Everyone, I'm Robbie Marcus, the MedTech Analyst at JP Morgan. Very happy to introduce Integra LifeSciences CEO Mojdeh Poul. We'll give a presentation followed by some Q&A.
All right. Thank you, Robbie. I appreciate it. Good morning, everyone, and thank you for being here. I want to also thank JPMorgan for the opportunity to present here at my first JPMorgan conference with Integra. I have been in the role now for a year, a little over a year. So these are our forward-looking statements. You can find them on our website, and at your leisure, please take the time to review them. But it's a pleasure to be here to be talking about Integra. For those of you who are not familiar with our company, we are a global MedT ech company. We serve highly specialized markets with a differentiated portfolio that helps restore patients' lives every day.
We are very well embedded within the neuro market, the neurosurgery market, where we are having a number one or two position in every category that we serve in that market. And in our Tissue Technologies business, where we treat complex wounds and surgical reconstruction, the physicians and surgeons choose our products consistently because of the performance that they provide, as well as the patient outcomes that they get when they use our products. We are going through an extensive and significant transformation throughout the last year, and it continues into this year. I will talk a little bit about it with you. But we are a very established organization with a solid financial foundation. Over the last 12 months, we have done about $1.6 billion in revenue with attractive margins, as you can see. A little bit about our markets.
If you look at our markets globally, the potential opportunity for them is about $9.1 billion, growing at mid-single digits. Part of our portfolio is in markets that are growing mid to high single digit, i.e., the wound reconstruction portfolio, and then parts of our business in mid-single digit. The segments that we operate in are two. It's Codman Specialty Surgical. We did about $1.1 billion over the last 12 months in that business, and Tissue Technologies, which we did about $500 million over the last 12 months. We, as I said, serve very highly specialized markets. Our portfolios and brands are very well known, and they're supported by decades of clinical use, as well as the trusted relationships and partnerships that we have with health care providers across the globe. Our products are not nice-to-haves in procedures. Our products are must-haves in procedures.
We serve and treat brain surgeries, tumors, traumatic brain injuries. On the Tissue Technologies side of our business, we treat burns. We are used in many surgical procedures, i.e., hernia repair. So our procedures are a must in the markets that we serve. As you know, there's many trends across the health care that not only us, but also the rest of the MedTech is dealing with. Some of these are positive. Some of them could be negative. But we see most of these as opportunities for us. Obviously, aging population. And as a result, because of that aging population, there's a growing demand for the therapies and treatments that help address the disease states that are caused by that demographics. We see growing adoption of new therapies and new products as health care providers try to provide better care and more cost-effective care to their patients.
Shift of the procedures outside the hospital is another trend that we're dealing with. And then it comes to changing reimbursement. It's always going on, and it's no surprise. We will talk about it a little bit later. We see some of that change in one piece of our portfolio, which was kind of, again, considered to be positive for us, as the reimbursement trends are going more towards rewarding the companies and products and therapies that are clinically as well as economically effective. And then, obviously, there's opportunities in international markets for expansion and growth. All of the governments, whether you're developed or developing countries, continue to have patient access to care, as well as cost and quality of care as being high priority for them. And then, obviously, we're dealing with the geopolitical drivers to keep us on our toes as we operate our organizations.
So why do we think we have the right to win in these markets? There are many reasons why we believe we are well positioned to succeed and benefit from the trends in the market. We consider our commercial execution to be a key strength for us. Our sales organizations are trusted and relied upon by our customers. We have very strong brand equity across the health care industry in general. We are very established in neurosurgery, as I mentioned earlier, and we have deep scientific expertise in complex wound reconstruction. And that is all the way from product and technology all the way to manufacturing know-how in this space. And then clinically differentiated portfolio. I already talked about the fact that our products have been used in decades in clinical uses. Many pieces of our portfolio are supported by solid clinical evidence.
As you will see later, we continue to invest in this clinical evidence as we continue to expand the penetration and share for our products. As you can see, both in terms of the health care trends, market trends, as well as our differentiations to win, this is why we believe that there is a great opportunity for Integra to continue to deliver and create value into the long term. As I said, over the last year, we have been going through a significant transformation in the company to improve our operational performance, as well as being able to deliver consistent performance going forward. This transformation, obviously, is critical for success.
