candidates and any timelines that would be helpful. And my second question is on margins Jan. Thanks for the comments were helpful. But how should we think about growth in EBITDA margins in 2023. Thank you.
Okay.
Yeah.
Okay. So let me pick the first one at all.
I'll ask Jeff to go a bit deeper into the marketing question.
So on the CFO church.
We started.
<unk> January .
With the search with a.
Executive search company.
Looking for a CFO who yep.
Provides a good balance between on the one side.
The operational capabilities I mean.
Does that raise a.
Heavy operational business, many dimensions of operational excellence and I would say complexity, but also on the other end of the balance a strong strategic case.
Capability and our capability to engage in M&A and it's clear that.
At this point in time.
Our and Christopher company that we will continue to be an acquisitive company. So yeah. We're looking for a CFO that has that balance.
At this point in time.
We are with the executive search company, making wont list of candidates I expect that I've got busy interviewing during the month of March.
How that translates into Canada being feet on the ground.
I think between three three to four months.
So that's all I'm the CFO .
Well I'll hand, it to Jeff to give you a few on D. At the margin evolution in 2023.
As I communicated during my.
Prepared remarks that will be definitely made a choice to reinvest some of our strong gross margin.
Improvement in 2022 to re invest in several but the investment areas that are all of them supports our growth capability, but I'll, let Jeff go a bit deeper.
Got it.
Thanks, Don and Vic to kind of walk through your question. If maybe start first on the gross margin so.
Got it in his prepared remarks on what you just highlighted a lot of positive things.
We see across gross margin and so when you start first on the revenue side you.
You see the benefits that we're going to drop through in 'twenty to 'twenty, three with the product mix and the price capture couple.
Couple that with the benefit that we'll see for the full year, we're at TWC divestiture.
What will drive benefits there along with what we're seeing with manufacturing efficiencies that we hope to gain in 2023. Some of them was mentioned around the closure of a high cost facility in France as well too. So overall when you look at gross margin, we see that improvement being around.
Mm 100.
100 bps smid of improvement there so that's going to.
That's gonna be the capture that we're expecting going into 2023.
Now if you move to the operating expenses as a yacht had mentioned, we're really trying to apply that and make sure that we're redeploying that we're looking at our strategic investments and we mentioned a couple of kind of key areas there and the surge of man in the door absorbed P. M. As you know new products R&D and clinical international.
Churn along with R&D.
R&D along their digital pilot state, so what youre going to see from an EBITDA is really biased.
EBIT margin expansion is as the offset to the gross margin expansion will be within the operating expenses, we continue to invest.
And to the gross others of our business.
Thank you our next question.
Comes from the line of Robbie Marcus of Jpmorgan. Your question. Please Rob.
Hi, This is allen on for Robbie I.
I had a quick one on the quarter and then on 2023, starting with the quarter.
You're talking about gross margin, but.
From our perspective, it looks like it actually came in a little bit softer than expected, especially when you look at the.
Kind of think about it.
And a year over year analysis sequentially. Despite the fact that macro currency macro was generally.
Pressure, but not as bad as expected can you just dive into.
What drove that relative softness and whether or not there is upside to that 100 basis points you just called out.
So let me maybe quick also on the I understood you talked about gross margin rate for the fourth quarter.
Yes, that's correct.
Yeah. So if you look at.
S a and impacts of the mix.
As a result of.
The supply shortages specifically.
Packaging materials.
We fell short or we have higher back orders than we wanted our dural access and repair which has a higher.
Profitability product so yeah that makes you.
You got pushed it wrong.
Sites, there's of course, it's still a bit of impact from the settling recall costs were making during the quarter.
And then thoughts.
Impact from a on a comparative basis impact from.
Inflation that was.
Hitting us on the <unk> on the gross margin side, the inflation that came through our factories during the year and those are the three main levers are playing in the fourth quarter.
Yeah, Yeah, I know, it's probably would add there again you had mentioned it out the FX, we still look at the FX on a year over year. It was significantly worse than Q4 from the prior year.
And as John mentioned relative to some of our costs.
What we see as some of the inefficiency with our manufacturing that happened in the earlier part of the year.
Let's get deferred and then Expensed in Q4 so.
The gross margins came in.
Later in Q4, but that was within our guidance and within our expectations.
Got it.
Three once again.
