Q3 2024 Integra LifeSciences Holdings Corp Earnings Call
Okay.
Operator: Good day. Thank you for standing by.
Speaker Change: Good day, Thank you for standing by welcome to Integra, Lifesciences third quarter 'twenty 'twenty four financial results conference call. At this time, all participants are in a listen only mode.
Operator: Welcome to Integra Life Sciences' 3rd Quarter 2024 Financial Results Conference. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star-one-one on your...
Speaker Change: The speaker's presentation, there will be a question and answer session to ask a question. During this session you will need to press star one on your telephone you will then hear an automatic mustard advising our handy space. Please note that today's conference is being recorded I will now hand, the conference I'll, let you speak of host Chris Ward Senior director of Investor Relations. Please go ahead.
Operator: You will then hear an automatic message advising your hand is Please note that today's conference is I will now hand the conference.
Stuart Essig: Good morning and thank you for joining the Integra Life Sciences third quarter 2024 earnings conference. With me on the call are Stuart Essig, Executive Chairman, Jan de Witt, President and Chief Executive Officer, and Lea Knight, Chief Financial Officer. Earlier this morning, we issued a press release announcing our third quarter 2024 financial.
Chris Ward: Good morning, and thank you for joining the Integra Lifesciences third quarter 2024 earnings conference call.
Chris Ward: With me on the call are Stuart Essig Executive Chairman, John <unk>, President and Chief Executive Officer, and Chief Financial Officer.
Earlier. This morning, we issued a press release announcing our third quarter of 2024 financial results the release and corresponding earnings presentation, which we'll reference during the call are available at Integra life Dot com under investor events and presentation.
Stuart Essig: The release and corresponding earnings presentation, which we'll reference during the call, are available at Integralife.com under Investors, Events, and Presentations in a file named Third Quarter 2024 Earnings Call Before we begin, I would like to remind you that many of the statements made during this call may be considered forward- Factors that could cause actual results to differ materially are discussed in the company's Exchange Act report filed with the SEC and in the release. Also in our prepared remarks, we will reference reported and organic revenue growth, and organic revenue growth excluding bonds. Organic revenue growth excludes the effects of foreign currency, acquisitions, and investments.
Chris Ward: <unk> third quarter 2024 earnings call presentation.
Speaker Change: Before we begin I would like to remind you that many of the statements made during this call may be considered forward looking back.
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.
Speaker Change: So in our prepared remarks, we will reference reported an organic revenue growth.
Speaker Change: And organic revenue growth excluding Boston.
Organic revenue growth excludes the effects of foreign currency acquisitions and divestitures.
Stuart Essig: Organic revenue growth excluding Boston excludes revenues from products manufactured in our Boston facility in both Management believes that excluding revenue from all products manufactured at the Boston plant through the third quarter provides useful information when evaluating the company's organic growth because of the unusual nature of the manufacturing stoppage and voluntary global recall. Unless otherwise stated, all disaggregated and franchise-level revenue growth rates are based on a...
Speaker Change: Organic revenue growth, excluding Boston exclude revenues from product manufacturing in our Boston facility in both periods.
Management believes excluding revenue from all products manufactured at the Boston plant through the third quarter provides useful information when evaluating the companys organic growth because of the unusual nature of the manufacturing topics and voluntary global recall impact.
Unless otherwise stated all of this aggregated and franchise level revenue growth rates are based on organic performance.
Stuart Essig: Lastly, our comments today will include certain non-GAAP financial Reconciliations of non-GAAP financial measures can be found in today's press release, which is an exhibit to Integra current report on Form 8K filed today with the And with that, I'd like to turn the call over.
Speaker Change: Lastly, our comments today will include certain non-GAAP financial measures reckon.
Speaker Change: Reconciliations of non-GAAP financial measures can be found in today's press release, which is an exhibit to Integra current report on form 8-K filed today with the SEC.
Speaker Change: And with that I'd like to turn the call over to Stuart.
Stuart Essig: Thank you, Chris. And good morning, everyone.
Thank you, Chris and good morning, everyone. I am pleased today to announce the appointment of motion a poll as integrity next CEO and to discuss our leadership transition.
Stuart Essig: I am pleased today to announce the appointment of Mojda Pol as Integra's next CEO and to discuss our leadership transition. I'd like to start by thanking Jan for his leadership and contributions over the last three years and for his commitment to ensuring a seamless transition. During his tenure, Jan made a number of significant contributions and faced several difficult challenges. His hard work, dedication, and professionalism have been constant throughout. Under his leadership, we grew our international business significantly and added a number of digital innovations to our product pipeline. We executed two important acquisitions, Durazorb, which added an important synthetic product to our breast reconstruction pipeline, and more recently, Eclarent, cementing our entry into the ear, nose, and throat market.
Speaker Change: I'd like to start by thanking young for his leadership and contributions over the last three years and for his commitment to ensuring a seamless transition. During his tenure yarn made a number of significant contributions and faced several difficult challenges his hard work dedication and professionalism has been constant throughout.
Speaker Change: Under his leadership, we grew our international business significantly and added a number of digital innovations to our product pipeline.
Speaker Change: We executed two important acquisitions, <unk>, which added an important synthetic product to our breast reconstruction pipeline and more recently, a clearer cementing our entry into the ear nose and throat market.
Stuart Essig: In addition, one of Jan's most important contributions has been his ability to recruit top talent to the company. His focus on building strong, capable teams will leave a lasting impact on Integra. While many challenges remain, Jan's efforts have laid the groundwork for our future success. Thank you, Jan.
Speaker Change: In addition, one of the most important contribution has been his ability to recruit top talent to the company.
Speaker Change: His focus on building strong capable teams will leave a lasting impact on integra.
Speaker Change: While many challenges remain young efforts have laid.
The groundwork for our future success.
Thank you Jan on behalf of myself, the board and all of our employees I wish you well.
Stuart Essig: On behalf of myself, the board, and all of our employees, I wish you well.
Stuart Essig: I'm also delighted that Mojtapol will be joining us as Integra's next president and CEO in January. Before sharing details on Moshe's background, I want to underscore that the CEO search process was thorough and competitive, and the opportunity attracted a number of impressive candidates. Mojdeh is an accomplished healthcare executive with almost three decades of extensive experience leading global businesses and operations in complex multinational organizations. She has a proven track record of delivering growth and performance through operational excellence, portfolio transformation, value-creating innovation, and impactful capital allocation. Throughout her career, Mojdeh has successfully led business strategy, global operations, R&D, commercial execution, and M&A.
Speaker Change: Im also delighted that most of the poll will be joining us as integrity next president and CEO in January.
Speaker Change: Before sharing details on motion as background I want to underscore that the CEO search process was thorough and competitive and the opportunity attracted a number of impressive candidates.
Speaker Change: Moshe is an accomplished health care executive with almost three decades of extensive experience, leading global businesses and operations in complex multinational organizations.
Speaker Change: She has a proven track record of delivering growth and performance through operational excellence portfolio transformation value, creating innovation and impactful capital allocation.
Speaker Change: Throughout her career Moshe has successfully led business strategy global operations, R&D commercial execution and M&A.
Stuart Essig: Moshe has served in several leadership positions at 3M Company, including most recently Group President of Healthcare, an $8.5 billion global business. Prior to 3M, Mojda held leadership roles of increasing responsibility with Medtronic and Boston Scientific. She has also served on the Board of Directors of Align Technology, iRhythm Technologies, and Stanley Black & Decker. Throughout her career, Mojdeh has built and led high-performing teams across different functions, businesses, and geographies. Her product experience spans Integra's markets, including wound care, neurosurgery, and digital medical technologies. The board and I have enjoyed getting to know Mojda well through this process, and we are very confident she will further strengthen our foundation and usher in our next chapter of innovation, growth, and shareholder value creation.
Speaker Change: Mostly served in several leadership positions at three Am company, including most recently group President of healthcare and $8 5 billion dollar global business.
Speaker Change: Prior to <unk> most of held leadership roles of increasing responsibility with Medtronic and Boston scientific.
Speaker Change: She has also served on the board of directors of align technology.
Speaker Change: The rhythm technologies and Stanley Black <unk> Decker.
Speaker Change: Throughout her career Moshe has built and led high performing teams across different functions businesses and geographies.
Speaker Change: Her product experience spans integrity markets, including wound care neurosurgery and digital medical technologies.
Our board and I have enjoyed getting to know Moshe well through this process and we are very confident she will further strengthen our foundation and Usher in our next chapter of innovation growth and shareholder value creation.
Stuart Essig: She joins us at a critical juncture in the company's history and is the right leader to drive improvements in Integra's quality, resilience, and capacity, building upon strong customer demand for our products and ensuring our portfolio is well-positioned for continued growth. I know Moshe is looking forward to introducing herself to you when she officially joins us in January.
Speaker Change: She joins us at a critical juncture in the company's history and is the right leader to drive improvements integrity quality resilience and capacity building upon strong customer demand for our products and ensuring our portfolio is well positioned for continued growth.
Speaker Change: I know Moshe is looking forward to introducing herself to you when she officially joins us in January.
Jan Witte: And now I'll turn it over to Jan and Lea to discuss our third quarter results.
Speaker Change: And now I'll turn it over to Jan and Leah to discuss our third quarter results.
