Q1 2024 Integra LifeSciences Holdings Corp Earnings Call
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One.
Speaker Change: Good day and welcome to the Integra Lifesciences first quarter 2024 financial results Conference call. At this time, all participants are in a listen only mode.
Speaker Change: 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 you will then hear an automated message advising your hand as rate. So withdraw your question Press Star one again please.
Speaker Change: Please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker, Mr. Chris Ward Senior director of Investor Relations. Please go ahead.
Chris Ward: Thank you Shari.
Chris Ward: Good morning, and thank you for joining the Integra Lifesciences first quarter 2024 earnings conference call.
With me on the call I got onto White, President and Chief Executive Officer and Chief.
Speaker Change: Chief Financial Officer.
Earlier. This morning, we issued a press release announcing our first quarter 'twenty 'twenty four financial results.
Speaker Change: And corresponding earnings presentation, which we'll reference during the call are available at any type of lifestyle com under investors events and presentations.
Speaker Change: Named first quarter 2024 earnings call presentation.
Speaker Change: Before we begin ultra remind you that many of the statements made during this call maybe considered forward.
Speaker Change: Factors that could cause actual results to differ materially are discussed in the company's exchange Act reports filed with the SEC and in our release.
Speaker Change: Also in our prepared remarks, we will reference reported and organic revenue growth and organic revenue growth excluding Boston.
Speaker Change: Organic revenue growth exclude the effects of foreign currency.
Speaker Change: <unk> and divestitures.
Speaker Change: Organic revenue growth, excluding Boston excludes revenues from products manufactured in our Boston facility in both periods.
Speaker Change: Management believes that excluding revenue from all products manufactured at the Boston plant provides useful information when evaluating the company's organic growth because of the unusual nature of the manufacturing stoppage and voluntary recall.
Speaker Change: Unless otherwise stated all disaggregated and franchise level revenue growth rates are based on organic performance.
Speaker Change: And lastly, our.
Speaker Change: Our comments today will include certain non-GAAP financial measures.
Speaker Change: Reconciliations of non-GAAP financial measures can be found in today's press release, which is an exhibit to Integra is current report form 8-K filed with the SEC.
Speaker Change: With that I will now turn the call over to you.
Speaker Change: Thank you Christina and good morning, everyone.
Christina: It's a pleasure to be here together with Leah to update you on our first quarter results.
And guidance for the year.
Speaker Change: I just talked about saying performance during dispute with reflected.
Speaker Change: Market demands the contribution of having a broad and diverse.
Speaker Change: Suffice product portfolio.
Speaker Change: And solid execution by our colleagues around the world.
Speaker Change: To deliver on our 2024 key priorities and progress our strategy.
If you move to slide number four.
Our first quarter revenues finished at $369 million above our February guidance range.
Speaker Change: Partially driven by orders that's close to earlier forecast.
Speaker Change: Revenue was down two 5% compared to the prior year, primarily due to the Boston revenue included in the first quarter of 2023.
Speaker Change: Excluding Boston organic growth was one 6%.
Speaker Change: We delivered adjusted EPS of <unk> 55.
Speaker Change: Within our guidance range.
Speaker Change: A couple of specialty surgical business, a strong start to the year before.
Speaker Change: Four 1% and in line with that.
Speaker Change: Expectations for this business.
Speaker Change: This performance was driven by several.
Speaker Change: Our leading products and brands and CSF management, dural access and repair neuro.
Speaker Change: Neural monitoring.
Speaker Change: In addition, we saw continued strength in our international markets, which have delivered consistent high single to low double digits growth.
Speaker Change: We expect to continue to build on this momentum in our international markets.
Speaker Change: Access to our products and new markets.
Speaker Change: And broaden our commercial reach and capabilities.
Speaker Change: We also completed.
Speaker Change: Global relaunch so late in the quarter.
Speaker Change: We're pleased with the strong market uptake demonstrate thing.
Resilience and differentiation of our intracranial pressure monitoring portfolio.
Yeah.
Furthering our legacy of strategic M&A to broaden our impact.
Speaker Change: We recently closed our acquisition of our clients.
Speaker Change: And year on year.
Speaker Change: <unk> and troll surgical interventions.
Speaker Change: This deal positions Integra as a leader in the E&P segment.
Speaker Change: Expand our addressable markets.
Speaker Change: It provides us immediate scale and accretive growth to our portfolio.
Strong commercial capabilities R&D expertise.
Speaker Change: <unk> portfolio and deep clinical knowledge.
Speaker Change: Important synergistic assets for Integra.
Speaker Change: Enabling us to deliver transformative technologies to restore patients' lives.
Speaker Change: We're excited to welcome our new clients colleagues together.
Speaker Change: I'll make a profound impact on E N T neurosurgical chair.
Speaker Change: Within our tissue technologies business, we continue to see healthy demand for our broth.
Speaker Change: We will take construction permits.
