Integra Lifesciences Holdings Corp (IART) September 2026 Conference Transcript

Good afternoon. My name is Ross Osborne. I'm on the MedTech team here at Wells Fargo. And please introduce management from Integra. Joining us from the company is Lee Knight, CFO, and Michael McBrenn, the new Chief Commercial Officer. Thanks for being here. So let's start at a high level. What are the most important indicators investors should watch for over the next several quarters to judge your progress?

Let me take that, and I'll start with, first, I'll point to our performance in the first two quarters of this year. If you look at our revenue performance through the first and second quarter, we performed at or above expectations for the quarter fueled by stronger supply reliability and stronger operational discipline. And so I think the first thing investors should expect is consistency and execution for us to demonstrate an ability to do that again and again and again. But beyond just revenue performance, investors should also look for us continuing to execute on our plans to drive margin expansion, improve overall cash flow generation, which will allow us to delever the balance sheet and drive execution quality. beyond that i think investors should look for those longer term value drivers of growth and value namely stronger commercial execution we're bringing more products back to market we're slowly but surely demonstrating ability to recapture our share they should look for a continued momentum towards that end and they should look for signs that we are continuing to drive forward our innovation strategy example of that is the progress that we're making with respect to our PMAs and expanded indications and implant based rest reconstruction as a telltale indicator of our ability to drive longer-term durable growth and profitability for the business great and you alluded to this but a supply reliability and product availability improves where are you seeing the biggest opportunities to translate customer relationships and to grow across the portfolio? Yeah, so the biggest opportunity we've done over the course of this year in terms of the first two quarters, where we've seen impact as a result of stronger supply reliability is in our specialty surgery business. We saw that materialize in Q2 with growth in the low single digits. We expect that to continue, certainly as we extend beyond into international markets in particular. So as we have had a broad opportunity to bring products back, the international markets have been kind of on the latter stages of reestablishing supply reliability. And so that's where we expect to see more momentum in the second half and certainly as we move into 2027.

Do you expect international to stabilize in 2027, the growth driver?

Well, international has grew in Q2.

So we do expect growth this year to contribute to overall enterprise growth. but we do you know in terms of what that business has the potential to do we expect kind of more mid single to high single digit growth and we do anticipate in 2027 for us to demonstrate an ability to get back to that trajectory I think you're also going to see and we've already seen it is with more predictability and supply you know from a commercial lead perspective what you want to see is the conversation shifting much more to clinical you know as you can imagine with the situation that we've been in has been appropriate for us to be managing our relationship with our accounts, get an inventory where it needs to be, when it needs to be, to the best of our ability. Now that we've started to bring products back, it's much more focused on conversations that are clinical in nature that will drive growth. And for someone who runs global sales forces, you end up with very excited salespeople. And this is what they do. So I think their confidence continuing to build on their inventory will create more clinical conversations, which leads to more growth.

Going off of that and looking across all of Integra, where do you see the largest competitive advantages?

Yeah, I'll take that one to begin. Yeah, so I think when you look at the history of Integra, we play in markets that are highly specialized and often the term niche. But what that really means is they're scalable to the point that we can be a number one player and we can go deep into those markets. So when I think about those markets, our really sustainable advantages are longstanding relationships with not only our surgeons, but the economic side of the businesses, be it either the IDNs, the GPO, strategic account, nationalized medicine in a country around the world. And our second is, in all likelihood, is the product lines we have that are clinically proven with deep evidence that, in many cases, doctors were trained on, they count on. We've got a series of number one brands, and as a commercial lead, that's a great luxury. And I think at its core, those are things that are very much core to our strength.

Mike, as a new chief commercial officer, what are the biggest commercial opportunities and challenges you identified in the first few months on the role?

