I'm Rei Tan, and I'm part of the med tech research team here at Bank of America. It's my pleasure to be hosting Integra here today. From Integra, we have Lea Knight, CFO. Welcome, Lea, and thank you for coming.
Thank you, Rei. We appreciate the opportunity to be here with you.
Great. I guess to start, you announced Stuart's return to the CEO seat a week ago. Could we maybe walk through the nature of this transition, what it means for the company going forward, and should we expect any change in terms of strategic focus?
Certainly. As you mentioned last week as part of our earnings, we announced the fact that Mojdeh Poul and the Board came to a mutual decision for her to step down as CEO, and now Stuart occupies the position of both Chairman and CEO. As part of that, Stuart's been abundantly clear around those areas that will continue to be focus areas that will not change. First, all the work that's going on with respect to our transformation. We've been engaging in a lot of work for the past two years to build up our operational capability, to strengthen our quality management systems. That work continues. It will move forward. Those are initiatives led by Mojdeh Poul, but they had the approval of the Board, and Stuart has also given it his full force and backing.
One of the areas of opportunity, though, as we move forward that will be a focus area for Stuart is our ability to take more offense when it comes to driving commercial strategy and moving into a phase of accelerating growth. That's where he sees the opportunity going forward. That will be his focus area. The other area, though, that remains unchanged is where our focus is as a business. Right now we're focused in neurosurgery, tissue reconstruction, ENT. Those markets will continue to underpin our strategy as we move forward. As a reminder, they represent a total addressable market size of $9 billion. We operate in niche spaces with durable demand, and we compete at levels where we're one or two in most of our spaces. Those things will remain unchanged.
Awesome. You kinda touched on, the things needed to get the company back on the offensive. What are maybe some internal metrics that give you the confidence volatility meaningfully declines as you move through 2020 to 2026 and beyond? You touched on where you see more work to be done. Maybe we could double-click on that.
Yeah. I think the first proof point in terms of giving us confidence are our Q1 results. As we reported last week, we were able to deliver both revenue and EPS above the high end of our guide, which I think reflects some the improvements that we're making as part of our transformation plan. The other things we look to inside of our company that gives us confidence that we can sustain those are things like we look at the level of supply disruptions, right? We've seen less in terms of number and magnitude of those. We look at things like some of the capabilities that we stood up in terms of our supply chain control tower, which is essentially a dashboard of metrics that we use to gauge the overall health of the business.
It's helped improve visibility, so we can get in front of issues and mitigate them more quickly. We look at some of the yield improvements that we've been able to drive, which has helped ensure better supply availability so that we're more consistently meeting demand. We also look at things like, you know, as a med tech company, it's not unusual that we are subject to external regulatory audits. As we continue to have more of those and have less observations in terms of number and magnitude, it's another clear indicator. The final point on that I would mention is cash flow, right? That's been another source of challenge for us, but we've seen meaningful cash flow improvement as part of our Q1 results, and we expect that to continue.
You know, as we measure all of these indicators, what we're seeing, in fact, is it is helping to lower the volatility, which is going to be the key to allow us to perform more consistently from a growth perspective.
Great. Talking about Q1, on your earnings call, you mentioned that you don't expect to expand your commercial sales force in the near future. Could you maybe walk us through how you plan to optimize your existing sales force to drive growth in both existing products and also in the recent and upcoming launches?
Yeah. I think it's important to remember that as we've, you know, been managing through the challenges that we've experienced as of late, we've been very clear that we have a supply issue, not a demand issue, and our sales force has been a source of strength for us, and we expect it to continue to be as we continue to drive growth on this business. We know they have deep trusted relationships with our surgeons. We know we have strong clinical differences in terms of our product and product differentiation. The opportunity that we have is to make sure that we can consistently get supply in the hands of our sales force so that we can meet demand and drive growth, and so that's the opportunity in front of us.
you know, the other things that we're going to do to help drive that growth efficiently, all right? Because it doesn't, it doesn't mean we have to scale up or reduce, to be clear, right? We can accomplish these things without changing necessarily the size of our sales force, is bringing products back to market that are currently off market, right? As we broaden the portfolio, we also have an ability to create scale and leverage and higher growth, taking advantage of how market dynamics have changed since we've been out of, out of some of these spaces, specifically in outpatient wound. There are changes in the reimbursement landscape that our sales force have an opportunity to help take advantage of to drive growth.
