Q2 2024 Integra LifeSciences Holdings Corp Earnings Call

Patient there'll be a question and answer session to ask a question. Please press star one one as a reminder, this call's being recorded.

I'd like to turn the call over to Chris Ward Senior Director of Investor Relations. Please go ahead.

Speaker Change: Thank you. Good morning. Thank you for joining the Integra Lifesciences second quarter 2024 earnings Conference call with me on the call are Stuart Essig Executive Chairman, John <unk>, President and Chief Executive Officer, and Chief Financial Officer.

Good day and welcome to the Integra Lifesciences second quarter 2024 financial results at this time, all participants are listen only mode.

Lea Knight: We also saw mid-double-digit growth in gentricks and low-double-digit growth in micrometrics, cytos, and amniotics. Growth in wound reconstruction was partially offset by low-double-digit decline in Tigris skin, driven by the production challenges we discussed during last quarter's earnings call. While we have continued to ramp production of Integra skin over the course of the second quarter, we are still not operating at full capacity. We now expect Integra skin fails to be normalized run rates during the fourth quarter. In private labels, sales were up approximately 50% versus last year, primarily due to lapping the prior year returns from the recall.

Speaker Change: Earlier. This morning, we issued a press release announcing our second quarter 2024 financial wherewithal.

After the Speakers' presentation there'll be a question and answer session to ask a question. Please press star one one as a reminder, this call's being recorded.

Speaker Change: The release and corresponding earnings presentation, which we will reference during the call are available at Integra life Dot com under investors events and presentations in a file named second quarter 2024 earnings call presentation.

I'd like to turn the call over to Chris Ward Senior Director of Investor Relations. Please go ahead.

Thank you. Good morning. Thank you for joining the Integra Lifesciences second quarter 2024 earnings Conference call with me on the call are Stuart Essig Executive Chairman, John <unk>, President and Chief Executive Officer, and Chief financial.

Speaker Change: Before we begin I want to remind you that many of the statements made during this call maybe considered forward looking 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 movies.

Yes.

Earlier. This morning, we issued a press release announcing our second quarter 2024 financial wherewithal.

Speaker Change: Also in our prepared remarks, we will reference.

Speaker Change: <unk> and organic revenue growth and organic revenue growth, excluding Boston organic revenue growth exclude the effects of current foreign currency acquisitions and divestitures.

Lea Knight: Private label was at 1.5% excluding Boston. Finally, international sales and tissue technologies were up high double digits, also due to lapping the prior year returns from Boston.

The release and corresponding earnings presentation, which we will reference during the call are available at <unk> Dot com under investors events and presentations in a file named second quarter 2024 earnings call presentation.

Manny: Organic revenue growth, excluding Boston excludes revenues from products manufactured in our Boston facility in both periods Manny.

Lea Knight: If you turn to slide 8, I will discuss our balance sheet, capital structure, and cash flow. During the quarter, operating cash flow was 40.4 million dollars, and free cash flow was 10.7 million dollars, reflecting continued spending on EU and DR, CAPEX, and increased working capital primarily from investments in inventory. Free cash flow conversion was 26.6% on a trailing 12-month basis. We have a flexible balance sheet with ample liquidity to support our short and long-term plans. As of June 30, net debt was 1.5 billion dollars, and our consolidated total leverage ratio was 3.8 times, just above our target range of 2.5 to 3.5 times.

Before we begin I want to remind you that many of the statements made during this call maybe considered forward looking 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 reference.

Manny: Management believes that excluding revenue from all products manufactured at Boston Boston plant provides useful information when evaluating the company's organic growth because of the unusual nature of the manufacturing stoppage and voluntary global recall.

Manny: Unless otherwise stated all of this aggregated and franchise level revenue growth rates are based on them getting performance.

And organic revenue growth and organic revenue growth, excluding Boston organic revenue growth exclude the effects of current foreign currency acquisitions and divestitures organic revenue growth, excluding the Boston excludes revenues from products manufactured in our Boston facility in both periods.

Manny: Lastly, our comments today will include certain non-GAAP financial measures reconciliations of non-GAAP financial measures.

Manny: Today's press release, which is an exhibit to integra as a current report on form 8-K filed with the SEC.

Management believes that excluding revenue from all products manufactured at Boston Boston plant provides useful information when evaluating the company's organic growth because of the unusual nature of the manufacturing stoppage and voluntary recall.

Manny: And with that I will now turn the call over to Stuart.

Stuart: Thank you Chris.

Speaker Change: Before Jan and Leah begin with the Investor presentation and Q&A.

Lea Knight: We are focused on bringing our leverage ratio back within our target range. The company had total liquidity of 1.2 billion dollars, including 297 million in cash into return investments, and the remainder available under our revolving credit facility. We are confident that our balance sheet flexibility, strength, and liquidity will allow us to execute our investment in operations improvement and our long-term growth strategy, even in the current interest rate environment. With our convertible bond coming due in the third quarter of 2025, we have the flexibility to take the convert to term and fund it using our revolver.

Stuart: Like to say a few words about the business and the path forward.

Unless otherwise stated all disaggregated and franchise level revenue growth rates are based on them getting performance.

Stuart: We had a good second quarter, which John and Leah will cover in more detail shortly.

Speaker Change: We appreciate however that much of your focus today will be on our guidance and performance for the rest of the year and what lies further ahead.

Lastly, our comments today will include certain non-GAAP financial measures reconciliations of non-GAAP financial measures.

Today's press release, which is an exhibit to integra. Its current report on form 8-K filed with the SEC.

Speaker Change: So I'll address that first before handing the call to them.

Speaker Change: Integra has a very strong commercial team armed with a differentiated portfolio.

I will now turn the call over to Stuart.

Thank you Chris before.

That said over the last several quarters, we've identified a series of operational and quality systems gaps.

Before I begin with the Investor presentation, and Q&A I'd like to say a few words about the business and the path forward.

Speaker Change: As a result of both the typical audit by regulatory agencies as well as our own in depth reviews of the state of our water quality system. It has become clear that there is a need to bolster our manufacturing quality compliance processes across the organization.

Lea Knight: Through our interest rate swap portfolio, we would maintain approximately 900 million dollars of sixth rate debt with all-in rates in the low 3% range through the end of 2027. Our Treasury team, along with the Finance Committee of our board, will continue to work closely to monitor the rate environment and maintain a highly efficient and flexible capital structure.

We had a good second quarter, which John will cover in more detail. Shortly we appreciate however that much of your focus today will be on our guidance and performance for the rest of the year and what lives further ahead.

Speaker Change: What has arisen from these evaluations is our compliance master plan.

So I'll address that first before handing the call to them.

Integra has a very strong commercial team armed with a differentiated portfolio.

Speaker Change: Systemic and holistic approach to improving our quality system and GMP compliance across our manufacturing and supply network.

Lea Knight: If you turn to side nine, I will provide our consolidated revenue and adjusted earnings per share guidance for the third quarter and full year 2024. As we discussed earlier in our remarks, our updated guidance reflects several temporary shipping holds. We have implemented the majority of which will be cleared before the end of the year. Third quarter revenues are forecasted to be between 372 to 382 million dollars, driven by the impact of the temporary shipping holds and supply back orders. Our updated guidance will present reported revenue growth in the range of approximately flat to down 2.6%, and a decline of approximately 6.8% to 9.4% on an organic basis.

That said over the last several quarters, we've identified a series of operational and quality systems gaps.

Speaker Change: Plan will drive increased spending in the second half of 2024, and lower revenue and EPS expectations for the year.

As a result of both the typical audit by regulatory agencies as well as our own in depth reviews of the state of art water quality system. It has become clear that there is a need to bolster our manufacturing quality compliance processes across the organization.

As reflected in our updated guidance. This morning, there are revenue impacts, resulting from several shipping holds that we've put into place to assess and confirm product labeling and regulatory compliance.

Has arisen from these evaluations is our compliance master plan.

Speaker Change: It is worth noting that while this impacts revenue in the third quarter, we are preparing to resume shipping many of those products later in the year.

Stomach and holistic approach to improving our quality system and GMP compliance across our manufacturing and supply network.

Speaker Change: Over the next 18 months the planned investments will elevate our operations and compliance processes to enable our product supply to match, our customer demand and will allow our entire organization to execute to our potential.

The plan will drive increased spending in the second half of 2024, and lower revenue and EPS expectations for the year.

As reflected in our updated guidance. This morning, there are revenue impacts, resulting from several shipping holds that we've put into place to assess and confirm product labeling and regulatory compliance.

Speaker Change: Additionally, we have formed a quality committee at the board of directors level that will have regular direct lines of communication to the ELT members responsible for operations quality and regulatory.

Lea Knight: For the full year, revenues are forecast to be in the range of $1.609 to $1.629 billion, as we expect a temporary hold and backwater levels to a bait into the fourth quarter. Only many of the cases we can't supply in the third quarter will be lost. We expect a substantial step up in revenue into the fourth quarter as our shipments are able to meet demand with modest backwater clearance, providing only a slight tailwind in the period. We expect our reported growth to be in the range of 4.4 to 5.7% and organic growth to be minus 1%, the plus 0.3% for the full year 2024.

It is worth noting that while this impacts revenue in the third quarter, we are preparing to resume shipping many of those products later in the year.

Speaker Change: I want to assure all of our stakeholders that we are giving these issues the attention they deserve.

Over the next 18 months the planned investments will elevate our operations and compliance processes to enable our products supply to match, our customer demand and will allow our entire organization to execute to our potential.

Speaker Change: We recognize that this will come at the expense of earnings growth in the near term, but it is necessary and will support sustainable long term growth through predictable execution.

During this time, we will continue to focus on getting our products into the hands of our customers growing our business globally and improving our new product development capabilities.

Additionally, we have formed a quality committee at the board of directors level that will have regular direct lines of communication to the ELT members responsible for operations quality and regulatory.

Speaker Change: We have continued to make excellent progress on our CEO search and believe we will have a new CEO announced and in place by the end of this year if not sooner.

Lea Knight: Turning to adjusted earnings per share guidance. For the third quarter, we expected just the EPS to be 36 to 44 cents. Our third quarter EPS reflects the product holds and higher operations costs due to remediation efforts, investments in quality, scrap, and lower plant utilization resulting from the product holds. For the full year, we are updating our adjusted EPS to be in the range of $2.41 to $2.57 per share. The full year EPS contemplates the revenue reduction linked to temporary shipping hold, as well as our planned increase in spending to support the compliance master plan. We anticipate that this increase spending will impact the second half of 2024 and 2025 as we invest across our network to ensure we can reliably deliver supply at a level that meets demand.

I want to assure all of our stakeholders that we are giving these issues the attention they deserve we.

Speaker Change: There's been tremendous interest in the role given the company's exciting lifesaving products aggressive growth strategy and financial strength.

We recognize that this will come at the expense of earnings growth in the near term, but it is necessary and will support sustainable long term growth through predictable execution.

Speaker Change: The board and I working with Heidrick <unk> struggles are spending a significant amount of time interviewing candidate selected from an impressive list.

During this time, we will continue to focus on getting our products into the hands of our customers growing our business globally and improving our new product development capabilities.

I am very confident we will bring on board of highly qualified individuals capable of both driving our longer term strategy and executing on our current operating and commercial commitments.

We have continued to make excellent progress on our CEO search and believe we will have a new CEO announced and in place by the end of this year if not sooner.

Speaker Change: Once the new CEO is in place and has had the appropriate time to make an assessment will provide more color on the LLP for the business.

There has been tremendous interest in the role given the company's exciting lifesaving products aggressive growth strategy and financial strength.

Speaker Change: The board and management team believe in our product portfolio and the long term growth prospects that go along with it while recently, we haven't delivered to our potential we still believe we can meet or exceed market growth. We are committed to making the necessary investments in our quality and manufacturing operations to enable supply to sustain.

The board NOI working with Heidrick <unk> struggles are spending a significant amount of time interviewing candidate selected from an impressive list.

Lea Knight: I'd like to take you through key considerations for our full year revenue outlook on 5.10. As you look at the left side of the page, you will find updated key metrics for effects and tax rates, as well as our average share count. As we look to the right side, we have key highlights on the drivers of our full year revenue guidance and the third quarter to fourth quarter ramp, as well as the stepped up investments and impact on COGS and our banks.

I'm very confident we will bring on board a highly qualified individual capable of both driving our longer term strategy and executing on our current operating and commercial commitments.

Speaker Change: <unk> meet that demand.

Once the new CEO is in place and has had the appropriate time to make an assessment will provide more color on the <unk> for the business.

Speaker Change: Tegra remains a leader in neurosurgery and tissue technology with the largest regenerative portfolio in the market and we now have a great portfolio of TNT products as a result of the <unk> acquisition.

The board and management team believe in our product portfolio and the long term growth prospects that go along with it while recently, we haven't delivered to our potential we still believe we can meet or exceed market growth. We are committed to making the necessary investments in our quality and manufacturing operations to enable supply to sustained.

Speaker Change: Over time, we have built a portfolio that not only has significant breadth as well as valuable technology and commercial synergies, but also provides meaningful differentiation to our customers and their patients.

Lea Knight: Although we are not providing guidance for 2025, we appreciate the need for some context beyond 2024 based on the changes to our 2024 guidance. These are expected timelines to resolve the identified supply issues; we should be able to meet demand in the fourth quarter of 2024. For 2025, we expect to see mid-single-digit organic revenue growth over 2024, which takes into account strong demand for our products, but also pockets of supply disruption as we execute the compliance master plan. We also expect to see pressure on our adjusted growth margins as we continue to make key investments.

I would like to thank and acknowledge our employees for their resilience and thank our customers and shareholders for their continued support of Integra and with that I'll turn it over to Jan and Leah to discuss our second quarter and updated guidance in more detail.

<unk> meet that demand.

<unk> remains a leader in neurosurgery and tissue technology with the largest regenerative portfolio in the market and we now have a great portfolio of TNT products as a result of the Clarient acquisition.

Speaker Change: Thank you sure what that was.

Speaker Change: Everyone.

Over time, we have built a portfolio that not only has significant breadth as well as valuable technology and commercial synergies, but also provides meaningful differentiation to our customers and their patients.

Jan: <unk> will update you on our second quarter results and our updated guidance for the year.

Which reflects many of US teams that just you are just touched on.

Speaker Change: Similar to what we saw during the first quarter or second quarter reflected the robust market demand for our products and early success with our integration of our clearance.

Lea Knight: Taking all of this into account, we expect SWAT to modest adjusted EPS growth in 2025.

Jan Alere: I would like to thank and acknowledge our employees for their resilience and thank our customers and shareholders for their continued support of Integra and with that I'll turn it over to Jan Alere to discuss our second quarter and updated guidance in more detail.

Lea Knight: If you turn to slide 11, I'll wrap up our prepared remarks. We saw continued strong demand for our products during the second quarter, including a clearance, and we remain confident that our portfolio and commercial teams can generate sustainable growth over time. In order to do that, we have an organization-wide commitment to improve our quality compliance and supply resilience to better support our customers and meet their needs. We remain committed to bringing Surgeoning and Primate to expect markets through our new Brain Tree facility and advancing our Surgeoning PMA for IVBR. The investments required across our manufacturing network are reflected in our updated guidance, and we look forward to providing you with updates as we make progress against our compliance master plan.