Yeah, so this has been an interesting journey for me. I'll be very quick on this, but I have a lot of history in this business. Prior to acquisition, Codman was acquired by Integra. I had led Codman Neurosurgery and Neurovascular commercially. First three years at Integra, we were running Integra International. So I had all these product lines, including tissue reconstruction, in the last six years running specialty surgery. So I knew what I was getting into, right? I knew the commercial strengths. I knew the global markets. So the things I immediately were focused on are the overarching opportunities for us to make life easier for reps and our customers that would apply to every sales force globally, either tissue reconstruction, specialty surgery, or international. And areas that I've seen around those are, one, taking much more advantage of our enterprise contracting opportunities across this wide portfolio we have, and two strong positions in tissue reconstruction, especially surgery and neuro-NT and instruments, and really bringing that into the ability to have one person kind of conduct that across the business. I think that's the first one that's really jumped off. And I think, you know, there's many others, but for all the things we're going to talk about today, I'll leave it at that.

And then maybe turning to your 2Q results and outlook for this year. So you reaffirmed organic growth of 0.8% to 3.3%. What gets you, the low end versus the high end?

So as part of that guide, that guide that we talked about in Q2 reflects assumption around normal seasonal demand coupled with improving overall supply reliability. we know that across our product categories, we're still rebuilding a normal cadence as we continue to improve supply. And so that does create some variation that explains the kind of low end, the high end from a revenue perspective. As it relates to EPS, we also implemented a number of cost saving initiatives this year tied to our transformation. Those initiatives went into effect in Q1 And then we've been realizing the benefits of that as we progress through the year. So that also provides kind of a range around outcomes that will help contribute to overall delivery of EPS. But the bigger takeaway as it relates to our guide is it's really around consistent execution. We're not counting on any material contribution from products that we haven't already brought back into the market in order to drive our expected outcomes.

Right. And then on the EBITDA margin, expanded nicely in the Q2 to 18.7%. And then guidance implies roughly 100 BIPs, so full year extension. How much of the second half step up is around volume and mix versus more cost-saving initiatives?

Yeah, as you think about that 100 BIPs, and again, that's 100 BIP improvement, full year 26 versus full year 25, 60 basis points of that is going to come through gross margins. And that's going to come as a result of just having lower compliance and remediation costs, being able to meet demand more consistently and maintain our products in market. Also, some of the cost savings initiatives that I referenced earlier will contribute to help drive that outcome. The other 40 basis points is coming from efficiencies around OPEX, lower reliance on third-party services and consulting to drive overall cost savings in that area to ultimately get to the 100 basis points of improvement in terms of total EBITDA. And the progress that we're seeing through the first half gives us confidence that we can actually execute to that end. Okay.

And I guess within the 60 BIPs bucket, compliance remediation costs, what's your visibility there? How much left is left on the 60 BIPs for the year?

Well, so let me talk through it in terms of the activities, right, that we have underway. Right now, we have outlined a remediation plan that's designed to not only address areas to strengthen our quality management system, address compliance, but also get all of our products back to market. And so the one milestone that we have left this year is to relaunch Sergimen in Q4. We now have our Braintree manufacturing site up in operational, which is a huge stepping stone to be able to get there. And so we continue to expect that to happen in Q4. And then as we get through into 2027, we do expect to bring additional products back to the market. And that will complete the majority of our remediation activities. As it relates to this year and the progress that we're making, again, because the cost-saving initiatives have already been implemented, we are seeing progress. We have kind of one full quarter of benefit already reflected in gross margins to that end. And like I said, the lower compliance events are also contributing to the results we've seen through the first half.

Great. And then in terms of gross margin in the back half of this year, should we think about a linear gross margin, So a step-up in 3Q or an acceleration in the fourth quarter?

Yes, we would expect to see an acceleration in the Q4, but behind the acceleration that we expect from a top-line perspective as it relates to kind of our full-year guide, right? If you look at the midpoint of our Q3 guide, it does imply a Q4 step-up of about $25 million on the top line, and that will help drive overall gross margin improvement that we'll also see a step up versus where we've been through the first two quarters of the year.