Finally, you know, bringing to bear analytical tools that help drive our commercial strategies more efficiently are all ways that we see growing without necessarily changing the size of our sales force.
Awesome. That's a nice segue into a question on Braintree with the supply issues. What measures have been implemented to ensure that the Braintree facility avoids shortfalls seen with Boston, the Boston facility? As Braintree comes online, how should we think about production sequencing and ramping?
For perspective, our Boston facility and the issues that we saw happen there, happened there through an accumulation of gaps in our quality management system that were further compounded by the physical limitations of that site. What do I mean, right? That site was a building that had, like, 4 or 5 levels that from a manufacturing standpoint meant we had to do parts of the process on one level and then move it to another level, right? As you can imagine, a very inefficient flow. The Braintree facility that we stood up is a world-class tissue manufacturing facility designed, right, to drive efficiency and flow of the manufacturing process and avoid the challenges that we saw with the physical limitations at our Boston site. We've also invested in completely revamping our quality management system.
Now that we have this new manufacturing design and process flow, we have a quality management system to complement. We've brought technology to bear, so we no longer have some of the manual processes that existed in Boston. We have subjected the entire process to a very rigorous validation protocol to make sure that we can withstand the scrutiny and the complexity of our manufacturing processes. We've invested in placing new leadership and talent in that site, and that's important because what we're playing for here is not just bringing back our SurgiMend 510(k) product, but we also have to be able to sustain manufacturing of a PMA-level product, which requires more manufacturing complexity. We needed to make sure we had the leadership in place to make that happen.
That said, we were on track for operationalizing the site in June, very excited about that. That will allow us to build inventory in Q3, it will support our Q4 launch of SurgiMend back into the market.
Awesome. You touched on it briefly in the previous answer and also in your opening, the SurgiMend relaunch. The SurgiMend growth rate was outpacing the market before being pulled. What has changed in the category while SurgiMend was absent, and how might those changes impact your re-entry strategy?
Yeah. You're right. There's been a lot of changes. In sum, what I would say are the changes that we're seeing playing out in the market are much more favorable to our position. This isn't a situation where we're chasing a market that's moved away from us. This is absolutely us reentering a market that's moving towards us.
What does that mean? Market size. What we've seen is there's been the market for surgical matrices in breast reconstruction is an $800 million market. It's growing at double digits. Means we have a bigger kind of arena within which to compete, so more opportunity. There's been a favorable shift in terms of mix in usage in the market, so a movement away from human ADM as the matrice to xenografts as well as resorbable synthetics, and those are areas that play exactly to our portfolio with SurgiMend and DuraSorb. We've also seen a change in how procedures are being performed, and the nature of those changes does require larger sizes, which also plays well to our portfolio.
Right now, it's our understanding that we continue to expect to be first and second in terms of getting a PMA label in implant-based breast reconstruction, which is really important because it means we become the only company that can promote in that space. Then, the last thing I would note is from a DuraSorb perspective, we have been able to stay relevant and in front of our customer base even though we haven't had SurgiMend on the market because of DuraSorb, right? That provides an opportunity to reconnect with our customers once SurgiMend is back in the market, but it also creates the portfolio play that I was referencing earlier. Our approach to returning to market is gonna be phased and disciplined. We'll start in Q4 with SurgiMend coming back on market.
We're gonna, you know, focus on some of our key users, from the past, but then we'll expand that once we get PMA a PMA label for SurgiMend and DuraSorb in 2027, and that will give us the ability to promote and really drive growth across both of those brands.