Speaker Change: If you turn to slide four in our presentation.

Speaker Change: Our second quarter revenues finished at $418 million.

Speaker Change: For those that was above our may guidance range.

Thank you sure what that will good morning, everyone.

Speaker Change: Continued strong demand across our entire portfolio.

Yeah, and I will update you on our second quarter results and our updated guidance for the year.

Speaker Change: Our organic revenue was up two 3% compared to the prior year and.

Which reflects many of us teams that Stuart just touched on.

Speaker Change: Excluding Boston organic growth plus <unk>, 3%.

Similar to what we saw during the first quarter or second quarter reflected the robust market demand for our products and early success with our integration on our clearance.

Speaker Change: We delivered adjusted EPS of six months to three within our guidance range.

Speaker Change: Yes.

Goldman specialty surgical business saw growth approximately 1% with strong growth from our dural access and repair and neuro monitoring franchises.

If you turn to slide four in our presentation.

Our second quarter revenues finished at $418 million.

That was above our guidance range.

Speaker Change: Significant back orders.

Continued strong demand across our entire portfolio.

Speaker Change: There was solid demands once again in our international markets.

Our organic revenue was up two 3% compared to the prior year, excluding Boston organic growth plus 0.3%.

This was also impacted by the supply by quarters.

Unknown Executive: With that, I'd like to open up the line for Q&A. As Stewart is not physically present for the call, Jan and I will facilitate the Q&A. Please open the line for the first question. Thank you. As a reminder to ask a question, please press Star 11. If your question has been answered and you'd like to remove yourself from the queue, please press Star 11 again. Our first question comes from Kristen Stewart with CL King. Your line is open. Hi, thanks for taking the question.

Speaker Change: As a consequence.

Speaker Change: Grew low single digits during the quarter.

We delivered adjusted EPS of 6% to <unk> within our guidance range.

Speaker Change: We're seeing a strong uptake of settling following our global relaunch in the first quarter, demonstrating the customer loyalty and differentiation of our intracranial pressure monitoring portfolio.

Ah Goldman specialty surgical business saw growth approximately 1% with strong growth from our dural access and repair and neuro monitoring franchises.

We also closed our acquisition of the clearance on April one and we have been productively integrating the teams and products into our CSS business.

But significant back orders.

There was solid months once again in our international markets.

Unknown Executive: I was wondering if you could just provide a little bit more color on the shipping holds that you're taking in the third quarter and just kind of confidence in why it's just going to be the third quarter and not expand into 2025. And if you could also provide us with what specific products are on their shiphold and the total revenue that these products represent. Thank you. Good morning. Thank you for the question, Kristen. Yes, so the temporary shipping holds we have in place impact a number of SKUs across our CFS business segment. We do expect a majority of those holds to be cleared by Q3.

As a reminder.

This was also impacted by the supply back on us.

Speaker Change: The deal positions Integra as a leader in the E&P segment expands our addressable market and provides immediate scale and accretive growth to our portfolio.

As a consequence.

Low single digits during the quarter.

We're seeing a strong uptake of settling following our global relaunch in the first quarter, demonstrating the customer loyalty and differentiation of our intracranial pressure monitoring portfolio.

Speaker Change: We're pleased with the progress of the integration and your cloud team more than met our expectations at this point in the integration.

Speaker Change: The early strategic assessments of our joint teams have further confirmed the strategic opportunities and the complimentary benefits of Emt and neurosurgery.

We also closed our acquisition of a clearance on April 1st and we've been productively integrating the teams and products and.

Our CSS business.

Speaker Change: Within our tissue technologies business, we continue to see healthy demand for our broad portfolio of wound reconstruction products deliver.

As a reminder.

The old positions Integra as a leader in the ELT segments expands our addressable markets and provides immediate scale and accretive growth to our portfolio.

Unknown Executive: And in terms of the nature of the holds themselves, they primarily relate to compliance with labeling, packaging, and ISU, which is Instructions for Use requirements. These requirements differ across all the markets in which we operate. And so, as you can imagine, it will take time to fully assess and implement corrective actions. The good news is we've already started to clear some of the products to resume shipping. And we will continue that course of action throughout Q3 and into Q4. I think the other part of your question was, I just want to finish the other part of your question: how are we confident that it doesn't continue into 2025?

Speaker Change: With high double digit growth in Euro sharp, a resorbable synthetic light construction product, which continues to track ahead of our deal model.

We're pleased with the progress of the integration and get clarity more than met our expectations at this point in the integration.

Speaker Change: During the quarter. We also saw continued strong growth from our micro matrix family of products as well as Cytol Chantix and M&A upticks.

The early strategic assessments of our joint teams have further confirms the strategic opportunities and the complimentary benefits of Emt and neurosurgery.

As we announced on July 15th we plan to restart the manufacturer of Prime matrix and search events at our new state of the art manufacturing facility in Braintree, Massachusetts.

Within our tissue technologies business, we continue to see healthy demand for our broad portfolio of wound reconstruction products.

It's high double digit growth in euro sharp resorbable synthetic reconstruction product, which continues to track ahead.

Speaker Change: Expect to operationalized in the first half of 2026.

Speaker Change: The timeline to have the projects back on the market would not have been materially different had we decided to move forward and our current Boston facility.

Our deal model.

During the quarter. We also saw continued strong growth from our micro matrix family of products as well as <unk> Chantix and thanks.

Unknown Executive: Yeah, so to that end right now, based on our plan, we do get through clearance of majority of those into 2024. So the magnitude of the call-down that we had should be isolated related to this issue in 2024.

Speaker Change: And given the limitations of the physical space and lay out in Boston. It became clear that Braintree was the right next step for Integra.

As we announced on July 15th we plan to restart the manufacturers primary tricks and search events at our new state of the art manufacturing facility in Braintree, Massachusetts.

Speaker Change: Consolidated efforts at Braintree also allows us to focus on starting up production at 170.

Unknown Executive: And how are you comfortable that this is just the end of the quality issues of the company? Is it just isolated only in CSF and any additional color on that? Yeah, so Chris and I think this goes back to the spirit of why we've implemented the compliance master plan. As Stuart mentioned in his remarks, this is our systemic holistic approach to improving our overall quality standards and GMP compliance. The plan itself is structured into workstream that will have as their remit to look across the entirety of our manufacturing and supply network. And they'll focus on things like labeling compliance; they'll focus on things like documentation of controls and processes as examples.

Speaker Change: It's an optimized layout and minimize execution risk.

We expect to operationalize and the first half of 2026.

Speaker Change: In addition to improved applied to them.

The timeline to have the projects back on the market would not have been materially different had we decided to move forward and our current Boston facilities.

Speaker Change: The shift to bring <unk> will offer our Boston teammates the opportunity to work in a brand new facility that is.

Speaker Change: It's more conveniently located for the majority of it.

And given the limitations of the physical space and lay out in Boston It became clear that Braintree.

Speaker Change: We remain fully committed to bringing <unk> back to the market for our customers and patients.

Right next step for Integra.

So was there anything else that's fortunate Braintree also allows us to focus on starting up production at 170 <unk>.

Speaker Change: In the meantime.

Speaker Change: We have seen good uptake of the resort, allowing our sales force just take close to our customers.

Optimize layouts and minimizing execution risk.

Speaker Change: To provide them with a meaningfully differentiated product offering until we return <unk> to the market.

In addition to improving our compliance and efficiency.

The shift to brain tree will offer our Boston teammates the opportunity to work in a brand new facility, but it's more convenient.

Speaker Change: We remain confident in our multi product portfolio strategy in implants based breast reconstruction.

Conveniently located for the majority of it.

Speaker Change: I am pleased to announce today that we received the PMA approvable notification from the FDA on the clinical submission for the PMA application for <unk>.

Unknown Executive: And they'll identify and implement corrective actions as they progress through the plan. So the body of this work will be concentrated in the next 18 months.

We remain fully committed to bringing primary it takes an.

Back to the market for our customers and patients.

In the meantime.

Speaker Change: The FDA has determined that the PMA is approvable subject to an FDA inspection that funds the manufacturing facilities methods and controls and compliance with the applicable requirements.

Jan Alere: We have seen good uptake of the resort, allowing our sales force to stay close to our customers and still provide them with a meaningfully different shaded product offering until we return <unk> to the market.

Steve Lichtman: and so during the course of that is when we will be able to fully assess and implement actions that does carry us through 255. Okay, thank you very much. Thank you. Our next question comes from Steve Lichtman with Oppenheimer Company. Your line is open. Thank you. Good morning, guys. I just wanted to ask a little bit more about the anticipated step up in the fourth quarter. Can you talk a little bit more about your visibility level on that? Potential for more sustainable share loss as a result of these shipholds and how you are addressing that with customers and a commercial organization?

The quality system regulation.

We remain confident in our multi product portfolio strategy in implants based breast reconstruction.

Speaker Change: Now turning to guidance.

Speaker Change: We're updating our revenue and adjusted EPS guidance for the year to a range of $1 609 to $1 $62 $9 billion.

I'm pleased to announce today that we received the PMA approvable notification from the FDA on the clinical submission for the PMA application for <unk>.

Speaker Change: And $2 41 to $2 57.

Yeah, Yeah. It was determined that the PMA is approvable subject to an FDA inspection that funds the manufacturing facilities methods and controls and compliance with the applicable requirements.

Speaker Change: Per share respectively.

Speaker Change: The reduction in our guidance reflects the impact of supply halts and back orders that we are expecting to carry within the CSS business during the third quarter as.

The quality system regulation.

Speaker Change: As well as our planned increase in spending to support compliance Master plan that Stuart mentioned earlier in the call.

Now turning to guidance.

We're updating our revenue and adjusted EPS guidance for the year to a range of $1 609 to $1 $6 billion to $9 billion.

Unknown Executive: Yeah, so Steve, let me start there. So as we look across the hold, as I mentioned, it's a number of skews across the CSS portfolio that have various requirements. And so, as we meet those requirements and implement corrective actions, we're releasing them. So it's really happening as a continuous sort of process throughout the quarter. And that's what gives us confidence that, as we get into Q4, we'll be able to release the majority of those holds. From a guidance perspective, as you look at kind of how we've called the Q4, the rest of the year, we do have on the lower end of that guide. There is a risk that if the timing shifts a little bit, we can absorb that as reflected in the guide.

Speaker Change: Leah will provide more color on our guidance for the third quarter.

And updated guidance.

Leah: For the full year.

Jan Alere: And $2.41 to $2 57.

<unk>: Before I turn the call over to <unk>, Let me assure you that we continue to be deeply focused on fixing our supply issues in bringing Braintree online.

Sure respectively.

A reduction in our guidance reflects the impact of supply halts and back orders that we are expecting to carry within the CSS business during the third quarter.

<unk>: While strengthening our processes and capabilities.

Leah: We have learned many significant lessons related to our quality management system that we're applying across our network as part of our compliance Master plan.

As well as our plans increase in spending to support compliance Master plan that Stuart mentioned earlier in the call.

Leah: We will continue to take new learnings and put them into practice to ensure we develop top tier manufacturing and supply chain capabilities.

Lee will provide more color on our guidance for the third quarter.

And updated guidance.

Leah: You have the right portfolio and continue to see strong demand from our customers, but we need to strengthen our ability to put product in their hands, but predictability.

For the full year.

Before I turn the call over to Al Let me assure you that we continue to be deeply focused on fixing our supply issues in bringing Braintree online.

Unknown Executive: We do have also at the, at the upside of the guide, an ability to realize some upside to the extent that the timeline doesn't prove. And then I think the other part of your question was related to additional risks for Q4. Is that right? Yes, just in terms of, you know, obviously customer pushback, anything, you know, any disruption on commercial organization, a result of, you know, the issues here. Yeah. And so we've been working with our customers in terms of communication around the nature of these holds, and we'll be proactively working with them to help them understand.

Leah: In order to deliver on our promise to our customers and their patients our employees and our shareholders.

While strengthening our processes and capabilities.

We have learned many significant lessons related to our quality management system.

Liam: Now over to Liam.

Liam: Thank you.

Liam: Let's take a more detailed look at our second quarter financial highlights starting on slide five second.

Plying across our network as part of our compliance Master plan.

We will continue to take new learnings and put them into practice to ensure we develop top tier manufacturing and supply chain capabilities.

Liam: Second quarter total revenues were approximately $418 million, representing nine 7% growth on a reported basis and two 3% on an organic basis.

Jan Alere: You have the right portfolio and continue to see strong demand from our customers, but we need to strengthen our ability to put product in their hands, but predictability.

Liam: Total revenues were approximately $2 million above the high end of the guidance range communicated back in May.

Jan Alere: In order to deliver on our promise to our customers and their patients our employees and our shareholders.

Liam: Our adjusted EPS for the quarter was 63.

Liam: Down 11% compared to 2023.

Now over to Liam.

Liam: Looking at the middle of the P&L gross margins were 65, 2% for the second quarter down 250 basis points versus 2023.

Thank you John let's take a more detailed look at our second quarter financial highlights starting on slide five second.

Unknown Executive: And as we begin to alleviate them, what that impact is and when the, when our products will become available. And so through that and through the kind of the constant relationship we maintain with them as a result of the breadth of our portfolio, we're confident we can help manage through this, the current temporary shipping holds into fourth quarter. Okay, got it. And then I guess the second week, you could provide a little more detail on what the actions are here. What are the investments being made? This could provide a little; obviously, we understand the service, ship hold aspect, but what are the sort of the broader investments that are going to be made specifically here over the next 18 months?

Second quarter total revenues were approximately $418 million, representing nine 7% growth on a reported basis and two 3% on an organic basis.

Liam: Change in gross margins impacted by approximately 270 basis points from lower utilization and higher scrap.

Liam: Basis points, an unfavorable revenue mix from lower integra skin and stronger international sales, partially offset by an approximate 120 basis point benefit versus the prior year from Boston returns and lower remediation costs.

Total revenues were approximately $2 million above the high end of the guidance range communicated back in May.

Our adjusted EPS for the quarter was 63 cents down 11.

11% compared to 2023.

Liam: Our adjusted EBITDA margins were 20% down 330 basis points compared to 2023.

Looking at the middle of the P&L gross margins were 65, 2% for the second quarter down 250 basis points versus 2023.

Liam: Our decline in adjusted EBITDA margins, primarily reflects the decrease in gross margins.

Change in gross margins was impacted by approximately 270 basis points from lower utilization and higher scrap.

Liam: Operating cash flow for the second quarter was $40 million.

Basis points, an unfavorable revenue mix from lower integra skin and stronger international sales, partially offset by an approximate 120 basis point benefit versus the prior year from Boston returns and lower remediation costs.

Liam: If you turn to slide six we'll take a deeper dive into our CFS revenue highlights for the second quarter.

Unknown Executive: Yep. So, as we step through the compliance master plan and address the actions that I talked about, we know it's going to mean an increase in internal resources as well as external resources, specifically with expertise and quality controls and standards. So that will necessarily be part of the investments that we're making. Coupled with that, from a cost perspective, will also likely see lower utilization at some of our sites as we implement corrective actions. So that will have a negative pressure or impact on a growth from a gross margin perspective. And then also from a, from a capital perspective, which you can anticipate, is that as we, you know, part of this effort will be looking at our capacity requirements.

