Integra Lifesciences Holdings Corp Q4 FY2025 Earnings Call

Good day, and welcome to the Integra LifeSciences Fourth Quarter 2025 Financial Results. This call may be recorded. I would now like to turn the call over to Chris Ward, Senior Director of Investor Relations. Please go ahead.

Good morning, and thank you for joining the Integra LifeSciences Fourth Quarter 2025 Earnings Conference Call. With me on the call are Mojdeh Poul, President and Chief Executive Officer; and Lea Knight, Chief Financial Officer. Earlier this morning, we issued a press release announcing our fourth quarter 2025 financial results. The release and corresponding earnings presentation, which we will reference during the call, are available at integralife.com under Investors, Events and Presentations in the following fourth quarter 2025 earnings call presentation. Before we begin, I want to remind you that many of the statements made during this call may be considered forward-looking. Factors that could cause actual results to differ materially are discussed in the company's Exchange Act reports that are filed with the SEC and in the release. Also in our prepared remarks, we will reference reported and organic revenue growth. Organic revenue growth excludes the effects of foreign currency, acquisitions and divestitures. Unless otherwise stated, all disaggregated and franchise level revenue growth rates are based on organic performance. Lastly, in our comments today, we will reference certain non-GAAP financial measures. Reconciliations of non-GAAP financial measures can be found in today's press release, which is an exhibit to Integra's current report on Form 8-K filed today with the SEC. And with that, I will now turn the call over to Mojdeh.

Good morning, everyone, and thank you for joining us for our Fourth Quarter 2025 Earnings Call. Before I review our 2025 performance and outline our priorities for 2026, I want to briefly acknowledge the recent Supreme Court decision and the administration's announcement regarding new Section 122 tariffs. While these are meaningful developments, there remains substantial uncertainty around the implementation and timing. As a result, our 2026 full year and first quarter guidance do not incorporate these tariff changes. We are actively monitoring the situation, and Lea will provide more details and context in her remarks. In the fourth quarter, we advanced our transformation, continued to deliver for our customers and patients, and met our financial commitments with revenue of $435 million and adjusted earnings per share of $0.83, both above the midpoint of our guidance range. This performance builds on a year of meaningful operational and strategic progress. During the year, we further strengthened our quality management system, advanced our compliance master plan, and progressed execution of our risk-based remediation plan while maintaining constructive engagement with the FDA on our warning letter commitments and routine inspections. We also improved supply reliability, enhanced our execution capabilities, and delivered significant outcomes in key supply chain resiliency efforts. Additionally, we advanced our strategy in China, completing the submission of our initial regulatory requirements. These accomplishments, supported by our portfolio prioritization and disciplined capital allocation, are reinforcing the foundation for future growth and innovation. I want to thank our employees for their significant contributions throughout 2025. Their efforts and steadfast focus on our purpose and our customers have been instrumental in solidifying our foundation and positioning us well for the opportunities ahead. Throughout 2025, we took several important steps to strengthen our company. We welcomed six new leaders to our executive leadership team, adding depth and capabilities that collectively represent decades of global med tech experience, supporting our focus on quality, execution, and long-term growth. We improved our quality and manufacturing organizations and established operating mechanisms that are driving disciplined execution. We created a transformation and program management office that is focusing the organization on our most important priorities and driving greater accountability across the company. We also launched a supply chain control tower, providing daily visibility into key operational metrics and performance across our global network. These mechanisms are already translating into improved operational performance. Our manufacturing resiliency efforts are delivering meaningful yield and supply improvements in Integra Skin and in rebuilding safety stock across critical product lines. We also completed the early relaunch of PriMatrix and Durepair through a dual sourcing strategy with strong reception from our customers. In parallel, we continued our investment and progress in innovation and clinical evidence. We launched the MAYFIELD Ghost in the U.S. and received an expanded indication for CUSA Clarity in cardiac surgery. We also advanced key clinical evidence programs in support of our wound care portfolio growth and are seeing a meaningful early start in the AERA pediatric registry as part of our ENT business. As part of the next phase of our transformation, we have put in place a new operating model to reduce complexity and improve efficiency, alignment, and accountability. Some of the changes associated with the implementation of this new model have impacted our team members. We care deeply about our people and do not take these decisions lightly. These changes are necessary to deliver consistently for our customers and their patients while ensuring the long-term growth, profitability, and success of our company. We remain disciplined in balancing the investments required to strengthen our foundation with improved profitability and cash flow, enabling us to reduce our balance sheet leverage in 2026. If you turn to Slide 5, you'll see how our long-term value creation model is defined by two parallel reinforcing horizons. As we look to 2026, we are focused on four strategic imperatives that will guide our priorities, actions, and resource allocation. These are delivering best-in-class quality, driving supply chain reliability, accelerating growth, and igniting innovation. Delivering quality and supply chain reliability have been and will continue to be the focus of the first horizon of our transformation while accelerating growth and innovation define Horizon 2. Both horizons are critically important for our longer-term sustainable growth, profitability, and value creation. Importantly, these two horizons are not binary. We are executing priority programs that support both horizons. While Horizon 1 remains focused on strengthening quality, supply chain reliability, and execution discipline, we are also selectively investing in targeted growth and innovation initiatives that support our growth acceleration in Horizon 2. We will accelerate growth in Horizon 2 by innovating and expanding category leadership where we have clear differentiation and by investing in opportunities that are aligned with our portfolio prioritization. We will continue to build our new product pipeline, advance clinical evidence, and pursue category expansion to drive sustainable growth into the future. A growth priority for us this year is to bring our key products back to the market. We remain on track to have the new Braintree manufacturing facility online by the end of June, with equivalent qualification and validation progressing as planned. Once operational, Braintree will support the build-out of the inventory to enable the return of SurgiMend to the market in the fourth quarter of 2026. Further, upon receipt of PMA approvals for both SurgiMend and DuraSorb, we will have a compelling portfolio of biologic and synthetic products that can capture a meaningful share of the large and growing market for implant-based breast reconstruction. We have additional growth opportunities in outpatient wound care following the CMS reimbursement changes that went into effect on January 1 of this year. These changes have created a level and economically rational playing field in the outpatient setting. Our portfolio was already aligned to the new reimbursement levels and along with our strong clinical evidence and presence in hospital-based care, we are now uniquely well positioned to broaden our reach across all sites of care. Lastly, but importantly, impactful innovation and clinical evidence generation remains central to our growth strategy. We are strengthening R&D processes, program management, and execution discipline. Portfolio prioritization is directing investments towards a focused set of high-growth, high-margin opportunities where we have a clear right to win. To accelerate innovation with greater focus, speed, and impact, we recently added a Chief Technology Officer role to our executive leadership team. Teshtar Elavia joined Integra in February as Chief Technology Officer and brings us more than 20 years of med tech R&D experience, most recently as Vice President of R&D at Becton Dickinson. Looking ahead, we see continued demand for our products and our future innovations. As we further strengthen our quality management system, supply reliability remains the main driver of performance predictability for us. The progress achieved in 2025 gives us confidence for the year ahead, and we are excited about Integra's long-term growth and value creation prospects. With that, I will now turn the call over to Lea.