Your organic growth range to $5 two at the top end you are coming at the very low end of the LLP I know theres still some puts and takes to the year.
But with you have fairly coming back in the first half that you have difficult comp from the first half offset by easy comps in the back half recognizing that it will take time to get that going and also you'll be working on integrating S. I E. I guess, what gives you confidence that you can continue to kind of drive that reaccelerate.
And back to growing sustainably within your alloy paid hopefully getting closer to the high end of the LLP. Thank you.
Yes, if you did the shortfalls were and if you want to go a bit deeper our cat.
But the first and as I communicated before a.
Half of our two portfolios in the markets, there and I think in tissue technology clearly in 2022.
Yeah proves to be that 7% to 9% growth business.
Definitely with a T cell.
Really starting to pull our hearts, but also the restaurant portfolio delivering well.
Yeah, we see a normalization of our private label that definitely carried more than its weight in 'twenty two yeah, but it's going to normalize in 'twenty three but overall that portfolio is doing what we expect it to do it then yes, the the neuro portfolio with tree.
5% Yep markets.
Which if you look at the portfolio and 22, excluding settling definitely deliver to that which that link coming back yet that all contributes to its rightful weights are in the portfolio. So if you take those two together, where the five plus percent business and that's what we're working towards.
In 2023, and a couple of year over year comparisons that made that a bit.
Difficult with.
Ups and downs in 2022, but overall that gives me confidence in the portfolio that we have in the 5% to 7% range that we have set as our long range.
Got it.
On top of that there's a couple of N. P is that were lost in 'twenty, two which will start to deliver more.
Increasingly more over 2000 and.
Twenty-three I'm thinking about the role around neurogenic a three D.
Sure.
At two two of the 2022 lapses that will show up in 'twenty three.
It is important also to to note that from a Sterling perspective, we're really counting on revenue in the second half as we looking at.
Our guidance range.
Yeah.
Yeah.
Yeah.
Question. Please.
Thank you. Our next question comes from the line.
Steven Lichtman.
Of Oppenheimer.
Your line is open Steven.
Great. Thank you good morning, guys.
So I wanted to ask on a couple of topics one on product pipeline over the medium term can you give us an update on <unk>.
It's surgery men in Aurora.
What are the key milestones.
That we should be looking for on both both in terms of your discussions with FDA on <unk>.
And on the <unk> rollout.
Maybe the second question can you just flesh out a little bit more on what you see.
The international opportunity and you know what.
What should we be looking for from Integra in 2023, as you really continue to build that out thanks.
Yep.
So first on the question on the product pipeline one search are meant.
As we communicated last slide we are well on track to.
Do our submission in it's gonna be August of this year.
So that's submission of further data that we've been working together with the FDA.
It'll be submitted and we're well on track to do that and that should leads.
Feel good about our prospects to get PMA somewhere or 2020 for them.
With Aurora at this point in time, it's about putting.
Berger.
Instruments in the field to drive utilization.
And drive experience with the.
With surgeons.
Last year 2022.
Low low revenues was not the targets we expect in 2023 to have the first call. It material revenues there also.
So all of that to show up.
Okay.
So that's on the product in terms of international opportunity.
One.
Okay International historically has been and will continue to be.
I single digits.
Growth driver strong growth in our in Asia, Japan, and China for sure, but also if you look at our indirect markets.
In the Middle East.
Latin America, Canada.
Good good drivers.
In parallel we're working different investments.
Into international first more feet on the street there is still some regions, where we are under represented versus what we could do with our current portfolio and then second we're building out.
Our global portfolio and international we just launched early in January .
We sell portfolio.
And in Europe .
So that's existing products and new market that will add to international growth. We are further exploring opportunities for tissue technologies.
In Europe , but also in select them.
You shouldn't countries and then from a.
Neurosurgery perspective, there that given we're well positioned in Europe .
Looking for further opportunities.
In Asia places like China to bring more of our neurosurgery products into the market. So yeah.
So it makes us one it's a good markets.
And we're feeling good markets with the products, we have and then second we are introducing.
<unk> said we have into.
Europe , while in parallel we're not excluding.
Yeah, M&A opportunities to further build out our footprint in the international.
That's helpful. Thanks.
Thank you.
Our next question.
It comes from the line of Matt Taylor of Jefferies. Your line is open met.
So as that Matt Taylor.