Liam: Reported Q2 revenues in CSI CFS were $302 million up 11, 3% on a reported basis and <unk>, 9% on an organic basis from the prior year.

Our adjusted EBITDA margins were 20% down 330 basis points compared to 2023.

Liam: Global sales in Neurosurgery grew one 2% on an organic basis with strong growth in certain franchises offset by the impact of back orders.

Our decline in adjusted EBITDA margins, primarily reflects the decrease in gross margins.

Operating cash flow for the second quarter was $40 million.

Liam: We delivered high single digit growth in dural access and repair driven by George and Mayfield.

If you turn to slide six we'll take a deeper dive into our CFS revenue highlights for the second quarter.

Liam: We saw low single digit growth in advanced energy driven by Aurora.

Reported Q2 revenues and CFA CFS were $302 million up 11, 3% on a reported basis and 0.9% on organic basis from the prior year.

We also saw strong growth from the fair linked relaunch and our neuro monitoring franchise. However, the growth was offset by back orders that led to a low single digit decline in neuro monitoring and a low double digit decline in CSF management.

Global sales of Neurosurgery grew one 2% or organic basis with strong growth in certain franchises offset by the impact of back orders.

Unknown Executive: Again, an interest of making sure that we're positioned to sustainably meet the growth on this business. And so, from a capital perspective, you can expect capital to remain at levels that are consistent with what we're spending in 2024 for the next several years. So that's kind of how you think about it from an investment perspective.

Liam: In our E&P business, we saw 18% growth for the second quarter.

Liam: I'd like to highlight that the organic growth in our anti reporting segment will reflect only the micro France anti instruments for the first four quarters. Following the close of the Clarient acquisition.

Delivered high single digit growth in dural access and repair driven by George and Mayfield.

So low single digit growth in advanced energy driven by Aurora.

Liam: Even so this performance reflects early synergies of the acquisition.

We also saw strong growth from the sterile linked relaunch in a neural monitoring franchise. However, the growth was offset by back orders that led to a low single digit decline in neuro monitoring and a low double digit decline in CSF management.

Matt Taylor: I think the most important part of all of this, though, Steve, is that at the end of it, the expectation is, as a result of making these investments now and the impact we're forecasting it'll have on the business, we will be in a better position going into 2026 to proactively meet and drive growth on the business and make sure we remain in front of some of the supply challenges we've seen as of late. Thank you. Okay, thank you. Thank you. Our next question comes from Matt Taylor with Jefferies. Your line is open. Alright, thanks for taking a question.

Liam: On a reported basis, our claret delivered approximately $30 million, which is approximately $5 million ahead of our guidance at the midpoint, reflecting this effect of the integration to date.

Liam: Yes.

And our anti business, we saw 18% growth for the second quarter.

Liam: For the second quarter, our capital sales were up high single digits, driven by fairly monitors, which are delivering results in line with our expectations for that relaunch.

I'd like to highlight that the organic growth in our anti reporting segment will reflect only the micro France anti instruments for the first four quarters. Following the close of the Claret acquisition.

Liam: Turning to instruments with an approximate 3% decline due to a challenging comp versus 2023.

Even so this performance reflects early synergies of the acquisition.

Liam: Shifting to our international business, we saw low single digit growth in the quarter with continued strong demand in many of our international markets. However, we fell short of meeting demand in the quarter due to the increase in back orders, we discussed earlier in our remarks.

On a reported basis, our claret delivered approximately $30 million, which is approximately $5 million ahead of our guidance at the midpoint, reflecting this effect of the integration to date.

Matt Taylor: I wanted to ask you a little bit more about your assumptions for 2025. I guess can you help us understand. You're going to clear up a lot of these issues in Q3 and the second half of 24. I guess with an easy comp, why wouldn't you grow more in 2025? Yeah, so thanks for that question. And at some level, this is, you know, recognition that we are still in the early stages of implementing our compliance master plan. So, to your point, as we step through the call down in 2024, much of that supply disruption we do anticipate coming back.

For the second quarter, our capital sales were up high single digits, driven by fairly monitors, which are delivering results in line with our expectations for that relaunch.

Liam: Moving to our tissue technologies segment on slide seven.

Liam: Tissue technologies increased five 6% on a reported basis and five 7% on an organic basis compared to the prior year.

Turning to instruments with an approximate 3% decline due to a challenging comp versus 2023.

Speaker Change: Excluding Boston organic growth was down 1%.

Shifting to our international business, we saw low single digit growth in the quarter with continued strong demand in many of our international markets. However, we fell short of meeting demand in the quarter due to the increase in back orders to be discussed earlier in our remarks.

Liam: Yeah.

Speaker Change: Second quarter sales in wound reconstruction, so broad growth across the franchise, including high double digit growth for tours are benefiting from increased focus from the surgical reconstruction sales team.

Speaker Change: We also saw mid double digit growth in generic and low double digit growth in micro matrix Phyto an amniotic.

Moving to our tissue technologies segment on slide seven.

Unknown Executive: And on top of that, we are seeing continued strength across the other parts of our business that you continue to grow. So a clear it will be in for a full year, receiving growth and other parts of our business in terms of UBM and doors or that should also drive continued growth into 2025. And to your point that taking together with the supply coming back should drive meaningful growth, but we're also providing for the potential of additional supply disruption in how we're thinking about early thoughts on 2025. And that's principally because we're still working through the compliance master plan.

So she technologies increased five 6% on a reported basis and five 7% on organic basis compared to the prior year.

Speaker Change: Growth of ammonia in construction was partially offset by a low double digit decline in integra skin driven by the production challenges we discussed during last quarter's earnings call.

Excluding Boston organic growth was down 1%.

While we have continued to ramp production of Integra skin over the course of the second quarter, we are still not operating at full capacity.

Okay.

Second quarter sales in wound reconstruction, so broad growth across the franchise, including high double digit growth for tours are benefiting from increased focus from the surgical reconstruction sales team.

We now expect integra skin sales to be at normalized run rates during the fourth quarter.

We also saw mid double digit growth in generic and low double digit growth in micro matrix vital and amniotic.

Speaker Change: And private label sales were up approximately 50% versus last year, primarily due to lapping a prior year returns from the recall.

Growth in one where construction was partially offset by a low double digit decline in integra skin driven by the production challenges we discussed during last quarter's earnings call.

Speaker Change: Private label was up one 5% excluding Boston.

Unknown Executive: And so, as we do that, we'll be able to better assess whether or not those potential supply disruptions will be realized or not. Okay, great. And I have a similar question line of thinking on the margin impact. So you're talking about the flat the amount of adjusted EPS growth next year. So there's obviously ongoing costs that you're contemplating in that guidance. Can you help us understand, do you think this will be all resolved in 2025? I mean, when can you actually get back on track with some of the long-range plan type margin goals that you put in place in the past, or is this going to be kind of a multi-year cost overhang?

Speaker Change: Finally international sales and tissue technologies were up high double digits also due to lapping the prior year returns from Boston.

While we have continued to ramp production of Integra skin over the course of the second quarter, we are still not operating at full capacity.

Speaker Change: If you turn to slide eight I will discuss our balance sheet capital structure and cash flow.

We now expect integra skin sales to be at normalized run rates during the fourth quarter.

During the quarter operating cash flow was $44 million and free cash flow was $10 $7 million, reflecting continued spending on EU MTR capex and increased working capital primarily from investments in inventory.

And private label sales were up approximately 50% versus last year, primarily due to lapping a prior year returns from the recall.

Private label is up one 5% excluding Boston.

Speaker Change: Free cash flow conversion was 26, 6% on a trailing 12 month basis.

Finally international sales and tissue technologies were up high double digits also due to lapping the prior year returns from Boston.

Speaker Change: We have a flexible balance sheet with ample liquidity to support our short and long term plans.

Jan Alere: If you turn to slide eight I will discuss our balance sheet capital structure and cash flow.

Speaker Change: As of June 30, net debt was $1 5 billion and our consolidated total leverage ratio was three eight times just above our target range of two five to three five times.

Unknown Executive: Yeah. So let me frame out a little bit more in terms of cost assumptions. So for 2024, the incremental investments we're making to support the compliance master plan will have a negative impact on margins and the order of magnitude of about 80 basis points. And if you remember, in our original and the last guide, we communicated what we said was margins would be moderately down year on year 24 versus 23, and we framed that as kind of 70 90 basis points. The implementation of this master plan means that it's impact is another 80 basis points on top of that.

During the quarter operating cash flow was $44 million and free cash flow was $10 $7 million, reflecting continued spending on EU MTR capex and increased working capital primarily from investments in inventory.

Speaker Change: We are focused on bringing our leverage ratio back within our target range.

Speaker Change: The company had total liquidity of $1 $2 billion, including $297 million in cash and short term investments and the remainder available under our revolving credit facility.

Free cash flow conversion was 26, 6% on a trailing 12 month basis.

We have a flexible balance sheet with ample liquidity to support our short and long term plans.

Speaker Change: We are confident that our balance sheet flexibility strength and liquidity will allow us to execute on our investment and operations improvement and our long term growth strategy, even in the current interest rate environment.

As of June 30th net debt was $1 5 billion and our consolidated total leverage ratio was three eight times just above our target range of two and a half to three five times.

Speaker Change: With our convertible bond coming due in the third quarter 2025, we have the flexibility to take to convert to term and funded using our revolver.

We are focused on bringing our leverage ratio back within our target range.

Unknown Executive: As we move into 2025 and now we're operating under the compliance master plan for a full year, you can anticipate another incremental 60 to 80 basis point negative impact on margins. and so that's, as you think about kind of the nature of the cost investment, that's the order of magnitude that we're talking about. And so all of that taking into consideration, along with the potential of supply disruption that I framed out for 2025, is where you start to get to margin, to overall EBITDA, margin of EPS growth that's flat to modestly up 25 versus 24.

The company had total liquidity of $1 $2 billion, including $297 million in cash and short term investments and the remainder available under our revolving credit facility.

Speaker Change: So our interest rate swap portfolio, we would maintain approximately $900 million of fixed rate debt with all in rates in the low 3% range through the end of 2027.

We are confident that our balance sheet flexibility strength and liquidity will allow us to execute on our investment and operations improvement and our long term growth strategy, even in the current interest rate environment.

Speaker Change: Our treasury team along with the Finance Committee of our Board will continue to work closely to monitor the rate environment and maintain a highly efficient and flexible capital structure.

Speaker Change: If you turn to slide nine I will provide our consolidated revenue and adjusted earnings per share guidance for the third quarter and full year 2024.

With our convertible bond coming due in the third quarter of 2025, we have the flexibility to take the convert term and funded using our revolver.

So our interest rate swap portfolio, we would maintain approximately $900 million of fixed rate debt with all in rates in the low 3% range through the end of 2027.

Speaker Change: As we discussed earlier in our remarks, our updated guidance reflects several temporary temporary shipping hold we have implemented the majority of which will be cleared before the end of the year.

Unknown Executive: Beyond that, to your point, in terms of what happens next, we do anticipate some level of maintenance costs from a growth margin perspective and the impact on growth margins as a result of these investments. But we also anticipate being in a much better supply position. So, from an overall kind of profitability and growth perspective, should be much more effective.

Our treasury team along with the Finance Committee of our Board will continue to work closely to monitor the rate environment, and maintaining highly efficient and flexible capital structure.

Speaker Change: Third quarter revenues are forecasted to be between $372 million to $382 million driven by the impact of the temporary shipping hold and supply it backwards.

If you turn to slide nine I will provide our consolidated revenue and adjusted earnings per share guidance for the third quarter and full year 2024.

Speaker Change: Our updated guidance represents.

Speaker Change: Reported revenue growth in the range of approximately flat to down two 6% and a decline of approximately $6 eight to nine 4% on an organic basis.

As we discussed earlier in our remarks, our updated guidance reflects several temporary temporary shipping hold we have implemented the majority of which will be cleared before the end of the year.

Speaker Change: For the full year revenues are forecasted to be in the range of $1 six <unk> nine to $1 $6 billion to $9 billion as we expect a temporary halt in backorder levels to abate into the fourth quarter.

Ryan Zimmerman: Much better positioned at this point, so I can't say specifically what that would be because we're not providing 2026 guidance at this point, but that will be reflected in the work we're doing around long range planning. Great, thank you very much. Thank you. Our next question comes from Ryan Zimmerman with BTIG. Your line is open. Hey guys, thanks for taking the question. Okay, a lot of questions still, I think to be answered just based on all these moving dynamics. So, you know, I'm sitting here thinking about, you know, kind of the start of these tissue issues, you know, going back over a year or so, even more.

Third quarter revenues are forecasted to be between $372 million to $382 million driven by the impact of the temporary shipping hold and supply it backwards.

Speaker Change: Many of the cases, we can't supply in the third quarter will be lost we expect a substantial step up in revenue into the fourth quarter as our shipments are able to meet demand with modest backwater clearance, providing only a slight tailwind in the period.

Our updated guidance represents.

Reported revenue growth in the range of approximately flat to down two 6% and a decline of approximately $6 eight to nine 4% on an organic basis.

Speaker Change: We expect our reported growth to be in the range of $4 four to five 7% and organic growth to be minus 1% to.

For the full year revenues are forecasted to be in the range of $1 609 to $1 $6 billion to $9 billion as we expect a temporary halt in backorder levels to abate until the fourth quarter.

Speaker Change: Plus 0.3% for the full year 2024.

Speaker Change: Turning to adjusted earnings per share guidance.

Many of the cases, we can't supply in the third quarter will be lost we expect a substantial step up in revenue into the fourth quarter as our shipments are able to meet demand with modest backorder clearance, providing only a slight tailwind in the period.

Speaker Change: For the third quarter, we expect adjusted EPS to be 36 to 44 cents or.

Speaker Change: Our third quarter EPS reflects the product codes and higher operations cost due to remediation efforts investments in quality scrap and lower plant utilization, resulting from our product holds.

Ryan Zimmerman: Now we have obviously some supply dynamics with encodement. Why has it taken, in your view, as long as it has to resolve the issues, and why will it still take through the course of 2025 to resolve these issues? And I think about that in a context of like Surgeon Man, you know, why not just throw some more money? I mean, you're already spending a ton of money. Why not throw more money at that? Get Surgeon Man on. Why is that going to take the 26th?

We expect our reported growth to be in the range of $4 four to five 7% and organic growth to be minus 1% plus.

Speaker Change: For the full year, we are updating our upped our adjusted EPS to be in the range of $2 41 to $2.57 per share.

Plus 0.3% for the full year 2024.

Speaker Change: The full year EPS contemplates the revenue reduction linked to temporary shipping hold as well as our planned increase in spending to support the compliance Master plan.

Turning to adjusted earnings per share guidance.

For the third quarter, we expect adjusted EPS to be 36, or 44 cents or.

Speaker Change: We anticipate that this increased spending will impact the second half of 2024 and 2025 as we invest across our network to ensure we can reliably deliver supply at a level that meets demand.