Jan Witte: Good morning, everyone, and thank you, Stuart, for the nice words and acknowledgement. I look forward to welcoming Mojdeh as my successor and to working with her through a smooth transition to ensure we maintain the momentum along our improvement. Turning to slide five of our presentation. Our third quarter revenues were $381 million. Organic revenue decreased by 8.6% year-over-year, and we delivered adjusted EPS of 41 cents. Our third quarter results continue to reflect a strong demand for our portfolio. However, Ongoing supply challenges limited our ability to deliver against this demand. Our board leadership team and colleagues across the organization remain laser focused on resolving these challenges.
Speaker Change: Good morning, everyone and thank you Stuart for the nice words and acknowledgements.
Speaker Change: I look forward to welcoming merge data as my successor and to working with her to a smooth transition.
Speaker Change: To ensure we maintain the momentum of our improvement path.
Speaker Change: Turning to slide five of our presentation.
Speaker Change: Our third quarter revenues were $381 million.
Speaker Change: Organic revenue decreased by eight 6% year over year.
Speaker Change: We delivered adjusted EPS of 41.
Speaker Change: Our first quarter results continued to reflect strong demand for our portfolio. However.
However.
Speaker Change: <unk> supply challenges limited our ability to deliver against these demands.
Speaker Change: Our board leadership team and colleagues across the organization remain laser focused on resolving these challenges.
Jan Witte: as we discussed during our second quarter. We initiated our compliance. a comprehensive approach to enhance our quality management systems, our QMS compliance across our operations. We continue to work diligently to identify and resolve gaps in our QMS across our sites. As we told you last quarter, we expect the assessments and corrective actions to continue through 2025. We're also investing in facility and equipment upgrades to improve quality, resilience, and capacity to ensure we meet the long-term customer demand. We remain fully committed to doing what's right for our customers, patients, employees, and shareholders.
Speaker Change: As we discussed during our second quarter call.
Speaker Change: We initiated our compliance Master plan.
Speaker Change: Our comprehensive approach to enhance our quality management systems, our Tms compliance across our operations.
We continue to work diligently to identify and resolve gaps in our qos.
Speaker Change: Our sites.
Speaker Change: As we told you last quarter, we expect the assessments and corrective actions to continue through 2025.
Speaker Change: We're also investing in facility and equipment upgrades to improve quality resilience and capacity to ensure we meet the long term customer demand.
Speaker Change: We remain fully committed to doing what's right for our customers patients employees and shareholders.
Jan Witte: Turning now to an overview of our results for the quarter. Organic growth in our cognitive specialty surgical business was down 10.7 percent, primarily due to the shipping halts we discussed during our second quarter earnings Most of these chipping holes have been lifted, with only a portion of them still needing to be resolved, as was our expectation. These supply challenges overshadowed the continued significant demand for our neurosurgery products. We saw high single-digit growth in specialty surgical instruments, and we continue to see significant reported growth and solid organic growth in our ENT business. The integration of the Eklaren business has continued to outperform our expectations to date.
Speaker Change: Turning now to an overview of our results for the quarter.
Organic growth in our <unk> specialty surgical business was down 10, 7% primarily due to the shipping hold should we discussed during our second quarter earnings call.
Speaker Change: Most of these shipping hold has been lifted with only a portion of them still needing to be resolved as well as our expectation.
Speaker Change: These supply challenges overshadow the continued significant demand for our neurosurgery products.
Speaker Change: We saw high single digit growth in specialty surgical instruments, and we continue to see significant reported growth and solid organic growth.
Speaker Change: Our E&P business.
Speaker Change: The integration of the acquired business has continued to outperform our expectations to date.
Jan Witte: We're pleased with the team's collaboration and remain excited about the growth opportunities in ENT and the synergies with our neurosurgery business. Strong demand in our international markets was also obscured by the shipping holdings. resulting in a low double-digit decline in the quarter. Nevertheless, as we look to the future, we remain encouraged by the momentum in our international business and the expansion of our commercial reach. within Tissue Technologies. Revenues were down 3.7% because production was not yet able to meet a strong demand for Integra skin. We continue to deliver strong growth in Eurosorp and our UBM portfolio, including Micrometrics and Citel, and double-digit growth in our private label business.
Speaker Change: We're pleased with the team's collaboration and remain excited about the growth opportunities in E&P and the synergies with our neurosurgery business.
Strong demand in our international markets was also obscured by the shipping holds.
Hosting and a low double digit decline in the quarter.
Nevertheless, as we look to the future we remain encouraged by the momentum in our international business and the expansion of our committee.
Speaker Change: Sure Rich.
Speaker Change: Within tissue technologies.
Speaker Change: Revenues were down three 7% because production was not yet able to meet the strong demand for integra skin.
Speaker Change: We continued to deliver strong growth in <unk>, and our UBM portfolio, including micro matrix insight.
Speaker Change: And double digit growth in our private label business.
Jan Witte: And our second half production for IntegraSkill will allow us to return to historical revenue run rates for the fourth quarter. We're also pleased with the progress our team is making with the build-out of the BrainTree facility. We have largely completed construction and have begun installing equipment within the facility as we continue to work towards bringing the Braintree facility online and resuming production of surgements and primatrix in the first half of 2026.
Speaker Change: And our second half production for Integra skin.
Speaker Change: Will allow us to return to historical revenue run rates for the fourth quarter.
We're also pleased with the progress our team is making with the buildup of the Braintree facility.
Speaker Change: We have largely completed construction and have begun installing equipment within the facility as we continue to work towards bringing Dobrinja facility online and resuming production of surgeons and primary metrics in the first half of 2026.
Jan Witte: Now turning to our guidance. We are tightening our full year 2024 revenue and adjusted EPS guidance. to a range of $1.609 billion to $1.619 billion. and $2.41 to $2.49 respectively. will be delivered on the high end of our third quarter guide. The tightening of the top end of our guide rings reflects recent quality holes resulting from the ongoing remediation work taking place as we implement the Compliance Master We're actively working to remediate the whole. and release the products back to market. We expect many of these holds to be resolved within the fourth quarter, with the remaining products remediated by mid-2025.
Now turning to our guidance.
Speaker Change: Tightening our full year 2020 for revenue and adjusted EPS guidance to.
Speaker Change: To a range of $1 69 billion to 161 9 billion.
Speaker Change: And $2 41 to $2 49, respectively.
Speaker Change: While we delivered on the high end of our third quarter guidance.
Speaker Change: Tightening of the top end of our guidance range reflects recent quality holds resulting from the ongoing remediation work taking place.
Speaker Change: As we implement the compliance Master plan.
Speaker Change: We're actively working to remediate the holes and released the products back to market.
Speaker Change: We expect many of these holes to be resolved within the fourth quarter with the remaining products remediated by mid 2025.
Lea Knight: Lea will provide additional color on our guidance for fourth quarter and full year later in this call.
Speaker Change: Yes, we will provide additional color on our guidance for fourth quarter and full year later in this call.
Lea Knight: So in summary, while we still have challenges left to overcome, we're making progress across our key initiatives and on delivering on our commitment.
Speaker Change: So in summary, while we still have challenges left to overcome we're making progress.
Speaker Change: Our key initiatives and on delivering on our commitments.
Lea Knight: And with that, I'll turn the call now over to Lea to provide more detail on our financial results and guidance.
Speaker Change: With that I'll turn the call over to Leah to provide more detail.
Speaker Change: On our financial results and guidance.
Lea Knight: Thank you, Jan.
Leah: Thank you Jan let's take a more detailed look at our third quarter financial highlights starting on slide six.
Lea Knight: Let's take a more detailed look at our third quarter financial highlights starting on slide six. As Jan mentioned, the third quarter's total revenues were approximately $381 million, which was approximately flat on a reported basis and down 8.6% on an organic basis compared to last year. Our adjusted EPS for the quarter was $0.41, down 46% compared to 2023. As we look down the P&L, gross margins were 63% for the third quarter, down 160 basis points versus 2023. Gross margins in 2024 were impacted by higher manufacturing inefficiencies, including scrap, along with unfavorable revenue mix, such as lower skin revenue.
Leah: As John mentioned, the third quarter as total revenues were approximately $381 million.
Was approximately flat on a reported basis and down eight 6% again compared to last year.
Our adjusted EPS for the quarter was 41.
Down 46% compared to 2023.
Speaker Change: As we look down the P&L gross margins were 63% for the third quarter down 160 basis points versus 2020.
Speaker Change: Gross margins in 2024 were impacted by higher manufacturing inefficiencies, including scrap along with unfavorable revenue mix such as lower in revenue.
Lea Knight: This was partially offset by impact from Boston on the prior year's gross margins. Our adjusted EBITDA margins were 16.2%, down 680 basis points compared to 2023, reflecting the decrease in gross margins and the impact of maintaining key investments in R&D and commercial infrastructure while we resolve the temporary shipping home. Operating cash flow for the third quarter was $22.5 million.
Speaker Change: This was partially offset by impacts from Boston on the prior year gross margin.
Speaker Change: Our adjusted EBITDA margin was 16, 2% down 680 basis points compared to 2023, reflecting the decrease in gross margin and the impact of maintaining key investments in R&D and commercial infrastructure, while we resolve the temporary shipping home.
Speaker Change: Operating cash flow for the third quarter was $22 5 million.
