INTEGRA LIFESCIENCES HOLDINGS CORP Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Leadership Transition: Appointed Mojdeh Poul as next CEO, effective January. Jan De Witte's contributions include growing international business, digital innovations, acquisitions (DuraSorb, Acclarent), and talent recruitment. Mojdeh Poul is an accomplished healthcare executive with global business leadership experience.
• Third Quarter Results: Organic revenue down 8.6% YoY. Codman Specialty Surgical organic growth down 10.7% due to shipping holds, but neurosurgery products had strong demand. ENT business integration outperformed expectations. Tissue Technologies revenues down 3.7% due to Integra Skin production shortfall but had growth in other areas. Progress on Braintree facility construction with equipment installation underway.
• Compliance Master Plan: Implementing a comprehensive approach to enhance quality management systems, with assessments and corrective actions continuing through 2025 and investments in facility/equipment upgrades.

Segment Performance

• Codman Specialty Surgical: Organic growth was down 10.7% primarily due to shipping holds. Neurosurgery products had strong demand despite supply challenges, with specialty surgical instruments seeing high single-digit growth. International business had a low double-digit decline due to shipping holds. ENT business saw 5.3% organic growth with Acclarent integration outperforming expectations, reporting ~$30 million in revenues.
• Tissue Technologies: Revenues were down 3.7% as production didn't meet demand for Integra Skin. However, DuraSorb and UBM portfolio (MicroMatrix, Cytal) had strong growth, and Private Label sales were up ~13%. Expect to return to historical revenue run rates for Integra Skin in Q4.

Guidance

• Full Year 2024: Tightened revenue guidance to $1.609 billion - $1.619 billion and adjusted EPS to $2.41 - $2.49, reflecting quality holds from compliance master plan remediation.
• Fourth Quarter 2024: Revenues expected in range of $441 million - $451 million (reported growth 11.1% - 13.6%, organic growth 2% - 4.5%). Adjusted EPS expected in range of $0.81 - $0.89.
• 2025 Outlook: Expect mid-single-digit organic growth over 2024 full year, with supply disruptions considered in the outlook.

Risks

• Supply Challenges: Ongoing shipping holds and production shortfalls impacting revenue and growth.
• Compliance Issues: Quality holds from implementation of compliance master plan affecting product availability and revenue.
• Debt and Cash Flow: Negative free cash flow in Q3, with potential impact on debt covenant compliance if supply disruptions continue.

Question and Answer

• Q: What are you seeing from the commercial organization and customer stability as you've been going through the supply challenges? A: Product holds were not long term, products are differentiated, and with capable sales reps focusing on relationships, confident in retaining share.
• Q: Any changes to your thinking on 2025 with Mojdeh taking over? A: Still expect mid-single-digit organic growth over 2024 full year, with Q4 quality holds within expected supply disruption range.
• Q: Any hope of getting Braintree facility open sooner? A: Production resuming in first half of 2026 remains on track as communicated.
• Q: Thoughts on margin recovery? A: Full year 2025 expected to have ~60-80 basis points headwind on gross margins, EBITDA margins expected to improve as supply disruptions resolve.
• Q: Share recapture on products coming back? A: Most shipping holds are not long-term, leading to quick share recapture for products with short outages, and Integra Skin expected to return to historical levels in Q4.