Good afternoon. My name is Ross Osborn. I am on the med tech team here at Wells Fargo, and I am pleased to introduce management from Integra. Joining us from the company is Lea Knight, CFO, and Michael McBreen, the new Chief Commercial Officer. Thanks for being here.
Thank you.
Thank you.
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 will start with, first I will 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. I think the first thing investors should expect is consistency in 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 are bringing more products back to market.
We are 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 are making with respect to our PMAs and expanded indications in implant-based breast reconstruction as a telltale indicator of our ability to drive longer term durable growth and profitability for the business.
Great. You alluded to this, but as supply reliability and product availability improves, where are you seeing the biggest opportunities to translate customer relationships into growth across the portfolio?
Yeah. The biggest opportunity we have done over the course of this year in terms of the first two quarters, where we have 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. As we have had opportunity to bring products back, the international markets have been kind of on the latter stages of reestablishing supply reliability, and that is where we expect to see more momentum in the second half and certainly as we move into 2027.
You'd expect international to stabilize in 2027 and get growth driver?
Well, international grew in Q2, so we do expect growth this year to contribute to overall enterprise growth. But we do, in terms of what that business has the potential to do, we expect 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.
Yeah, I think you're also going to see, and we've already seen it, is with more predictability in supply, from a commercial lead perspective, what you want to see is the conversation shifting much more to clinical. As you can imagine, with the situation that we've been in, it's been appropriate for us to be managing our relationship with our accounts, getting 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.
Good. 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, please.
Yeah, 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. 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, a strategic account, nationalized medicine in a country around the world.
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. I think at its core, those are things that are very much core to our strengths.
Okay. Mike, then as a new Chief Commercial Officer, what are the biggest commercial opportunities and challenges you identified in your 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, when [Carlos] was acquired by Integra LifeSciences, I had led Codman Neurosurgery and Neurovascular c ommercially. First three years of Integra LifeSciences running Integra LifeSciences International. So I had all these product lines, including tissue reconstruction, and the last six years running specialty surgery. So I knew what I was getting into. I knew the commercial strengths. I knew the global markets.
So the things I immediately 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, specialty surgery and neuro ENT 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, and there's many others, but for all the things we've got to talk about today, I'll leave it at that.
Okay, great. Then maybe turning to your 2Q results and outlook for this year. So you reaffirmed organic growth of 0.8%-3.3%. What gets you to the low end versus the high end?
Yeah. So as part of 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. 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 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.
Great. Then on the EBITDA margin, expanded nicely in the Q2 to 18.7%. Then guidance implies roughly 100 basis points of full year extension. How much does the second half step up is around volume and mix versus some of your cost saving initiatives?
Yeah. As you think about that 100 basis points, and again, that's 100 basis point improvement full year 2026 versus full year 2025, 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. 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 basis points bucket of compliance remediation costs, what is your visibility there? How much is left on the 60 basis points for the year?
Well, let me talk through it in terms of the activities, right, that we have underway. Right now, we have outlined a remediation plan that is designed to not only address areas to strengthen our quality management system, address compliance, but also get all of our products back to market. The one milestone that we have left this year is to relaunch SurgiMend in Q4. We now have our Braintree manufacturing site up and operational, which was a huge stepping stone to be able to get there. We continue to expect that to happen in Q4. 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 are making, again, because the cost saving initiatives have already been implemented, we are seeing progress. We have one full quarter of benefit already reflected in gross margins to that end. Like I said, the lower compliance events are also contributing to the results we have seen through the first half.
Great. Then in terms of gross margin in the back half of this year, should we think about a linear gross margin? Step up in 3Q or an acceleration in the fourth quarter?
You should, yes, we would expect to see an acceleration into Q4, but behind the acceleration that we expect from a top-line perspective as it relates to our full year guide. 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. That will help drive overall gross margin improvement that will also see a step up versus where we've been through the first two quarters of the year.
Then, you've laid out cost saving initiatives for next year as well. Are you still thinking about $10 million-$15 million in 2027?
Yeah. This is part of our broader margin expansion prog ram transformation initiatives. As part of that, we implemented those cost initiatives that I mentioned in Q1, but the realization didn't start until Q2. Those initiatives are going to deliver about $25 million-$30 million through what is effectively three quarters in 2026. So we'll get an incremental $10 million-$15 million as the full annual benefit in 2027.
Okay, great. Then free cash flow is also improving. You've reiterated a goal of roughly $150 million this year. What are the largest working capital and cash conversion levers in the second half?