Great. Lots to look forward to.
Yeah.
Maybe turning to something that has already returned to the market, on PriMatrix, how has the launch been going, and how do you see adoption progressing throughout this year?
We're really excited about PriMatrix. As a reminder, we relaunched that brand in Q4 of 2025. It had been off the market for a little over two years at that point. Q4 was much more of a controlled launch, and since then, we've expanded the launch in Q1, and we're really excited about the progress. It's been performing consistent with expectations. We're seeing prior users come back, which has been important in terms of driving ultimate share recovery and growth. You know, for transparency, you know, as we have these conversations, we have prior users that are excited about having us back on shelf, and they've been waiting because they understand the clinical differentiation that our products bring.
We've had others just say, "Hey, look, we need you to continue to demonstrate that you're gonna show up and sustainably be there to meet our needs." We're open to both dialogues, both conversations, because we've been able to show that because our products do have differentiation, do perform differently, we found ways to get in and gain access, and while we're at it, drive growth across the entirety of the portfolio that we have in terms of wound reconstruction, which includes Integra Skin, it includes our UBM platform. Very excited about what we see to date. We think we can leverage those learnings as we move forward and return SurgiMend into the market.
Great. On share recovery, as you reenter with SurgiMend, PriMatrix, and Durepair, how are you thinking about leveraging price as a factor for accelerating readoption?
Yeah. We understand that, you know, as we, you know, had to return all these products back to market, part of it is rebuilding trust with our customers and re-educating them on the clinical difference of our products. We do have strong clinical differences that help support differentiated outcomes that are valuable to our customers. For competitive reasons, can't get into speaking about price specifically, but what I can share is because of those clinical differences, because our products are trusted, we don't believe we have to meaningfully change price in order to get back on shelf and regain share.
Great. On wound care reimbursement, probably a topic of much discussion, what impacts have you seen materializing in the market with CMS reimbursement changes now in effect for almost half a year? How do you see these dynamics translating into opportunities for Integra?
Yeah. There are a lot of opportunities here, but it's probably worth me stepping through some of the dynamics that are maybe unique to our business. First, approximately 90% of our business is based in the inpatient acute setting. Reimbursement in that setting happens under a DRG, and there haven't been any changes to that structure. Our performance in that part of our business continues to be strong, and we're excited about what we saw in Q1. For the products in wound reconstruction, we saw double-digit growth, so that business remains strong and healthy. There's 10% of our business that actually does take place in the outpatient setting. Even on that part of the business, we're not seeing the disruption that others have seen in that space. If anything, we're seeing indications of positive growth in that space.
I think the reasons why are because of the unique characteristics of our portfolio. What that means is we have the product price, size, and science, right, to remain viable as treatment alternatives in that space. We have a broad portfolio, offers treatment options to the physicians. From a price perspective, we were already priced in line with the current reimbursement rate of $127 per square centimeter. It means we haven't had to change our price. We haven't had to change our margins. From a size perspective, we have multiple sizes across the products in our portfolio. It means we don't have the wastage issues that others are dealing with.
From a science perspective, we have products that are backed by strong clinical evidence, and that helps to ensure that physicians are getting their desired outcomes when they use our products. All those features mean we remain viable in terms of our product offerings in the outpatient setting, while we know there are a lot of other competitive products that can't be viable given the changes in the reimbursement landscape. There's a little bit of wait and see here, Rei, right? If procedures for skin substitutes stay in the outpatient setting, it means we are now one of a lot less products that can remain viable in that space, so there's opportunity for us there.
If procedures move to what I'll call inpatient adjacent spaces like ASCs or wound clinics, we already have a huge engine and channel access there because of our inpatient business that we can also take advantage of. That's where we see the opportunities. Again, some of this is a wait and see because we don't know how the market's gonna evolve, but we're excited either way.