Ryan Zimmerman: So maybe you can kind of unpack, you know, this because this is, I think, you know, but devolved investors for for a while now with the quality issues. Thank you, Ryan, for the question. Let me see the two questions on, okay, why why now and then Surgeon Man question. So, first on the quality compliance gaps, clearly what we've learned during our posted remediation activities and some of the analytics authors. Has made us reevaluate our processes across our manufacturing and supply network. In particular, what we've learned is the need to be more effective at standardizing our quality system across the company.

Our third quarter EPS reflects the product codes and higher operations costs due to remediation efforts investments in quality scrap and lower plant utilization, resulting from our product holds.

For the full year, we are updating our upped our adjusted EPS to be in the range of $2 41 to $2.57 per share.

Speaker Change: I'd like to take you through key considerations for our full year revenue outlook on slide 10.

The full year EPS contemplates the revenue reduction linked to temporary shipping hold as well as our planned increase in spending to support the compliance Master plan.

Speaker Change: As you look at the left side of the page you will find updated key metrics for FX and tax rate as well as our average share count.

We anticipate that this increased spending will impact the second half of 2024 and 2025 as we invest across our network to ensure we can reliably deliver supply at a level that meets demand.

Speaker Change: As we look to the right side, we have key highlights on the drivers of our full year revenue guidance and the third quarter to fourth quarter ramp as well as the stepped up investments in impact on Cogs and Opex.

Although we are not providing guidance for 2025, we appreciate the need for some context beyond 2024 based on the changes to our 2020 for guidance.

I'd like to take you through key considerations for our full year revenue outlook on slide 10.

Jan Witte: So, while we have invested and improved our quality system over the last couple of years, we continue to see the need for more areas. improvements. And so that's why we decided with our board to announce this compliance master plan, activating this systemic holistic approach to our quality system and our GMP compliance to essentially step up and get ahead of this and likely indicate before to create our supply capability to be in line at the level of our commercial opportunity and the strength of our markets.

As you look at the left side of the page you will find updated key metrics for FX and tax rate as well as our average share count.

Speaker Change: Based on our expected timelines to resolve the identified supply issues, we should be able to meet demand in the fourth quarter of 2024.

Speaker Change: For 2025, we expect to see mid single digit organic revenue growth over 2024, which takes into account strong demand for our products, but also pockets of supply disruption as we execute the compliance masterplan.

As we look to the right side, we have key highlights on the drivers of our full year revenue guidance and the third quarter to fourth quarter ramp as well as the stepped up investments in impact on Cogs and Opex.

Although we are not providing guidance for 2025, we appreciate the need for some context beyond 2024 based on the changes to our 2020 for guidance.

Speaker Change: We also expect to see pressure on our adjusted gross margin as we continue to make key investments.

Speaker Change: Taking all of this into account, we expect flat to modest adjusted EPS growth in 2025.

Based on our expected timelines to resolve the identified supply issues, we should be able to meet demand in the fourth quarter of 2024.

Speaker Change: If you turn to slide 11, I'll wrap up our prepared remarks.

Jan Witte: So that's the decision that we made over the past quarter, setting up to really step up and accelerate the many of the activities we had going already over the past few years. Okay, question on this again. Yeah, why Surgeon Man in 26? I mean, can you, you know, if you're ready throwing a ton of money at, you know, these problems, why not, you know, why is it going to take as long as it is to get Surgeon Man, you know, active in 26? Yeah, so we maybe give a bit of context on brain tree and the operationalization.

For 2025, we expect to see mid single digit organic revenue growth over 'twenty 'twenty, four which takes into account strong demand for our products, but also pockets of supply disruption as we execute the compliance masterplan.

Speaker Change: We saw continued strong demand for our products during the second quarter, including a clearance and we remain confident that our portfolio and commercial teams can generate sustainable growth over time.

Speaker Change: In order to do that we have an organization wide commitment to improve our quality compliance and supply resilience to better support our customers and meet their needs.

Jan Alere: We also expect to see pressure on our adjusted gross margins as we continue to make key investments.

Taking all of this into account, we expect flat to modest adjusted EPS growth in 2025.

Speaker Change: We remain committed to bringing surge of interim prime matrix back to market through our new Braintree facility and advancing our search and M. PMA for IV Dr.

If you turn to slide 11, I'll wrap up our prepared remarks.

We saw continued strong demand for our products during the second quarter, including a clearance and we remain confident that our portfolio and commercial teams can generate sustainable growth over time.

Speaker Change: The investments required across our manufacturing network are reflected in our updated guidance and we look forward to providing you with updates as we make progress against our compliance masterplan.

Jan Witte: I think some of you will remember that we communicated in 2022 that we commissioned the building of that brain tree facility with the plan to have that site ready in 2026. Yeah, all of this was part of our long-term manufacturing strategy for Surgeon Man and Prometrics. Yeah, intention was and still is building this brain tree facility is to build a modern factory that's more productive and attractive place to work for our colleagues. And secondly, to significantly step up our output capacity of that factory, the Boston factory we knew was never going to be big enough yet to deliver to the growth opportunities, specifically with our breast strategy in Surgeon Man.

In order to do that we have an organization wide commitment to improve our quality compliance and supply resilience to better support our customers and meet their needs.

Speaker Change: With that I'd like to open up the line for Q&A Q&A as Stuart is not physically present for the call Jan and I will facilitate the Q&A. Please open the line for the first question.

We remain committed to bringing surge of men in prime matrix backed markets through our new Braintree facility and advancing our search M. PMA for IBD are.

As a reminder to ask a question. Please press star one one.

Speaker Change: If your question has been answered and you'd like to remove yourself from the queue. Please press star one again.

The investments required across our manufacturing network are reflected in our updated guidance and we look forward to providing you with updates as we make progress against our compliance Master plan.

Speaker Change: Our first question comes from Kristen Stewart with C. L. King Your line is open.

Kristen Stewart: Hi, Thanks for taking my question I was wondering if you could just provide a little bit more color on the shipping holds that you're taking in the third quarter and just kind of confidence on why it's just going to be the third quarter or not.

With that I'd like to open up the line for Q&A.

Q&A as Stuart is not physically present for the call Yeah, I mean, I will facilitate the Q&A. Please open the line for the first question.

Speaker Change: Spanned into 2025, and if you could also provide us with what specific products on their ship hold in total revenue.

Jan Witte: So we have started building that brain tree facility in 2023, and currently this year we're still in the building, the construction phase of that site. As communicated, we expect the Brain Tree facility to be operational in the first half of 2026. At this point, too early still to be more specifically on the path and the specific days. There will update for sure that once we understand the commercial ramp closer as we get closer to operationalize.

Speaker Change: Thank you as a reminder to ask a question. Please press star one one.

Speaker Change: That these products represent.

If your question has been answered and you'd like to remove yourself from the queue. Please press star one again.

Speaker Change: Thank you.

Speaker Change: Good morning. Thank you for the question Kristen Yeah. So the the.

Speaker Change: Our first question comes from Kristen Stewart with C. L. King Your line is open.

Speaker Change: Temporary shipping holes, we have in place impact our number of skus across our CFS business segment.

Hi, Thanks for taking my question I was wondering if you could just provide a little bit more color on the shipping hold that you're taking in the third quarter and just kind of confidence and why it's just going to be the third quarter or not.

Speaker Change: We do expect that majority of those homes to be cleared by Q3.

Speaker Change: And as you are in terms of the nature of the hold themselves. They primarily relate to compliance with labeling packaging and I asked you, which is instructions for use for use requirements.

Spend into 2025, and if you could also provide us with what specific products are under ship hold in total revenue.

Ryan Zimmerman: Okay, I want to just ask one other question that I'll pop back in queue. You know, in the past, when you've had disruption to the business, you've actually instituted incentives or retention, you know, cost for preserving the stability of your sales force. When you think about what you're proposing in 25, have you contemplated that? Are you instituting that? Are you, you know, is there any concern there in terms of sales force retention as a result of some of these shipping hold and, you know, the broader issue. Issues in supply. I'll start there. I'll start with that.

That these products represent.

Speaker Change: These requirements differ across all the markets in which we operate and so as you can imagine it will take time to fully assess and implement corrective actions.

Thank you.

Speaker Change: Good morning. Thank you for the question Kristen Yeah. So the the.

Temporary shipping holes, we have in place impact our number of skus across our CFS business segment.

Speaker Change: The good news is we've already started to clear some of the products to resume shipping and we will continue that course of action throughout Q3 and into Q4.

We do expect that majority of those holds to be cleared by Q3.

And then in terms of the nature of the hold themselves they primarily relate to compliance with labeling packaging and I a few witches instructions for use for use requirements.

Speaker Change: I think the other part of your question was.

Speaker Change: Alright.

Speaker Change: I just wanted to finish the other part of your question was how are we confident that it doesn't continue into 2025.

These requirements differ across all the markets in which we operate and so as you can imagine it will take time to fully assess and implement corrective actions.

Speaker Change: Yeah, so to that end.

Speaker Change: Right now based on our plan, we do get through clearance of majority of those into 2020 for it. So the magnitude of the call down that we had should be isolated related to this issue in 2024.

The good news is we've already started to clear some of the products to resume shipping and we will continue that course of action throughout Q3 and into Q4.

Unknown Executive: Thank you, Ryan. So for 2024, again, the nature of the shipping holds that we talked about does have their temporary by nature. So we do expect them to alleviate beginning and during the course of Q3 and NGQ4. And as a result, yes, we absolutely are committed to retaining ourselves for us because we recognize one that they've been a huge strength in terms of an asset for this business for a very long time. And we understand their value in terms of helping us to be able to get our products not only back in the hands of our customers, but driving growth going forward.

Speaker Change: And how are you comfortable that this is just the end of the quality.

Speaker Change: I think the other part of your question was.

Speaker Change: Yes. She is of the company as it is it just isolated only in CSF and any additional color on that.

Alright.

I just wanted to finish the other part of your question was how are we confident that it doesn't continue into 2025.

Speaker Change: Yeah. So Kristen I think this goes back to the spirit of why we've implemented the compliance Master plan as Stuart mentioned in his remarks. This is a systemic holistic approach to improving our overall quality standards and GMP compliance.

Yeah, so to that end, Brad Yeah, right now based on our planned we do get through clearance of majority of those into 2024 and so the magnitude of the call down that we had should be isolated related to this issue in 2024.

Unknown Executive: So that same sentiment carries into 2025. As we continue to work through this master plan and making the necessary investments to strengthen our overall quality compliance environment, we also plan to continue to support our sales force because we understand, again, they're the key to helping us unlock growth on this business as we move forward. Okay. Thank you for taking the questions. Thank you. Our next question comes from Robbie Marcus with JP Morgan. Your line is open. Oh great. Good morning, and thank you for taking the questions. Two from me. First, one task. How do you get comfortable giving guidance into 25 and 26 to a degree?

Speaker Change: That this the plan itself is structured into work streams that will have as their remit to look across the entirety of our manufacturing and supply network.

And how are you comfortable that this is just the end of the quality.

Yes. She is of the company as it is it just isolated only in CSF and any additional color on that.

Speaker Change: And they'll focus on things like labeling compliance they'll focus on things like documentation of controls and processes as examples and they'll identify and implement corrective.

Speaker Change: Yeah. So Kristen I think this goes back to the spirit of why we've implemented bid the compliance Master plan as Stuart mentioned in his remarks. This is a systemic holistic approach to improving our overall quality standards and GMP compliance.

Speaker Change: Corrective actions as they progressed through the plan.

Speaker Change: So the body of this work will be concentrated in the next 18 months.

That this the plan itself is structured into work streams that will have as their remit to look across the entirety of our manufacturing and supply network.

Speaker Change: And so during the course of that as well will be able to fully assess.

Speaker Change: And implemented actions that does carry us through 2025.

Speaker Change: Okay. Thank you very much.

And they'll focus on things like labeling compliance they'll focus on things like documentation of controls and processes.

Speaker Change: Thank you. Our next question comes from Steve Lichtman with Oppenheimer <unk> Company. Your line is open.

Robbie Marcus: You know, if I look back over the past one to two years, there's been just so many changes, mostly downgrades to forward guidance.

Examples and don't identify and implement corrective.

Steve Lichtman: Thank you. Good morning, guys. So just wanted to ask a little bit more about the anticipated step up in the fourth quarter can you talk a little bit more about your visibility.

Robbie Marcus: I guess how confident and how responsible do you think it is to give a long-term view here when it's, you know, clearly an uncertain time at the company? Yeah, Robbie. Thank you for the question. So just a point of clarification.

Corrective actions as they progressed through the plan.

So the body of this work will be concentrated in the next 18 months.

And so during the course of that as well will be able to fully assess.

Speaker Change: Well on that potential.

Speaker Change: Potential for.

Speaker Change: More sustainable share loss as a result of this ship holds and how you're how you're addressing that with customers and are in the commercial organization.

And implemented actions that does carry us through 2025.

Unknown Executive: We are not providing guidance on 2025. What we provided was our early thinking on how 2025 is shaping up in light of the shipping hold that we talked about for 2024. And I think, as you step through kind of the considerations that we laid out, it allows for exactly what you're talking about, Robbie. So, you know, we're starting with 2024 as a baseline. At 2024, a baseline already has about 70 to 80 million dollars of shipping, or sorry, supply disruption embedded in it. And our early thoughts on 2025 is we're going to be able to grow this business, mid-single digit, also back-reduced baseline.

Okay. Thank you very much.

Thank you. Our next question comes from Steve Lichtman with Oppenheimer <unk> Company. Your line is open.

Speaker Change: Yeah, So Stephen let me start there so as we look across the whole as I mentioned, it's the number of skus across the CFS portfolio that have various requirements and so as we meet those requirements and implement corrective actions were releasing them.

Thank you. Good morning, guys. So just wanted to ask a little bit more about the anticipated step up in the fourth quarter can you talk a little bit more about your visibility level on that.

Potential for.

Speaker Change: It's really happening as a continuous sort of process throughout the quarter.

More sustainable share loss as a result of this ship holds and how you're how you're addressing that with customers and are in the commercial organization.

Speaker Change: And that's what gives us confidence that as we get into Q4, we'll be able to release a majority of those holds from a guidance perspective as you look at kind of how we've called the Q4 the rest of the year. We do have on the lower end of that guide there is.

Yeah, So Steve let me start there so as we look across the whole as I mentioned, it's a number of skus across the CSF portfolio that have various requirements and so as we meet those requirements and implement corrective actions were releasing them.

Unknown Executive: To the points that were questions that were made earlier, yes, we do expect to get back some of the supply disruption we experienced in 2024. But fundamentally, we're not counting on it as we think about the direction for 2025 because we understand there could be the potential for additional disruption as we continue to execute against our compliance master plan. So, in short, Robbie, we are adjusting from kind of the approach we've taken in the past around guidance and light of, you know, the compliance master plan, the requirements and what's still to come and the assessors part of that in our considerations for 2025.

Speaker Change: A risk that if the timing shifts.

Speaker Change: A little bit we can absorb that as reflected in the guide we do have also at the at the upside of the guide and ability to.

It's really happening as a continuous sort of process throughout the quarter.

Speaker Change: And that's what gives us confidence that as we get into Q4, we'll be able to release a majority of those holds.

Speaker Change: Realize some upside to the extent that the timeline does improve.

Speaker Change: Yeah.

Speaker Change: Okay, and then I think the other part of your question was related to additional risks for Q4 is that right.