Yes.
Okay great.
So thanks, guys I just wanted to ask a question about <unk>.
Some of the factors that are going to help you in the second half of the year.
Could you quantify the amount of contribution that you expect from.
From thoroughly.
Understanding that you'll be in the 6% range implied in the second half of the year you within your <unk> targets, but do you think thats a good jumping off point to be able to consistently grow in that range as we move into 2024.
Yeah. So Matt Yeah. This is Matthew here. So again when you look at our first half second half and kind of the ramp from the 3% to 6%.
Sir link we not banking on any revenue in the first half and coming back in in the second half. If you look at what we had seen.
Historically in terms of our sales coming back from Cerro link, we think we're gonna be gradually coming back to this in the second half and then entering 2024.
With again, a stronger base.
The growth in that year in general in terms of trends into 2024, I think we'll continue to make progress towards our long term plan, which is really that 3% to 5% on the CSS side.
It's that 7% to 9% on tissue Tech and we expect to make strives going forward 'twenty three 'twenty four and onward.
To achieve those long term targets.
Okay great.
And maybe just one follow up you talked about the private label a normalization a few times can you be more specific about how you expect private label to grow in 'twenty three because of the tough comps in the first half.
Yeah, I guess I had begun to them too much yeah. So you know first half when when you look at private label I mean, we definitely expect a year over year comps that's going to be down.
First half 2022 was really are strong.
Have I would say of 2022 and as you go into the second half, we expect it to be slightly down to flattish mm, bringing the year on a year over year comparison to to down low single.
Mid single digit on the private label segment.
Great.
Thank you very much private label or.
Private label, you admit mid single digits.
Growth business and that's where.
We will be back at those levels.
As of 2023, I will continue in the out years.
Okay, great. Thanks for clarification there. Thank you.
Yeah.
Thank you.
Our next question.
Come from the line of Ryan Zimmerman of BT I G. Please go ahead Ryan.
Okay. Good morning, Thanks for taking our questions.
I guess I wanted a little more clarity on the margin line because as I think about the long range plan.
When do we get to kind of that low teens or double digit EPS growth.
The 100 March at the 100 basis points of margin expansion that you're expecting is that absolute for 'twenty three because I guess I'm curious if there's anything baked in in terms of inflation headwinds.
Or you know other FX that you're talking about or should we assume that youre going to get 100 bps of of margin expansion in 'twenty three on an absolute basis and all of them.
And just as a second second to that when do we get back to kind of that low double digit EPS growth because if I look at kind of where margins are going coupled with some of the sales and marketing structure.
It doesn't look like we're going to see a double digit number in 'twenty four as well just looking at kind of where the margins are at today.
Okay, Let me I'm going to hand it back.
Ryan too.
Two Jeff, but also to clarify a couple of things more on the gross margin, which.
Thank you fully you're fully captured.
Sure.
Yeah, Ryan so going back to that 100 bps that was a discussion around the gross margin side, so where we see gross margin improving.
You know 100 bps.
100 bps mad relative to kind of those drivers we mentioned before that when we when we talk about kind of year over year and modest EBITDAR.
Improving that keep in mind within our Opex the redeployment that.
John was speaking of which it is.
As a reset kind of coming out of our expense management that we had in the second half of the year. You also have to couple that with the with the Sia acquisition that we did at the end of December So that acquisition brought within operating expense and we mentioned within that deal that it would be dilutive. So it's add in the additional R&D.
And commercial with with that business to make sure that we support it going forward both from the PMA perspective, and commercial execution, there as well too. So I think you know relative to your 2023, you've got to keep in mind, there's a lot of moving parts on the top line with timing and that that that's.
It's creating some noise in the first half in the second half and then also on the operating expense side.
That means that we're making along with fear as well too that that is making our EBITDA growth more on the.
On the modest side, but again gross margin growing at 100.
Mid basis points offset on the operating expense with those investments that we talked about.
So maybe Brian just to add to that because I mean, you said the term hundred bips myths, yeah, but what she means.
Well above 100 correct.
So that that's one of our I would definitely for 2023 are driving that.
Strong gross margin accretion as a result of on.
On the one hand, yet some of the mix.
Folio of changes, we've done in and focus on.
Operational efficiencies okay. So that's one.
Second in terms of what I I flag.
Flagged as you know we're investing in growth.