But one of the things that drives all of us, me and the rest of my colleagues at Integra, and what inspires us, really, is the purpose that we have to restore lives and the vision that we have, which is to advance transformational care, deliver impactful innovation, and enrich life's moments. In order to deliver on the vision that I talked about, we have developed a robust plan. The plan that we have put forward for our organization to execute against diligently is structured in two horizons. The first horizon is all about building a sustainable foundation in order to drive consistent, reliable performance for the organization well into the future. The horizon two is all about accelerating growth.
And the strategic imperatives that we have put forward for ourselves, there's four of them, which are delivering best-in-class quality, driving supply chain reliability, accelerating growth, as well as igniting innovation. And as I mentioned, the transformation that we're going through is really critical in the success for us to deliver on these strategic imperatives and, as a result, bring our vision to life. That transformation is necessary for us to be able to excel and be able to consistently deliver to our financial commitments over the long term. So we're diligently working on this plan. And one of the things that I wanted to mention is that this horizon one and two is not binary. It's not that we're not going to do any work on innovation as we're in horizon one or that we're not going to do any foundational continuous improvement work in horizon two.
Rather, we have to be able to, what I say to my team, we have to be able to walk and chew gum. So what we have done, actually, last year, we have gone through a very extensive portfolio prioritization exercise, upon which we have made our capital allocation decisions for the coming year and the years to come in the long-range plan and we have created room in horizon one to be able to invest through innovation and clinical evidence in those parts of our portfolio, consistent with our portfolio prioritization, that are in high growth, high margin spaces, to ensure that as we transition into horizon two, we can benefit from some of that growth acceleration that's going to kick in to be able to execute our initiatives in horizon two. I'm going to go a little bit deeper in horizon one.
As I said, it's all about building a sustainable foundation. I have talked about this. This transformation we're going through is foundational, and it's systemic. It's very intentional. It's disciplined. It's execution-focused, and there are several categories and areas that we're focused on. The first one should not be any surprise to you all. We have been talking about them at every earnings call, in the conferences that we have, but quality is a key area. Supply chain reliability is another one, and finally, execution. In the quality front, as you well know, we have been engaged in a thorough effort in transforming our quality management system through our Compliance Master Plan. We're proceeding very well on that one, and then when it comes to supply chain, we are all about optimizing our supply chain planning.
We're about driving manufacturing excellence, as well as ingraining continuous improvement into our processes so that we can continue to improve our process capability and predictability, and then finally, we're ingraining execution excellence in everything that we do in the company, so the improved outcomes that we're going after, we have a series of, obviously, internal metrics that we're going after to ensure that we are on the right track. Some of those metrics are, obviously, product quality consistency. It's customer service. They're delivering the products that the customers want on time and in full to our customers. It's better inventory management and working capital management that ultimately translates into the cash flow improvements. We are working on productivity improvements, yield improvements, COGS improvements. All of those are going to result in gross margin and profitability improvements.
Ultimately, as you can see, when you go through this list of key imperatives for us that we're delivering on, hand in hand, they all are going to help us with better prioritization, focus, execution, and ultimately consistent delivery of performance in the long term for the company. That brings us to horizon two. As I said, the horizon one work is extremely important in building the foundation for horizon two. That's what you see in the bottom left of the chart. Some of you who follow us have been able to gather from our performance in 2025. We had many challenges in terms of product holds, supply constraints. For us, that supply chain resiliency and quality improvements are the table stakes in order to be able to really meet the demand that's out there for our products.
In 2025, we were not able to fully meet the demand that was out there for our products, both in the U.S. as well as internationally. So that is the number one thing that we have to do in terms of driving growth for the company. The next thing is we have several products that have been out of the market for several years now, and we are returning those products to the market. That's another lever for our growth. And PriMatrix and DuraSorb are the two products that we launched back in Q4. Actually, we brought those into the market a year earlier that we had planned through a dual sourcing supply strategy as part of our supply resiliency initiative.
We are looking forward to bringing our state-of-the-art manufacturing facility in Braintree, Massachusetts, online by the end of June and launching the SurgiMend product into the market in Q4. The next lever of growth that we see for us is the positive changes that have happened recently in the skin substitute reimbursement area. I will cover that in another slide by itself, but we see that certainly as positive for Integra and our broad portfolio. Clinical evidence generation is key for us, especially when it comes to our Tissue Technologies business, as it relates to broadening the applicability of our products across the sites of care, as well as getting new indications for the products that we already have in our bag. So we're looking forward to the continued investment and growth that's going to come as a result of those investments and then new product introduction.