From a guidance perspective, as you look at kind of how we've called the Q4 the rest of the year. We do have on the lower end of that guide there is a risk that if the timing shifts.

Speaker Change: Yes, yes, just in terms of obviously customer pushback anything you know any disruption on the commercial organization result of you know.

A little bit we can absorb that as reflected in the guide we do have also at the at the upside of the guide and ability to realize.

Speaker Change: The the near the issues here.

Unknown Executive: And then, clearly, for 2026, we absolutely are not providing guidance at this point. We are, you know, including that and the work to be done on our long-range plan, and we'll come back at the appropriate time to have that come. We may be at one thing, sorry. Now, let me add to one thing, Robert, because you mentioned you have uncertain times. Let me focus on a couple of certain things that we have with Integra. One, we are in four markets; we're confident about market demand and the growth. We know that our products are differentiated products.

Speaker Change: Yeah. So we've been working with our customers in terms of communication around the nature of these holes and we will be proactively working with them to help them understand as we begin to alleviate them what that impact is and when the when our products won't become available and so through that and through.

Realize some upside to the extent that the timeline does improve.

Okay, and then I think the other part of your question was related to additional risks for Q4 is that right.

Yes, yes, just in terms of.

It's kind of a constant relationship we maintain with them as a result of the breadth of our portfolio. We're confident we can help manage through it.

Obviously customer push back anything any disruption on the commercial organization result of.

Speaker Change: This the current temporary shipping holds into fourth.

The issues here.

Yeah. So we've been working with our customers in terms of communication around the nature of these holes and we will be proactively working with them to help them understand as we begin to alleviate them what that impact is and when the when our products won't become available and so through that and through the.

Speaker Change: The fourth quarter.

Speaker Change: Okay got it and then I guess, just secondly can you provide a little more detail on what the actions are here what are the the investments being made.

Jan Witte: I mean, great clinical outcomes, strong competitive positioning. And then third, you heard Stewart talk about our strong commercial force. A strong commercial force, and Ryan asked a question. Okay, we're making sure we are retaining them. We have our growth portfolio, so not one product will destroy their back. We see it when doersaw up today, we see it in other products and CSS. So there's the breadth of commercial opportunities to keep our commercial force engaged, productive, and continue to serve our customers, continue to build on that relationship. Those are certain things that we have. And while we deal with the temporary impacts of these shipholes, we are building on those banks, and we'll bring those products back.

Speaker Change: This could provide a little obviously, we understand the sort of the ship hold aspect, but what are the sort of the broader investments that are going to be.

Kind of a constant relationship we maintain with them as a result of the breadth of our portfolio. We're confident we can help manage through them.

Speaker Change: Maybe specifically here over the next 18 months.

Speaker Change: Yep.

This the current temporary shipping holds into fourth.

Speaker Change: So as we step through the compliance Master plan and address the work streams that I talked about we know it's going to mean, an increase in internal resources as well as external resources, specifically with expertise and quality controls and standards, so that won't necessarily be part of the investments that we're making.

<unk> fourth quarter.

Okay got it and then I guess, just secondly can you could provide a little more detail on what the actions are here what are the investments being made.

This could provide a little obviously, we understand the sort of the ship hold aspect, but what are the sort of the broader investments that are going to be.

Speaker Change: Coupled with that from a cost perspective, but will also likely see lower utilization at some of our sites as we implement corrective actions. So that will have a negative press.

Need specifically here over the next 18 months.

Yep.

So as we step through the compliance Master plan and address the work streams that I talked about we know it's going to mean, an increase in internal resources as well as external resources, specifically with expertise and quality controls and standards. So that will necessarily be part of the investments that we're making.

Speaker Change: Pressure or impact on our gross from a gross margin perspective.

Jan Witte: Great, helpful. Maybe just one follow up from me. You know, you'll have had multiple products out of the market for well over a year by the time they get back up and running, you know, potentially even two years. How do you feel about the ability to regain share there? I have to imagine doctors will have moved on to other products, other companies, other contracts. So when it comes back, I know the original guidance with shorter timelines was to get to 100% of the prior dollar run rate in 12 months. Is it now half that? When you come back, how do we think about share recapture?

Speaker Change: And then also from a from a capital perspective, which you can anticipate is that as we you know part of this effort will be looking at our capacity requirements and again in the interest of making sure that we're positioned to sustainably meet the growth on this business and so from a capital perspective, you can expect capital to remain.

Coupled with that from a cost perspective, but will also likely see lower utilization at some of our sites as we implement corrective actions so that will have a negative.

Speaker Change: At levels that are consistent with what we're spending in 2024 for the next several years.

Speaker Change: So that's that's kind of how you think about it from an investment perspective, I think b b.

Pressure or impact on our growth from a gross margin perspective.

Speaker Change: The most important part of all of this though Steve is that at the end of it the expectation is as a result of making these investments now and the impact we're forecasting it'll have on the business will be in a better position going into 2026 to proactively meet and drive growth on the business and make sure we.

And then also from a from a capital perspective, what you can anticipate is that as we you know part of this effort will be looking at our capacity requirements and again in the interest of making sure that we're positioned to sustainably meet the growth on this business and so from a capital perspective, you can expect capital to remain.

Jan Witte: If you can, how long are you going to be off market? Thanks. Yeah, I'll take this one, Robert. I think you probably refer to the searchment of prime metrics, which are the two products that are one of the market. Like I mentioned before, one will confident for the market months and the growth. We're talking here about the market for implant-based restructural structure for complex runes repair. Those markets remain strong. Now, we recognize it's going to take significant work to get back. But the products, the searchment, and prime metrics are differentiated. They fill clear needs in the market.

Speaker Change: Remain in front of some of the supply challenges we've seen as of late.

At levels that are consistent with what we're spending in 2024 for the next several years.

Steve Lichtman: Okay. Thank you.

So that's that's kind of how you think about it from an investment perspective, I think Pete.

Speaker Change: Thank you. Our next question comes from Matt Taylor with Jefferies. Your line is open.

The most important part of all of this does Steve is that at the end of it the expectation is as a result of making these investments now and the impact we're forecasting it'll have on the business will be in a better position going into 2026th to proactively meet and drive growth on the business and make sure we.

Steve Lichtman: Okay.

Matt Taylor: Hi, Thanks for taking the question I wanted to ask you a little bit more about your assumptions for 2025.

Matt Taylor: I guess can you help us understand.

Speaker Change: To clear up a lot of these issues.

Jan Witte: Today, there's no other competitive products that fill that need, and we do not see over the next years competitive products come that really fill the specifics that the searchments and prime metrics are filling. And then back to our relationship and our presence with our customers. If you look at our surgical reconstruction sales force, today, they're very active and very successfully active selling Duressorb that resolvable synthetic, which we acquired more than a year ago. It's the breadth of the portfolio that keeps us in front of our customers and keeps us. keeps our sales teams engaged in building that relationship with customers, even if these products are not of the market.

Speaker Change: In Q3 in the second half of 'twenty, four I guess with easy comp why why wouldn't you grow more than 2025.

Remain in front of some of the supply challenges we've seen as of late.

Okay. Thank you.

Speaker Change: Yeah. So thanks for that question and at some level. This is a recognition that we are still in the early stages of implementing our compliance masterplan. So to your point as we step through the call down in 2020 for much of that supply disruption, we do and.

Thank you. Our next question comes from Matt Taylor with Jefferies. Your line is open.

Okay.

Matt Taylor: Alright, Thanks for taking our question I wanted to ask you a little bit more about your assumptions for 2025.

I guess can you help us understand youre going to clear up a lot of these issues in Q3 in the second half of 'twenty four I guess with easy comp why why wouldn't you grow more in 2025.

Speaker Change: <unk> coming back.

And on top of that we are seeing continued strength across the other parts of our business that you continue to grow so a clear it will be in for a full year, we're seeing growth in other parts of our business in terms of UBM in doors or that should also drive continued growth into 2025.

Yeah. So thanks for that question and at some level. This is <unk>.

Recognition that we are still in the early stages of implementing our compliance masterplan. So to your point as we step through the call down in 2020 for much of that supply disruption, we do anticipate coming back.

Unknown Executive: That's the foundation that we'll use to drive an impactful relapse once we get the products back in the market. And just to, just to go on that, because we mentioned multiple products out for years, I think to Jan's point, yes, that is true with respect to serve in the prime matrix. But the holds that we're talking about across the CSS portion of the portfolio, that's been a 2024 dynamic.

Speaker Change: And to your point that taken together with the supply coming back should should drive meaningful growth, but we're also providing for the potential of additional supply disruption in how we're thinking about early thoughts on 2025, and that's principally because we're still working through the compliance masterplan and so.

And on top of that we are seeing continued strength across the other parts of our business that you continue to grow so a clear it will be in for a full year, we're seeing growth in other parts of our business in terms of UBM in tours or that should also drive continued growth into 2025.

Speaker Change: As we as we do that we'll be able to better assess whether or not those potential supply disruptions will be realized or not.

Jason Bedford: So it's been a matter of, you know, weeks; maybe it'll add up to months, but it's isolated to 2024. Thank you. Our next question comes from Jason Bedford with Raymond James. Your line is open. Good morning, just two cookies for me. It sounds like it's your decision on when the ship hold products get released. Just for clarity, do you need any third-party opinion? Do you anticipate that any of these products will need additional regulatory approval? Hi, Jason. Let me take this one. So yes, these ship holds have been put voluntarily in place. Okay, it's essentially our quality management system at work driving corrective actions on observations.

Speaker Change: Okay great.

Speaker Change: Similar question line of thinking on the margin impact.

And to your point that taken together with the supply coming back should should drive meaningful growth, but we're also providing for the potential of additional supply disruption.

Speaker Change: So you're talking about flat to modest adjusted EPS growth next year. So there's obviously.

Speaker Change: Ongoing cost that you're you're contemplating in that guidance can you help us understand do you think this will be all resolved in 2025, even when can you actually get back on track with some of the you know.

How we're thinking about early thoughts on 2025, and that's principally because we're still working through the compliance masterplan and so as we as we do that we'll be able to better assess whether or not those potential supply disruptions will be realized or not.

Speaker Change: Long range plan type margin goals that you've put in place in the past or is this going to be kind of a multiyear cost overhang.

Okay, Great and then I have a similar question line of thinking on the margin impact.

Speaker Change: Yeah, So let me frame out a little bit more in terms of cost assumptions.

So youre talking about flat to modest adjusted EPS growth next year. So there's obviously.

Speaker Change: So for 2020 for the incremental investments, we're making to support the compliance Master plan will have a negative impact on margins in the order of magnitude of about 80 basis points and if you remember in our original and the last guide we communicated what we.

Ongoing cost that youre contemplating in that guidance can you help us understand do you think this will be all resolved in 2025 and when can you actually get back on track with some of the long range plan type margin goals that you've put in place in the past or is this going to be.

Jason Bedford: The path from an observation to a correction is defined by our quality management system. So it's essentially us, yeah, who defined when we're done with that correction on a specific, yeah, product basis. Okay, and just as a related question on the master plan, it sounds like all these products are in CSS. Why were these products selected as part of this ship hold? Here is there come thread or they manufacture the same facility is there. Is it based on the age of the label, and just curious on how you decided on these products? Yeah, so the compliance master plan itself is a plan that cuts across the entirety of our business, right.

Speaker Change: Said was margins would be moderately down year on year 24 versus 23, and we framed that as kind of 70 to 90 basis points.

End of a multiyear cost overhang.

Yeah, So let me frame out a little bit more in terms of cost assumptions. So for 2020 for the incremental investments, we're making to support the compliance Master plan will have a negative impact on margins in the order of magnitude of about 80 basis points.

Speaker Change: The implementation of this master plan means that that it's it's the impact is another 80 basis points on top of that.

Speaker Change: As we move into 2025 and now we're operating under the compliance Master plan for a full year you can anticipate another incremental 60 to 80 basis point impact negative impact on margins.

And if you remember in our original and the last guide we communicated what we said was margins would be moderately down year on year 24 versus 23, and we framed that as kind of 70 to 90 basis points.

Speaker Change: And so that's that's yeah as you think about kind of the nature of the cost investment. That's the order of magnitude, we're talking about and so all of that taken into consideration along with the potential of supply disruption that I framed out for 2025 is where you start to get to Marge to overall EBITDA margin or EPS growth.

Unknown Executive: So all of the divisions within the temporary shipping holds that we've talked about is affecting uniquely the CSS business. Within that though, this is not a facility manufacturing gap per se; this is a quality management system gap. And so that's why the emphasis of the compliance master plan is exactly on quality management systems and GMP compliance. And so we've incorporated observations that we've gotten from regulatory authorities, along with our own internal assessment, and shaping the scope of the compliance master plan. And that's what we're executing against to remediate this issue and also make sure that we're strengthening the robustness of our quality systems more probably.

The implementation of this master plan.

<unk> said that it's it's the impact is another 80 basis points on top of that.

As we move into 2025 and now we're operating under the compliance Master plan for a full year you can anticipate another incremental 60 to 80 basis point impact negative impact on margins.

It's flat to modestly up.

Marge: 25 versus 24.

Beyond that to your point of view.

Speaker Change: Sorry go ahead, but beyond that to your point in terms of what happens next we do anticipate some level of maintenance cost from a from a gross margin perspective, and the impact on gross margins as a result of these investments.

And so that's that's yeah as you think about kind of the nature of the cost investment. That's the order of magnitude, we're talking about and so all of that taken into consideration along with the potential of supply disruption that I framed out for 2025 is where you start to get to Marge to overall EBITDA margin our EPS growth.

Speaker Change: But we also anticipate being in a much better supply position. So from an overall kind of profitability and growth perspective should be met.

That's flat to modestly up.

Unknown Executive: Okay, thank you. Thank you. Our next question comes from Craig Bezier with Bank of America Securities; your line is open. Good morning. Thanks for taking the questions. Sorry to belabor the point, but I did want to ask just on, I guess, a clarification, maybe on a follow-up to what you just said, on the manufacturing. So, you know, are you looking at the manufacturing processes for the CSS products and maybe just, you know, are you looking beyond the quality management. For those products that are on the ship hold and, you know, as you think about the broader plan going forward, are you taking a look at, you know, even broader manufacturing processes at all your facilities.

<unk> five versus 24.

Much better positioned at this point, though I can't say specifically what.

Beyond that to your point of view.

Marge: Sorry go ahead, but beyond that to your point in terms of what.

Speaker Change: What that would be because we're not providing 2026 guidance at this point, but that will be reflected in the work we're doing around long range planning.

What happens next.

We do anticipate some level of maintenance cost from a from a gross margin perspective, and the impact on gross margins as a result of these investments, but we also anticipate being in a much better supply position. So from an overall kind of profitability and growth perspective should be.

Speaker Change: Okay, great. Thank you very much.

Speaker Change: Thank you. Our next question comes from Ryan Zimmerman with BT I G. Your line is open.

Ryan Zimmerman: Hey, guys. Thanks for taking the question.

Much better positioned at this point, though I can't say specifically.

Ryan Zimmerman: Okay.

Speaker Change: Lot of questions still I think to be answered.

What that would be because we're not providing 2026 guidance at this point, but that will be reflected in the work we're doing around long range planning.

On all these moving dynamics so.

Speaker Change: No.