Lea Knight: If you turn to slide 7, we'll examine our CSS revenue highlights for the third quarter in more detail. Reported third quarter revenues in CSS were $271 million, up 1% on a reported basis, and down 10.7% on an organic basis from the prior year. Global sales and neurosurgery declined 15% on an organic basis, largely due to supply challenges in dural access and repair, and the temporary shipping holes in CFS management and neural monitoring that we discussed earlier in our remarks and during our July call. These holds have largely been resolved within the third quarter, and the remaining shipping holds are in line with the expectations we set in our July guidance.
If you turn to slide seven we will examine our CSS revenue highlights for the third quarter in more detail.
Speaker Change: Reported third quarter revenues in CSS were $271 million.
Speaker Change: Up 1% on a reported basis and <unk>.
Down 10, 7% and organic basis from the prior year.
Speaker Change: Global sales in neurosurgery declined 16% on an organic basis, largely due to supply challenges in dural access and repair and the temporary shipping holds in CFS management and neuro monitoring that we discussed earlier in our remarks and during our July call.
These holds have largely been resolved in the third quarter and the remaining shipping homes are in line with the expectations. We set in our July guidance.
Lea Knight: The decline in neurosurgery was partially offset by mid-single-digit growth in advanced energy driven by KUSA capital and disposal. Our ENT business saw 5.3% organic growth for the third quarter. As a reminder, the organic growth in our E&T reporting segment will reflect only the MicroFrance E&T instruments for the first 12 months following the close of the Euclarin acquisition, which took place on April 1st. On a reported basis, Eclarent delivered revenues of approximately $30 million. We remain pleased with the integration and excited about the future growth potential of the ENT segment. For the third quarter, our capital sales were up low double digits, driven by the Serolink relaunch, low double digit growth in Kusa Clarity, and high single digit growth in Mayfield Capital.
Speaker Change: The decline in neurosurgery was partially offset by mid single digit growth in advanced energy driven by cost of capital and disposables.
Our E&P business saw a five 3% organic growth for the third quarter.
Speaker Change: As a reminder, the organic growth in our E&P reporting segment will reflect only the micro France anti instrument for the first 12 months following the close of the Claret acquisition, which took place on April one.
Speaker Change: On a reported basis, our claret delivered revenues of approximately $30 million.
Speaker Change: We remain pleased with the integration and excited about the future growth potential in the E&P segment.
Speaker Change: For the third quarter, our capital sales were up low double digits, driven by the Sterling relaunch low double digit growth includes the clarity and high single digit growth and May feel capital.
Lea Knight: Our Global Capital Funnel remains robust and well-positioned to continue to deliver strong growth. Turning to instruments, we saw 8.7% growth primarily due to strong demand along with order timing. Shifting to our international business results within CSS, we saw a low double-digit decline in the quarter, mostly attributable to the temporary shipping hold. These holds affected our ability to meet customer demand for the quarter. However, we remain confident in the growth prospects for our international business.
Speaker Change: Our global capital funnel remains robust and well positioned to continue to deliver strong growth.
Speaker Change: Turning to instruments, we saw eight 7% growth primarily due to strong demand along with order timing.
Speaker Change: Shifting to our international business results within CFS, we saw a low double digit decline in the quarter, mostly attributable to the temporary shipping months.
Speaker Change: These holds affected our ability to meet customer demand for the quarter. However, we remain confident in the growth prospects for our international business.
Lea Knight: Moving to our tissue technology segment on slide eight. Tissue technology sales were $110 million, down 3.6% on a reported basis and 3.7% on an organic basis compared to the prior year. Excluding the prior year impact from the return of product manufactured in Boston, organic growth was down 9.4%. Sales and wound reconstruction were down mostly because production shortfalls for Integra's skin did not allow us to fully meet demand and a challenging year-over-year comparison. We have continued to ramp production of Integra skin through the third quarter and expect to return to historical revenue run rates in the fourth quarter.
Moving to our tissue technologies segment on slide eight.
Speaker Change: Tissue technology sales were $110 million down three 6% on a reported basis, and three 7% or organic basis compared to the prior year.
Speaker Change: Excluding the prior year impact from the return of product manufactured in Boston organic growth was down nine 4%.
Sales in wound reconstruction were down mostly because production shortfalls for integra skin did not allow us to fully meet demand and a challenging year over year comparison.
Speaker Change: We have continued to ramp production and integra skin through the third quarter and expect to return to historical revenue run rate in the fourth quarter.
Lea Knight: The headwind from IntegraScan was partially offset by strong growth across the remainder of the Wound Reconstruction franchise, including low double-digit growth for Durazorb, which continues to outpace the deal model for that acquisition. We also saw low double-digit growth of Micromatrix and Psytel in our UVM platform. Overall, the UDM platform grew by high single digits, demonstrating continued strong demand. Private label sales were up approximately 13% compared to last year due to favorable order timing. Finally, international sales and tissue technologies were down mid-double digits due to the Integra skin production shortage.
Speaker Change: The headwind from Integra skin was partially offset by strong growth across the remainder of the wound reconstruction franchise, including low double digit growth for tours are which continues to outpace the deal model for that acquisition.
We also saw low double digit growth in micro matrix in title and our unique platform.
Speaker Change: Overall, the Union platform grew by high single digit demonstrating continued strong demand.
Speaker Change: Private label sales were up approximately 13% compared to last year due to favorable order timing.
Speaker Change: Finally international sales and tissue technologies was down mid double digits due to the integra skin production shortages.
Lea Knight: If you turn to slide nine, I will discuss our balance sheet, capital structure, and cash flow. During the quarter, operating cash flow was $22.5 million, and free cash flow was negative $7.2 million, driven primarily by the revenue impact of the shipping holes and production shortages referenced in our previous remarks, and continued investments in capital. Free cash flow conversion was 19.7% on a trailing 12-month basis. As of September 30th, net debt was $1.5 billion, and our consolidated total leverage ratio was four times. We are focused on bringing our consolidated leverage ratio back within our target range of two and a half to three and a half times, with the most immediate benefit coming from resolving the shipping holds in our neurosurgery business and returning to historical revenue run rates for Integra Skin in the fourth quarter.
If you turn to slide nine I will discuss our balance sheet capital structure and cash flow.
Speaker Change: During the quarter operating cash flow of $22 $5 million and free cash flow was negative $7 $2 million driven primarily by the revenue impact of the shipping home.
And production shortage as referenced in our previous remarks and continued investments in Capex.
Speaker Change: Free cash flow conversion was 19, 7% on a trailing 12 month basis.
Speaker Change: As of September 30, net debt was one 5 billion.
Speaker Change: And our consolidated total leverage ratio was four times.
We are focused on bringing our consolidated leverage ratio back within our target range of two and a half to three five times with the most immediate benefit coming from resolving the shipping hold in our neurosurgery business.
Returning to historical revenue run rates for Integra skin in the fourth quarter.
Lea Knight: The company had total liquidity of $1.2 billion, including $277 million in cash and short-term investments, and the remainder available under a revolving credit facility.
The company had total liquidity of $1 $2 billion, including $277 million in cash and short term investments and the remainder available under our revolving credit facility.
Lea Knight: If you turn to slide 10. We would like to highlight a few key points about our balance sheet and capital structure as we approach the end of 2024 and prepare for 2025. While we remain focused on improving our cash flow generation, we are confident we have the balance sheet strength and liquidity, including flexibility in our bank facility, to make the essential investments in our operations and long-term growth strategies. Just as a reminder, the EBITDA used in calculating our consolidated leverage ratio includes ADVAC for both stock-based compensation and the performance impact of the Eclarent acquisition. We have sufficient room under our existing credit facility to repay our convertible bond coming due in the third quarter of 2025, and in the short term, we are likely to fund the repayment using our revolver.
If you turn to slide 10.
We would like to highlight a few key points about our balance sheet and capital structure as we approach the end of 2024 and prepare for 2025.
While we remain focused on improving our cash flow generation. We are confident we have the balance sheet strength and liquidity, including flexibility in our bank facility to make the essential investments in our operations and long term growth strategy.
Just as a reminder, the EBITDA used in calculating our consolidated leverage ratio includes add backs for both stock based compensation and the pro forma impact of the Clarient acquisition.
Speaker Change: We have sufficient room under our existing credit facility to repay our convertible bond coming due in the third quarter of 2025 and in the short term we are likely to fund the repayment using our revolver.
Lea Knight: With our existing interest rate plots as disclosed in our 10-Q, we will have approximately $900 million of fixed rate debt in the low 3% range through the end of 2027. We will continue to monitor the rate environment and work to maintain sufficient liquidity in our capital structure.
With our existing interest rate swaps as disclosed in our 10-Q.
Speaker Change: We will have approximately $900 million of fixed rate debt in the low 3% range through the end of 2027.
We will continue to monitor the rate environment and work to maintain sufficient liquidity and our capital structure.
Lea Knight: If you turn to slide 11, I will provide our Consolidated Revenue and Adjusted Earnings for Share guidance for the fourth quarter and full year 2024. For the fourth quarter, we expect revenues in the range of $441 million to $451 million, representing a reported growth range of 11.1% to 13.6%, and an organic growth range of 2% to 4.5%. Our fourth quarter guidance reflects a step up in sequential revenue driven by the resolution of the majority of the shipping holds we identified on our second quarter call, the production of Integra Skin allowing us to meet historical revenue run rates for the fourth quarter, and normal seasonality.