Yeah. Let me step through that because there are a couple of drivers to us being able to hit that. Through the first half of the year, we generated an incremental operating cash flow of about $35 million. 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 earnout payment that we made of about $11 million. That'll 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. As it relates to Braintree, it was all startup cost related. Now that we're operational, you'll see a tail follow in the back half of the year. But year-on-year, you'll see that $30 million reduction. 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.
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. That will drive the remaining lever in order to hit our overall expectation in terms of improving operating cash flow by $150 million, 2026 versus 2025.
Great. I think you've also talked about refinancing your debt.
Yeah.
That's still the plan for this year?
Yeah. 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'll be in a position to share more details around that as the transaction finalizes, but think of it as strong balance sheet management, good corporate hygiene, us getting ahead of a maturity in a way that'll still allow us to maintain the flexibility in our capital structure that we want in order to support our long-term growth objectives. From 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 2026.
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.
Yeah.
Then I guess cash flow is strengthening, leverage is going down. How do you expect capital allocation priorities to evolve?
Yeah. So first and foremost, we remain committed to our current priorities around investing in the near term focus around compliance, which is supply reliability, and executing against our remediation plans. So that will remain 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 our target range, and we are able to sustain 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 go back to the product portfolio. So looking at 2027, Neuro, what are you most excited about?
Yeah, there is a lot on the table for Neuro. I kind of start with the 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 are coming back out talking clinically and really driving growth with customers as opposed to trying to manage our situation. So we are excited about that. Reps are excited about that. On a global basis, we have a lot of opportunities, right? We have a lot of products that we are 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 one and tier two China, but have great plans that we're executing on the tier three and four markets. There's still a lot of growth for us in different markets. On 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, Lea touched on this, we have a lot of launches coming up. Some are relaunches and some are new products. That rigor, 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. Then let me end on an innovation theme. We have a new product in neurosurgery coming out in 2027, 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 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 Bactiseal 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 Bactiseal, and it brings into a material that we actually acquired several years ago to deal with clogging, right?
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 that. There's a lot to offer in neuro as we look at 2026 and 2027.
Great. Will Liberties cannibalize Bactiseal?
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 Bactiseal and also a first in world when you look at the combined therapy.
Okay. In terms of first in world, what clinical data is out there on it?
Yeah.
Are you going to generate more post-launch?
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 Bactiseal, 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 feel 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. That's how we'll roll that out across the world.
Great. Then on the Q2 call, you held a positive view of the capital equipment environment. Is that still the case today, and what are you seeing for CUSA?
Yeah. So on our capital, first of all, and Lea will correct me if I am wrong, about 6%—
Yep.
—of our total, it is 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 CereLink for neurocritical care monitoring. That makes up our capital portfolio. When you think about a price point for this, do not think robotics or imaging, think of two of the products, we will call it sub-$75,000. And in CUSA's case, the highest price you will see it is in the $225,000 range. A lot of our capital purchase is actually multiple products. So it is multiple CUSAs, multiple CereLink, et cetera. 2026 has performed well. We have seen good capital budgeting. We have seen execution against that budgeting. We have a nice disposable run rate on all these businesses.
Capital has been in a very solid spot, and we are very confident it will continue through this year.
Okay. Then maybe on ENT, the business declined about 2% as MicroMatrix's growth was offset by declines in other products. What is the path back to growth for the category as a whole?
Sure. I will take this, and Lea 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 have got that stabilized. The other one was something when we looked to acquire Acclarent in 2024. 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.
As well, we were very focused on revenue per call and revenue per territory. So we took advantage of 2026 and did that restructuring. So we knew that would slow us down a little bit. The good news is it is primarily behind us. We rolled it out earlier in the year. We have a few training things and things we are doing, but both of those are behind us. So I think the call for 2026 was right, and we are in the right in line with that. 2027, based on addressing these two things, I think you will see us return to growth in 2027.
Great. Maybe switching gears to tissue recon and wound reconstruction. I know another company this week has said the volume shift is maybe taking a little bit longer than anticipated, with round skin stub and reimbursement, just as maybe there is some confusion in the market. Curious to hear what you guys are seeing.
Yeah. A couple things. One, I will start with a little bit of backdrop about our business and what we are seeing with respect to the changes in CMS. 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. Those are all conversations that we want to have. 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. While yes, to your point, some competitors have had disproportionate exposure to the changes, we have actually largely been insulated as a result of them.