Thanks, Mojdeh. We'll begin with our full year financial results, starting with Slide 6. Full year 2025 revenue was $1.635 billion, representing 1.5% growth on a reported basis and a 0.7% organic decline. The full year contribution from the Acclarent acquisition was a key contributor to reported growth while we managed quality remediation work and supply constraints that affected organic growth performance throughout the year. Despite these operational impacts, demand across the portfolio remains strong. For the full year 2025, we delivered double-digit growth in CereLink, MAYFIELD Capital, Aurora, DuraSorb programmable valves, and six pressure valves. We also achieved above-market growth in DuraGen and Jarit instruments, demonstrating the meaningful value our technologies bring to customers and the effectiveness of our commercial teams. Full year gross margin was 61.9%, down 260 basis points year-over-year, reflecting tariffs, supply pressures, and incremental costs associated with our compliance master plan. These same factors weighed on profitability with adjusted EBITDA margin of 19.4%, down 60 basis points and adjusted EPS of $2.23 compared to $2.56 in 2024. Disciplined cost management actions helped mitigate some of the impact on both adjusted EBITDA and adjusted EPS. Cash flow from operations for the full year was $50.4 million. Capital expenditures totaled $81.4 million. During the year, we invested in manufacturing infrastructure to improve supply reliability. We also continued funding two major initiatives: construction of the Braintree facility and supporting EU MDR compliance. These projects accounted for about $97 million in cash outlays. As investments in these programs wind down and we see improved working capital and adjusted EBITDA, we expect to see a meaningful improvement in free cash flow beginning in 2026. On Slide 7, I will cover our fourth quarter financial results. Our fourth quarter revenues were $435 million, representing a decrease of 1.7% on a reported basis and an organic decline of 2.5%, reflecting a particularly strong prior year comparison that was factored in our guidance. We saw a $33 million sequential increase in revenue from the third quarter due to improved supply and seasonality. Adjusted EPS for the quarter was $0.83 compared to $0.97 in the prior year, which benefited from lower net interest expense and absence of tariffs and a more favorable adjusted effective tax rate in Q4 2024. Gross margin for the quarter was 61.7%, down 350 basis points from the prior year, reflecting increased costs associated with remediation and our compliance master plan, tariffs, and an unfavorable product mix. Adjusted EBITDA margin was 24%, up 30 basis points versus Q4 2024, with the above-mention factors impacting gross margins being offset by disciplined cost management. Cash flows from operations totaled $11.8 million in the fourth quarter, and capital expenditures were $17.2 million. Turning to Slide 8, we'll take a deeper dive into our CSS revenue highlights for the fourth quarter. Global Neurosurgery delivered 1.4% organic growth, supported by broad demand across the portfolio and strong performance internationally. Growth was led by double-digit performance in CereLink, MAYFIELD Capital, and Aurora with above-market contributions from BactiSeal, DuraGen, and CUSA. Our capital business grew in the low double digits, benefiting from strong pipelines and disciplined commercial execution. Instruments posted low single-digit growth, consistent with market trends. In ENT, revenue grew 2.2%. AERA and TruDi navigated disposables experienced double-digit growth, while MicroFrance ENT instruments saw mid-single-digit gains. However, these positive results were partly offset by continued reimbursement headwinds affecting sinuplasty balloons. International markets remained a meaningful contributor to the CSS business with high single-digit growth led by double-digit performance in China and Canada. Overall demand indicators across our global markets remain strong. Moving to our Tissue Technologies segment on Slide 9. Tissue Technologies revenues were $111.6 million, down 12.8% on both a reported and organic basis compared to the prior year. Fourth quarter sales in our wound reconstruction franchise declined 21.4%, reflecting the previously communicated remediation efforts for MediHoney and a tough comparison with last year's record Integra Skin revenue, which benefited from significant backorder clearance in the fourth quarter of 2024. In private label, sales were