Speaker Change: We delivered triple digit growth in Europe, and we're tracking ahead of our deal model.
Speaker Change: Leveraging another recent acquisition.
Speaker Change: Further expanded our UBM wound care platform.
Speaker Change: Launch of micro matrix flex.
Zero seven system, enabling the convenience mixing and precise delivery of mic for matrix based and complex ones.
Speaker Change: As we outlined during our February call protection of Integra skin was not able to keep up with strong demand.
Speaker Change: Leading to a four 4% sales decline and tissue technologies, excluding Boston.
Speaker Change: With regard to Boston.
Speaker Change: We completed the external audits of the Boston plant received a final report from the third party Auditor in March.
Speaker Change: You will recall that this audit is required by the FDA as part of our process to address the warning letter observations.
Production.
Speaker Change: Well, we anticipate that this audit whats yields findings that there would be work left to complete.
Speaker Change: The audit report contains more findings than we anticipated.
Speaker Change: We're still determining the full scope of the work required to address these findings and to resume commercial distribution.
Speaker Change: Based on our preliminary assessments.
Speaker Change: No longer expect to resume commercial distributions in 2024.
Speaker Change: We remain fully committed to resolving the issues in Boston and bringing the products back to the markets for our customers and patients.
Speaker Change: Now turning to guidance, we are updating our revenue guidance for the year to a range of $1 67 to $1 six 9 billion.
Speaker Change: Reflecting the contribution of three quarters of revenue from our clients and.
Speaker Change: And the removal of all 2020 for revenues.
Speaker Change: Serge events and prime matrix.
Speaker Change: We are also updating our full year adjusted earnings per share.
Speaker Change: So a range of $3 in one sense.
Speaker Change: $3 11.
Speaker Change: Sure.
Speaker Change: Flex is supply chain challenges.
Speaker Change: And the removal of the Boston revenues.
Speaker Change: <unk> will provide more color on our updated guidance for the second quarter and full year.
Speaker Change: Now before us.
Speaker Change: Turn the call over told yes, let me assure you deeply focused on fixing our supply issues and returning the Boston portfolio to the market.
Speaker Change: We remain committed to realizing <unk> full potential by serving a robust markets the strength of our broad and diversified portfolio and making strategic investments in inorganic opportunities lack of clearance to broaden our portfolio and our reach.
Speaker Change: Our first quarter results and full year mid single digit organic growth guidance reflects the progress we are making.
Speaker Change: Tanya.
Tanya: Let's take a more detailed look at our first quarter financial highlights and I'll start on slide five.
Tanya: John mentioned first quarter total revenues were approximately $369 million, representing a decrease of three 1% on a reported basis and two 5% R&D Center.
Tanya: Total revenues were approximately $4 million above the high end of the guidance range communicated back in February.
Really driven by favorable order timing.
Tanya: First quarter revenue growth was strong across many parts of our business and organic growth or 4% from common specialty surgical and eight 7% and our international business.
Tanya: Tissue technologies was down 15, 3% driven by approximately $15 million of Boston revenues in Q1, 2023.
Tanya: Our adjusted EPS for the quarter was 55 cents down 25, 7% compared to 2023.
Tanya: Looking at the middle of the P&L gross margins were 64, 4% for the first quarter down 290 basis points versus 2023.
Tanya: Gross margins were impacted by approximately 170 basis points unfavorable revenue mix from lower integra skin and stronger international sales and approximately 130 basis points from lower utilization and higher scrap in the quarter.
Tanya: Our adjusted EBITDA margins were 19, 5% down 470 basis points compared to 2023.
Tanya: Decline in adjusted EBITDA margins, primarily reflects the decrease in gross margins.
Tanya: Operating cash flow for the first quarter was $16 million.
If you turn to slide six we'll take a deeper dive into our CFS revenue highlights for the first quarter.
Tanya: Reported Q1 revenues in CFS for $256 million up three 4% when you reported basis and four 4% organic basis from the prior year.
Tanya: Well the bill in Neurosurgery grew six 3% on an organic basis as a result of low double digit growth in Europe.
Tanya: Driven by the relaunch of Sterling mid single digit growth in CSF management.
Tanya: My first pet's valves and mid single digit growth in dural access and repair driven by Georgia.
Tanya: Growth across these franchises was partially offset by an expected low single digit decline in the energy, which is driven by a tough comparable because the capital in the first quarter of last year.
Tanya: As we move past the first quarter comp you expect to see positive growth for the group with a capital and disposable portfolio in 2024.
Tanya: For the first quarter, our capital sales were up low double digits, driven by the relaunch of Sterling, which has delivered results in line with our expectations.
Tanya: Turning to instruments, we saw an approximate 2% decline driven by a challenging comp versus the first quarter of 2023.
On a full year basis, we expect that business to return to a mid single digit growth trajectory.