Speaker Change: I'm sitting here thinking about you know kind of the start of these these tissue issues going back over a year or so I'm even more.

Okay, great. Thank you very much.

Speaker Change: Now we have obviously some supply dynamics within card man.

Unknown Executive: Yeah, so the, yeah, just to clarify the nature of the temporary ship hold again relates to quality management systems and control. So it's, again, the nature of the issue themselves; it's labeling, packaging, and instruction for use requirements is kind of the most of the temporary hold that we're talking about. And so that's included in the scope. The compliance master plan itself does go more broadly to look at things like capacity to ensure a supply-resilient rights and to make sure that as we move forward, we're not only strengthening our quality control systems, but we're also getting in front of the growth needs of the business and making sure that we're adequately providing for capacity.

Speaker Change: Thank you. Our next question comes from Ryan Zimmerman with <unk>. Your line is open.

Speaker Change: Why has it taken in your view as long as it has to resolve the issues and why will it still take.

Hey, guys. Thanks for taking my question.

Okay.

Through the course of 2025 to resolve these issues.

Lot of questions still I think to be answered just bear.

Speaker Change: And and I think about that in the context of like surge of man you know why not just throw some more money I mean, you're already spending a ton of money why not throw more money at that gets regimen on why is that going to take those 26. So maybe you could kind of unpack. This because this is I think you know bedeviled investors for for a while now with the quality issues.

Based on all of the moving dynamics so.

I'm sitting here thinking about kind of the start of these these tissue issues going back over a year or so I'm even more.

Now we have obviously some supply dynamics within card man.

Why has it taken in your view as long as it has to resolve the issues and why will it still take.

Thank you Ryan for the question, let me see.

Through the course of 2025 to resolve these issues.

Speaker Change: Two questions on <unk>.

Unknown Executive: So it's through that lens. Yes, we'll be looking at site and capacity to support our future growth needs.

Speaker Change: Hey, why wind Darwin than surgery.

And I think about that in the context of like surge of man you know why not just throw some more money I mean, you're already spending a ton of money why not throw more money at that gets regimen on why is that going to take those 26. So maybe if you could kind of unpack. This because this is I think you know bedeviled investors for for a while now with the quality issues.

Speaker Change: Question.

Speaker Change: So first on the quality.

Unknown Executive: Got it. Okay. And then I guess this is the follow-up question as well. But when I look at what's implied, the step up in Q4 on a revenue basis, I guess I just, you know, it seems like most of the revenue, lower revenue guide is getting taken out of, out of Q3. So, I mean, there are, you know, and I think I heard you say that the lower end of the guidance may. You may account for some timing disruption or timing not going as planned, but just thinking about Q4 revenue and what you're expecting there.

Speaker Change: The compliance gaps clearly what we've learned.

Speaker Change: During our most of the remediation activities and some of the analytics off theirs.

Speaker Change: Was it made us reevaluate our processes across our manufacturing and supply networks.

Thank you Ryan for the question, let me see.

Speaker Change: Particular, what we.

Speaker Change: Sure.

Speaker Change: They need to be more effective at standardizing our quality system across the company.

Two questions on <unk>.

Hey, why wind Darwin than surgery.

Question.

Speaker Change: So while we have invested and improved our quality system over the last couple of years.

So first on the quality.

The compliance gaps clearly what we've learned.

Speaker Change: Continue to see the need for more areas.

Speaker Change: Improvements and so that's why we decided.

Most of the remediation activities and some of the Olympics all stars.

Unknown Executive: I mean, is there a percentage of that revenue from the shiphold that you expect to come back? Like, are you discounting that at all for Q4? And, you know, is it assumed in anywhere in your guidance that maybe that does come back, or a portion of that is pushed out to 25? Yeah. So, yeah, let me step through the ramp. So as you look from Q3 to Q4, the ramp is about just under $80 million. Two-thirds of that will be driven by addressing the shipping homes. Again, because most of them will be addressed by the end of Q3.

Speaker Change: And our board to lounges compliance Master plan.

Was it made us reevaluate our processes across our manufacturing and supply networks.

Speaker Change: Activating this systemic holistic approach to our quality system and our GMP compliance to essentially step up and get ahead of this likely indicated before to create.

What we.

Sure.

They need to be more effective at standardizing our quality system across the company.

Speaker Change: Our supply capability to be in line at the level of a commercial opportunity I'm just trying to hard markets.

So while we have invested and improved our quality system over the last couple of years.

Continue to see the need for more areas.

Improvement and so that's why we decided.

Speaker Change: So that's the decision that we made over the past quarter setting up to really step up.

With our board to lounges compliance Master plan.

Unknown Executive: We're in a better supply position across the products that are currently on ship pulled, and that should address about two-thirds of that. The other third is primarily two things. It is skin now being back towards normalized run rates in Q4, along with just a little seasonality. So that makes up the last third. And then to your point earlier, as we contemplated kind of the low end and the high end around the guide, it does allow for some timing shift on the shipping holds. But it also allows for some of the strength that we've been seeing in other parts of the business, like a Claret, for example, Dursorb, as well as our UBM franchise, to continue to drive the strong growth that we've seen today.

Activating this systemic holistic approach to our quality system and our GMP compliance to essentially step up and get ahead of this a likely indicated before to create.

Speaker Change: And accelerate many of the activities, we had pulling already over the past few years.

Speaker Change: Mhm, Okay question all of them.

Speaker Change: <unk> and 'twenty six I mean can you.

Our supply capability.

Speaker Change: If you're ready to throw in a ton of money at these problems why not you know why is it going to take as long as it is to get the surge of man.

In line at the level of a commercial opportunity I'm, just trying to hard markets.

Speaker Change: You know active in plain sight.

So that's the decision that we made over the past quarter setting up to really step up.

Speaker Change: Yeah. So let me maybe give a bit of context.

Speaker Change: Brain tree.

Speaker Change: The operationalization.

And accelerates, yes, many of the activities, we had going already over the past few years.

Speaker Change: Some of you.

Remember that the communicated in 2022 that'd be commissioned the building of the Green tree facility with the plan.

Mhm, Okay question all of them.

<unk> and 'twenty six I mean can you.

Speaker Change: That site ready in 2026.

If you're ready to throw in a ton of money at these problems why not.

Speaker Change: All of this was part of a long term manufacturing strategy for <unk> and matrix.

Speaker Change: Why is it going to take as long as it is to get the surgeon man.

Richard Newitter: Thanks for taking the question. Thank you. And our next question comes from Richard Newitter with two securities. Your line is open. Hi, thanks for taking the question. Maybe just the first one with the Clarence turning organic next year. I'm just curious, what's the embedded growth expectation for that business or contribution to that mid-single digit growth outlook for next year, and then I will follow up. Yeah, so for, in terms of the shape of 2025, again, Clarence and Jen, I should step back and talk about the fact that Q2 was a really strong performance on that business.

You know active in plain sight.

Speaker Change: Intention was and still is built.

Yeah. So let me maybe give a bit of context.

Speaker Change: Building. This breakthrough facility is to build a modern factory, that's more productive and attractive place to work for our colleagues.

Brain tree.

The old <unk>.

Some of you.

You will remember that we communicated in 2022 that we commissioned the building of that Green tree facility with the plan.

Speaker Change: And secondly to significantly step up our output capacity of that factory.

Speaker Change: Austin factory, we knew was never thought it would be big enough.

That site ready in 2026.

Speaker Change: Got to deliver to the growth opportunity, specifically with our breast strategy in search of mines.

All of this was part of a long term manufacturing strategy for search events and prime matrix.

So we have started building that brain for your facility in 2023 currently this year, we're still in the building the construction phase of that such as.

Pension was and still is.

Building. This breakthrough facility is to build a modern factory, that's more productive and attractive place to work for our colleagues.

Richard Newitter: We were excited. The integration is proceeding well. We're excited about having that business as part of our portfolio and the future growth it will drive. In Q2, we did see that business exceed. It's our thinking for Q2 by about five million. And so we have reflected in our guy, we were originally calling a Clarence at about 80 million for 2024. And we now think it'll be closer to 86 million. And that's contemplated in the guide that I provided earlier. So it's really dropping out that that's five million upside performance that we saw in Q2. As we move into 2025, we continue to believe the business will be able to drive high single-digit growth.

Speaker Change: As communicated we expect the Braintree facility to be operational in the first half of 2026 at.

And secondly to significantly step up our output capacity of that factory and the Boston factory, we knew was never going to be big enough yet.

Speaker Change: At this point.

Speaker Change: Too early still to be more specific on the Pos and the specific days per well of days for sure.

You got to deliver to the growth opportunity, specifically with our breast strategy and search them and.

Speaker Change: Once we understand the.

Speaker Change: <unk> commercial ramp.

So we have started building that Braintree facility in 2023 and currently this year, we're still in the building the construction phase of that aside as.

Speaker Change: Hello, I'm, sorry, as we get closer to operationalize.

Speaker Change: Okay I wanted to just ask one other question and I'll hop back in queue.

Speaker Change: In the past when you've had disruptions to the business you've actually instituted.

As communicated we expect the Braintree facility to be operational in the first half of 2026 at.

Speaker Change: Incentives on retention you know.

Speaker Change: Cost for preserving the stability of your sales force.

At this point.

Speaker Change: Too early still yet to be more specific care on the Pos and the specific days per well update for sure.

Speaker Change: Hmm.

Speaker Change: I'm wondering if you you know when you think about what your.

Unknown Executive: As we are, we will be operating it for kind of a full year by the end of Q1 of 2025 throughout the balance of 2025.

Speaker Change: Housing in 'twenty five.

Speaker Change: Once we understand the.

Speaker Change:

The commercial ramp.

Speaker Change: Have you contemplated that are you're instituting that.

Closer as we get closer to operationalize.

Speaker Change: Is there any concern there in terms of sales force retention as a result of some of these shipping home.

Unknown Executive: Okay, thank you. That's our full color. And then maybe just with your leverage ratio where it is a little above your plan, are there any covenants that we need to be aware of and what's the plan there? And then maybe just in addition to that, when will you know or update us if you need to keep some of these shiphold or products off the market longer? You know, you know, everything that you need by the end of third quarter, or could this be something that you'll have a periodic update on each of secret quarter? Thanks.

Okay I wanted to just ask one other question and I'll hop back in queue.

In the past when you've had disruptions to the business you've actually instituted.

Speaker Change: You know the broader issues and supply.

Incentives or retention.

Speaker Change: I'll start there I'll start with that thank you, Brian So for 'twenty 'twenty four again, the nature of the shipping hold that we talked about do have their their temporary by nature. So we do expect them to alleviate beginning.

Cost for preserving the stability of your sales force.

Hmm.

I'm wondering if you you know when you think about what you are.

Frozen in 'twenty five.

Have you contemplated that are you instituting that.

During the course of Q3 and into Q4 and as a result, yes, we absolutely are committed to retaining our sales force because we recognize one that you know there's been a huge strength in terms of an asset for this business for a very long time, and we understand their value in terms of helping us to be able to get our.

Is there any concern there in terms of sales force retention as a result of some of these shipping hold.

Unknown Executive: Yeah, so let me take the second question first. We do anticipate, again based on the timing of the current plan to release shipholds, that we'd have, we'd be able to provide a meaningful update as part of our Q3 call in terms of how we're progressing against that expectation. So I would anticipate that. In terms of the leverage rate, you asked about kind of leverage and where we are, we're at about 3.8 times, which we knew we would be above kind of our ideal range as a result of the apparent acquisition. So in our last earnings call, we communicated that we likely be just above the high end of the range.

The broader issues and supply.

I'll start there I'll start with that thank you, Brian So for 'twenty 'twenty four again the nature of the shipping holds that we talked about do have their their temporary by nature. So we do expect them to alleviate beginning.

Speaker Change: Alex not only back in the hands of our customers, but driving growth going forward. So that same sentiment carries into 2025 as we continue to work through this master plan and making the necessary investments to strengthen our overall quality clients environment. We also plan to continue to support our sales force because we.

Beginning in.

During the course of Q3 and into Q4 and as a result, yes, we absolutely are committed to retaining our sales force because we recognize one they you know they've been a huge strength in terms of an asset for this business for a very long time, and we understand their value in terms of helping us to be able to get our.

Speaker Change: Understand again, they are the key to helping us unlock growth on this business as we move forward.

Speaker Change: Okay.

Joanne Wuensch: I did also communicate at that time that we expect to drive our leverage back down within our ideal range by the end of this year. With our current call down, that will not happen. Our leverage will continue to remain elevated. But to your question on debt covenants, no, but we don't have a concern at this point that, you know, we'll have a problem from a debt covenant perspective as you look at the guide or projected EBITDA along with the allowable adjustments as determined in our bank agreements. Thank you. Our next question comes from Joanne Wuensch with City.

Speaker Change: Thank you for taking the question.

Speaker Change: Thank you. Our next question comes from Robbie Marcus with Jpmorgan. Your line is open.

Products not only back in the hands of our customers, but driving growth going forward. So that same sentiment carries into 2025 as we continue to work through this master plan and making the necessary investments to strengthen our overall quality compliance environment.

Oh, great. Good morning, and thank you for taking the questions two from me first.

Robbie Marcus: I wanted to ask how do you get comfortable giving guidance into 25 and 26 to a degree you know if I look back over the past one to two years Theres been just.

Also plan to continue to support our sales force because we understand again, they're the key to helping us unlock growth on this business as we move forward.

Okay.

Speaker Change: So many changes mostly downgrades to forward guidance I guess how.

Thank you for taking the questions.

Mhm.

Speaker Change: How confident and how responsible do you think it is to give a long term view here when it.

Thank you. Our next question comes from Robbie Marcus with Jpmorgan. Your line is open.

Joanne Wuensch: Your line is open. Thank you very much. Can you hear me okay? I can. Perfect. I don't want to sort of stick on this, but I'm a little confused, and one thing which is the ship hold and the implementation of the global compliance program. Were those things that the FDA asked you to do, or were those things that you chose to do? I'm trying to understand where the ship hold came from. So yeah, just to underscore the remarks that Jan made, we Integra voluntarily initiated the shipping holds across the spews that were impacted. Now that the nature of that or how it came about was a result of observations that we received both internally as results internal assessment that we do across our network as well as regulatory authorities externally.

Speaker Change: Clearly and in certain time at the company.

Oh, great. Good morning, and thank you for taking the questions two from me first.

Yeah Ravi Thank you for the question so.

I wanted to ask.

Speaker Change: Just a point of clarification, we are not providing guidance on 2025, what we provided was our early thinking on how 'twenty twenty-five is shaping up in light of the so the shipping hold that we talked about for 2024.

How do you get comfortable giving guidance into 25 and 26 to a degree.

Look back over the past one to two years there has been just.

So many changes mostly downgrades to forward guidance I guess, how confident and how responsible do you think it is to give a long term view here when it.

Robby: And I think as you step through kind of the considerations that we laid out it allows for exactly what you're talking about Robby. So we're starting with 2024 as the baseline at 'twenty 'twenty four baseline already has about $70 million to $80 million of shipping.

Clearly and in certain time at the company.

Yeah, Robyn Thank you for the question so.

Just a point of clarification, we are not providing guidance on 2025, what we provided was our early thinking on how 2025 is shaping up in light of the Sip the shipping hold that we've talked about for 2024.