up 20.1% year-over-year due in part to improved partner orders and timing. Finally, international sales in Tissue Technologies declined by low double digits, reflecting Integra Skin lapping its strongest revenue quarter last year following backorder clearance and the impact of MediHoney. If you turn to Slide 10, I will provide a brief update on our balance sheet, capital structure, and cash flow. During the quarter, operating cash flow was $11.8 million, driven by restructuring costs and an increase in working capital due to revenue collection timing in the period. Free cash flow was negative $5.4 million and free cash flow conversion was minus 8.5% for the quarter. As of December 31, net debt was $1.6 billion, and our consolidated total leverage ratio was 4.5x within our current maximum allowable leverage of 5x. We expect to remain within our allowable leverage through 2026. We expect to see meaningful deleveraging, which will allow us to approach the upper end of our target leverage range of 2.5x to 3.5x by the end of 2026. The company had total liquidity of approximately $516 million, including approximately $264 million in cash and short-term investments, with the remainder available under our revolving credit facility. Turning to Slide 11, I will provide our consolidated revenue and adjusted earnings per share guidance for the first quarter and full year 2026. I will also provide perspective on the treatment of tariffs in our guidance considering the recent Supreme Court ruling and subsequent response from the administration. For the first quarter, we expect revenues to be in the range of $375 million to $390 million, representing reported growth of minus 2% to positive 1.9%. This includes an approximate 140 basis point tailwind from foreign exchange. We expect organic growth to range from minus 3.4% to positive 0.5%. First quarter revenue guidance reflects an approximate $10 million headwind, primarily due to MediHoney and order timing. Turning to the full year 2026. We expect revenues to be in the range of $1.66 billion to $1.7 billion, reflecting modest top line growth expectations. This equates to reported revenue growth of 1.6% to 4.1%, reflecting an approximate 80 basis point foreign exchange tailwind and organic growth of 0.8% to 3.3%. Regarding the quarterly revenue progression through 2026, the sequential step down from the fourth quarter into the first quarter reflects a quarterly cadence that is consistent with what we've experienced in recent years, particularly following a strong fourth quarter growth. We continue to see solid underlying demand across the portfolio, while organic growth is still impacted by supply. As the year progresses, we expect revenue to build supported by normal seasonality, continued share recapture, and supply recovery. Turning to adjusted earnings per share and tariff treatment in our guidance. On Friday, the U.S. Supreme Court ruled that the tariffs imposed under the International Emergency Economic Powers Act were unlawful. For context, the company paid approximately $20 million in tariffs in 2025, of which an estimated $16 million was imposed under IEEPA authority. Following the ruling, the administration announced that it is imposing a new global tariff under Section 122 of the Trade Act. Given the continued uncertainty regarding implementation details, potential exemptions, and any subsequent trade actions, the ultimate impact of these measures remains unclear. Accordingly, the company's guidance continues to reflect the tariff assumptions in place prior to developments this past week and does not contemplate the recovery of any amounts paid prior to the Supreme Court ruling. We expect first quarter adjusted earnings per share of $0.37 to $0.45. This includes an approximate $0.07 impact from tariffs. Also worth noting that we expect the benefits of the operating model changes to materialize beginning in the second quarter. For the full year, we expect adjusted earnings per share in the range of $2.30 to $2.40. Full year earnings per share reflect an approximate $0.32 impact of tariffs, offset by the execution of our margin improvement initiatives and ongoing operational improvements, resulting in gross margins that are expected to be approximately flat with the prior year and EBITDA margin improvement of approximately 40 basis points. For your reference, we have included the key assumptions underlying our first quarter and full year guidance as well as key modeling inputs on Slide 12. With that, I will turn the call back to Mojdeh.