Tanya: Shifting to our international business, we saw another strong quarter in CFS with high single digit growth strengthened in the quarter was driven by double digit growth in China, Latin America Middle Eastern Africa, and mid single digit growth in the rest of Asia Pacific and Europe.
Tanya: Moving toward tissue technology segment on slide seven.
Tanya: Tissue technologies was down 15, 3% on a reported and organic basis compared to the prior year.
Tanya: And Boston organic growth was down four point.
Tanya: First quarter sales in the wound reconstruction franchise decreased by 19, 9%.
Tanya: Screen, Boston, we experienced an organic decline of six 3% driven by the supply constraints on Integra scans that we discussed in February.
Tanya: Excluding Boston first quarter revenues and tissue technologies were driven.
Tanya: By a low double digit decline in integra skin micro matrix vital partially offset by greater than 100% growth in doors are.
The double digit growth in generic.
Tanya: Although our revenues were down for the quarter. We continue see strong demand for our wound care portfolio, which continues to provide us with confidence in the long term growth potential of our complex wound reconstruction business.
Tanya: As our supply recovers, we are well positioned to return to a steady growth trajectory.
And private label sales were down 6% versus last year up 7%, excluding Boston products.
Tanya: Private label performance in Q1 was slightly below historic performance of the business due to the timing benefit from our Q4 over performance and a strong Q1 2023.
Finally international sales and tissue technologies break down low double digits, primarily due to the Boston recall and integra skin supply, partially offset by low double digit growth in micro matrix cycle, and then a honey.
Speaker Change: If you turn to slide eight I will briefly update our balance sheet capital structure and cash flow.
Speaker Change: During the quarter operating cash flow was $15 $7 million and free cash flow was $23 million.
Reflecting continued spend on EU MTR Capex and increased working capital primarily from investments in inventory.
Speaker Change: Free cash flow conversion was 26, 4% on a trailing 12 month basis.
Speaker Change: Our balance sheet remains strong with ample liquidity to support our short and long term plans.
Speaker Change: As of March 31, net debt was $1 $2 billion in Arkansas dated total the total leverage ratio was three two times.
Speaker Change: The company had total liquidity of $1 5 billion, including $663 million in cash.
And short term investments and the remainder available under our revolving credit facility.
Speaker Change: Our balance sheet flexibility enabled us to complete the claret acquisition at the beginning of Q2.
Speaker Change: If you turn to slide nine I'll provide our consolidated revenue and adjusted earnings per share guidance for the second quarter and full year 2024.
Second quarter revenues are forecasted to be between 411 and $416 million representing reported growth in the range of approximately seven eight to nine 1% and organic growth in the range of approximately $1 three to two 6%.
Speaker Change: Forecast reflects the diverse portfolio and strong global demand for our products favorable comp from Boston returns in Q2, 2023, and the impact in the second quarter from favorable order timing in the first quarter.
Our second quarter guidance also includes approximately $25 million at the midpoint.
Speaker Change: Sales beginning on April 1st.
Speaker Change: For the full year revenues are forecasted to be in the range of $1 $67 billion to $1.69 billion. Our updated full year guidance removes revenues of approximately $10 million previously forecasted from the returns of the Boston portfolio beginning in the third quarter.
Speaker Change: For our guidance also includes approximately $80 million in clearance sales beginning in the second quarter.
Speaker Change: We expect our reported growth to be any range of $8 four to nine 4% and organic growth to be $3 three to four 3% for the full year 2024.
Speaker Change: Turning to adjusted earnings per share guidance for the second quarter, we expect adjusted EPS to be 60 to 65 cents.
Speaker Change: Second quarter EPS reflects higher supply chain costs due to ongoing remediation efforts scrap in the world.
Speaker Change: Innovation.
Speaker Change: For the full year, we are updating our adjusted EPS to be in the range of $3 one to $3 11 per share, reflecting the delay of the relaunch of surgeon and priming tricks.
Speaker Change: The impact of the higher supply chain costs and the inclusion of the claret acquisition, which we still expect remain EPS neutral for the year.
Speaker Change: Before I turn the call back to John I'd like to take you through key considerations for our full year revenue outlook on slide 10.
Speaker Change: We move past, the first quarter comparable capital catch up with demand levels and integra skin.
John: Our back orders in our CFS business, we have a clear path to mid single digit growth or better than most franchises in our portfolio.
Speaker Change: Remain committed to confronting our supply challenges and are determined to resolve them at.
Speaker Change: At the same time, we are focused on maintaining the growth momentum, we have today and fully activating our growth potential across the balance of the portfolio.
Speaker Change: Let me turn it back to you.
Speaker Change: Thank you Leah and please turn to slides 11 to conclude.
Speaker Change: Pat's remarks.
Speaker Change: The first quarter, we saw a healthy demand for our portfolio of differentiated products across several parts of our business.
Speaker Change: Despite supply headwinds.
Our first quarter performance, our first half is on track to meet our expectations.