And then you've laid out cost-saving initiatives for next year as well. Are you still thinking about $10 million to $15 million in 2017?

So this is part of our broader margin expansion program transformation initiatives. As part of that, we implemented those cost initiatives that I mentioned in Q1, but the realization didn't start until Q2. And so those initiatives are going to deliver about $25 to $30 million through what is effectively three quarters in 2026. So we'll get an incremental $10 to $15 million as the full annual benefit in 2027.

Okay, great. And then free cash flow is also improving, and you've reiterated a goal of roughly $150 million this year. We're the largest working capital and cash conversion levers in the second half.

Yeah, so let me step through that because there are a couple of drivers to us being able to hit that. So through the first half of the year, we generated an incremental operating cash flow of about $35 million. So you think about that as your run rate for the second half of the year. In addition to that, in the second half, we know what won't repeat from the first half is an earn-out payment that we made of about $11 million. So that will add to our base run rate. On top of that, there's going to be a $30 million contribution to cash flow generation as a result of no longer having to spend behind EU MDR compliance and Braintree startup costs. In the case of EU MDR compliance, it's because we're more than 90% through our plan at this point. So those costs are literally coming to an end. And then as it relates to Braintree, it was all startup costs related. And so now that we're operational, you'll see it like a tail follow in the back half of the year. But year on year, you'll see that $30 million reduction. And then the final biggest piece is within working capital. We clearly have opportunities in receivables and payables, but the biggest working capital contribution is going to be from inventory. For the past couple of years, we've seen increases year over year. and the capabilities that we're driving, the transformation that we're driving is going to allow us to drive a lot more efficiencies in terms of how we plan and manage inventory and that will drive the remaining lever in order to hit kind of our overall expectation in terms of improving operating cash flow by $150 million, 26 versus 25.

Great. I think you've also talked about refinancing your debt. That's still a plan for this year.

Yeah. So as we mentioned on our Q2 call, we do have plans to refinance our credit facility in the back half of this year. We are making progress to that end. We will be in a position to share more details around that as the transaction finalizes. But think of it as like strong balance sheet management, good corporate hygiene, us getting ahead of a maturity in a way that will still allow us to maintain the flexibility in our capital structure that we want in order to support our long-term growth objectives. What we have shared is from an interest expense standpoint, we do expect a headwind on interest expense, but we also plan to offset it with some of the tariff benefit or favorability that we saw versus our May guidance. So that'll mitigate the impact in 26. And then as we roll into 2027 and expect another headwind on interest expense, we expect to be able to offset that with the additional cost savings that I referenced earlier.

Okay, great. And then I guess cash flow strengthening, leverage is coming down. How do you expect capital allocation priorities to evolve?

So first and foremost, we remain committed to kind of our current priorities around investing in, you know, the near-term focus around compliance, supply reliability, and executing against our remediation plan. So that will mean the clear priority. In addition to that, we are going to continue to invest in those areas that are going to move the business forward, like commercial execution and some of the plans that Mike mentioned earlier. Once those become stable, we get leverage back down to kind of our target range, and we're able to sustain kind of free cash flows that are more consistent with where this business used to be. At that point, we will reintroduce M&A as part of our capital allocation strategy to drive, again, some of the longer-term growth objectives that we have for the business.

Okay, great. A lot of numbers. Maybe we'll go back to the product portfolio. So looking at 27, Neuro, what are you most excited about?