Thank you, Lea. In closing, as we look ahead in 2026, our focus remains on continuing to strengthen the foundation of the business. We will continue to advance quality, improve supply reliability, and drive consistent execution across the organization. At the same time, we are being deliberate in positioning the company for what comes next. As we return key products to the market, recapture share, and sharpen our approach to innovation and portfolio prioritization, we are laying the groundwork to support accelerated growth over time. With strong positions in attractive end markets, our focus in 2026 will remain on delivering quarter-to-quarter consistency while building the foundation for sustainable growth and value creation. With that, operator, please open the lines for questions.

Our first question comes from Ravi Misra with Truist Securities.

I guess two questions for me upfront. First, just on the free cash flow generation and improvement. It's a little bit weaker than I think we thought what we were looking for on kind of the prior expectations. Can you just help tease that out a little bit and what you're kind of contemplating in 2026? And then secondly, just on the Tissue Technologies business, a lot of stuff just going on, still lingering in the air here around CMS changes and how companies are reacting to that. Can you maybe talk about what you're seeing in the field here early on in the first quarter?

So I'll start, and thank you for the question, Ravi. In terms of free cash flow for the quarter, to your point, free cash flow was negative $5 million. A lot of that was driven by the timing of collections in the period. So that explains about two-thirds of that. The other one-third is driven by restructuring costs associated with the transformation and the model changes that Mojdeh referenced in her remarks. Perhaps more importantly, though, as we move into 2026, we do expect to see a much improved cash flow profile. We're going to experience reduced cash outlays associated with some of our key initiatives that I talked about, namely EU MDR compliance along with Braintree. And for reference, to put it in context, for 2026, we're expecting operating cash flow to be north of $200 million, which is about $150 million improvement over 2025 landed. About half of that $150 million is driven by EU MDR and Braintree cost reductions. And then the other half is driven by improved working capital profile, lower CapEx, and better EBITDA for the year.

Yes, Ravi, this is Mojdeh, and thanks for your question. To answer your second question, the reimbursement changes, yes, there are changes that are happening in the market and where they actually are going to land remains to be seen. We're continuing to monitor. But suffice it to say that, again, a reminder, our business is 90% in the acute care setting. And also one thing to keep in mind is the pricing that we have for our products is well within the new reimbursement range. So we do not expect to see any negative impact on our business as a result of the changes. One of the things that we're hearing though from the market, and we're seeing in the market, is that the customers are really curious about better understanding the dynamics and the changes and our health economics teams are being asked by some of our major customers to actually sit down and educate them on what the changes are, which is a great opportunity for us because, if anything, the changes are very much aligned with the strategy that we've had for this product category, which is an investment in clinical evidence, health economics as well as then being able to represent our full portfolio across the entire sites of care. So obviously, the anticipation is that this market is going to shrink because of the reimbursement pricing significantly being reduced. And who are the players that are going to remain in the market remains to be seen as to how much they can economically absorb because of this significant reduction in the reimbursement rate.

Our next question comes from Robbie Marcus with JPMorgan.

This is Allen on for Robbie. Just to start off, I wanted to ask on your assumptions behind growth for both CSS and Tissue Tech, both for the fourth quarter and for the full year, just how you're thinking about that in the context of the full company guide.