Speaker Change: And we anticipate returning to more reliable cadence of mid single digit growth in the second half of the year.
Speaker Change: We have the pulse, our organic and inorganic global growth strategy.
Speaker Change: Successful global relaunch of Sterling.
Speaker Change: International expansion of our portfolio of leading brands and commercial capability.
Execution of our M&A game boards.
Speaker Change: As demonstrated by the integration and the outperformance of Sia and just your assortment products and.
Speaker Change: And the close of their client acquisition.
Speaker Change: We understand the frustration that our customers investors and I'm. Please feel about the results of the audit in Boston.
Speaker Change: But I assure you we are focused on the additional remediation work and other change that's necessary to bring our products back.
Speaker Change: I'm, just trying to it our supply chain execution.
Speaker Change: And this is achievable.
Speaker Change: I remain confident that the integra has a bright future ahead, we have markets with stable growth and have strong commercial capabilities and we have a diversified portfolio of leading products to fuel our expansion.
Speaker Change: Our leadership team, our board and our employees remain committed to achieving a reliable long term business performance and to building robust capabilities to deliver life saving technologies to patients.
Speaker Change: Having consistent mid single digit topline growth.
Speaker Change: Strong profitability and cash flow for our shareholders.
Speaker Change: With that.
Speaker Change: To open the line for.
Speaker Change: For Q&A.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question Press Star one again.
Speaker Change: Time restraints, we ask that you. Please limit yourself to one question and one follow up question. Please standby, while we compile the Q&A roster.
Speaker Change: And our first question will come from the line of Vik Chopra with Wells Fargo. Your line is open.
Vikramjeet Singh Chopra: Hey, good morning, and thanks for taking the question.
Vikramjeet Singh Chopra: So regarding your Boston facility, we call. Let me start I think the news game today as a surprise to a lot of people. So it sounds like you don't expect to be the commercial distribution in 2024 could you maybe share some additional details around what the result with the audit revealed.
Vikramjeet Singh Chopra: And then does it mean you have to sort of revisit your <unk> and then I had a follow up please.
Speaker Change: Hey, good morning, Thanks for that question.
Speaker Change: Well I mean community gets it and in fact, we believe timeline.
Speaker Change: Is achievable based on plants to satisfy the crush holds.
Speaker Change: The warning letter.
Speaker Change: Now despite how much we accomplished leading up to the dress rehearsal.
Speaker Change: We're not as far along as we bought the final audits.
Confirmed that there is more to be done.
Speaker Change: And we acknowledge and accept.
Speaker Change: As a result of that final audits.
Speaker Change: All this should cloud the fact that we remain committed.
Speaker Change: So, bringing the products back to market for the benefit of all of our surgeons patients and shareholders. So we've made changes to the operations and quality leadership and structure.
Speaker Change: Ensure the right focus and capabilities is applied to Boston, but also our broader quality system.
Speaker Change: The broader supply improvements there.
Speaker Change: In terms of the question updating L. R. P. At this point in time, we don't give you any.
Speaker Change: Any update on <unk>.
Speaker Change: We are working to updates to planning for Boston that will probably give updates later in the year as we get there.
Speaker Change: Okay. Thank you for the comprehensive update and then my follow up question.
Late April seven Macs published a proposed LTV for the treatment of <unk> using <unk> can you just remind us what impact that had live integra and what percentage of your products are exposed to this proposed LCD. Thank you very much.
Speaker Change: Yes.
Speaker Change: LCD These new proposed Ah lcd's.
Speaker Change: Regarding the coverage for skin substitutes.
Speaker Change: Our focused.
Speaker Change: Oh, the D F U N V O oops.
Speaker Change: I've got a quick also.
And does that his leg ulcer space.
Speaker Change: The two products that Integra has a dark indicated for these wound types, yeah, our omni Kraft.
And prime matrix and they remain covered under those new proposed LCD.
Speaker Change: So that's good news for our Integra it is however.
Speaker Change: Still today, a small part of our business. So yeah on the one hand, we're happy hour products remained covered but for the short term I would say that the impact to integra is neutral.
Speaker Change: This represents an opportunity for the future plus we like the trends.
Speaker Change: Sep's proposal, which seem to support products that deliver strong outcomes.
And have rich clinical evidence and that's yet arris products, where you'll integra is positioned strongly.
Speaker Change: Yeah.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Yeah.
Speaker Change: And that will come from the line of Steve Lichtman with Oppenheimer. Your line is open.
Steven Michael Lichtman: Thank you good morning, I guess first Jan if you could talk about the next steps in Boston, where what are the milestones that investors should be looking for is as you go.
Steven Michael Lichtman: Through the rest of this year.
Jan: So at this point, we are as I said still determining the work plan we're translating.
Jan: Observations from the latest audits into a work plan that's going to determine the milestone. So at this point in time.
Speaker Change: No specific milestones yes.