Robby: Sorry supply disruption embedded in it.

Robby: And our early thoughts on 'twenty 'twenty five is we're gonna be able to grow this business mid single digits off of that reduced baseline.

Speaker Change: To the points that were questions that were made earlier, yes, we do expect to get back some of the supply disruption we experienced in 2024, but fundamentally we're not counting on it as we think about the direction for 2025, because we understand there could be the potential for it.

Unknown Executive: So combination of those two is what's informed the broader compliance master plan, but also the current temporary shipping holds. Thank you. And when you talk about the gross margins pressures this year, that sound like they're going to roll into next year. What stage is there maybe relief from some of these expenses, or is this sort of a new go forward, gross margin rate given that the oversight is going to have to be in place for a while. And thank you for taking the questions. Yes, certainly. So there will be the magnitude of the increase that I characterize in 24 was an incremental 80 basis points.

And I think as you step through kind of the considerations that we laid out it allows for exactly what you're talking about Robby. So we're starting with 2024 as the baseline at 'twenty 'twenty four baseline already has about $70 million to $80 million.

Shipping or sorry supply disruption embedded in it.

Speaker Change: Additional disruption as we continue to execute against our compliance Masterplan.

And our early thoughts on 'twenty 'twenty five is we're gonna be able to grow this business mid single digit also of that reduced baseline.

Speaker Change: In short Robbie we are adjusting from kind of the approach we've taken in the past around guidance in light of you know that the compliance master planned requirements and what's still to come and be assessed as part of that in our considerations for 2025.

To the points that were questions that were made earlier, yes, we do expect to get back some of the supply disruption we experienced in 2024, but fundamentally we're not counting on it as we think about the direction for 2025, because we understand there could be the potential for it.

Lea Knight: And then on top of that, another 60 to 80 basis points in 2025, as we are now operating under a full year. We should not have to sustain at that level, right? There will likely be a higher cost from a maintenance perspective from an overall cost structure, but it shouldn't be that order of magnitude going forward. That said, we should actually see positive offset as a result of being in better supply and being better position to meet the demand that we're seeing on this business.

Speaker Change #100: And then clearly for 2026 B, we absolutely are not providing guidance at this point, we are including that in the work to be done on our long range plan and we'll come back at the appropriate time to have that conversation.

Additional disruption as we continue to execute against our compliance Master plan. So in short Robbie we are adjusting from kind of the approach we've taken in the past around guidance in light of you know that the compliance master planned requirements and whats.

Speaker Change #100: I've been very hard at.

Speaker Change #100: Anything.

Speaker Change #101: Oh, sorry.

Speaker Change #101: No.

Speaker Change #102: One thing wrong, because you you mentioned yet uncertain times.

Speaker Change #103: Let me maybe focus on a couple of certain things that we have that wouldn't that okay. One okay. We are in strong markets where confidence about market demand.

Still to come and be assessed as part of that in our considerations for 2025.

And then clearly for 2026 B, we absolutely are not providing guidance at this point we are.

Vikramjeet Chopra: And so that's why, as we push into 2026, we'll need to kind of frame that out in the context of our LRP to be able to speak explicitly to what the ongoing or maintenance kind of cost or impact will be for the business. Thank you very much. Thank you. Our next question comes from Vic Chopper with Wells Fargo. Your line is open. Hey, thank you for taking the question. So, on this shipping hold, does that also apply to your E&T business into three? No, so as we look across, so it's a clear right now, we have in the E&T business is a clear along with our micro-franced business.

Speaker Change #103: And the growth.

We know that our products are differentiated products that would be great clinical outcomes.

Putting that in the work to be done on our long range plan and we'll come back at the appropriate time to have that conversation.

Stuart: Competitive positioning and then third you heard Stuart talk about our strong commercial force a strong commercial force and Ryan Austin question, Okay, We're making sure.

They've been at.

Oh, sorry.

Now let me add.

One thing wrong, because you you mentioned yet uncertain times.

Let me maybe focus on a couple of certain things that we have with Integra K. One we are in strong markets, where confidence about market demand and the growth.

Ryan Austin: We are retaining them.

Our broad portfolio, so not one product will destroy.

Ryan Austin: They are back.

Speaker Change #105: We see the enduro solve today than we've seen in other products in CSS. So theres the breadth of commercial opportunities to keep our commercial force engaged productive.

We know that our products are differentiated products that'd be great clinical outcomes from <unk>.

Competitive positioning and then started to hurt Stuart talk about our strong.

Ryan Austin:

Speaker Change #106: And continue to serve our customers continue to build on that relationship. Those are certainties that we have right and while we deal with the temporary impacts of the ship holds but we are building on those strengths and will bring those products back.

Commercial force a strong commercial force and Ryan Austin question, Okay, We're making sure.

Retaining them, we have a broad portfolio so loved one product.

Vikramjeet Chopra: They were not impacted by the temporary issues. Okay, got it. That's helpful. Thank you. And then my follow-up question was on Integra Skin, please. You know, I think you said you expect the sales to normalize if you for now. Can you just provide an update as to where you are and why the timeline was pushed out? Thanks for taking the questions. Yeah, thank you, Vik. So, if you recall in our call in May, we had anticipated, you know, we got started resuming production; we weren't operating at capacity. We had anticipated being able to operate at capacity that would allow us to meet the man for the full back half of 2024.

Destroy their back.

We see it with duracell up today, we've seen in other products in CSF. So theres the breadth of commercial opportunities to keep our commercial force engaged productive.

Speaker Change #107: Great helpful. Maybe just one follow up for me.

Speaker Change #107: You'll have had.

Speaker Change #108: Multiple products out of the market for well over a year by the time, they get back up and running you know potentially even two years, how do you feel about the ability to regain share there I have to imagine doctors will have moved on to other products other companies under contract.

And continue to serve our customers continued to build on that relationship. Those are certainties that we have right and while we deal with the temporary impacts of the ship holds right. We are building on those strengths and will bring those products back.

So when it comes back I know the original guidance with shorter timelines with to get to 100% of the prior.

Speaker Change: Great helpful. Maybe just one follow up for me.

Speaker Change #109: Priority dollar run rate in 12 months is it does it now have that when you come back and how do we think about share recapture given how long it's going to be off market.

You'll have had.

Vikramjeet Chopra: Since then, while we continue to operate and produce, we're still not at those capacity levels. Our current production schedule and pacing does have us improving to get there. And now the current thinking is by Q4, we'll be able to be at normalized run rates for that business. And the interim, I think it's fair to characterize we've had some timing delays associated with getting our yields to where we need it to be in order to operate at those normalized run rates. And that drives the shifts that I just talked about. Thank you. This concludes the question and your session.

Multiple products out of the market for well over a year by the time, they get back up and running you know potentially even two years, how do you feel about the ability to regain share there I have to imagine doctors will have moved onto other products other companies other contracts.

Speaker Change #108: Yep.

Speaker Change #108: I'll take this one Ravi I think.

Speaker Change #110: Maybe first surgery, the prime matrix, which are the two projects that are long.

Speaker Change #111: One of the market.

Speaker Change #112: Like I mentioned before one well.

So when it comes back I know the original guidance with shorter timelines with to get to 100% of the priority dollar run rate in 12 months does it is it now have that when you come back and how do we think about share recapture given how long it's gonna be off market.

We're confident for the market demand and the growth that we're talking here about the market for implementation breast reconstruction for complex hernia.

Speaker Change #112: Complex wounds repair those markets remain strong now we recognize it's going to take significant work.

Speaker Change #112: To get back, but the products no surge of and primary metrics are.

Yep.

I'll take this one Rob I think you probably be FERC surgery that prime matrix, which AGA to two projects that are.

Unknown Executive: Thank you for your participation. You may now disconnect. Everyone, have a great day.

Speaker Change #112: Different shades of they fill it clear needs in the markets.

And today there is no other competitive products that fill that need and we do not see there over the next years competitive products come that really filled the specifics that surge events and from matrix are selling and then back to our relationship.

One of the market.

Like I mentioned before one well.

We're confident for the market demand and the.

The growth that we're talking here about the market for implant based breast reconstruction for complex hernia.

Complex wounds repair those markets remain strong now we recognize it's going to take significant work.

Speaker Change #112: Our presence with our customers.

Speaker Change #112: If you look at our surgical reconstruction salesforce today there.

To get back, but the products surgery and prime matrix are different shape, they fill it clear needs in the markets.

Speaker Change #113: Yeah, very active and very successfully active selling do resort is a resorbable synthetic which we acquired more than a year ago. Okay. It's the breadth of the portfolio that keeps those in France.

And today there is no other competitive products that fill that need and we do not see it over the next years competitive products come that really filled the specifics that surge events and.

Speaker Change #113: If our customers and keeps us.

It keeps our our sales teams are engaged and building that relationship with customers. Even if these products are not the market. It's that foundation that we'll use to.

For matrix are feeling and then back to our relationship.

Our presence with our customers.

If you look at our surgical reconstruction salesforce today, they're very active and very successfully active selling do resort. It is a resorbable synthetic which we acquired more than a year ago and it's the breadth of the portfolio that keeps those in France.

Speaker Change #113: Driving impactful re launch once we get the products back in the market.

Speaker Change #113: And just a just to close on that because you mentioned multiple products out for years I think to John's point, yes that is true with respect to sort of been in probably matrix, but the whole. So we're talking about across the CSS portion of the portfolio that's been a 2020 for dining.

Our customers and keeps us.

It keeps our sales teams are engaged and building that relationship with customers. Even if these products are not the market. It's yes. That's foundation that we'll use to drive an impactful re launch once we get the products back in the market.

Speaker Change #118: So it's been a matter of weeks.

Speaker Change #113: Weeks, maybe it'll add up to a month, but it's isolated to 2024.

Speaker Change #113: Thank you.

And just a just to close on that because you mentioned multiple products out for years I think so John's point, yes that is true with respect to start had been and probably matrix, but the whole. So we're talking about across the CSF portion of the portfolio that's been a 2024.

Speaker Change #114: Thank you. Our next question comes from Jason Bedford with Raymond James Your line is open.

Jason Bedford: Good morning, just two quick things for me it sounds like it's your decision on when the ship hold products get released just for clarity do you need any third party opinion indeed.

So it's been a matter of you know.

Weeks, maybe it'll add up to a month, but it's isolated to 2024.

Speaker Change #116: Speak with any of these products will need additional regulatory approval.

Speaker Change #119: Hi, Hi, Jason Let me take this one so so yes the ship holds.

Thank you.

Thank you. Our next question comes from Jason Bedford with Raymond James Your line is open.

Speaker Change #117: Inputs whole entirely in place, it's essentially our quality management system.

Good morning, just two quick things for me it sounds like it's your decision on when the ship hold products get released just for clarity do you need any third party opinion.

Speaker Change #117: At work at driving corrective actions all observations.

Speaker Change #117: Yeah from an observation to a correction is.

Speaker Change #117: Defined by our quality management system. So it's essentially US who do you find when we're done with that correction on the specific product basis.

Speaker Change: Spirit that any of these products will need additional regulatory approval.

Speaker Change #119: Okay, and just as it related question on the Master plan. It sounds like all these products are in CSS.

Hi, Hi, Jason Let me take this one so so yes Pete ship holds.

Been puts voluntarily in place, it's essentially our quality management system.

Speaker Change #121: What why were these products selected as part of the ship hold tiers are common thread are they manufactured at the same facility or is it based on the age of the label I'm just curious on how you decided on these products.

It's hard to project corrective actions all observations.

Yeah from an observation to a correction.

Speaker Change: Defined BARDA quality management system. So it's essentially US now who do you find when we're done with that correction on a specific product basis.

Speaker Change #122: Yeah, so the the compliance master plan itself.

Speaker Change #123: <unk> is a plan that cuts across the entirety of our business right. So all of the divisions within the temporary shipping hold that we've talked about is affecting uniquely the CSS.

Speaker Change: Yeah.

Okay, and just as a related question on the Master plan. It sounds like all these products are in CSS.

Why were these products selected as part of the ship hold tiers are common threat or the manufacturers at the same facility is there is it based on the age of the label I'm just curious on how you decided on these problems.

Business within that though this is not a facility manufacturing gap per se. This is a quality management system gap and so that's why the emphasis of the compliance Masterplan is exactly on quality management systems, and GMP compliance and so we've incorporated.

Speaker Change: Yeah, so the the compliance master plan itself.

Is a plan that cuts across the entirety of our business right. So all of the divisions within the temporary shipping hold that we've talked about is affecting uniquely the CSF.

Observations that we've gotten from regulatory authorities, along with our own internal assessments and shaping the scope of the compliance Master plan and that's what we're executing against to remediate. This issue and also make sure that we're strengthening.

Business within that though this is not a facility manufacturing gap per se. This is a quality management system got and so that's why the emphasis of the compliance Masterplan is exactly on quality management systems, and GMP compliance and so we've incorporated.

Speaker Change #123: Bussiness of our quality systems more broadly.

Speaker Change #124: Okay. Thank you.

Speaker Change #124: Right.

Speaker Change #125: Thank you. Our next question comes from Craig Bijou with Banc of America Securities. Your line is open.

Observations that we've gotten from regulatory authorities, along with our own internal assessments and shaping the scope of the compliance Master plan and that's what we're executing against to remediate. This issue and also make sure that we're strengthening the robustness of our quality systems more broadly.

Craig Bijou: Good morning, Thanks for taking the questions sorry to belabor the point, but.

Craig Bijou: I did want to ask just on I guess, a clarification, maybe on a follow up to what you just said.

Speaker Change #127: On the manufacturing so.

Speaker Change #128: Are you looking at the manufacturing processes for food the citizens products and maybe just what are you looking beyond the quality management.

Okay. Thank you.

Okay.

Yeah.

Thank you. Our next question comes from Craig Bijou with Banc of America Securities. Your line is open.

Speaker Change #129: For those products that are on the ship hold and you as you think about the broader plan going forward.

Good morning, Thanks for taking the questions sorry to belabor the point, but.

Speaker Change #130: Are you taking a look at it even broader manufacturing processes at all your facilities.

I did want to ask just on I guess, a clarification, maybe on a follow up to what you just said.

On the manufacturer so.

Speaker Change #131: Yeah. So the yeah, just to clarify the nature of the temporary ship hold again relates to quality management systems and controls. So it's again the nature of the issue themselves, it's labeling packaging and instruction for use requirements as kind of the Mo.

Are you looking at the manufacturing processes for food, the CSS products and maybe just.

Looking beyond the quality management.

For those products that are on the ship hold and you as you think about the broader plan going forward.

Speaker Change #131: The temporary hold that we're talking about and so that's included in the scope of the compliance Masterplan itself does go more broadly to look at things like capacity to it.

Are you taking a look at.

Even broader manufacturing processes at all your facilities.

Yeah. So the yeah, just to clarify the nature of the temporary ship hold again relates to quality management systems and controls. So it's again the nature of the issue themselves its labeling packaging and instruction for use requirements as kind of the most.

Speaker Change #131: Ensure supply resilience right to make sure that as we move forward, we're not only strengthening our quality control system. So we're also getting in front of the growth needs of the business and making sure that we're adequately providing for capacity. So it through that lens, yes, we'd be looking at site and capacity to support our future growth needs.