Speaker Change: If you turn to slide 11, I will provide our consolidated revenue and adjusted earnings per share guidance for the fourth quarter and full year 2024.
For the fourth quarter, we expect revenues in a range of 441 million to $461 million.
Representing a reported growth range of 11, 1% to 13, 6%.
And then organic growth range of 2% to four.
Speaker Change: Four 5%.
Speaker Change: Our fourth quarter guidance reflects a step up in sequential revenue driven by the resolution of the majority of the shipping hope they identified on our second quarter call.
Speaker Change: Production of Integra skin, allowing us to meet historical revenue run rates for the fourth quarter and normal seasonality.
Lea Knight: The sequential step-up in revenue will be partially offset by incremental quality holds we have implemented in the fourth quarter. For the full year 2024, revenues are forecasted to be in the range of $1.609 billion to $1.619 billion, representing reported growth of 4.4% to 5%. and organic growth in the range of approximately minus 1.7 percent to minus 1 percent. We estimate an approximate 150 basis point decline in gross margin for the full year, reflecting the impact of the supply challenges, investments, and costs associated with implementation of the Compliance Master Plan. For the fourth quarter, we expect adjusted EPS to be in the range of $0.81 to $0.89, and $2.41 to $2.49 per share for the full year.
Speaker Change: This sequential step up in revenue will be partially offset by incremental quality holds we have implemented in the fourth quarter.
Speaker Change: For the full year 2024 revenues are forecasted to be in the range of $1 619 billion to $1 619 billion.
Representing reported growth of four 4% to 5%.
And organic growth in the range of approximately minus one 7% to minus 1%.
Speaker Change: We estimate an approximate 150 basis point decline in gross margin for the full year, reflecting the impact of the supply challenges investments and costs associated with implementation of the complaint masterplan.
For the fourth quarter, we expect adjusted EPS to be in the range of 81 to 89.
Speaker Change: And $2 41 to $2 49 per share for the full year.
Jan Witte: Finally, on slide 12, you will see a summary of our guidance considerations and the key assumptions for FX rates, tax rates, and share count assumed in our guidance for rough I will now turn the call over to Jan for his closing remarks.
Finally on Slide 12, you will see a summary of our guidance considerations and the key assumption for FX rates tax rates and share count assumed in our guidance for reference.
Speaker Change: I will now turn the call over to Jan for his closing remarks.
Jan Witte: Thank you, Lea.
Speaker Change: Thank you Leah.
Jan Witte: If you turn to slide 13, I will wrap up our preparatory remarks. Across our organization, we remain fully committed to addressing gaps in our quality management system and ensuring our supply meets growing market demands for our products. We've made significant progress in resolving many of the shipping holds in our CSS business. The Eclarent integration continues to go smoothly, and we're ramping production of IntegraSkin back to historical revenue rendering. While we are encouraged by this progress. We also recognize we still have a lot of work to do.
Jan: If you turn to slide 13, I'll wrap up our prepared remarks.
Across our organization remain fully committed to addressing gaps in our quality management system, and ensuring our supply needs growing market demands for our products.
Jan: We've made significant progress in resolving many of the shipping holds in our CSS business.
Clarence integration continues to go smoothly.
And we are ramping production of integra skin back to historical revenue run rates.
Jan: While we are encouraged by this progress.
So recognize we still have a lot of work to do.
Jan Witte: As I prepare to step down as CEO, I do so with a mix of pride and optimism. While I'm proud of our achievements over the past three years, I also acknowledge the challenges that remain.
Speaker Change: As I prepare to step down as CEO I do so with a mix of Friday and optimism.
While I'm proud of our achievements over the past three years I also acknowledge the challenges that remain.
Jan Witte: In welcoming Mojdeh, I leave Integra knowing the organization is in capable hands with an exceptional leadership team and dedicated colleagues focused on strengthening Integra's resiliency and predictability. The company is well positioned for continued growth, supported by a strong pipeline of innovative products that will improve the lives of our customers and their patients for years to come. My commitment to Integra has been unwavering and I remain focused on a successful transition and deeply invested in the company's future.
Jan: In welcoming Mazda.
I'll leave Integra, moving the organization isn't capable hands with an exceptional leadership team and dedicated colleagues focused on strengthening integra resiliency and predictability.
The company is well positioned for continued growth supported by a strong pipeline.
Innovative products that will improve the lives of our customers.
Their patients for years to come.
Jan: My commitment to Integra has been unwavering and I remain focused on a successful transition and deeply invested in the company's future success.
Jan Witte: I would like to extend my heartfelt thanks to Stuart, our board of directors, our management team, and all of our colleagues around the world. I'm very proud of what we are accomplishing together.
Jan: I would like to extend my heartfelt thanks to steward, our board of directors our management team.
And all of our colleagues around the world.
Jan: I'm very proud of what we are accomplishing together.
Operator: And with that, I'd like to open the line for Q&A.
Jan: And with that I'd.
Jan: I'd like to open the line for Q&A.
Thank you.
Operator: Ladies and gentlemen, to ask a question, you will need to press star 11 on your telephone and wait for your name to be dialed. To withdraw your question, simply press star 1 1 again. Please stand by while we compile the Q&A.
Speaker Change: Ladies and gentlemen to ask a question you will need to press star one on your telephone and wait for your name to be announced.
Speaker Change: To ensure your question simply press Star one one again, please standby, while we compile the Q&A roster.
Steven Lichtman: Now first question, coming from the lineup, Steven Lichtman with Oppenheimer, your line is open. Thank you. Good morning, everyone. And best of luck, Jan. Just a couple from me, I guess, first...
Now first question coming from the lineup Steven Lichtman with Oppenheimer. Your line is now open.
Steven Lichtman: Thank you good morning, everyone and best of luck.
Steven Lichtman: Just a couple from me I guess first.
Steven Lichtman: What are you seeing from the commercial organization and customer stability as you've been going through, you know, the supply challenges over the last?
Steven Lichtman: What are you seeing from the commercial organization and customer stability as you've been going through the supply challenges over the last few quarters.
Jan Witte: Good morning, Steve. Thank you for that question. Look, our product holds in most cases. were not long-term. They spanned several SCUs, but the duration of each of those halls was not extended. In addition, those products are differentiated, customers choose them based on the features and specific attributes they offer and across or over the different months and as we resolve, we do all needed to protect strong relationships between our very capable sales reps. and those customers. And so, you know, with that mix of capabilities and focus, we feel strong about retaining our share with the customers.
Speaker Change: Hey, good morning, Steve Thank you for that.
Next question.
Steven Lichtman: Look our protocols in most cases.
Steven Lichtman: Long term debt.
Steven Lichtman: Several skus for the duration of each of those holes and was not extended.
Steven Lichtman: In addition post products are differentiated.
Steven Lichtman: <unk> chosen based on the features and specific attributes they offer and across.
Steven Lichtman: All of the different months and as we resolve we do all need it to protect strong relationships between our very capable sales reps.
Steven Lichtman: And those customers and so what that mix of capabilities and focus we feel strong about retaining our share yet to.
Steven Lichtman: Customers.
Jan Witte: It's a pleasure to be here. Thank you.
Steven Lichtman: Got it and then.
Lea Knight: Lea, last quarter, you provided, I think, some initial thoughts on 25.
Speaker Change: Last quarter, you provided I think some initial thoughts on 'twenty five.
Lea Knight: Any changes to your thinking, you know, with a few more months passed in the compliance master plan? Thank you all for joining us. Certainly, Steven. And to your point, we did not provide guidance briefly in 2025. But we did provide a way of thinking about 2025. And we continue to believe that it's fair to expect 2025 to show mid-single digit organic growth over what we're now calling full year 2024. Even with the additional quality holds that we've talked about impacting Q4, they are within kind of the type of supply disruptions that we referenced. I don't really change our overall thinking in terms of magnitude of impact for potential supply disruption in all of 2025.
Speaker Change: Any changes to your thinking with a few more months pass and the compliance Master plan.
Speaker Change: Yeah, obviously with most youre taking over in January.
Speaker Change: Additional thoughts you can provide on.
Speaker Change: Broadly on 25.
Speaker Change: Certainly Stephen and to your point, we do not provide guidance principally in 2025, but we did provide a way of thinking about 2025, and we continue to believe that it's fair to expect 2025 to show mid single digit organic growth over what we're now calling for year 2020.
Speaker Change: Before.
Speaker Change: Even with the additional quality holes that we've talked about impacting Q4.
Speaker Change: They are within kind of the type of supply disruptions that we referenced I don't really change our overall thinking in terms of magnitude of impact from potential supply disruption in all of 2025.
Lea Knight: So, that is still a good guide.
Speaker Change: That is still good guidance.
Lea Knight: Okay. Thank you.
Speaker Change: Okay. Thank you I'll jump back in queue.
Speaker Change: Thank you.
Vik Chopra: Our next question coming from the line of Vik Chopra with Wells Fargo, Yelena Zagitova. Hey, good morning, and thanks for taking the questions, Ian. It was a pleasure working with you over the past two years and wishing you all the best in your retirement. And also, a warm welcome to Mojdeh. A couple of questions for me. So I guess first, did you see any procedures move from 3Q into 4Q as a result of the hurricane? And could the IV shortages impact circulation in your portfolio? And then a quick follow-up.