Speaker Change: Know enough yet to come to the conclusion that we are pushing out to probably matrix and surgeons are revenues for this year.
Speaker Change: Okay, and then and then there can you talk about.
Speaker Change: The gross and operating margin assumptions that are implied in the EPS guidance for <unk> and full year at any sort of considerations.
Speaker Change: We should be thinking about on both.
Yeah. So thank you Steve.
Speaker Change: Most margin perspective, let me talk about full year first and then I'll take a step back and talk about Q2 on a full year basis in February we commuted Katy gross margins that would be flat to modestly up.
Speaker Change: In light of the ongoing remediation costs that we'll incur based on the Boston timeline Garrett.
Speaker Change: You should know think about gross margins that will be moderately down year on year versus 2023.
Speaker Change: And again, that's a combination of the additional remediation costs in Boston and then some of the lower utilization and higher scrap that we called out as well for like Q2 perspective, you'll see a little bit of that same same dynamic right. So we do expect to be up modestly.
Speaker Change: Modestly sequentially from Q1, but we will see the impact on a year over year or from lower utilization higher scrap some of the remediation costs on.
Speaker Change: That characterize what we saw year over year in Q1.
Speaker Change: Okay. Thanks, I'll jump back in queue.
Speaker Change: Yep.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And that will come from the line of Kristen Stewart with C. L. King Your line is open.
Kristen Marie Stewart: Hi, Thanks for taking the question I was wondering if you could just provide an update with the integra skin the supply constraints on when we should see those start to ease.
Kristen Marie Stewart: Yep. Thank you Kristen, yes, so from our Integra skin perspective, our production is running but we are not at full capacity. Yet we have continued throughout Q1 and Q2 to ship to our customers and demand does remain very strong we'll be working to catch back up.
Kristen Marie Stewart: Q4 demand in the second half and that's contemplated in the guide that I provided.
Kristen Marie Stewart: On the whole we are really happy with the demand that we're seeing in integra skin and it gives us confidence to continue to make some of the capex investments that we've been making to build out capacity to support the long term growth on that brand.
Speaker Change: Okay, and then just on a Clara can you just remind us what your assumptions are in terms of the growth profile of that business going forward under your.
Speaker Change: Her leadership.
Clara: Happy to first I'd like to say, we are absolutely thrilled and completing the acquisition of a clearer in April one in welcoming that team as part of our Integra family.
Speaker Change:
Clara: Just as a general reminder, part of our excitement is the fact that that acquisition gives us immediate commercial leverage and scale and the anti especially device space, which is a natural adjacency to our CFS business.
Clara: It's a category that's growing at 5% to 6% it's over $1 billion.
Clara: And we're very happy about the product portfolio that comes with it.
Clara: Efforts like the treaty NAV offerings with them as well as the expanded indication that we've gotten in the era of eustachian tube dilation system. So overall, just again I'm really happy to have that as part of our product portfolio from a guidance perspective, we have assumed for the three quarters that will have.
Clara: Mclaren onboard a.
Revenue of $80 million that guidance approach does reflect.
Clara: The understanding that lift you know integrations of this sort there is some uncertainty uncertainty and so that has been factored into that assumption.
Clara: That said, we still believe that this acquisition will be growth accretive to our base business and so always capable of operating at high single digit levels on a full year basis.
Clara: Yeah.
Speaker Change: And one moment for our next question.
Speaker Change: And that will come from the line of Robbie Marcus with Jpmorgan. Your line is open.
Robert Justin Marcus: Oh, great. Thanks, a lot for taking the questions two for me.
Robert Justin Marcus: Maybe to start on full year organic sales growth guidance.
Robert Justin Marcus: The first quarter was negative we see the guidance for second quarter to me. It implies you know either something at the high end of mid single digits or the low end of high single digits.
Robert Justin Marcus: So given the big step up both in growth rates and in dollars I realize there's easier comps from last year.
Speaker Change: How do you think about your ability to not only just hit those targets, but exceed those targets given it doesn't require a pretty good step up each quarter.
Robert Justin Marcus: Sure.
Thanks, Robbie yes from a percentage perspective, you're absolutely right I think part of the reasons. We provided the view that we did on our slide 10, it's a demonstrate that costa portfolio. We are operating or have the ability to operate and mid single digit growth or better across many parts of the portfolio.
Robert Justin Marcus: So Ravi as I look at the second half what does that mean it means the international portfolio without that his performance. We saw on Q1 has to continue the way it has been continuing for me.
Robert Justin Marcus: Skin perspective, as I mentioned, we expect to catch up to demand in the second half and so that will help accelerate the growth from a percentage perspective that you've talked about.
Robert Justin Marcus: And then again from a across the other parts of the portfolio. We are seeing growth in tours of our Gen shrinks and the and Theres No reason why those assets won't continue to perform at those levels along with kind of main parts of our CFS business. So I think there's a lot of growth potential that is overshadowed to some degree.