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. It also allows us to be prepared for where the market will move. To your question specifically, yes, there is 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 is still evolving. But we are prepared to have those conversations regardless of where the market moves.
If the volumes do not shift, is the outpatient setting attractive?
Right now, our channel access does not give us an immediate lever to take advantage if it stays purely physician office space. That would be something we would explore in terms of how we tap into that opportunity, if and when.
Okay. SurgiMend relaunch, what are the key priorities, steps ahead of it?
Yeah.
Yeah. I think if you look at tissue reconstruction, just a quick update on launches. As many of you remember, we relaunched PriMatrix, and we've got multiple quarters under our belt. 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. We have that as a good baseline to guide us, I think a bit with SurgiMend. Just a reminder for everybody, it's coming back in fourth quarter, on what we refer to as our 510(k) product. 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. Very much focused, and it's back to some of this launch excellence that I've mentioned.
Yep, plan in place. We're bringing that back to the market in fourth quarter. We're excited obviously about a future PMA to go and really be able to drive that area with an approved indication in breast. There's a lot of excitement in tissue reconstruction, as you imagine, with that product returning to market.
Great. Would you remind me the revenue targets you provided for both PriMatrix and SurgiMend, how those are tracking?
Yeah.
Or just for PriMatrix. Yeah.
As a result of, yeah. So PriMatrix and Durepair.
Yep.
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.
Yes. So brought PriMatrix and Durepair back into the market in Q4 of 2025. We're kind of nine plus months into the relaunch, but already pacing to see greater than 50% of our revenue back inside the first 12 months post relaunch. So we're excited about that from a trajectory standpoint.
The idea is SurgiMend should follow a similar trajectory?
Yep.
Okay.
That's the analog that we would use. Yeah.
Great. Then maybe looking at 2027, consensus is at about 3% growth and earnings growth two times that. You think that's a good place to start the year?
I won't comment on consensus, but what 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 2027 versus 2026. From an EPS perspective, what we've shared is we expect EPS growth at a rate that's slightly faster than sales growth rate. 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.
Great. We talked about a couple new products coming into this year and 2027. Any other products in the pipeline we should be looking out for?
Yeah, I think I will take this one. I am going to expand the question a little bit to talk about all innovation. Some we have mentioned. I will not touch on Liberties again, but obviously we are excited about Liberties. I mentioned the PMA for SurgiMend that we hope to get in 2027. That is something obviously that would dramatically change the market we can access, and we are excited about that. On CUSA, we actually have two pieces of innovation that we are already out on the market with. Over the last year, we have received two new indications cleared by the FDA for CUSA. One in the area of certain gynecological procedures and one in the area of cardiac procedures. 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 tissue resection, excuse me, liver resection, particularly in Japan and the U.S. And then with these two new indications, you have a very strong proven platform that has multiple areas to serve. Translation is we are selling more consoles to new markets, and in many cases, we are selling more disposable to existing consoles. I think those across the span of innovation, we have a good amount going on and a lot to launch.
Great. With that, I will leave the floor to you guys for any closing remarks or if you touch on anything we did not highlight.
Yeah, I think maybe I will go first.
Okay.
I am sure Lea has some financial commentary to make. I think that my message to everyone is two things. Commercially, we have got a sales force who is confident and excited and is ready and is ongoing, getting back to clinical conversations. I think that takes a very proven commercial organization and puts it to work. The other comment I would like to make is as we have brought products back, in one of our sessions today, I told a group that it is 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 are looking for the company to become more reliable and proven, and those are different situations.
They were trained, in many cases, on these products. They are very important for patient outcomes. They have not lost trust, and I think that is a comment I want to make. I will say, as a company, we need to go prove it to them that we are delivering them in a reliable manner.
Yeah, I will build on that. Part of proving it to them is continuing to demonstrate consistent execution. This is the transformation journey we have 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, so that we are better positioned to make sure that we can consistently drive those outcomes. Our focus in the near term is doing the things we said we were going to do in 2026, which means margin expansion, it means driving cash flow generation, and delevering our balance sheet. But maybe equally important is what it sets us up for next, which is a lot about what we are playing for.
If you look at this business not too long ago, call it 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. I say all that to say that is 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 is what we are playing for. We have the markets to, what Mike mentioned earlier, to generate the growth to do that in specialty surgery.
We know there is opportunities in international that we still have not tapped, and we are seeing momentum pick up in tissue that we expect to be fueled even further by some of the launches that are planned. We are excited and we are ready.
Sounds great. Thank you for being here.
Thank you.