Speaker Change: Our next question coming from the line of Nick <unk> with Wells Fargo. Your line is open.
Nick: Hey, good morning, and thanks for taking my questions Jan It was a pleasure working with you over the past two years and wishing you all the best in your retirement.
Speaker Change: And also a warm welcome to.
Speaker Change: Most days.
Speaker Change: A couple of questions from me. So I guess first did you see any procedures move from <unk> into <unk> as a result of the hurricane.
Speaker Change: And could be IV shortages impacts.
Speaker Change: Portfolio and then a quick follow up for me. Please.
Vik Chopra: Good morning, Vik, and thank you for the nice words. So no, we have not seen any significant impacts from hurricanes in terms of procedures moving across.
Speaker Change: Hey, good morning.
Speaker Change: Thank you fertilized works.
Speaker Change: So no we have not seen any significant impact from hurricanes in terms of procedures moving across.
Vik Chopra: If you could repeat your second part of the question, I didn't fully get.
Speaker Change: Could you repeat your second part of the question I didn't fully get that.
Vik Chopra: I'm sorry, the second part of the question was, have you seen any shortages or expecting any shortages from the saline short from the saline impact on your surgical procedures? No, we have not.
Speaker Change: I'm sorry, the second part of the question was have you seen any shortages or expecting any shortages from the fairly short.
Speaker Change: Eileen impact on your surgical procedures.
Speaker Change: No we have not.
Vik Chopra: Got it, thank you.
Speaker Change: Got it. Thank you and then my follow up question is for Leo maybe you.
Lea Knight: And then my follow-up question is for Lea maybe. Lea, are you still expecting a $10 million impact in Q4 from the shipping holds? I don't think I heard a number. Thank you so much.
Speaker Change: Still expecting a $10 million impact in Q4 from the shipping hold I don't think I heard a number. Thank you so much.
Lea Knight: Yes, certainly.
Speaker Change: Yes, certainly so yes to your point if you recall in our July discussion, we talked about the compliance shipping holds having an estimated impact of about $50 million in Q3 and based on the expectation of being able to resolve most of those shipping holds in Q3. It would have a much more limited impact in Q4 and at the time, we estimated about.
Lea Knight: So yeah, to your point, if you recall, in our July discussion, we talked about the compliance shipping holds, having an estimated impact of about $50 million in Q3. And based on an expectation of being able to resolve most of those shipping holds in Q3, it would have a much more limited impact in Q4. And at the time, we estimated about $10 million. We continue to believe that's true. So we are on pace for a much smaller impact in Q4, order of magnitude is about $10 million.
Speaker Change: $10 million, we continue to believe that terms. So we are on pace or.
Speaker Change: It's a much smaller impact in Q4 order of magnitude of about $10 million.
Speaker Change: Thank you.
Speaker Change: Thank you.
Lea Knight: None.
Ryan Zimmerman: Next question coming from the line of Ryan Zimmerman with BTIG, Yolanda... Good morning. Thanks for taking our questions, Jan. Best of luck with the family. in Europe.
Speaker Change: Our next question coming from the line of Ryan Zimmerman with <unk>. Your line is now open.
Ryan Zimmerman: Good morning, Thanks for taking our questions John Best of luck.
Speaker Change: <unk> in Europe.
Lea Knight: I guess I want to talk about margins a little bit. Lea, you know, I know we're not getting guidance for 25. Is there anything to consider in terms of the margin recovery? Do you feel like we're through the trough, if you will, in terms of the margin dynamics? It's reasonable to assume that as, you know, products come back online, that, you know, you get, you know, more Integra skin, that we should see some improvement in margin. Certainly, Ryan.
Ryan Zimmerman: I guess I wanted to talk about margins a little bit I mean.
Speaker Change: We are.
Speaker Change: I know were not getting guidance for 25, but just is there any excuse me anything that kind of consider.
Speaker Change: In terms of the margin recovery do you feel like we're through kind of the trough. If you will in terms of the margin dynamics and it's reasonable to assume that as products come back online that you get.
Speaker Change: More integra skin that we should see some improvement in margins.
Speaker Change: Enter and go into 'twenty five.
Speaker Change: Certainly Ryan so I'll step through it into level. So first from a gross margin perspective, but we shared previously was as you look at our full year 2025, and we're under a full year of our compliance with Master plan. We would continue to expect a little bit of a headwind on gross.
Lea Knight: So I'll step through it in two levels. So first, from a gross margin perspective, what we shared previously was, as you look at a full year 2025, and we're under a full year of our compliance master plan, we would continue to expect a little bit of a headwind on gross margins, the order of magnitude 60 to 80 basis points. We still expect that kind of order of magnitude again, as we move from 24 into 25 at a gross margin level.
Speaker Change: Margins in order of magnitude.
Speaker Change: Basis points, we still expect that kind of order of magnitude again, as we move from $24 25 and.
Speaker Change: At a gross margin level from an EBITDA margin level to your point, what we saw in Q3 margins of 16, 2% is not representative of the profitability on this business Q3 was disproportionately impacted by the compliance shipping holds that we talked about during our Q2 call.
Lea Knight: From an EBITDA margin level, to your point, what we saw in Q3 margins of 16.2% is not representative of the profitability on this business. Q3 was disproportionately impacted by the compliance shipping holds that we talked about during our Q2 calls. Since we were able to resolve most of those, the majority of those in Q3, you would expect to see improving profitability into Q4.
Speaker Change: Since we weren't able to resolve them.
Most of those majority of those in Q3, you would expect to see improving profitability into Q4.
Lea Knight: On a full year basis, once again, while we're not providing guidance on 2025, I think it's fair to think of full year 25 EBITDA margins being similar to full year 2024.
Speaker Change: On a full year basis once again, while we're not providing guidance for 2025 I think it's fair to think of a full year, 25% EBITDA margin being similar to full year 2024.
Ryan Zimmerman: very helpful, Lea. And, and I know, you know, Moshe is going to come in.
Speaker Change: That's very helpful.
Speaker Change: And I know Moshe kind of come in.
Ryan Zimmerman: I guess I just want to ask less quantitatively and more qualitatively around 2025. I mean, given that the recovery is not slated, particularly until 2026, In your mind, what, what How should we think about 25 in a more qualitative manner?
Speaker Change: And have her views on the company I guess I just wanted to ask last quantitatively and more qualitatively around 2025.
Speaker Change: Given that the recovery is not slated particularly in tissue until 2026.
Speaker Change: In your mind, what what.
Speaker Change: How should we think about 'twenty five.
Speaker Change: More qualitative manner I mean.
Stuart Essig: Integra LifeSciences Holdings Corp. 2026.
Speaker Change: Is it a trend transition as it heads down I guess, what I'm trying to kind of contemplate us.
Speaker Change: Whether there could be some level of improvement or upside and we shouldnt think of 25% necessarily as just a loss year for integra, given that we're not going to really get back to a resumption in 2026 I don't know if you have any kind of high level strategic thoughts about about 25.
Stuart Essig: I don't know if you have any, you know, kind of high level strategic thoughts about Hey, Ryan, it's Stuart Essig. Maybe I can try to help with that. Let me talk a little bit about Mojdeh's onboarding and where she's going to be spending time. She'll be joining us in early January and she'll spend the better part of January and February meeting with Integra leaders, colleagues and customers, attending our annual sales meetings and visiting many of our sites across Integra. And of course, she'll be meeting with investors. She's going to be listening and learning about our business and getting to know the team.
Speaker Change: At this point.
Speaker Change: Hey, Brian It's Stuart Essig, maybe I can try to help with that.
Stuart Essig: Let me talk a little bit about <unk>.
Stuart Essig: Onboarding and where she is going to be spending time.
Speaker Change: She'll be joining us in early January and you'll spend the better part of January and February meeting with Integra leaders colleagues and customers attending our annual sales meetings and visiting many of our sites across Integra and of course, you'll be meeting with investors.
Speaker Change: You're going to be listening and learning about our business and getting to know the teams.
Stuart Essig: After that, with the support of the executive leadership team, Mojah is going to be focused on shaping and executing our neurosurgery, tissue technology, and ENT strategic priorities. These include improving our product quality and regulatory compliance, advancing our site resilience, and executing on our manufacturing capacity initiative. And while executing on our operational priorities is important, she'll also focus on maximizing the potential of Integra's strong product portfolio. In terms of providing an update on our long range plan, she'll take the time that's necessary to get to know the business and opportunities and challenges.
Speaker Change: After that with the support of the executive leadership team motion is going to be focused on shaping and executing our neurosurgery tissue technology and E&P strategic.
Speaker Change: Priorities. These include improving our product quality and regulatory compliance.
Speaker Change: Advancing our site resilience and executing on our manufacturing capacity initiatives.
Speaker Change: And while executing on our operational priorities is important she will also focus on maximizing the potential of integrity strong product portfolio.
Speaker Change: In terms of providing an update on our long range plan shall take the time, that's necessary to get to know the business and opportunities and challenges.
Stuart Essig: And we'll be getting back to you with the timeline for providing an update on the long range plan.
Speaker Change: We will be getting back to you with the timeline for providing an update on the long range plan.
Ryan Zimmerman: Thank you. That's very helpful.