The temporary holds that we're talking about and so that's included in the scope.

Speaker Change #132: Got it Okay, and then I guess this is a follow up question is as well, but when I look at what's implied the step up in Q4 on a revenue basis I guess I. Just you know it seems like most of the revenue lower.

The compliance Masterplan itself does go more broadly to look at things like capacity to ensure a supply resilience right. So to make sure that as we move forward, we're not only strengthening our quality control system. So we're also getting in front of the growth needs of the business and making sure that we're adequately providing for.

Speaker Change #133: Lower revenue guide is getting taken out of out of Q3. So.

Speaker Change #134: I mean is there are you know.

Poverty. So it through that lens, yes, we will be looking at site and capacity to support our future growth needs.

Speaker Change #135: And I think I heard you say that the lower end of the guidance may.

Speaker Change #135: You may account for some of them.

Speaker Change #136: Timing disruption or the timing not going as planned but.

Got it Okay and then.

I guess this is a follow up question is as well, but when I look at what's implied step up in Q4 on a revenue basis I guess I. Just you know it seems like most of the revenue.

Speaker Change #137: Thinking about Q4 revenue and what you're expecting there.

Speaker Change #138: I mean is there a percentage of that revenue from the ship holds that you expect to come back.

Speaker Change #139: I guess are you discounting that at all for Q4 and you know is it assumed in anywhere in your guidance and maybe that does come back or a portion of that is just pushed out to 'twenty five.

Lower revenue guide is getting taken out of out of Q3. So.

I mean is there are you know.

And I think I heard you say that the lower end of the guidance May may account for some of them.

Speaker Change #140: Yeah. So yeah, let me step through the ramp so as you look from Q3 to Q4. The ramp is about just under $80 million mm two thirds of that will be driven by addressing the shipping home. So again, because most of them won't be addressed by the end of Q3, we started.

Timing disruption or the timing not going as planned, but just thinking about Q4 revenue and what you're expecting there.

Speaker Change: Is there a percentage of that revenue from the ship holds that you expect to come back.

Speaker Change: Like are you discounting that at all for Q4 and is it assumed in anywhere in your guidance and maybe that does come back or a portion of that is just pushed out to 'twenty five.

Speaker Change #140: We're in better supply.

Speaker Change #140: Position across the the products that are currently on ship hold and that should address about two thirds of that the other third is primarily two things it is skin.

Yeah.

Yeah. So yeah, let me step through the ramp so as you look from Q3 to Q4. The ramp is about just under $80 million two.

Speaker Change #140: Now being back towards normalized run rates in Q4, along with just a little seasonality so that that makes up the last third.

Two thirds of that will be driven by addressing the shipping home. So again, because most of them will be addressed by the end of Q3, we start we're in better supply.

Speaker Change #140: And then to your point earlier as we contemplated the kind of the low end and the high end around the guide it does allow for some timing shifts on the shipping hold but it also allows for some of the strength that we've been seeing in other parts of the business like our claret for example.

Position across the products that are currently on ship hold and that should address about two thirds of that the other third is primarily two things it is.

Speaker Change #140: Doors are up as well as our UBM franchise to keep continue to drive the strong growth that we've seen to date.

Skin.

Now being back towards normalized run rates in Q4, along with just a little seasonality so that that makes up the last third.

Speaker Change #141: Okay. Thanks for taking the questions.

And then to your point earlier as we contemplated the kind of the low end and the high end around the guide it does allow for some timing shifts.

Speaker Change #142: Youre welcome.

Richard <unk>: Thank you and our next question comes from Richard <unk> with tourists Securities. Your line is open.

On the shipping hold but it also allows for some of the strength that we've been seeing in other parts of the business like our Claret for example, C O, but doors are up as well as our UBM franchise to keep continue to drive the strong growth that we've seen to date.

Hi, Thanks for taking the questions maybe just the first one with.

Richard <unk>: Claret, turning organic next year I'm, just curious, what's the embedded growth expectation for that business or or contribution.

Speaker Change #144: To that mid single digit.

Speaker Change #145: The growth outlook for next year, and then I have a follow up.

Okay. Thanks for taking the questions.

Yeah. So for them in terms of the shape of 2025 again, a clarity again I should step back and talk about the fact that Q2 was a really strong performance on that business. We were excited that the integration is proceeding well and we're excited about having that business as part of our portfolio and the future growth.

Thank you and our next question comes from Richard <unk> with tourists Securities. Your line is open.

Hi, Thanks for taking the questions.

Maybe just the first one with claret turning organic next year I'm, just curious, what's the embedded growth expectation for that business or contribution.

Speaker Change #145: It will drive.

Speaker Change #145: In Q2, we did see that business exceed its our thinking for Q2 by about $5 million and so we have reflected in our guide we were originally calling a clearance at about $80 million for 2024, and we now think it'll be closer to $86 million and that's contemplated in the guide.

To that mid single digit.

Our growth outlook for next year, and then I've a follow up.

Yeah. So for them in terms of the shape of 2025 again, a clear and in general I should step back and talk about the fact that Q2 was a really strong performance on that business. We were excited that the integration is proceeding well and we're excited about having that business as part of our portfolio and the future growth.

Speaker Change #145: That I provided earlier, so that's really dropping out that that's $5 million upside performance that we saw in Q2 as we move into 2025, we continue to believe the business will be able to drive.

It will drive them in Q2, we did see that business exceed it or our thinking for Q2 by about $5 million and so we have reflected in our guide we were originally calling a clearance.

Speaker Change #145: High single digit growth as we are we will be operating at for kind of a full year by the end of Q1 of 2025 mm throughout the balance of 2025.

At about $80 million for 2024, and we now think it'll be closer to 86 million and that's contemplated in the guide that I provided earlier, so that's really dropping out that that's $5 million upside.

Speaker Change #146: Oh, Okay. Thank you that's helpful color and then.

Speaker Change #147: Maybe just do just with your your leverage ratio, where it is a little above your plan are there any covenants that we need to be aware of and what's the plan. There and then maybe just a in addition to that.

Speaker Change: Upside performance that we saw in Q2 as we move into 2025, we continue to believe the business will be able to drive.

Speaker Change #147: When when will you know or update us if you need to keep some of these.

High single digit growth as we are we will be operating at for kind of a full year by the end of Q1 of 2025 throughout the balance of 2025.

Speaker Change #147: Chip hold where products off the market longer.

Speaker Change #146:

Speaker Change #148: Well you know everything that you need by the end of the third quarter or could this be something that you'll have a periodic update on each subsequent quarter. Thanks.

Okay. Thank you that's helpful color and then.

Maybe just two just with your your leverage ratio, where it is a little above your plan are there any covenants that we need to be aware of and what's the plan. There and then maybe just in addition to that.

Speaker Change #149: Yeah. So let me take the second question first we do anticipate again based on the timing of the current plan to release ship holds that we'd have we'd be able to provide a meaningful update as part of our Q3 call in terms of how we're progressing against that that expectation. So I would anticipate that.

When when will you know or update us if you need to keep some of these <unk>.

Hold the ore products off the market longer.

Speaker Change #149: In terms of the leverage rate you asked about the kind of leverage and where we are we're at about three eight times, which we knew we would be above kind of our ideal range as a result of their claret acquisition. So in our last earnings call. We communicated that we'd likely be just above the high end of the range.

<unk>.

Well you know everything that you need by the end of third quarter or could this be something that you'll have a periodic update on each subsequent quarter. Thanks.

Yeah. So let me take the second question first we do anticipate again based on the timing of the current plan to release ship holds that we'd have we'd be able to provide a meaningful update as part of our Q3 call in terms of how we're progressing against that that expectation. So I would anticipate that in terms of.

Speaker Change #150: I did also communicated at that time that we expect to drive our leverage back down within our ideal range by the end of this year with our current call down that will will not happen radar. Our our leverage will continue to remain elevated but to your question on debt covenants no, but we don't have.

Speaker Change: The leverage.

Right you asked about the kind of leverage and where we are we're at about three eight times.

Which we knew we would be above kind of our ideal range as a result of their clearing acquisition. So in our last earnings call. We communicated that we'd likely be just above the high end of the range.

Speaker Change #152: Our concern at this point that you will have a problem from a debt covenant perspective as you look at.

Speaker Change #149: The guide our projected EBITDA, along with the allowable adjustments as determined in our bank agreement.

I did also communicated at that time that we expect to drive our leverage back down within our ideal range by the end of this year with our current call down that will will not happen right. Our our leverage will continue to remain elevated but to your question on debt covenants no, but we don't have.

Speaker Change #149: Thank you. Our next question comes from Joanne Wuensch with Citi. Your line is open.

Joanne Wuensch: Thank you very much can you hear me okay.

Speaker Change #151: I can.

Speaker Change #151: Perfect.

Joanne Wuensch: Don't want to sort of stick on this like I'm a little confused on one thing which is the ship hold any implementation of the global compliance program with those things that the FDA asked you to do or were there things that you chose to do and I'm trying to understand.

A concern at this point that you will have a problem from a debt covenant perspective as you look at.

The guide our projected EBITDA, along with the allowable adjustments.

As determined in our bank agreement.

Speaker Change #158: Where the ship hold came from.

Speaker Change #154: So yeah, just to underscore the remarks that that Jan made me Integra voluntarily.

Thank you. Our next question comes from Joanne Wuensch with Citi. Your line is open.

Speaker Change #156: Initiated the shipping hold across the Skus that were impacted.

Thank you very much can you hear me okay.

I can.

Speaker Change #155: Now the nature of that or how it came about but it was a result of observations that we've received both internally as result of internal assessment that we do across our network as well as regulatory authorities externally. So a combination of those two is what informed the broader compliance that masterplan, but also.

Perfect.

I don't want to sort of stick on the side I'm a little confused on one thing, which is the ship hold and the implementation of the global compliance program.

Those things that the FDA asked you to do or where those things are huge.

Jos to do and I'm trying to understand.

Speaker Change #155: The current temporary shutdowns.

Where the ship hold came from.

Speaker Change #157: Thank you and when you talk about the gross margin pressures this year that sounds like it's going to roll into next year.

So yeah, just to underscore the remarks that that Jan made.

Integra voluntarily.

Speaker Change #159: What's the is there maybe relief from some of these expenses or is this sort of a new go forward gross margin rate given that.

Initiated the shipping holds across the Skus that were impacted.

Now the nature of that or how it came about but it was a result of observations that we've received both internally as a result of internal assessment that we do across our network as well as regulatory authorities externally. So a combination of those two that's what informed the broader compliance masterplan, but also.

He oversights gonna have to be in place for awhile and thank you for taking the questions.

Speaker Change #160: Yeah, certainly so there will be the the magnitude of the increase that I characterize in 24 was an incremental 80 basis points and then on top of that another 60 to 80 basis points in 2025, and we are now operating under a full year.

The current temporary shipping holds.

Thank you and when you talk about the gross margin pressures this year that sounds like it's going to roll into next year.

Speaker Change #160: We should we wish not have to sustain at that level right. There will likely be a higher costs from a maintenance perspective from an overall cost structure, but it shouldn't be that order of magnitude going forward that said, we should actually see positive offset as a result.

What stage is there maybe relief from some of these expenses or is this sort of a new go forward gross margin rate given that.

The oversight is going to have to be in place for awhile and thank you for taking the questions.

Yeah, certainly so there will be the the magnitude of the increase that I characterize in 24 was an incremental 80 basis points and then on top of that another 60 to 80 basis points in 2025, as we are now operating under a full year.

Speaker Change #161: Being in better supply.

Speaker Change #161: And being better positioned to meet the demand that we're seeing on this business and so that's why as we pushed into 2026, we'll need to kind of frame that out in the context of our L. R. P to be able to speak explicitly to what the ongoing or maintenance kind of cost are impactful.

We should we wish not have to sustain at that level right. There will likely be a higher costs from a maintenance perspective from an overall cost structure, but it shouldn't be that order of magnitude going forward that said we.

Speaker Change #161: For the business.

Speaker Change #161:

Speaker Change #162: Thank you very much.

Speaker Change #163: Thank you. Our next question comes from Vik Chopra with Wells Fargo. Your line is open.

Should actually see positive offset as a result of being in better supply.

Vik Chopra: Hey, Thank you for taking the question. So on the shipping hold does that also apply to your E&P business.

And being better positioned to meet the demand that we're seeing on this business.

So that's why as we push into 2026, we'll need to kind of frame that out in the context of our L. R. P to be able to speak explicitly to what the ongoing or maintenance kind of cost or impact will be for the business.

Speaker Change #165: In Q3.

Speaker Change #165: Okay.

Speaker Change #166: No so as we look across the.

Speaker Change #167: Claret right now we have in the anti business has a clear along with our micro France business. They were not impacted by the temporary shipping hold.

Thank you very much.

Speaker Change #168: Okay got it that's helpful. Thank you.

Thank you our next question.

Speaker Change #169: And then my follow up question was on Integra skin. Please I think you said you expected sales to normalize in Q4 now can you just provide an update as to where you are and what the timeline was pushed out thanks for taking my questions.

Comes from Vik Chopra with Wells Fargo. Your line is open.

Hey, Thank you for taking the question.

So on the shipping hold.

Does that also apply to your E&P business.

Speaker Change #170: Yeah. Thank you that so if you recall on our call in May we had anticipated. We got started resuming production we weren't operating at capacity, we had anticipated being to being able to operate at capacity that would allow us to meet demand for the full back half of 'twenty.

In Q3.

Speaker Change: No. So as we look at cross sell.

Claret right now we have in the anti business has a clear along with our micro France business. They were not impacted by the temporary shipping hold.

Okay got it that's helpful. Thank you.

Speaker Change #169: 24.

Speaker Change #169: Since then while we continue to operate and produce we're still not at those capacity levels are.

And then my follow up question was on Integra skin. Please I think you said that you expected sales to normalize in Q4 now can you just provide an update as to where you are and why the timeline was pushed out thanks for taking my questions.

Speaker Change #171: Our current production schedule and pacing does have us improving to get their and now the current thinking is by Q4, we'll be able to be at normalized run rates for that business in the interim I think but I think it's fair to characterize that you've had some timing delays associated.

Yeah. Thank you that so if you recall on our call in May we had anticipated. We got started resuming production we weren't operating at capacity, we had anticipated being being able to operate at capacity that would allow us to meet demand for the full back half of 'twenty.

Speaker Change #171: It was getting our yields to where we need it to be in order to operate at those normalized run rate.

And that and that drives the shifts that I just talked about.

24.

Speaker Change #172: Thank you. This concludes the question and answer session. Thank.

Since then while we continue to operate and produce we're still not at those capacity levels are.

Speaker Change #173: Thank you for your participation you may now disconnect everyone have a great day.

Our current production schedule and pacing does have us improving to get there and now with the current thinking is by Q4, we'll be able to be at normalized run rates for that business and.

In the interim I think but I think it's fair to characterize we've had some timing delays associated with getting our yields to where we need it to be in order to operate at those normalized run rate.

And that and that drives the shifts that I just talked about.

Yeah.

Thank you. This concludes the question and answer session.

Thank you for your participation you may now disconnect everyone have a great day.

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[music].

Yeah.

Okay.