Robert Justin Marcus: But some of the challenges that we saw in comp issues that we saw in Q1 that will naturally alleviate themselves as we get into the second half of this year.
Speaker Change: Great, maybe if I move down the P&L on on margins.
Maybe you could walk us through exactly what youre thinking.
Speaker Change: For the composition of margins.
Speaker Change: Gross and operating margin in second quarter, and what you assume in the guidance there and the full year and maybe a higher level, how you're thinking about the company's ability to expand margins on a go forward basis, given you know I.
Speaker Change: I know you've been cutting for a while and now you have a pull back and probably higher quality spend on manufacturing. Thanks a lot.
Speaker Change: Yeah, So as I mentioned to Kristen from a gross margin perspective on a full year basis, we were forecasting a flat to modestly up.
Speaker Change: Year on year 24 versus 23, we're now closer to moderately down year on year and again that has to do with the higher remediation costs from Boston, along with some of the lower utilization and higher scrap that we've seen so.
Speaker Change: So that's impacting the full year. It's also impacting as I mentioned Q2, so similar dynamics from a Q2 standalone basis, we will be up modestly Q2 from Q1, but again some of the same themes will impact our Q2 results.
Speaker Change: Dressing your the second half of your question in terms of kind of things that we're doing to drive different outcomes.
Speaker Change: As I mentioned previously in our last call. We are investing in activities to help drive productivity improvements efficiency improvements yield improvements across our network and to strengthen overall supply inefficiencies as we interact with kind of our our external supplier network as well that work.
Speaker Change: It is still ongoing.
Speaker Change: And at the time as of now while we've identified some improvement areas. We do have to start to implement them and we expect to realize them beginning in 2025 with more impact.
Speaker Change: That as well.
Speaker Change: Thank you and one moment for our next question.
Speaker Change: That will come from the line of Matt Taylor with Jefferies. Your line is open.
Matt Taylor: Hi, Thanks for taking the question.
Matt Taylor: Wanted to follow up on on Boston, and maybe I could just ask how you would frame the worst case scenario now for investors and I guess when you do get product back.
Matt Taylor: Assuming that happens do you still think you can regain a lot of the share that you've lost.
Speaker Change: So I'll take the first part of that and in terms of just to give you kind of from a grounding perspective.
Speaker Change: Based on the recall of the returns that we accrued for in 2023, we exited.
Speaker Change: 2023 with Boston, essentially in and around kind of.
Speaker Change: Low single millions.
Speaker Change: One or $2 million so from a <unk>.
Speaker Change: Year on year perspective, there is its neutralized from a growth perspective. So in 2024, what youll see is organic growth that we're forecasting a $3 three to $4 three which essentially.
Speaker Change: Thanks to the performance across the rest of our portfolio.
Speaker Change: As we take our time to evaluate what the next steps are required to bring surgeons and prime matrix back into the market. One we are committed to do just that.
But from a growth perspective those.
Speaker Change: The reentry of those products are not impacting our 2024 guidance as of now and so from our perspective it does represent upside.
Speaker Change: We introduced those products back into the market.
Speaker Change: I'll, let John address from a relaunch perspective, what we think the prospects are.
John: Just briefly on that front. So as you mentioned prime matrix are.
Differentiated products their chosen for specific reasons.
Not easily.
John: Replace so we believe customer profiles will fundamentally remain.
John: And that's a cool thing to have access and relationships with those customers to a broader audience. So the elements to at one point and get back in the market are still going to be there.
John: Yeah.
Speaker Change: Got it right I'm just trying to understand what is the worst case scenario because just a further delay you still have confidence that these will be back but it may be another six months or something I mean, it's just difficult with it being so open ended.
Speaker Change: Yeah like I said at this point, we don't we don't give any further guidance on that.
Speaker Change: The Boston that return.
Speaker Change: Okay, Alright, thank you very much.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And that will come from the line of Ryan Zimmerman with <unk>.
Ryan Benjamin Zimmerman: Good morning.
Ryan Benjamin Zimmerman: Thanks for thanks for taking the question.
Ryan Benjamin Zimmerman: I wanted to I mean, there's a lot going on here and there's a lot I think for investors to interpret in terms of moving parts.
Ryan Benjamin Zimmerman: Number one.
You were asked about the LCD is and I appreciate that.
Ryan Benjamin Zimmerman: Omni graft in prime matrix or are on the list of approved products, but.
Ryan Benjamin Zimmerman: There's a number of other products.
Ryan Benjamin Zimmerman: Integra has including the whole portfolio.
Ryan Benjamin Zimmerman: Not on the LCD lessons so.
Ryan Benjamin Zimmerman: You know what considerations do you have built in.
For that or are they just not used in the.
Ryan Benjamin Zimmerman: Chronic wound market.
Ryan Benjamin Zimmerman: I'm talking like sites, all in the merit derm products and so forth.
Speaker Change: Yeah. So it's it's it's the second part of your question.