If you look back at our Opex pattern.
Our first half second half last year, you'll see that.
Our second half were significantly lower.
Opex at that point in time I told our.
Our investors back yeah, let's say, it's preparing not just to compensate for it for selling but also preparing redeployed, which we're doing so you will see that opex come.
Come back in.
More parties to see acquisition, but part is that we're reinvesting the money, we redeployed last year and I would say in total.
About 35 million enough redeploy money that we're reinvesting them in 2010 and 23 so that.
That brings our opex level.
Back to a bit more normal level, which they like the first half.
<unk> 22, plus the <unk> acquisition.
Some labor inflation.
Inflation, so those those two elements.
It's essentially the re step up of our Opex that is a key.
Keeping our EBITDA.
Our progress in 2023 at a modest level.
Okay.
Well, let me ask about market growth, then I'm going to I'm going to ask you know what.
Little bit away from the P&L for a second.
If you think about the puts and takes of the business and I know Sterling is coming back and so forth. What are you assuming for overall market growth.
Grocery or tissue attack.
Are those markets at depressed levels right now in your view because.
If they're not then.
You are losing share I guess relative to your market.
In the first half of this year and if they are at depressed levels. You know Wendy when are you assuming they come back and is that in coordination with the product drivers you're talking about and why you know why not get more of a boost I guess in the back half of the year.
So we see the market is pretty much back at their normal.
Laughs.
<unk> seen in Q4.
Except for a couple of countries, but yeah, we're pretty much back to normal.
The growth that you see.
Don't think we're losing share and then theres definitely.
Link nothing to market them.
Growing at a debt market, but the other parts of the portfolio are doing as we expect them to do.
And even in several areas when I looked at our capital when I look at them.
Our.
Our CSS.
Definitely capturing there sure so I think the numbers you'll see.
And they have several elements of year over year comparison that may make you think differently, but that's that's definitely not the case markets.
You see the market says back in goods that we see our position strong end markets.
Okay. Thank you.
Thank you our next question.
It comes from the line.
Oh rich in the winter.
Truest Your line is open rich.
Alright, Thank you for taking the questions.
Just.
Maybe sticking with the margin outlook.
I think I heard you say earlier in the call modest EBITDA margin expansion or operating margin expansion I guess I'm just for the full year I'm trying to.
Figure out how you get there earnings growth is effectively in line more or less with the with the top line and you have a repo in there. So maybe maybe help help flesh out or they're below the line nonoperating items and tax interests better.
Considerations there that it.
It would lead to modest expansion I'm getting more to flat, maybe even slight deleveraging and then secondly on the cadence of margin improvement. It sounds like you youre going to step up the spending back to quote normalized level pretty immediately starting in the first half that for grow.
With us on the top line a little bit lower between the first half in the second half so should we be thinking about you know.
Ah different different margin Delevering and levering profiles in the first half and second half any any any color you can provide on kind of the margin cadence moving through the year.
Yes, thanks, Rachel So maybe just walking down the rest below EBIT. So I think to keep in mind as you're kind of modeling through the EPS with a range that we gave.
Walking down kind of on the tax rate, that's an area to call out we did have in 'twenty 'twenty to benefit from stock comp that.
We don't see it will be reoccurring in 2023, so we're moderating our tax rate around 19% for the year. So that you know year over year about 100 little bit over 100 depth of increase in tax rate you had mentioned the share count, but that is a key point as well too as we initiated an.
Early Q1, a $150 million share repurchase so you have to factor that into an updated share count for the rest of the year and that really kind of drive to our EPS guidance that you mentioned and again recall one thing on the operating expenses well to the deployment of those.
Additional investments that you're an adventure and plus the addition of the CF acquisition that was in December that adding the additional expenses and contributing to the modest EBITDA improvement.
Okay. So that's helpful.
Can I ask a question.
Yeah on your cadence question and I can kind of add them. So I think youre correct, you'll see a little bit of the of the driving the profitability matching the revenue. We had provided a guide of the walk of the first half of 3% versus the second half at 6%. So that will align with some of the profits as well too as well as the operating expenses.
<unk> will be fairly evenly throughout the year with maybe a slight uptick in the second half, but you'll see more profit driven more in the second half of the year.
Okay. Thank you maybe just one on thorough Inc.