Yes, certainly. From a Q4 perspective, I want to express our excitement about the business performance. We achieved a sequential increase of approximately $33 million compared to Q3, which demonstrates the strong demand for our portfolio. In terms of CSS and Tissue, both segments delivered revenue that met our expectations. CSS showed low single-digit growth despite a challenging comparison from the previous year, where we had a supply interruption in Q3 of 2024. Q4 benefited from clearing backorders, resulting in double-digit growth in parts of the CSS portfolio, including CereLink, MAYFIELD Capital, and Aurora, along with high single-digit growth in CUSA. When it comes to Tissue, we also observed declines in Q4, which we anticipated, primarily due to the MediHoney remediation challenge and a strong prior year comparison for Integra Skin. We did see a robust clearance of backorders for Integra Skin in Q4 of 2024. Looking ahead to 2026, it's essential to clarify our growth expectations for these businesses as we prepare our guidance for the year. Our guidance is strategically designed to reflect our progress in remediation efforts throughout the year. It accounts for a gradual reintroduction of products to the market, while allowing for the cautious layering of supply from products not currently available. Consequently, we expect growth for both CSS and Tissue to be below market levels, primarily due to supply constraints rather than a lack of demand. Specifically, we anticipate low to flat single-digit growth for CSS and low to mid-single-digit growth for Tissue Tech in 2026.

Got it. And you kind of touched upon my follow-up question there, but just the health of the underlying markets and the demand you're seeing both from a procedure and capital standpoint just to kick off the year, has it remained relatively healthy? And what are you assuming for the balance of the year?

Yes. So to that end, exactly, the growth expectations aren't a reflection of demand. We do continue to see strong demand across both parts of the business as evidenced by what we saw in our performance in Q4. And then even on Tissue Tech, as we exited Q4, we continue to see strong momentum on that business specific to Integra Skin that we expect to drive kind of the full year growth expectation that I articulated.

Our next question comes from Vik Chopra with Wells Fargo.

This is Namrata on for Vik. I have two questions. So first, with Braintree expected to resume mid-2026, and SurgiMend relaunching in Q4, what are some of the key milestones you're focused on to ensure a strong return to market?

Thank you for your question. We remain on track with the operationalization of the Braintree by the end of June of this year. And the milestones that are remaining are mainly process validations that are required before we get to the inventory build. So we remain on track for that. And those are going to continue until the plant is operationalized.

That's helpful. I have one other question. So for PriMatrix and Durepair, these have been historically very solid contributors. So what's your outlook for the recovery and ramp in 2026?

We relaunched Durepair and PriMatrix early, about 12 months ahead of schedule, in Q4 of 2025. The initial feedback on both products has been very positive in terms of customer reception as we re-enter the market. We are focusing on this success and planning to build on it throughout the year. In our guidance strategy, we are assuming a gradual ramp-up as we recover, while applying the insights gained from this relaunch to plan for the SurgiMend relaunch, which is set for Q4 of this year. We are excited about the early feedback and the chance to make both products significant contributors to our overall performance this year.

Our next question comes from Travis Steed with BofA Securities.

This is Ray on for Travis. Just a follow up on Allen's question. What is the status of the MediHoney remediation efforts? Is it still excluded from the guide? Or has it been baked in for Q1 and 2026?

Thank you for your question. We have not accounted for any revenues from MediHoney this year in our numbers. We are currently working on remediating the product, which will continue into 2026. While we would like to expedite this process, we are taking the necessary time to ensure we do it correctly. Our priority is to return a safe and quality product to the market for our customers. We are actively working on this, and if we are able to accelerate the timeline, it would be beneficial for us. However, we do not have any projections for it included in our guidance at this time for 2026.

Makes sense. And then just one on the Tissue Technology organic growth. How much did the low double-digit decline internationally contribute to the decline there? I know you mentioned it's partly due to MediHoney, but is there any additional color you can give? Has there been any material change in international market dynamics? And how should we be thinking about China going forward?

Yes. So in terms of the international component of Tissue Tech, not as significant a driver. Our international business is primarily CSS. As you look within the Tissue Tech performance, the decline of 12.8%. Absent MediHoney, the decline would have been about 6%, and that's largely driven by Integra Skin. And again, that driver was the prior year comp, right, strong backorder clearance in Q4 of 2025. Going forward, right, as we exit Q4, we continue to see strong growth on Integra Skin, consistent with the expectations that we have for performance on the brand for the full year. So not concerned about that as we move forward. To your second question about, I think, China and as part of the international portfolio, we saw strong performance in double-digit performance in China and Canada for our international business, and we expect that to continue to be a strong growth contributor in 2026 and as we move forward.

Thank you. That concludes the question-and-answer session, and you may now disconnect. Everyone, have a great day.