Bryan These are products that are not.
Speaker Change: Applied in the field and if you area. So it's almost by definition that you don't know.
Speaker Change: And it does not impact.
Speaker Change: Any of our current business or potential.
Speaker Change: Oh, okay.
Speaker Change: And then.
Speaker Change: We are on margins.
Speaker Change: You know Rob I was trying to get this but I I recognize the full year margins are going down.
Speaker Change: And you know sequentially, they're holding steady what's driving the second half step up in margins, though if there is one because it's still I mean, it can still step up in the second half from some improvement.
Speaker Change: But still be down year on year, and so I'm just trying to understand you know with with prime matrix.
Speaker Change: And omni graft removed.
Speaker Change:
Speaker Change: Our surgery.
Speaker Change: Excuse me, what what allows you to drive that step up in margin and the flip side of it is how are you managing your costs from our claret acquisition.
Speaker Change: Help us understand kind of some of these moving parts a little further.
Speaker Change: Yeah, So Ryan from a again from a full year basis, but will be down moderately. So there is a little bit of a step up required in the second half, but not significant.
Ryan Benjamin Zimmerman: Lot of that has to do with skin being back at meaningful demand.
Ryan Benjamin Zimmerman: You will see an improvement in margins, that's a high margin product for us. So that's a key contributing factor.
Ryan Benjamin Zimmerman: Yeah.
And then if I'm gonna declared I think the other part of your question was on Claret as I mentioned, we still expect that business to be EPS neutral.
Ryan Benjamin Zimmerman: In 2024 for us.
Ryan Benjamin Zimmerman: So and that's reflected in the guidance at all.
And overall that portfolio again, if we just talk gross margins that portfolio is in and around our kind of base business gross margins. So that's not having a factor per se.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And that will come from the line of Joanne Wuensch with Citi. Your line is open.
Speaker Change: Okay.
Joanne Karen Wuensch: Good morning, and thank you for taking the questions.
Joanne Karen Wuensch: I have two when you start reporting a clearance will that be called out as a separate subdivision and their neuro or will that be tucked into.
Joanne Karen Wuensch: Yes, so as part of our Disaggregated finance our revenue, we will see a separate segment for a coherent or four N T.
Joanne Karen Wuensch: It's a specific campaign.
Joanne Karen Wuensch: Okay, so that'll be called out separately and where you are in.
Speaker Change: I'm sorry, what.
Speaker Change: As an E M T as a category a M T.
Speaker Change: Thank you and where are you in terms of a CEO search.
Speaker Change: Yes. So the board is remains on track with our original plans to identify as well as higher.
Speaker Change: By year end, if not sooner.
Speaker Change: So that that is progressing.
Speaker Change: Thank you one moment for our next question.
Richard Samuel Newitter: And that will come from the line of rich New winter with Jewish Your line is open.
Richard Samuel Newitter: Hi, Thanks for taking the questions maybe just first.
Richard Samuel Newitter: Are you comfortable with the consensus including <unk>.
Speaker Change: Boston contribution in 2025.
Speaker Change: Are we comfortable with consensus including what contribution.
Boston restart.
Speaker Change: Contribution from our Boston restart I guess right now theres that contemplation I appreciate you've guided to 'twenty four but just just to level set I mean is this something that we should just take out a 25 or the first half of 'twenty five anything.
Can comment on there so that that numbers can get right.
Speaker Change: Okay, Yeah I understand the question. Unfortunately, we are not providing guidance with respect to 2025 as John mentioned, our work is ongoing to digest fully the findings coming out of the most recent audit to determine what the appropriate timeline is to bring back surgery and prime matrix.
Speaker Change: So we can't provide more additional information beyond that other than the fact that we are committed to bringing those products back to the market.
Speaker Change: Okay and then.
Speaker Change: Just just wondering what.
Speaker Change: Why are you so confident that skin capacity will be back fully back online in the second half and then if I could just one more have you contemplated.
Speaker Change: Going down not going down the PMA pathway with third Ya man and if not would you be comfortable restarting the Boston facility. If you chose not to go down that pathway.
Speaker Change: So let me let me take the PMA question first because obtaining these argument PMA absolutely remains a key priority for us and it is absolutely consistent with our I B B our strategy.
Speaker Change: We have not yet determined at this point.
Speaker Change: Whether or not the Boston timeline, if or how it will implicates our PMA timeline for surgeon men. So that piece is still out there, but what is absolutely clear is that the need for surge them in an IV BR has not diminished and so for us that means our opportunities to capitalize remain robust.
Speaker Change: Just in that space.
Speaker Change: From a from a I think the other part of your question was related to skin and and our assumptions in the back half again, because our production lines are up and running.
Speaker Change: And we're not but we're not at capacity you know the work that we have underway.
Speaker Change: Has a plan that will allow us to get back to meeting demand.
Speaker Change: And so that's what's assumed in our eyes.