You know as we think of the products return to the market shall we be thinking about the incremental revenue contribution at least in in 2023 is more just getting supply back to existing customers or are you are you banking or is your guidance, assuming actually you know opening new accounts.
So an incremental revenue beyond some some baseline level that you get back to.
But we definitely come from opening new accounts communicated before.
Or.
Factoring capabilities is ready yeah, we had a different parts.
Ready to start manufacturing so our capacity is nuts.
I'm not really going to be a bottleneck.
At this point in time, and certainly where are running the validation and verification.
All of the.
Technical fix are generating.
Statistically significant data to then take it to deal with the FDA.
And get back into into the market after submission.
Okay. Thank you.
Okay.
Thank you.
Our next question.
It comes from the line of Jayson Bedford of Raymond James Your line is open Jason.
Hi, Good morning, just maybe a couple of quick ones.
You mentioned price capture as part of the stronger margin profile can you just provide a.
Little bit more detail as to price the discussions any pushback, you're getting and what's the contribution to revenue growth and 23.
So thanks for the question Jason.
In terms of price.
Communicated last year that.
Typically we've always gotten some price in the range of one.
One percentage last year, we aimed for more and we succeeded in getting.
More.
This year given the realities of inflation that we saw last year and some inflation that is hanging.
The next next step higher.
And as far as we see them.
Customers understand where they'll be.
The only met the company that is.
Adding price to deal with the inflationary pressures. So now we're on a path to get more than that than last year, which definitely is significantly more than what we would get it in a typical year.
And young.
That's on a net basis, meaning if I just look at kind of your one.
1 billion and a half into revenue in 'twenty, two you expect to get.
North of 1% and price in 'twenty three across the portfolio.
Yes.
Okay.
Okay, and then just quickly second one at the mid single digit decline in dural access your pair it sounds like much of it is.
Fly chain related or are there any demand issues or are there any kind of competitive market share dynamics at play as well.
Oh no. This is this is all <unk>.
Supply and then primarily packaging material.
Unpredictable availability, let's let's call it that way so we're losing some manufacturing capacity.
As a result.
And when.
Expect it to be alleviated.
Fly chain dynamic.
Well definitely expect.
If you take all of the first half two bit by bit improved and this is about the supply chain.
Getting back to its capacity.
We are developing and have developed parallel suppliers some of the specialty packaging materials.
So we're alleviating some of the routes Clos, but for something that we will have to continue working with supplier.
But I'm a bit to get back to the.
Passage of material supply that.
And Jason This is Matthew this is also I would say kind of a good example of what are we going to see throughout 2023 in terms of gradual supply recovery like what you mentioned here from a dual axis and repair perspective is really in line with how we kind of look at 2023 and the step up of supply recovery.
Got it thank you.
Thank you.
Our next question.
It comes from the line of Joanne Wuensch of Citi. Your.
Your question. Please Joanne Hi, this is actually Anthony on for Joanne. Thank you all for taking the questions.
First comment and China grew mid single digits. This quarter. Despite what we've seen with COVID-19 weighted with the reopening could you just talk about maybe what's specifically driving the growth there and then what your outlook is for group in China. This year and then I'll ask my follow up just if you could discuss what youre seeing in terms of hospital appetite for new capital.
Thank you.
Okay.
Hey, I got your second question around the first one not not sure Anthony what.
Could you repeat.
Yeah.
Yes, sorry, just asking about the common growth in the quarter I believe you said it was mid single digits in China.
Just curious maybe what specifically youre seeing in China, what's driving the growth there and then your expectations for China growth in 2023.
Okay.
So what we saw in China over the fourth quarter.
There's still some impact of the <unk>.
Rolling Lockdowns.
We still saw the fourth quarter mid single digit growth.
But that's compared to.
It's a double digit growth, we are expected to see from from China, and so from China.
We expect as of the second quarter this year to be back to that double digit.
Growth.
The first quarter still going to be a bit of a mix with some of the Chinese new year and some of the January COVID-19 waved at pass through the country would be definitely saw impact that although coming out of Chinese new year, I think most people are pleasantly surprise to them.
How how the ripples flattened out quite a quite good so yeah first quarter do not expect double digit yet, but those of the second quarter I see a China now back into a normal rhythm.
This is driven by the further growth of health care in the country, but also our drive to move from tier one to tier two and three hospitals. So we are spreading our geographic coverage.