Sounds good. We've talked about a broad portfolio. When looking at your portfolio, where do you see growth coming from? Does tissue reconstruction become more central to the growth algorithm over time, or does neurosurgery remain the primary growth driver going forward?
The answer is see, both. We see growth across both parts of our division. That said, we do see faster growth happening in tissue reconstruction, and that's for a couple reasons. One, as we are strengthening our supply reliability, we have better inventory in the right places to consistently meet demand. That will be a driver of growth. Additionally, we're bringing more of our products back to market. As I mentioned earlier, SurgiMend relaunches in Q4 this year. That will be a driver of growth in 2026. We are pursuing the regulatory pathway that I mentioned earlier, which is getting a PMA label on SurgiMend and DuraSorb, which we expect to get in 2027. That will continue that growth. We're very excited about that part of the portfolio.
On the specialty surgery side of the business, we do also have innovation in the pipeline that will help further support our category leadership in catheters as well as minimally invasive surgery and neurosurgical procedures. That also represents growth on the horizon for that part of our business.
Right. Digging a little deeper into the segments. In ENT, the balloon sinuplasty segment continues to face pressures, while other areas like ERA and TruDi continue to grow. How are you thinking about recovering the balloon sinuplasty segment?
Yeah. To your point, through our Q1 results, we did continue to see headwinds on balloon sinuplasty business due to reimbursement challenges. They're headwinds that we faced in 2025, and we knew that they were headwinds that would continue into 2026. And we do have efforts through our health economics teams to help mitigate and blunt the impact of some of those headwinds. The real opportunity to get this business back to growth lies in the more innovative segments of the business, specifically our navigation systems and our Eustachian tubes.
Those are areas that have, you know, been growing in the past that we believe, will get to a size that will allow us to offset some of the headwinds that we're seeing in balloon sinuplasty and ultimately get ENT back to a kind of a mid, single to high single-digit growth trajectory.
Great. I guess on capital allocation, how should we be thinking about capital allocation across your portfolio?
From a capital allocation perspective, our priority right now remains debt repayment, with a focus of driving our leverage down to our targeted range of 2.5 to 3.5 times. Right now for 2026, we believe by the end of this year, we'll be able to get it just outside of that targeted range, so just outside the upper end of that targeted range. We'll remain focused as we move forward in 2027 to make sure that we're operating within that. As we get beyond that, we do see, you know, eventually an opportunity to return inorganic growth to our strategy through M&A, but it will only be after we have stabilized our operations, after we've demonstrated an ability to drive cash flows back up to where we're accustomed to.
This business used to generate operating cash flows in excess of $200 million. Once those things are done, that's when we'll it'll be safe to kind of pursue more of an inorganic strategy.
Great. You kinda answered my next question. I guess to double-click on that, when the time comes for adding inorganic growth back into your strategy or your toolkit, what deal profile would make the most sense for Integra?
Yeah. From a deal profile, clearly, we're gonna look for those opportunities that drive accretive growth from an ROIC perspective. You know, as I mentioned earlier, we remain focused in ENT, neurosurgery, and tissue recon. We're gonna look in spaces that build on our market leadership in those areas or near adjacencies. From a size perspective, we're gonna look for something that's like a tuck-in size to midsize, where we can leverage our scale to create value faster.
Sounds good. On tariffs, on your earnings call, you mentioned you now expect a $0.10 benefit from tariffs. Can you walk us through that benefit? Where did it come from, and how do you expect tariffs to impact subsequent quarters going forward?
Certainly. The $0.10 benefit that we realized in Q1 was a function of two things. One, we recorded a refund related to tariffs that we paid in the prior year. That was about $0.03 of it. Because IEEPA tariffs were ruled unlawful, we didn't incur about $0.07 of tariff expense that we had expected to occur. That $0.10 is relative to our guide. On a full year basis, we now expect tariff impacts to be about $0.10 to EPS. Our previous guidance had indicated an expectation of $0.32.
