Integra LifeSciences Holdings Corporation (IART) Earnings Call Transcript & Summary

Thank you. Good day and thank you for standing by. Welcome to the Integra Life Sciences Second Quarter 2026 Financial Results. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question-and-answer session. To ask a question, please press star-1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star-1-1 again. And I'd like to hand the conference over to your speaker today, Chris Ward, Senior Director of Investor Relations.

Good morning, and thank you for joining the Integral Life Sciences Second Quarter 2026 Earnings Conference Call. Joining me on the call are Stuart Essek, Chairman, President, and Chief Executive Officer, and Leah Knight, Chief Financial Officer. We received a press release this morning announcing our second quarter 2026 financial results. Release and earnings presentation we referenced during the call are available in Integralife.com under Investors, Events and Presentations. Look for the file named Second Quarter 2026 Earnings Call Presentation. Before we begin, I want to remind you that many statements made during this call may be considered forward-looking. Factors that cause actual results to differ materially are discussed in the company's Exchange Act Reports filed with the SEC. These factors are also detailed in the release. Also in our prepared remarks, we will reference reported and organic revenue growth. Organic revenue growth excludes the effects of foreign currency, acquisitions, and divestitures. Unless otherwise stated, all disaggregated and franchise-level revenue growth rates are based on organic performance. Lastly, our comments today will include certain non-GAAP financial measures. Reconciliations of non-GAAP financial measures are included in today's press release, which is an exhibit to Integra's current report on Form 8K filed today with the SEC.

With that, I will now turn the call over to Stuart. Thank you, Chris, and good morning to everyone on the line. We are encouraged by our second quarter results. We delivered on our commitments, achieved important milestones, and advanced our key priorities across the business. As a result, we are operating with greater consistency and strengthening our foundation for long-term growth. Revenue for the second quarter was $419 million, up 27 million sequentially, and in line with our May guidance. Adjusted earnings per share were above the high end of our guidance range, driven by our improved operating execution and favorable tariff dynamics in the quarter. We are reaffirming our full-year organic revenue growth outlook and adjusted EPS guidance as our underlying operating expectations for the year remain unchanged. We are updating our reported revenue outlook to reflect the impact of foreign exchange. Leah will provide additional color on our guidance. Turning to our business segments, specialty surgery remains a core strength of the company. We hold the leading position in neurosurgery, supported by a broad portfolio of differentiated products, longstanding customer relationships, and clinical interventions that are deeply embedded in the daily practice of neurosurgeons. Importantly, our leading positions in neurosurgery and instruments provide unique access to hospitals, IDNs, and GPOs, strengthening our enterprise commercial footprint and offering further growth opportunities across our broader portfolio. ENT remains an important emerging growth opportunity for Integra. We continue to invest in the pipeline and are confident in our commercial team's ability to drive meaningful growth contributions as the business and portfolio continue to develop. Tissue reconstruction, we maintain a strong market position anchored by Integra Skin, our flagship product and the market leader in dermal regeneration. The franchise is built on the broadest product portfolio available, including Integra Skin, Primatrix, AmnioXcel, Micromatrix, and Durazorb. This drives market success. leadership in complex wound reconstruction, particularly in the hospital setting. Looking more broadly at the market, we believe Integra Life Sciences is uniquely positioned within the evolving reimbursement landscape. The combination of the breadth of our portfolio, deep clinical evidence, a predominantly hospital-based business model, and pricing aligned with both hospital and outpatient reimbursement dynamics is difficult. to replicate. As the market continues to adjust to the recent CMS reimbursement changes, we believe these strengths make us one of the best positioned companies in wound reconstruction. We are also encouraged by the continued adoption of Primatrix following its relaunch. Strong customer adoption reinforces our confidence in both the value of this product and our ability to successfully bring important products back to the market. Building on that momentum, we have successfully restarted manufacturing at our Braintree facility, marking an important opportunity for operational milestone for the company. We are now building inventory to support the commercial relaunch of Surgimen 510K product in the fourth quarter. While the relaunch of Surgimen represents an important near-term milestone, our broader objective is to expand the opportunity for both Surgimen and Durazorb through our dual PMA strategy and implant-based breast reconstruction. We are advancing toward an expanded label for Surgimen, which we expect in 2027, with Durazorb expected later that same year. Once approved, Surgimend and Durazorb would provide both biologic and synthetic solutions with the first two PMA indications for implant-based breast reconstruction, expanding surgeon choice and further strengthening one of Integra's key competitive advantages, the breadth of our portfolio. Combined with our established presence in complex wound reconstruction, and our commercial capabilities, we believe this strategy positions us well for long-term growth in this market. Beyond our portfolio initiatives, we have begun to realize the benefits of the broader changes we have made in how the company operates. By better aligning our commercial organization, operating model, and transformation initiatives around the common set of priorities, we are improving execution and enhancing coordination across the business. Together, these efforts are creating a more efficient organization and have contributed to cost savings in the second quarter. As we continue to improve supply reliability and operational performance, we see a clear path to further margin improvement in the coming years. That same focus on disciplined execution is reflected in our approach to capital allocation. De-leveraging continues to be our top priority. We exited the second quarter of 2026 at 4.1 times total leverage, down from 4.5 times at year end. we remain on track to approach the upper end of our target leverage range by the end of 2026. Overall, we are advancing important milestones, improving how we operate, and strengthening the foundation for sustainable growth. We remain focused on creating long-term value for customers, shareholders, and employees. With that, let me turn the call over to Leah for additional detail on our results and outlook.