As I said, through the portfolio prioritization work that we've done, we have created room to invest in key categories within neurosurgery and ENT to continue to bring innovations to the market. That's going to fuel our growth. And last, but certainly not least, we want to get into ultimately new technologies as well as new adjacent spaces that we can continue to build on the strong portfolio and brand equity that we have. Traditionally, our innovation has always come through M&A. We're going to change that. We want to make sure that we advance our innovation capabilities so that we can grow through organic innovation, as well as, obviously, opportunistically and at the right time, continue to be able to bring in organic options to augment and strengthen our portfolio and strengthen our growth trajectory.
So hopefully, as you can see with the work that we're doing in horizon one and horizon two, we are very diligently working on executing on all of this in order to be able to deliver to the potential that we believe this company has that we will be able to drive towards. So we're excited about that. Now, a quick rundown on the changes that are happening on the reimbursement front. So as of January 1, there was a major change in reimbursement that happened on the skin substitute market in an outpatient setting, which was basically going to a uniform payment of $127 per sq cm for the products. And that is a major change. And we see this as being a positive change for us.
First of all, we applaud CMS for this change because it really levels the playing field when it comes to pricing, reimbursement, and clinical use across the sites of care outside the hospital, and when it comes to the business aspects of it in terms of pricing, we see this as positive because our pricing is actually within the new reimbursement rate, and we should be able to now, obviously, our products always were clinically attractive to the market. Now they're also going to be economically attractive, so it's a positive for us. We don't see any revenue downside as a result of price or margin compression because of the reasons that I mentioned.
As a matter of fact, we see this as potentially positive for us, as we expect some of the volume is going to shift from physician offices back to other sites of care where our broad portfolio should be able to address. But overall, we're very encouraged by the direction that CMS is taking in terms of reimbursement changes, as well as the discussions that continue to happen on the local coverage side, even though they were withdrawn in December, as well as some of the pending discussions that are happening on differentiated payments based on the regulatory status of the product line. So those are all positive for us. And they're very much aligned with the broad clinically differentiated and economically viable portfolio that we have in our skin substitute category, which really is uniquely well-positioned across the sites of care because of this change right now.
And to close, I wanted to reemphasize the reasons why we are excited about the great potential that this company has to perform at the levels that it's expected to be performing at. We serve favorable markets. They're high-value markets. We have favorable sector dynamics. We're playing in spaces where innovation and clinical differentiation matters. And that's what we have in our products and portfolio. We're fixing the foundation to address some of the challenges that we have had over the last couple of years in a foundational and systemic way so that we can see sustainable results. And we're committed to achieving long-term growth and the predictability and profitability that the organization is capable of delivering, and we haven't been able to deliver. But our commitment is to get to organic growth that's at least in line with the market and sustainable margin improvement.
We launched our margin expansion plan, the phase one of it, late last year, and we're progressing very well, and we're committed to continuing to deliver on that margin expansion, and ultimately, we are excited about being able to create value for patients, customers, and the shareholders, so with that, and before I pass it on to Robbie for the Q&A section, I also wanted to announce that we had mentioned that we will have an investor day in 2026. It will be in the second half of 2026, and we look forward to being able to build upon what you see here as a high-level overview of our plan and the trajectory and the timing of some of these initiatives and where we're going to be seeing the outcomes of them, so with that, I'll pass it on to Robbie. Thank you, everyone.
Great. Like you said, it's been almost exactly a year, plus or minus a week or two.
A year and a week.
Yeah, so maybe as you think this first year, you came into Integra with a lot on your plate. What do you think has gone well over the past year, and what are some of the projects you're still working to improve?
Yeah, so I would say what has gone well has been, obviously, the addition of some of the new folks into the leadership team to drive some of the most critical elements of this plan, which is the quality, supply chain resiliency, innovation, and building the execution engine and capabilities that we need within the company, so I'm pretty excited about that. We have gone through establishing the program management office, driving execution, and doing very thorough prioritization of our initiatives, putting in place the individuals that are driving the change that's required in supply chain and quality. So I think the progress that we have made has been mainly in that front, the portfolio prioritization also that we've gone through, but Quality and Compliance Master Plan, we are on track internally with the plans that we had put in place for ourselves.