Yeah, there's a lot on the table for Neuro. A kind of start with a comment I made a few minutes ago, which is the biggest opportunity for us in Neuro right now is for a business that has had to manage some supply is to having a full complement of our reps, most of our products back or coming back, out talking clinically and really driving growth with customers as opposed to trying to manage our situation. So we're excited about that. Reps are excited about that. On a global basis, we have a lot of opportunities. We have a lot of products that we're still bringing to international markets that have lagged a little bit behind the U.S., usually for clinical registration or trials and studies. I think you look at China as a great example of this, where we're very strong in Tier 1 and Tier 2 China, but have great plans that we're executing on the Tier 3 and 4 markets. So there's still a lot of growth for us in different markets. on on the the the kind of general commercialization side i think we've got a great opportunity across actually both businesses on launch process one of the great situations we're in is leah touched on this we have a lot of launches coming up some are relaunches and some are new products and so that rigor that that that execution of being incredibly focused on who you call on when you call and what the priority is, I think is a huge opportunity. And then let me end on an innovation theme. So we have a new product in neurosurgery coming out in 27 called Liberties. I'll frame this fairly quickly. One of our big markets is external ventricular drainage, draining from the ventricles of the brain. That tends to cause a couple of tough clinical conditions. patients will often have infection and the drains will often clog due to the material that it's draining in the cerebral spinal fluid. We have a product called BactoSeal today that deals with the infection aspect of that very effectively, number one chair position. Liberties is what we like to refer to as first in world. Liberties will address the infection issue that we tackle with BactoSeal, and it brings into a material that we actually acquired several years ago to deal with clogging, right? So we think we're going to make a huge clinical difference. We know customers are very excited, and our sales channel globally is excited to sell So there's a lot to offer in Neuro as we look at 26 and 27.

And so will Liberties capitalize BactoSeal?

To some extent, there will be some, yes, because it does have both properties. Not all patients necessarily are a match for both products, if you will. So in some cases it won't, but there will be some cannibalization factor. And obviously we'll be very selective on how we manage that. But yes, this will be, we'll call it an upgrade to back to seal and also a first in world when you look at the combined therapy.

And in terms of first in world, what clinical data is out there on it? Yeah.

Yeah, so I think this story is we will use a combination of two things. I think we're going to grow into the clinical strategy where we have a lot of data on BactoSeal. And we have a lot of real-world evidence on the material that makes up the clogging potential. So over time, we'll continue those trials. So we made a conscious decision to go out with what we think is a good data set, and we will build on it as we go. We just think it's a good use of spend and capital. And it will also point us to exactly the right studies to do. As you all know, study design and study expenses can get out of hand pretty quickly. So we'd rather be very focal on where we go. And that's how we'll roll that out across the world.

And then on the Q2 call, he held a positive view of the capital equipment environment. Is that still the case today? And what are you seeing for QSA?

Yeah, so on our capital, first of all, and Leah will correct me if I'm wrong, about 6% of our total. It's made up primarily of three products, a product called CUSA for tumor resection and removal, a product called Mayfield, which positions the patient, secures the head in the OR for neurosurgery, and Serolink for neurocritical care monitoring. That makes up our capital portfolio. When you think about a price point for this, don't think robotics or imaging. Think two of the products live, we'll call it, sub-$75,000. And in KUSA's case, the highest price you'll see it is in the $225,000 range. So a lot of our capital purchase is actually multiple products, right? So it's multiple KUSAs, multiple Seralink, et cetera. 26 has performed well. We've seen good capital budgeting. We've seen executing against that budgeting. We have a nice disposable run rate on all these businesses. So, yeah, capital has been a very solid spot, and we are very confident it will continue through this year.

And then maybe on E&T, the business declined about 2% as Micro France growth was offset by declines in other products. What's the path back to growth for the category as a whole?

I will take this, and Leah can jump in as well. When you break down why we forecasted our ENT business slightly down this year, really driven off two things. We saw reimbursement challenges on sinus balloons mainly around, it was actually an issue across the entire category, around prior authorizations for reimbursement. I think the entire segment has gotten better at that, has basically adapted to the new requirements. And I think all companies, including us, have helped their customers work through that. So we think we've got that stabilized. The other one was something when we looked to acquire a clarant in 24, in due diligence we identified a restructuring of the sales force we would do to take advantage of synergies we had, particularly in our instrument sales force, and really look at how we could restructure differently, take more advantage of the scale and as well we were very focused on revenue per call and revenue per territory so we took advantage of 26 and did that restructuring so we knew that would slow us down a little bit the the good news is it's it's primarily behind us we rolled it out earlier in the year we have a few training things and things we're doing but so both of those are behind us So I think the call for 26 was right, and we're in the right in line with that. 27, based on addressing these two things, I think you'll see us return to growth.