That $0.22 differential breaks into two elements, the $0.10 that we realized in Q1, which we adjusted our full year guide for, and the $0.12 difference reflects what could be a benefit for the rest of the year if there were no more changes in tariff policy moving forward. I think as we all understand, there's a lot that's still changing in terms of the tariff landscape. It's still very early in the year, so we didn't reflect that as part of our guide. As we move through the year and understand some of those changes, we'll update as appropriate.
Great. Just to follow up on guidance, you've guided to $25 million-$30 million of savings in 2026 through initiatives like COGS improvement and third-party spend reductions. Where are you in these initiatives, and how much has been realized so far, and how should we think about margin expansion beyond 2026?
We had announced our plans around pursuing a margin enhancement strategy in last year. Pursuant to that, we have identified $25 million-$30 million of cost savings initiatives that are fully implemented at this point. Really, we're just, you know, using the balance of the year to realize those benefits. The initiatives themselves were focused in both our cost of goods sold area, so driving manufacturing efficiencies, yield improvements, operating model changes and structure, along with efficiencies in SG&A. In SG&A, we focused on driving down third-party costs, also driving operating model efficiencies through structure there too. Those are in place and fully reflected and contemplated in the guidance that we provided.
Great. On cash conversion, like you mentioned, free cash flow inflected meaningfully in recent quarters and returned to positive in the third quarter of 2025. What structural changes drove that improvement, and how should we be thinking about sustainability within free cash flow going forward?
Absolutely a focus area for us. We committed in terms of operating cash flow to drive improvement of $150 million, which would bring our operating cash flow for the year to $200 million. That meant free cash flow goal of about $140 million versus being negative in the prior year, to your point. Drivers of that are improved EBITDA year over year, improvement in working capital, but also we have several large expenditures around EU MDR compliance and Braintree startup costs that will come down meaningfully this year, right? Because we are getting Braintree operational. Those are kind of the big drivers from an operating cash flow perspective.
From a CapEx perspective to get to free cash flow, we are also seeing a reduction in CapEx because in the previous two years, we made investments around Braintree, we made investments to drive capacity expansion at our sites, we made investments to do asset refresh at our sites. Now that we're beyond that, those investments, we're intentionally bringing our CapEx down to more normal, normalized levels. Those will be the drivers.
Awesome. To touch on deleveraging priorities, you exited 2025 with a consolidated total leverage ratio of 4.45 times, and were able to bring that down to 4.1 times in Q1. How do you plan on continuing to bring that down even further to your target range of 2.5-3.5 times? How are you thinking about pacing debt paydown relative to reinvestment and growth?
Yeah. There's a lot there. In terms of our leverage, to your point, yeah, we exited Q1 at 4.1 times. We had headroom up against kind of our upper limit of about one turn. We expect to hold that throughout the year. What'll happen is we do our debt max will step down through the year, but we'll still keep about a turn of cushion against that. It'll be driven by the same initiatives I just talked about that are gonna drive cash flow generation, will be the enablers to allow us to drive our leverage down. While we are making investments from a operations, quality management system, supply chain perspective, we're being very intentional that those are our priorities.
Debt pay down, to make sure we're getting overall leverage down is as well, and we're gonna maintain that posture until we get back into our targeted range, which at this point, we do believe that will happen in 2027.
Awesome. As we're coming up on time, I just want to turn it to Lea to see if you had any closing remarks.
No. Thank you again for the opportunity to be here. I think we're at an exciting point with respect to our transformation. It feels good to see evidence that, you know, the transformation is working. We saw that play out in terms of our Q1 results. We are seeing lower volatility in the business, which gives us confidence that we can execute against our full-year guide. Quite frankly, I'm excited about the opportunity to prove that out, as are kind of leaders across Integra. You know, it feels good to be in a place where we're starting to get some traction. We still have a lot of work to do, right? As much progress as we've made, there's still a fair amount of work ahead of us, we're looking forward to it.
Sounds great. Looking forward to it. Thank you so much, Lea.
Thank you.