We completed the site assessments ahead of the schedule by a quarter. We have a solid plan for remediation that's going into 2026. So I am very proud of the work. We have done a ton of work to establish ourselves for the execution of the plan that you saw here. And I'm excited about that. We're taking it on into 2026.
If I look at 2025, there were a number of new quality issues that popped up, so maybe you could spend a little more time on exactly, are these quality issues at one plant or are they across the organization? And talk about some of the processes and actions you're taking to prevent any further quality issues, and I guess I'll add on, are you expecting any further potential quality issues?
Yeah. So the way that we're approaching the quality management system transformation and compliance master plan is that we're taking a holistic look across our manufacturing and supply chain footprint. And so when a quality issue in terms of the site assessments, for example, that we have been performing, if there was a quality issue that we came to, we do a left and right look to try to see could that particular quality issue exist elsewhere. And then we stop, we remediate, and then we continue with the progress. So in that sense, I would say the site assessments that we've done gave us that visibility as to what is the size and the amount of work that we have ahead of us.
We took those outcomes and we've prioritized them in a risk-based fashion in terms of our remediation plan, which is really being managed under the oversight of the program management office to ensure that we stay on track. We are a lot more thorough in terms of understanding if a particular quality issue exists across the board, and we tackle it that way.
As you enter 2026 here, how do you feel about your confidence in the remediation timelines you've provided? What's the line of sight to getting over the finish line?
Yeah, so as I said, the remediation work is going on into 2026, but as I said, we have a pretty good execution plan. We're delivering on that. I would say by the end of this year and as we get into 2027, we should be in a lot better position in terms of the majority of that remediation work being behind us.
You have an audience here, but Lea, you pointed to a wide range of outcomes in the guidance. We're backing into an implied 1%-6% organic growth in the fourth quarter. Any comments on where in that range you ended up or how you feel about the fourth quarter?
So yeah, so to your point, we do not, as a practice, provide pre-announce or provide guidance for the next year as part of this particular conference. But I just want to make sure I understand the question. The guidance with respect to the guide that we provided on our earnings call was $420 million-$440 million top line with an EPS guide of $0.79-$0.84, right? That's essentially what you're referencing.
We were trying to back into fourth quarter specifically.
Yeah. Yeah. And so here's what I can comment on. In terms of when we provided the guide, the factors that drove kind of why the guide was what it was was driven by some dynamics that we saw play out in Q3, where we did have some supply chain interruptions that impacted our Q3 results. And as we addressed those and fixed those, we knew there would be spillover implications into Q4. And so that's contemplated in the guide, along with an elongation of some of our remediation timelines for some of the products that had been on hold earlier in the year and timing shifts that impacted when we would be able to bring those back. So those variables are what contributed to kind of the width of the guide.
And you haven't provided 2026 guidance yet, which we'll get on the earnings call. But you had tentatively pointed to a return to growth in 2026. The street has you at around + 3% growth. Are you still confident in a return to growth and any thoughts on how the street sits?
Certainly. To your point, yes, we did communicate an expectation of modest revenue growth in 2026 coupled with modest earnings growth. I think what we've seen very clearly in 2025 is that we continue to have very strong demand signals, which is an underlying contributor to kind of that confidence. And we know that we do expect tailwinds as we bring more of our products that were on hold in 2025 back into the market into 2026. That will be a driver to returning this business to growth. That said, we also know, based on what we saw in 2025, that we still have more work to do on the supply side of the equation. And so the guide also reflects some prudence in order for us to do the work to make sure we're strengthening our supply resiliency such that we can sustainably deliver growth going forward.
Again, maybe if we focus on 2026, just high level, you have margins took a step down in 2025 from some of these issues. You have a couple of moving parts. You have tariffs in 2026 a full year. You have the lingering integration of an acquisition from last year. You also should have improving margins, hopefully, as some of these products come off remediation. So how should we think about some of these cross currents and how you think about margins moving forward?