Speaker Change: Thanks, you know one moment for our next question.
Speaker Change: That will come from the line of Craig Bijou with Bank of America. Your line is open.
Craig William Bijou: Hi, good morning, Thanks for taking the questions.
Craig William Bijou: So I'll start with Boston.
Craig William Bijou: I know you've gotten a lot of questions on it I know you guys aren't providing a ton of information here, but.
Craig William Bijou: Is there any way you can talk about.
Craig William Bijou: If you've had discussions with the FDA or the external auditor that did the review and what I mean.
Craig William Bijou: I know youre, not providing what's happening, but I think it'd be helpful to understand at least from that perspective. If you are working with the FDA at this point.
Craig William Bijou: Moving forward.
Craig William Bijou: So look like like I said I mean, there's little we yeah, we can update that further.
Speaker Change: Yeah definitely can't speak on behalf of the FDA.
Speaker Change: We are.
Speaker Change: Working working to plan.
Speaker Change: And that's where we.
The focus on at this point in time with no further updates that we can get our models.
Speaker Change: Okay. Thanks, Kevin and then.
Speaker Change: Maybe in.
A follow up to Rich's question on <unk> and the PMA there.
Speaker Change: And I appreciate you're not changing timelines and it's still important to you guys but.
Speaker Change: I mean is it fair to assume that that.
Speaker Change: Pushed out that timeline needs to be pushed out that you'd have to remediate the issues that Boston before.
Speaker Change: Before you will kind of move forward with that process.
Speaker Change: Yes, I'll take that as I mentioned, we are still doing the evaluation coming out of the report that we got on Boston to understand if for how the surge bin PMA timeline will be implicated.
Speaker Change: And so that that work is still ongoing so again, when we know more we'll share more but that's where we stand right now.
Speaker Change: Thank you and one moment for our next question.
Speaker Change: And that will come from the line of Jayson Bedford with Raymond James Your line is open.
Jayson Tyler Bedford: Good morning, so you've kind of stress the commitment to getting surge amend and prime matrix back on the market.
Jayson Tyler Bedford: Have you started looking at manufacturing these products had another facility.
Look Jason we are in our planning.
Speaker Change: Excluding any option and so that that's where we'll leave it at this point.
Speaker Change: How long would it take to get up and running at a new facility or another facility.
Speaker Change: Again, we're looking at what our options are and we're committed to bring these products back to the market. There is a great market.
Speaker Change: The opportunity for us so if there are some options.
Speaker Change: And we will take them into account.
I think the only thing I would add to that is I think as we've talked about in the past we do have been building out capacity.
Speaker Change: At another site in Boston called Braintree.
Speaker Change: And so to John's point as we evaluate options were looking at options across the board from embracing in Boston.
Speaker Change: Yeah.
Andrew Christopher Ranieri: Thank you and we do have time for one final question and that will come from the line of drew Ranieri with Morgan Stanley.
Andrew Christopher Ranieri: Your line is now open.
Andrew Christopher Ranieri: Thanks for taking the question just on the clearance it looks like your guidance is kind of implying the same revenue base for 2022 for 2024 and I can understand some of theirs that there could be integration challenges. So maybe just talk about what investments you are making and declare it today and what you have to make to get.
Andrew Christopher Ranieri: That business up to be a high single digit grower over the next the next year or two and secondly, just remind us on your deleveraging plans with Oh leverage ticking up here post deal. Thanks.
Andrew Christopher Ranieri: Yeah.
Speaker Change: So a couple of so thank you for the question from a cloud perspective as I mentioned, we absolutely believe that business can be growth accretive to our base.
Speaker Change: And as far as it relates to 2024, we're continuing to invest behind.
Speaker Change: The sales force sales force again to tap into that commercial leverage as well as the R&D portfolio.
Some of the new offerings.
Speaker Change: We believe represent the greatest opportunity for us to deliver some of the highest high single digit growth. So offerings in there to the NAV system area. We have an expanded indication for eustachian tubes that will also help facilitate driving differentiated growth and so those are the areas. We're going to continue to build out during the course.
Speaker Change: This year as we're doing the integration that will set up position us well in 2025 to get to that point.
Speaker Change: I think your other question was with respect to leverage and how we are.
Speaker Change: Our outlook is there so following the close of our clearance and with all the upfront integration costs. We expect by the end of Q2 that our leverage will be slightly above our typical range of two and a half to three and a half so it'll be slightly above the three and a half range, but over the course of the.
Speaker Change: Back half of the year as we again start realizing cash flows from a care of claret.
Speaker Change: And other parts of our business continue to come online, we'll be able to drive that back down below the three and a half times. So we'll be within our normal range of two and a half to three and a half by year end.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Thank you. This concludes today's program. Thank you all for participating you may now disconnect and have a wonderful day.
Okay.
Speaker Change: [music].
Speaker Change: Okay.
Okay.
Speaker Change: [music].