Speaker Change: That's very helpful. I appreciate that.
Kristen Stewart: U.S. Department of Labor And our next question coming from the line of Kristen Stewart with CL King, Yale, NSW. Hi, thanks for taking the question. I just wanted to ask on Braintree, it sounds like you're making progress there.
Speaker Change: Thoughts there thank you.
Speaker Change: Thank you.
Speaker Change: And our next question coming from the line of Kristen Stewart with C. L. King Your line is open.
Kristen Stewart: Hi, Thanks for taking my question I, just wanted to ask on Brian trade. It sounds like Youre, making progress there could there be any hope of getting that facility open sooner than expectations.
Kristen Stewart: Could there be any hope of getting that facility open sooner than expectations? Good morning, Kristen. Thank you for the question. So yeah, as I stated in the prepared remarks, we're pleased with the progress we're making in terms of finalizing that facility. And as we speak, we are moving equipment into Braintree, which will allow us then to start the process of installing and qualifying validating the equipment and processes. The plan is still on track to resume production in the first half of 2026 as we communicated. Every earnings call will provide further updates on which milestones we are crossing.
Speaker Change: Good morning, Kristen. Thank you for the question. So yeah as I stated in the prepared remarks, we're pleased with the progress we're making.
Speaker Change: In terms of finalizing that facility as we speak we are moving equipment into Braintree, which will allow US then to start the process of installing and.
Speaker Change: And qualified qualifying validating the equipment and processes.
Speaker Change: Plan is still on track to resume production in the first half of 2026 as we communicated.
Speaker Change: Yes every earnings call, we'll provide further updates on rich milestones. We are we are crossing so the next one.
Kristen Stewart: So the next one should be in February. But at this point, production resuming in the first half of 2026 is still in line with what we communicated earlier.
Speaker Change: Be in February.
Speaker Change: But at this point production.
Speaker Change: In the first half 'twenty is still aligned with what we communicated.
Speaker Change: Earlier.
Kristen Stewart: Okay, and then just on the 25 Outlook. In terms of the top line, I think that still included some potential for additional shipholds to take place. I just wanted to make sure that I was still understanding that correctly.
Speaker Change: Okay, and then just on the 25 outlook.
Speaker Change: In terms of the top line I think that's still included some.
Speaker Change: For additional ship holds could take place I just wanted to make sure that I'm still understanding that correctly. If theres anything that you saw this quarter that made you think that that's more likely than not.
Kristen Stewart: If there's anything that you saw this quarter that made you think that that's more likely than not.
Kristen Stewart: Yeah, so thanks for the question, Kristen. You are correct. So as we framed out the expectation for 2025, to show mid-single-digit organic growth over full year 2024, embedded in that is the potential to absorb any supply disruption of a similar magnitude as what we saw in 2024.
Speaker Change: Yeah. So thanks for the question, Chris and you are correct. So as we framed out the expectation for 2025 to show mid single digit organic growth over full year 2024 embedded in that.
Speaker Change: Is the X and the potential to absorb any supply disruption of a similar magnitude as what we saw in 2024, so put more simply Christi and what it means is we would expect a tailwind in 'twenty five as a result of the supply recovery from what we.
Kristen Stewart: So put more simply, Kristen, what it means is we would expect a tailwind in 2025 as a result of the supply recovery from what we experienced in 2024. But that would be offset, right, by the potential for supply disruption in 2025. And so what you're left with is kind of the rest of the business growing at mid-single-digit organic growth. So yes, it's contemplated in there.
Speaker Change: In 2024, but that would be offset by the potential for supply disruption in 2025, and so what youre left with is kind of the rest of the business growing at mid single digit organic growth.
Speaker Change: Yes, a couple of times.
Kristen Stewart: And then as it relates to even the quality holds that we've talked about in our previous remarks in terms of Q4, the nature and type of those are much smaller in terms of the number of SKUs and products as well as the revenue impact versus the compliant shipping holds that we discussed in our Q2 call. And so because of that, we don't anticipate that being changing our view in terms of the potential magnitude of supply disruption in 2025.
Speaker Change: And there and then as it relates to even the quality holds that we've talked about in our prepared remarks in terms of Q4, the nature and type of those are much smaller in terms of the number of skus and products as well as the revenue impact versus the compliant shipping holds that we discuss our Q2.
Speaker Change: And so because of that we don't anticipate that being changing our view in terms of the potential magnitude of supply disruption in 'twenty five.
Speaker Change: Hey, Thanks for taking the question.
Speaker Change: Thank you.
Robby Marcus: Our next question coming from the lineup.
Speaker Change: And our next question coming from the line of.
Robby Marcus: Robby Marcus and J.P. Morgan, Yale Onassis. Oh, great. Good morning, and thanks for taking the questions. Jan, great working with you. Wish you the best moving forward.
Speaker Change: Robbie Marcus with Jpmorgan Your line is open.
Robbie Marcus: Oh, great good.
Robbie Marcus: Good morning, and thanks for taking the questions John Great.
Robbie Marcus: Working with you wish you the best moving forward.
Robby Marcus: Two from me. First, I just wanted to ask on sort of staff retention and staff levels over the past few years. There's been, you know, COVID and then the recent manufacturing and sales disruptions.
Robbie Marcus: Two from me.
Robbie Marcus: First I just wanted to ask on <unk>.
Robbie Marcus: Sort of staff retention and staff levels over the past few years there has been.
Speaker Change: Covid and then the recent manufacturing and sales disruptions.
Robby Marcus: So I was just wondering if we could kind of get a state of the union on where both the quality manufacturing and client-facing sales force is in terms of retention and attrition over the past.
Speaker Change: So I was just wondering if we can kind of get a state of the union on where both the quality manufacturing and.
Speaker Change: Client facing sales forces in terms of.
Speaker Change: Retention and attrition over the past few years.
Jan Witte: Good morning, Robbie. I'll take that first part of the question. We across the company, our retention. Our turnover is normal as previous years. We'd say one area over the summer we saw a little uptick and that's in the surgical reconstruction sales force where we had higher than normal. Yeah, and that is linked to the updated communication that we did before the summer on the timeline to return surgement into the market. So that definitely had an impact on that subset of our tissue technologies.
Speaker Change: Yes, good morning Robby.
Speaker Change: The first part of the question.
Speaker Change: Yeah.
Speaker Change: Across the company our intention.
Speaker Change: I'll turn it over is normal.
Speaker Change: Previous years.
Let me say one area over the summer we saw a little uptick and that's in the surgical reconstruction Salesforce, where we had higher than normal.
Robbie Marcus: It is linked to the updated communication that we did before the summer.
Robbie Marcus: The timeline to return to <unk> into the market so that definitely had an impact.
Robbie Marcus: Subset of our tissue technologies sales force.
Lea Knight: Okay, maybe a follow up on free cash flow.
Robbie Marcus: Okay.
Speaker Change: Maybe follow up on free cash flow.
Lea Knight: spoke to in the slides and in the prepared remarks, the Unknown Executive, Jan Witte, Lea Knight, Stuart Essig, Integra LifeSciences Holdings 23 Analyst Day of over 90% in 2027. I believe you said on the last call free cash flow might be lowered next year. Let's call it MedTech peer levels over time.
Speaker Change: You spoke to in the slides and the prepared remarks.
Speaker Change: The negative cash flow in the third quarter and why its transit yet, but as I look back at the analyst day from last year, you had a 90% conversion rate slotted in front of me.
Speaker Change: The 23 analyst day of over 90% in 2027.
Robbie Marcus: I believe you said on the last call free cash flow might be.
Robbie Marcus: Lower next year as you move through some of these issues and you're integrating the claret business, but how do you think about free cash flow conversion over the next few years and your ability to return to.
Robbie Marcus: Let's call it mid tech peer levels over time, thanks, a lot.
Lea Knight: Yep, thanks, Robbie. So to your point, yes, a couple of changes kind of post that Investor Day, in light of some of the supply challenges that occurred, principally being Boston and then the shipping holds that we experienced and talked about on our Q2 call. So those were the, in fact, drivers of why we are not back at the 90% free cash flow conversion rate that we talked about. And as we continue to work through the remainder of the shipping holds, as well as the compliance master plan, we don't expect to get back up into that 90 plus percent from a free cash flow.
Speaker Change: Yes, Thanks, Ravi so to your point, yes, a couple of changes kind of post that in Investor day in light of some of the supply challenges that occurred.
Robbie Marcus: Principally being Boston and then shipping holds that we experienced and talked about on our Q2 call. So those where are they in fact drivers of why we are not back up to 90% free cash flow conversion rates that we talked about.
Robbie Marcus: And as we continue to work through.
Robbie Marcus: <unk>.
Robbie Marcus: The remainder of the shipping hold as well as the client Master plan, we don't expect to get back up into that 90 plus percent from our free cash flow.
Lea Knight: And so we'll reevaluate as we continue to pace through 2025 and managing through the potential for any supply disruption, and come back with updated thinking in terms of timeframe to determine whether or not we're back into that free cash flow conversion rate of 90 plus percent beyond 2025. We'll do that as part of our next LRP update.
Robbie Marcus: And so we'll reevaluate as we continue to pace through 2025 and managing through the potential for <unk>.
Robbie Marcus: Disruption and come back with updated thinking in terms of timeframe too.