Yeah. So in 2026, along with our expectation of modest earnings improvement, that happens because we do see, as a benefit from our margin expansion program, which was a commitment to deliver $25 million-$30 million of savings in 2026, a mechanism to help offset some of the headwinds that we know will impact us. You mentioned tariffs as an example. We do expect a full year implementation of tariffs. We do have some tariff mitigations that we are putting into place that will mitigate some of that. But that margin expansion program, it will be the mechanism to offset the rest of it and help drive that margin expansion that I mentioned.
As an aside, one other element to that, as we think about kind of the remediation and the work that we're doing under the Compliance Master Plan, which was a driver as to why our gross margins were down versus 2024, we expect that not to deteriorate any further in 2026. So to Mojdeh's point, we still have work to do. The remediation continues in 2026, but incrementally, we shouldn't see an impact on our gross margins as a result of that.
Let's fast forward to the future. Let's say later in 2026, supply remediation is behind you. The Braintree facility is up and running. SurgiMend, PriMatrix, some of these products that were impacted are back on the market now in full supply. How are you thinking about recouping share? I think that's one of the questions investors struggle with a lot, just given it hasn't been one quarter, two quarters. It's been a number of quarters, and a lot of surgeons perhaps have moved on. Some others have been waiting. So how are you thinking about it? How are you incentivizing the salesforce, and how do you plan to grade them on the relaunch?
Yeah. So some of the learnings that we're getting as we launched PriMatrix in Q4, obviously, is going to inform preparation for the launch of the SurgiMend as well as we bring it to the market. But we are cognizant of the fact that it's been a while. So it's going to take us it's not going to be an immediate thing. We expect there's going to be a ramp, but we are very, very much focused on driving a launch strategy and plan that will put our best foot forward to be able to regain the share. But we would have to gauge it as we go on. And I think PriMatrix should be a good case for that as we watch the trajectory of gaining some of that share back. The one other thing I was going to say, the market is also there.
Yes, we have been out of the market for a while, but the market dynamics are also different, and the reimbursement change that I talked about, that's an opportunity for us as well that didn't maybe necessarily exist before, so it's just not bringing those products to the market in the static fashion is also what's happening in the market and how we leverage that with the clinical evidence and the strength that we have in our portfolio.
The other thing that I was going to say, and it's more of a qualitative thing, Robbie. It's amazing to me after being a year in the job, going and visiting customers and all that. It's amazing even though these products have been out of the market for such a long time that they talk about how nothing else in the market has the product handling, the flexibility and the strength balance and the patient outcomes that they were seeing with some of our products that have been off the market. So I think we are putting our best foot forward, but we realize that it's going to take us a while to gain that share back.
Got it.
I don't know if you want to make any additional comments.
No, no, I think that's spot on, and I think your insights regarding PriMatrix are true with SurgiMend as well in terms of the market dynamics changing.
You acquired Acclarent from Johnson & Johnson in 2024. It's over a year now. How has that deal trended versus your model and speak to the integration and how you're seeing that progress since closing on it?
Yeah, let me take that. Yeah, certainly. So to your point, the acquisition was effective in April of 2024. I think from an integration perspective, it has been progressing really well in terms of the commercial side of the organization and the sales reps. As we've begun to integrate systems and processes, that has been progressing as expected. From a performance standpoint, to your point, I think in the first year of 2024, we saw performance very consistent with what we had communicated and expected. As we moved into 2025 and as we've shared on a number of our earnings calls, we did see some dynamics play out that were unanticipated with respect to the balloon sinuplasty part of the business, where we did see declines on the business driven by some reimbursement dynamics that were playing out in the market.
That said, the other parts of the business, namely our Aera Eustachian Tube and TruDi Navigation business, which represent the innovation parts of the business, we saw really strong growth and in some instances growth that outpaced expectations. On the whole, through our kind of Q3 results, the performance for ENT was not what we had anticipated. But we absolutely do see a pathway to get back to that. We will have to address, and we have plans in place to address what's happening in the reimbursement landscape on the balloon sinuplasty. We have innovation that we're bringing in that space that should also help address that. Meanwhile, we're continuing to move forward aggressively with the innovations that are in market, like I mentioned, on Aera as well as TruDi.
Those fixes, particularly on the innovation side, are those further out or are those something we could see near term in 2026?
You're talking about the reimbursement?
You talked about innovations to help address some of the issues, the reimbursement.
Yeah, and it's 2026, 2027 time.