Great. Maybe switching gears to tissue recon and wound reconstruction, I know another company this week has said, you know, the volume shift is maybe taking a little bit longer than anticipated with Ronskin sub and reimbursement. just as maybe there's some confusion in the market. Curious to hear what you guys are seeing.

Yeah, so a couple things. One, I'll start with a little bit of backdrop about kind of our business and what we're seeing with respect to the changes in CMS. So I think providers generally are taking a harder look at product value, clinical evidence, pricing, and waste as a result of many of the reimbursement changes that have been announced. And those are all conversations that we want to have, right? As you look across our broad, differentiated portfolio, we have products that were already priced in line with the current reimbursement rate, which is at $127 per square centimeter. Our portfolio also offers a number of different sizes, which helps providers mitigate waste. And so while, yes, to your point, some competitors have had disproportionate exposure to the changes, we've actually largely been insulated as a result of them. And it does open up an opportunity for us to work with providers, to educate them on our portfolio, why our portfolio is insulated from those changes and helping them make decisions. But it also allows us to be prepared for where the market will move. And to your question specifically, yes, there's speculation that some of the volume that used to be in the outpatient physician-based areas could move into kind of inpatient adjacent, like outpatient wound clinic spaces, which we would have an opportunity to take advantage of. That part has not played out yet, so it's still evolving, but we're prepared to have those conversations regardless of where the market moves.

If the volumes don't shift, is the outpatient setting attractive?

Right now, our channel access doesn't give us an immediate lever to take advantage if it stays purely physician office space. So that would be something we would explore in terms of how we tap into that opportunity, if and when.

And then surgery men relaunch, what are the key priorities, steps ahead of it?

Yeah, so I think if you look at tissue reconstruction, just a quick update on launches. So as many of you remember, we relaunched Prime Matrix, and we've got multiple quarters under our belt. So we've been able to track and measure that, how that product has come back, and how we were able to regain trust and confidence. So we have that as a good baseline to guide us, I think, a bit with SurgeonMed. So just a reminder for everybody, he's coming back in fourth quarter on what we revert as our 510K product. So launch planning is very disciplined on account targeting, going to the right accounts first, using the data set to predict not only where the procedures are being done, but the growth in that institution. So very much focused, and it's back to some of this launch excellence that I've mentioned. So plan in place. back, you know, we'll bring that back to the market in fourth quarter. And we're excited, obviously, about a future PMA to go and really be able to drive that area with an improved indication in breast. So there's a lot of excitement in tissue reconstruction, as you imagine, with that product returning to market.

And then would you remind me the revenue targets you provided for both Prime Matrix and Surgey Men, how those are tracking? Or it's for Prime Matrix, yeah.

As a result, yeah. Yeah, so Primatrix and DuraPair, or you're saying, I'm sorry, as a result of bringing those back to market, or you're saying pre-recall what they would have been?

Bringing back to market.

Yeah, yeah. So brought Primatrix and DuraPair back into the market in Q4 of 2025. We're kind of nine plus months into the relaunch, but already pacing to see about greater than 50% of our revenue back inside of the first 12 months post-relaunch. So we're excited about that from the trajectories.

And so the idea is surgery men should follow a similar trajectory?

That's the analog that we would use, yeah.

And then maybe looking at 27, consensus is at about 3% growth and earnings go two times that. I think that's a good place to start the year.