Robbie Marcus: To determine whether or not we're back into that free cash flow conversion rate of 90 plus percent beyond 2025, we'll do that as part of our our Nextel RP update.
Speaker Change: Great. Thanks, a lot.
Speaker Change: Thank you.
Matthew Taylor: And our next question coming from the line of Matt Taylor with Geoffrey Zealand is now Thanks for taking the question. I actually just wanted to follow up on your comments on the debt and the capital structure. I know you talked about some of the callouts for stock-based compensation and the acquisitions, but we get a lot of questions about how tight your covenants are and what that can mean in different scenarios as your cash flow evolves here.
Speaker Change: And our next question coming from the lineup, Matt Taylor with Jefferies. Your line is now open.
Matt Taylor: Hi, Thanks for taking the question actually I just wanted to follow up on your comments on the debt and the capital structure.
Matt Taylor: You talked about some of the callouts for stock based compensation.
Robbie Marcus: And the acquisition so we get a lot of questions about <unk>.
Robbie Marcus: Your covenants are and what that could mean in different scenarios.
Robbie Marcus: As your cash flow evolved here.
Lea Knight: So could you speak to, I guess, maybe what we can't see in terms of the covenants and give us comfort on your debt situation in the current state, and then maybe talk about different scenarios and how you could get back to your target over the next couple of years? So right now, as we mentioned, our leverage ratio is at four times. Our covenant threshold right now is at four and a half. So we are operating below that covenant threshold in 2024. As we look to manage this business going forward, and certainly as we return to kind of more normal cash flow generation in Q4, now that the compliant shipping holds are largely behind us, that will be the mechanism to help us continue to maintain the business in a way where we're operating under that covenant.
Robbie Marcus: You speak to I guess, maybe what we cant see in terms of the covenants and give us comfort on your debt.
Robbie Marcus: Situation in the current state.
Robbie Marcus: Maybe talk about different scenarios and how you could get back to your target over the next couple of years.
Speaker Change: Yeah, certainly so right now Anthony.
Robbie Marcus: As we mentioned our leverage ratio is at four times.
Robbie Marcus: Hover at threshold right now is at four five so we are operating below that covenant threshold in 2024 as they look to manage this business going forward.
Robbie Marcus: And certainly as we return to more normal cash flow generation in Q4 now that the compliant shipment hold are largely behind us that will be the Mecca.
Robbie Marcus: A mechanism to help us continue to maintain the business in a way where we're operating under our debt covenants.
Lea Knight: So you can expect that sort of approach as we move forward. And consistent with my previous remarks, that also does contemplate the potential for additional supply disruption in 2025. So we're managing it in light of that in a way that that will allow us to remain under that covenant threshold.
Robbie Marcus: So you can expect that sort of approach as we move forward and consistent with my previous remarks that also does contemplate the potential for additional supply disruption in 2025. So we're managing it in light of that in a way that that will allow us to remain under.
Matt Taylor: That covenant threshold.
Lea Knight: Gotcha.
Lea Knight: I don't think you've said this explicitly, but it just seems like based on your overall commentary, you think you can get back there. I guess I wanted to understand, is there any scenario where you might have to raise more capital or would something have to go significantly wrong from here for that to happen? And so based on where we are right now, we don't see that as an issue, again, in terms of how we're thinking about the business next year, how we thought about from a color perspective, even absorbing the expectation of potential supply disruptions.
Speaker Change: Got you I don't think you've said this explicitly but it seems like based on your overall commentary you think you can get back there I guess I wanted to understand is there any scenario, where you might have to raise more capital or its something you have to go significantly wrong from here for that to happen.
Speaker Change: And so based on where we are right now we don't see that as an issue again in terms of how we're thinking about the business next year, how we thought about from a color perspective, even absorbing the expectation of potential supply disruptions, we see line of sight of being able to manage this business in a way.
Lea Knight: We see a line of sight of being able to manage this business in a way where we remain under that debt covenant.
Speaker Change: We remain under that covenant, but again I can't speculate on some of those.
Lea Knight: But again, I can't speculate on kind of some of those existential events that could occur and impact Okay, great.
Robbie Marcus: As a central events that could occur and impact that.
Lea Knight: Thank you so much.
Speaker Change: Okay, great. Thank you so much.
Speaker Change: Uh huh.
Speaker Change: Thank you.
Richard Newitter: Now next question coming from the line of Richard Newitter with Swiss Securities.
Speaker Change: And our next question coming from the line of Richard <unk> with <unk> Securities. Your line is now open.
Richard Newitter: Your line is now open. Hi, thanks for taking the questions and Jan, good luck going forward. Great working with you. Wanted to just get a sense for What kind of share recapture on some of these, you know, products that have been off the market that are coming back on? What kind of share recapture are you seeing already as they come on? And how is that informing whatever share recapture assumptions you're considering to achieve that mid-single-digit growth in 2025? We'd love to just hear kind of strategically how and why you're able to capture share, the degree to which you are, and what's kind of embedded to get to a mid-single-digit growth rate next year.
Speaker Change: Hi, Thanks for taking the questions.
Robbie Marcus: Good luck going forward, great working with you.
Robbie Marcus: Hum.
Richard <unk>: I wanted to just get a sense for.
Richard <unk>: What kind of share recapture and some of these.
Robbie Marcus: The products that have been off the market that are coming back on what kind of share capture.
Robbie Marcus: Are you seeing already.
Robbie Marcus: As they come on and how is that informing whatever share recapture assumptions, you're considering to achieve that mid single digit growth in 2025.
Robbie Marcus: Would love to just hear kind of strategically how and why youre able to capture share of the degree to which you are and what's kind of embedded.
Robbie Marcus: You get to a mid single digit growth rate next year, and then I have a follow up.
Jan Witte: And then I have a follow up. Thank you. Thank you, Rich, for the question. Yeah, I say. said earlier, right? Most of these shipping holds are not. long term.
Speaker Change: Thank you. Thank you rich for the question.
Robbie Marcus: Yes.
Robbie Marcus: Said earlier right.
Robbie Marcus: Most of these shipping holds or not.
Jan Witte: And so first, that means that some of our customers still have their Inventor on the Shelf that they live off, which kind of further shortens the outage for them. What we've seen over the past three months is that those couple of weeks of potential outage. Given these specifications of our products, we get back to pretty much full share of our And so that's the, at least over the past months, has been the experience.
Robbie Marcus: Long term and so first it means that some of our customers still have there.
Robbie Marcus: Inventory on the shelves that a lift off.
Robbie Marcus: Kind of further shorts.
Robbie Marcus: The outage for them.
Robbie Marcus: What we've seen over the past three months of that those couple of weeks of potential outage.
Robbie Marcus: Given these specification of our products, we get back to pretty much Fuller full share.
Robbie Marcus: And so that's the at least over the past months has been the experience. It leads to further make sure when we have.
Jan Witte: It leads us to further make sure when we have a... stock shipments. laser focus to make sure we limit that time and limit the risk for for share loss.
Robbie Marcus: Stop shipment.
Robbie Marcus: Yeah.
Robbie Marcus: <unk> focus to make sure we limit that time and limit the risk four four share loss.
Robbie Marcus: Sure.
Richard Newitter: Okay, and I guess two follow-ups, sorry. One, should we think of whatever it takes to get back up to mid-single digits for a full-year basis relative to the full-year 24 basis, that it's going to be significantly, significantly back halfway?
Robbie Marcus: Okay and.
Robbie Marcus: I guess two.
Speaker Change: Two follow ups, sorry, one should we think of whatever it takes to get back up to mid single digits for a full year basis relative to the full year of 24 basis that it's going to be significantly significantly back half weighted is that a fair assumption and then just a second follow up is should we be thinking.
Richard Newitter: Is that a fair assumption?
Richard Newitter: And then just the second follow-up is, should we be thinking about all products that have the potential to go on shiphold as equally kind of equal level of confidence to get to that share capture or share recapture situation? I appreciate they're transients, but are all products equal in terms of losing business and then being able to regain it back if competition stepped in?
Robbie Marcus: About all products that have the potential to go on ship hold is equally kind of.
Robbie Marcus: Equal level of confidence.
Robbie Marcus: Get to that share capture for share recapture situation.
Robbie Marcus: I appreciate their transient but are all products equal in terms of losing business and then being able to regain it back it's competition stepped down thanks.
Lea Knight: Thanks. Let me let me take that in terms of your first question in terms of how to think about the business mid single digit organic growth throughout 2025. I would not say we should necessarily assume it's back half oriented or back half weighted for 2025. We should be able to again, because of our allowance around the potential for supply disruption, you shouldn't see that, you know, a significant back half swing.
Speaker Change: So let me let me take that in terms of your first question in terms of how to think about.
Robbie Marcus: The business mid single digit organic growth throughout 2025.
Robbie Marcus: I would not say you should necessarily assume its back half oriented or back half weighted for 2025.
Robbie Marcus: We should be able to again because of our allowance around the potential for supply disruption you shouldn't see that a significant back half swing in terms of the.
Lea Knight: In terms of the Your second question with respect to individual products. So I think across the, and I'll talk about it through two lenses, from a CSS perspective, the products that were impacted by the compliance shipping holds, you had some that were out for a matter of weeks, some that were out, you know, a month or two, and some that were out for kind of the duration of Q3. And to Jan's point, those that were out for, you know, a few weeks, that's where we don't anticipate much of any impact from a share perspective. Those that were out a little longer, it will take a little longer to get us back up to share, but share recapture position.