In China, and that's the second build to market. That's a second big growth driver for our cookman portfolio there.
Your question on capital capital.
In the fourth quarter has been solids remained solid we are.
We ended the year with.
Very healthy funnels, and we pretty much have seen this healthy capital all over 2023, and the only thing that we've seen a bit difference over the years that decision timings.
Hum.
Have become longer.
And that's primarily driven by just the administrative processes that seem to run alternative its footwear, we do not expect that to accelerate quite rapidly, but you consider where you're at a new steady state to where decisions will take longer but the the pie.
Klein is as.
As well filled and that we will get the deal out of that pipeline at the steady growth pace that we've seen last year.
Thank you.
Our next question.
Comes from the line.
Dave particularly of JMP Securities. Your question please Dave.
Yes, great.
Can we get your thoughts on sort of.
Valuations out there it seems like a lot of the private company here are compressed and.
If that's true and the second part in here and you were a little below the MRP on topline.
Your under leveraged why do you think the $150 million buyback is the right allocation choice right now thank you.
Yeah.
Yeah.
Yeah.
So.
I think you know as I said as a discipline set with our balance sheet when we initiate.
Initiated D <unk> hundred 50 billion.
Billion buyback.
Two drives one given.
Given what we have in our M&A.
Objectives, what we also have on the balance sheet, we felt that we could.
Given the capital back and still not impact our M&A planning yes.
And then second from a timing perspective, when we did see acquisition, we knew first year six cents.
Dilutive and with that.
Hi back we wanted to isolate our shareholders from that impact so.
I see it more as a strength of our balance sheet that we can do both do M&A as you know, but at the same time also if we have excess capital too.
Let it linger.
Well sheet, but.
Bring it back what did you say on the depressed valuations, where they are very aware of that and.
Yeah, we definitely know what are the targets that we want to go after.
For this year and into next years.
Thank you.
Thank you.
Uh huh.
Our next question.
Comes from the line of Matthew O'brien of Piper Sandler Your line is open Matthew.
Okay. Thanks for taking my questions just to follow up on Daves question, there a little bit.
You've got the gameboard, you're not that levered, but you're making a lot of investments in the organic business. This year.
And in the inorganic acquisition from last year. So is it fair to think that the likelihood of a chunkier deal. This year is lower just because of all you've got going on right now and what we should expect more.
You know technology are very smaller tuck in acquisitions versus something bigger and then I do have one quick follow up.
So I would not make that translation too.
Oh, the small deal shift that definitely on our game board, which is driven by strategy dares.
Deals that are not more to pin like there's also a more significant objectives.
Our balance sheet is not keeping us from having to make a selection.
Which we can.
We can't afford it so the timing is mainly driven by weather.
Both sides of the table dance is the willingness to transact.
Okay. Thanks for that and then.
<unk> was an acquisition that was done that was challenging to start with but you know.
Based on the results here recently has been is really perking up. So can you just maybe deconstruct a little bit of some of where that growth is coming from and then the confidence level and the durability of that youre seeing there on the low double digit growth side of things.
Well done.
Simple stored on HL is that as part of the first moves on the acquisition you'd be essentially hats too.
Jews that sales force it was linked to a CIA.
The agreement that was on this business that would be.
It did not want to take could take over so we essentially had two rebuilds parts that ACL sales that's took.
Time, and investing in bringing new people on board.
Starting end of 2021 and as we communicated over the first quarter in the second quarter. When we said look where we're bringing people on board, we're getting them up and running it's going to take six months before they hit the streets that'd be all of that pretty much played out.
As.
As we projected and we saw the results in the second half this product today.
The acute wounds and reconstruction I'm clearly has a as it has its place yet to.
To fill or to care for deep wounds. Yeah. We also see a bit of a combination effect, where some of the ACL products. Some of the other tissue technology product. So overall.
When I look back I think the strategy for this product was the Reits, it's a product that fits in our portfolio I think the startup.
It is a bit of a down and then back up as we had to rebuild that.
Our sales force, yet, but and.
Clearly also to me, yes, our sales teams have proven that they understand how to build and run the sales organization.
Okay. Thank you.
Thank you. This concludes integra lifesciences fourth quarter and full year 2022 financial results call.
Thank you for participating you may now disconnect.
Thank you Dave.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
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Okay.
Okay.
Yes.
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