So I won't comment on consensus, but I will comment on. And typically, at this point, we don't provide guidance on 2027, but I can give you kind of how we're thinking about it. Our focus right now is maintained on executing against 2026. What that does is it unlocks an opportunity for us to drive additional growth in 2027, keeping in mind that we're still going to be executing against our remediation plans. We're still going to be bringing products back to market, and we're still going to be driving commercial execution to regain share. But we do expect some growth in 27 versus 26. From an EPS perspective, what we've shared is we expect EPS growth at a rate that's slightly faster than sales growth rate. And that is overcoming a number of headwinds. It's overcoming a full year of tariffs. It's overcoming interest expense headwinds that we're going to be able to offset through driving cost savings initiatives and overall operational efficiencies as a result of getting our products back to market and maintaining them in market.

We talked about a couple of new products coming into this year in 27. Any other products in the pipeline we should be looking out for?

Yeah, I think I'll take this one. I'm going to expand the question a little bit to kind of talk about all innovation. So in some we've mentioned, I won't touch on Liberties again, but obviously we're excited about Liberties. Where I mentioned the PMA for Surgeon Men that we hope to get in 27. That is something, obviously, that would dramatically change is the market we can access, and we're excited about that. On CUSA, we actually have two pieces of innovation that we're already out on the market with, where over the last year we've received two new indications cleared by the FDA for CUSA, so one in the area of certain gynecological procedures and one in the area of cardiac procedures. So if you think of CUSA for a minute, we love to talk about CUSA in the terms of neurosurgery. We have, obviously, a very strong business for craniotomy-type procedures. We also have a very nice business in liver resection, particularly in Japan and the United States. And then with these two new indications, you've got a very strong proven platform that's got multiple areas to serve. So translation is we're selling more consoles to new markets, and in many cases we're selling more disposable to existing consoles. So I think those across the span of innovation, we have a good amount going on and a lot to launch.

Great. With that, I'll leave the floor to you guys for any closing remarks or to touch on anything we didn't highlight.

Yeah, I think maybe I'll go first. I'm sure Leah has some financial commentary to make. I think, you know, I think that my message to everyone is two things. commercially we've got a sales force who's confident and excited and is ready and is ongoing getting back to clinical conversations and I think that takes a very proven commercial organization and puts it to work the other comment I'd like to make is as we brought products back in one of our sessions today I told a group that it's very evident to us that our customers have not lost faith and trust in our products. They still trust and have faith in those products to deliver what they need them to do. They're looking for the company to become more reliable and proven. Those are different situations. They were trained in many cases on these products. They're very important for patient outcomes. They have not lost trust and I think that's a method I mean that's a comment I want to make. I will say as a company we need to go prove it to them that we're delivering them in a reliable manner.

And I'll build on that. So part of proving it to them is continuing to demonstrate consistent execution, right? This is the transformation journey we've been under is very much a quality and operational transformation that is unlocking an ability for us to drive better supply of reliability, better operating cadence, more visibility, right, so that we are better positioned to make sure that we can consistently drive those outcomes. You know, our focus in the near term is doing the things we said we were going to do in 2026, which means margin expansion and means driving cash flow generation and delevering our balance sheet. But maybe equally important is why what it sets us up for next, which is a lot about what we're playing for. If you look at this business not too long ago, all at pre-2023, this was a business that could, from a revenue performance standpoint, perform closer to market. Gross margins were in the mid-60s. EBITDA margins were in the mid-20s. And free cash flow generation was greater than $200 million. And I say all that to say that's what is possible for this business. We have absolutely every reason to believe that we can get this business back operating at those levels, and that's what we're playing for. We have the markets to, what Mike mentioned earlier, to generate the growth to do that in specialty surgery. We know there's opportunities in international that we still haven't tapped, and we're seeing momentum pick up in tissue that we expect to be fueled even further by some of the launches that are planned. So we're excited and we're ready.

Sounds great. Thank you for being here.

Thank you.