Yeah, late 2026.
Yeah, early 2027.
Over these years with the quality issues, I'm wondering how is employee culture? One of the ways you can look at that is employee turnover. People are very happy. They keep staying. What's turnover looked like?
Yeah. So we're not seeing anything that's out of the norm or the historical retention or attrition rates for the company. Actually, our teams are very, very engaged. Integra has a very resilient organization. They're pulling through. They want to deliver to that purpose. I mean, it's very real. It's very real that they are driven by that purpose of restoring lives. And we haven't had, other than in the wound care side of the business, where we took the product off the market, where we saw some increased attrition, we haven't had any attrition that has been outside the norms for the company. Very engaged team, very resilient, driving forward.
Last year, you were able to adjust some of the covenant terms related to your debt. You can lower your leverage by growing the top line. You can decrease your leverage by having your margins go up. Obviously, we all want to do both at the same time. Talk about where you stand in terms of your leverage, your plans to reduce that, and what we should be expecting over the next 12 months in 2026.
Yeah, fair question. So as of Q3, our leverage was 4.3x . Right now, and in Q3, we also demonstrated stronger cash flow trajectory and momentum progress. As we move into 2026, we expect that to continue. So the keys to unlock improving our overall leverage picture is absolutely supported by an expectation of continued improvement in supply reliability as we move throughout 2026. So seeing those products that are in market continue to perform and bringing back our other products, key driver, strong working capital, cost management, as well as working capital controls. We saw evidence of our strong cost management in Q3. That discipline is continuing well into 2026 to help drive that. Working capital, we know there's an opportunity around inventory that will help drive that. And then we also are getting behind.
We have several large capital expenditures that we had to make over the past couple of years that we're now done with. So we won't see that cash flow exit, things like investments in standing up Braintree. We won't have to have investments to that degree in 2026. Our investments in EU MDR, again, that won't happen in 2026 to the same degree. And so those become the unlocks to drive debt paydown and leverage to come down.
Is there a debt leverage ratio you're willing to commit to exit 2026 at?
So not at this time. Again, part of our guidance for 2026, we'll do that in our Q4 call in February. But directionally, what I can share is our goal, our stated goal in the past has been to manage this business within two and a half to three and a half times. By the time we exit 2026, we should be kind of approaching certainly the top end of that range.
Integra has been, I guess, since COVID, pretty much in a cost containment mode for most of those years. Hopefully, things will get better soon and the top line will grow and margins will expand. But how are you thinking about some of the investments you might have underinvested in or not invested in to help contain these costs over the past five, six, seven years? And so when things do improve, how much more spending is there to catch up? Maybe ask another way. When things do start to improve, might there be some under-expansion of margin as investments start to take place that haven't happened?
Yeah. No, so it's interesting. So if you look at this business just three years ago, our EBITDA margins were in the mid-20s, right, versus kind of what you saw on the slide today. So what that says to me is there's an opportunity to actually improve our margins by getting some of these one-time costs that contributed to what happened out and then reprioritize where we place our investments. So in short, I think from a cost kind of reduction perspective, we know we had a number of one-time costs attributable to the remediation work, attributable to Compliance Master Plan. We can get those out of the P&L. That will drive margin improvement. We have opportunities in terms of the continuous improvement initiatives, the gross margin expansion initiatives that Mojdeh walked through in our presentation today. Those will drive margins up.
And then we also know there's opportunity to streamline our operating model in the ways that we work so we can improve gross margins. But even on the OpEx level, we can streamline, drive leverage in that area, and redeploy that into the investments that will fuel our innovation and growth for the long term.
The one other thing I was going to say, Robbie, is that that's why we went through the whole portfolio prioritization, because the resources, it doesn't matter whether you're in tough times or not. There's never enough resources to do everything you want to do, so we want to be very intentional as to how we allocate our capital so that we invest in the areas that need to be invested in, and that's why the prioritization is so important, because we can funnel the investment from putting bets in everything to a few things that are going to really have oversized opportunity for us, so that's another way where we're moving forward anyway, we're going to be a lot more deliberate about where we put our funds in order to get accelerated growth as opposed to just putting all our chips everywhere and get a mediocre growth moving forward.
Unfortunately, we're out of time. Thanks for a great discussion. Thank you, everybody, for joining today.