Robbie Marcus: Your second question with respect to individual products, So I think across the and I'll talk about it through two lenses from our CSS perspective, the products that were impacted by the compliance shipping hold you had some that were out for a matter of weeks that were out.
Robbie Marcus: Month, or two and some that were out for kind of the duration of Q3 and to John's point those that were out for a few weeks, that's where we don't anticipate.
Robbie Marcus: And any impact from a share perspective those.
Robbie Marcus: Those with that we're out a little longer.
Robbie Marcus: We'll take a little longer to get us back up to share, but the share recapture position, but as we move into 2025, that's where we think we have an opportunity to resume our position from our integra skin perspective, which is the other area that we were impacted from a supply this year.
Lea Knight: But as we move into 2025, that's where we think we have an opportunity to resume our position. From an IntegraSkin perspective, which is the other area that we were impacted from a supply this year, that's where we, again, as we are entering into Q4, and we're getting back to our historical revenue run rates, you know, we'll see evidence of that in Q4, and we expect to be able to move forward into 2025, managing at that level.
Robbie Marcus: That's where we again as we are entering into Q4, and we're getting back to our historic historical revenue run rate.
Robbie Marcus: We will see evidence of that in Q4, and we expect to be able to move forward into 2025 managing at that level.
Speaker Change: Thank you.
Speaker Change: Thank you.
Craig Bijou: Our next question coming from the line of Craig Bijou with Bank of America Securities. Your line is now open. Good morning and thanks for taking the question and Jan, wish you luck in the future.
Speaker Change: Next question coming from the line of.
Speaker Change: Greg <unk> with Bank of America Securities. Your line is now open.
Speaker Change: Good morning, and thanks for taking the question.
Speaker Change: No wish wish you luck in the future I wanted to start with a clear and obviously you guys have called out the strength. There I think your guidance has you up $10 million to $11 million more than what you had expected initially.
Craig Bijou: I wanted to start with a clarent. Obviously you guys have called out the strength there. I think your guidance has you up 10 to 11 million more than what you had expected initially.
Lea Knight: Can you just kind of run through, you know, what's been going better than expected there and remind us of the growth profile of that business that we should be thinking about in 25 and Certainly. So we continue to be excited about the clearance acquisition and the overall progress of the integration. As you recall, in our previous call, we saw early indicators of strong integration. The business had outperformed expectations in Q2, which warranted a call up in kind of revenue for that business for the year. To your point, we saw once again in Q3 additional strong performance in that business, and it is leading us to call revenue on that business at $97 million, where previously we had called about $86 million, so up to about that $10 to $11 million that you referenced.
Robbie Marcus: Could you just kind of run through whats whats been going better than expected, there and remind us of the growth profile of that business that we should be thinking about in 'twenty five and beyond.
Speaker Change: Certainly so where we continue to be excited about the claris acquisition and the overall progress of the integration.
Speaker Change: You recall in our previous call. We saw early indicators are strong integration the business had outperformed expectations in Q2, which warranted a call up and kind of revenue for that business for the year two year point.
Robbie Marcus: We have solid once again in Q3.
Robbie Marcus: Additional strong performance in that business and it is leading us to call.
Robbie Marcus: Revenue on that business at $97 million, where previously we had call it about $86 million up about that $10 million to $11 million that you referenced and again at the time when we originally set the guide for a clear we were allowing for the potential for integration disruption.
Lea Knight: And again, at the time when we originally set the guide for Eclair, we were allowing for the potential for integration disruption, as we've experienced in the past. As most companies experience in the past in terms of integrations of this magnitude, but we've been able to manage through that successfully. Going forward, what we've said in the past, and we continue to believe is true, that business has the ability to deliver high single-digit growth. And so that would be how we expect to drive this business in 2025. Got it.
Robbie Marcus: We have experienced in the past.
Robbie Marcus: Most companies experienced the past in terms of integration of this magnitude.
Robbie Marcus: But we've been able to manage through that successfully.
Robbie Marcus: These forward what we've said in the past and we continue to believe is true that business has the ability to deliver high single digit growth and so that would be how we expect to drive this business in 2025.
Speaker Change: Got it thanks.
Lea Knight: Thanks, Lea.
Lea Knight: And one new, I guess I wanted to ask specifically on the supply challenges in the dural repair business. I believe that's new this quarter, but please correct me if I'm wrong. But if you could just give a little bit more color on that, that'd be great. Yeah, so within our Dural Access and Repair business, we did initiate a voluntary recall in Q3 on our Patties and Strips business. Patties and Strips for us is, while very important to our customers, is a relatively small portion of our revenue base, less than 2% of our annual revenues. And so that's the nature of the supply hold that you asked about.
Speaker Change: One new I guess I wanted to ask specifically on the supply challenges in the dural repair business I believe thats, new this quarter, but please correct me if I'm wrong, but if you could just give a little bit more color on that that'd be great. Thanks.
Speaker Change: Yeah, so within our dural access and repair business.
Robbie Marcus: <unk> initiated a voluntary recall and shoes.
Robbie Marcus: Right.
Robbie Marcus: Our patties and stripped the business.
Robbie Marcus: <unk> for us is.
Robbie Marcus: Very important to our customers is relatively small.
Robbie Marcus: Small portion of our revenue base with less than 2% of our annual revenues.
Robbie Marcus: And so that's the nature of the.
Robbie Marcus: Of the supply.
Robbie Marcus: Hold that you asked about.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Joanne Wuensch: And our next question coming from the line of Joanne Wuensch with City, your line is now open. Oh, good morning. And thank you for taking the question. It sounds like the implementation of the master compliance plan has really, you know, brought certain things into light and maybe put, I don't want to put words in your mouth, but maybe, you know, guardrails on how you're progressing. But I'd love to get your opinion on what you see as the positives and the negatives of this program. And is this something which rolls through over the next year, over the next couple of years?
Speaker Change: And our next question coming from the line of Joanne Wuensch with Citi. Your line is now open.
Joanne Wuensch: Good morning, and thank you for taking the question.
Joanne Wuensch: Sounds like the implementation of the Master compliance plan has really.
Joanne Wuensch: <unk> brought certain things until you put.
Joanne Wuensch: I don't want to put words in your mouth, but maybe you.
Joanne Wuensch: Guardrails on how you're progressing but I'd love to get your opinion on what you see as a positive or negative about this program and is this something which rolls through over the next year over the next couple of years or how do we think about it. Thank you.
Joanne Wuensch: Or how do we think about it? Thank you.
Jan Witte: Thank you, Joanne, for that question. So when we talk about the Compliance Master Plan, Essentially, we're... doing is a program that we have structured after the different chapters and elements of the industry standard quality system regulations, or QSR, right? And so the systemic way we look into our KAPA management process, we look into our document and record controls, and so on and so on. What the program allows us is to structure and Holistic Approach to Audit and Remediate our Quality Management System. Okay, pretty much in line with how most of the audits look at the quality management system.
Speaker Change: Okay. Thank you Joanne for the question. So when we talk about compliance Masterplan essentially.
Robbie Marcus: Doing it as a.
Robbie Marcus: A program that we have structured after the different.
Robbie Marcus: Elements of the.
Robbie Marcus: Industry standard quality system regulations, our queues are alright.
Robbie Marcus: So in a systemic way, we look into our capital management process as we look into our document.
Robbie Marcus: Record controls and so on and so on what the program allows us to as structured.
Robbie Marcus: And holistic approach to audits.
Robbie Marcus: And remittance EHR quality management system and pretty much in line with most of the auditors.
Robbie Marcus: Look at the quality management system and so what it does is it strengthens our resiliency.
Jan Witte: And so what it does is it strengthens our resiliency, our predictability. I think the flip side while we do that is that we may identify some issues, some observations that will lead to some of those quality holds that we have been talking about, but it will make the company predictable, more resilient. drive effectiveness and efficiency in our process. And I would assume it's going to continue for a period of time. But we vote over 2025 further. have observations that will translate into corrective action. And that's where, before we could communicate, it's an 18-month process that we started last.
Robbie Marcus: Predictability.
Robbie Marcus: I think the flip side, while we do that is that we may identify some issues. Some observations digital leads to some of those quality holds that we have been talking about but it will make the company predictable more resilience.
Robbie Marcus: And the MTO.
Robbie Marcus: Drive effectiveness and efficiency in our process.
Robbie Marcus: And I would assume it's going to continue for a period of time.
Robbie Marcus: So we have over 2025 further yes.
Robbie Marcus: Half of observations that will translate into corrective actions.
Robbie Marcus: And Thats, where before we communicated say 18 months.
Robbie Marcus: A process that we started last summer.
Joanne Wuensch: Terrific.
Joanne Wuensch: Thank you so much and best of luck.
Speaker Change: Terrific. Thank you so much.
Speaker Change: Best of luck.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Thank you.
Operator: At this time, we have no further questions in the queue.
Speaker Change: At this time, we have no further questions in the queue. This will conclude today's conference call. Thank you for your participation and you may now disconnect.
Operator: This will conclude today's conference call. Thank you for your participation, and you may now disconnect.
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