Thank you Stuart. Good morning everyone. I want to begin by thanking our team for their continued strong execution in the second quarter. Turning to slide five, I will cover our second quarter financial results. Our second quarter revenues were $419 million, representing 0.8% growth on a reported basis and 0.7% growth on an organic basis. These results build on the progress we have made over the past year and they reflect the steadier, more predictable performance we are now delivering quarter to quarter. Adjusted EPS for the quarter was 56 cents, an increase of 24% compared to the prior year. Relative to our May guidance, revenue delivery and transformation savings were in line with our expectations, and stronger overall operational execution drove performance to the high end of our guidance range. In addition, we benefited from $0.05 per share of tariff favorability versus our May guidance, which contributed to our adjusted EPS performance above the high end of our guidance range. Gross margin for the quarter was 61.3%, up approximately 60 basis points from 60.7% in the prior year, reflecting efficiencies achieved across manufacturing operations and lower remediation spending. Adjusted EBITDA margin was 18.7%, up approximately 160 basis points versus 17.1% in Q2 2025, reflecting the benefits of the gross margin drivers I just discussed, together with contributions from our recent margin improvement initiatives. Cash flows from operations totaled $22.8 million in the second quarter and capital expenditures were $12.3 million. Turning to slide six, we will take a deeper dive into our specialty surgeries revenue highlights for the second quarter. Specialty surgery revenue was $309.3 million, representing 1.7% growth on a reported basis. On an organic basis, revenue grew 1.6% compared to the prior year. Global neurosurgery delivered 1.9% organic growth driven by Sirtis Plus, KUSA, and Bactocele, as supply reliability and fulfillment have continued to improve. Sales of capital equipment were down approximately 1% as double-digit growth in KUSA was offset by a decline in smaller ticket capital equipment during the period. We remain confident in the hospital capital environment and maintain a positive outlook for capital for the year. Instruments grew low single digits, benefiting from order timing relative to the first quarter. We continue to expect growth for the full year. In ENT, revenue declined low single digits reflecting continued growth in microfrance ENT instruments, offset by ongoing pressures and sinus balloons. Revenue in our international markets grew low single digits as improving supply is strengthening our ability to meet customer demand. Moving to our tissue reconstruction segment on slide 7. Tissue reconstruction revenues were $109.5 million, down 1.9% on a reported basis and down 2% on an organic basis compared to the prior year. Within moon reconstruction, we continue to see positive growth contributions from Dorozerb and encouraging momentum following the relaunch of Prime Matrix. While Integra's skin grew sequentially over the first quarter, it was down year over year as the second quarter of 2025 benefited from a significant backorder clearance for the product. matrix also declined in the quarter versus the prior year. For the first half of the year, wound reconstruction was approximately flat versus 2025, and its performance remains within the range of outcomes contemplated in our full-year guidance. During the second quarter, private label sales grew 4.7%. Finally, international sales and tissue reconstruction grew low single digits driven by Integra Skin. If you turn to slide 8, I will provide a brief update on our balance sheet, capital structure, and cash flow. Operating cash flow for the second quarter was $22.8 million compared to $8.9 million in the prior year. Our second quarter operating cash flow also reflects an $11 million final milestone payment related to the SEIA acquisition. For the first half of 2026, operating cash flow increased $35 million compared to 2025, and we remain on track to deliver an approximate $150 million improvement in operating cash flow for the year, driven by EBITDA growth, working capital efficiency, and an approximate $60 million increase in operating cash flow. reduction in cash expenditures related to EU MDR compliance and Braintree startup costs. Free cash flow for the quarter was $10.5 million, with a free cash flow conversion rate of 24%. As of June 30th, net debt was $1.6 billion and our consolidated total leverage ratio was 4.1 times within our current maximum allowable leverage of 5 times. Reducing our leverage and continued debt repayment remain our top capital allocation priorities for 2026. We will continue to reduce our leverage over the course of the year and expect to approach the upper end of our target leverage range of 2.5 to 3.5 times by the end of 2026. The company had total liquidity of approximately $496 million, including approximately $274 million in cash and short-term investments, with the remainder available under our revolving credit facility. Turning to slide 9, I will provide our consolidated revenue and adjusted earnings per share guidance for the third quarter and full year 2026. Before I begin, I would like to note that two weeks ago there was flooding in the Cincinnati area that has resulted in operational disruption at our manufacturing site. We responded immediately implementing our business continuity plans. Based on our latest assessment of the inventory available at our distribution centers, our secondary supply sources, and our insurance coverage, we do not expect the event to have a material impact on our revenue or EPS guidance for 2026. For the third quarter, we expect revenues to be in a range of $410 million to $425 million, representing reported growth of 2% to 5.7% and organic growth of 1.9% to 5.7%. Turning to the full year 2026, we are reaffirming our organic revenue growth guidance range of 0.8% to 3.3%, reflecting our expectation for a second half revenue increase driven by normal seasonality and continued improvement in supply. We are updating our reported revenue outlook to a range of $1.654 to $1.695 billion and reported growth of 1.1% to 3.7% to reflect the FX impact of a stronger U.S. dollar relative to our prior guidance assumption. Turning now to adjusted earnings per share guidance for the third quarter and full year. For the third quarter, we expect adjusted earnings per share in a range of 53 to 61 cents. full year we are maintaining our adjusted earnings per share guidance range of $2.40 to $2.50. The midpoint of our guidance range continues to reflect gross margin and adjusted EBITDA margin expansion over 2025 of 60 and 100 basis points respectively, as our underlying operating assumptions are unchanged. Lastly, we continue to evaluate opportunities to optimize our capital structure, and we expect to refinance our outstanding bank debt in the second half of 2026 if market conditions permit. While we now anticipate some higher interest expense in the second half of the year due to both the current rate environment and a potential refinancing, we expect those impacts to be offset by tariff favorability. We continue to expect to deliver earnings within our 2026 adjusted EPS guidance range and do not expect the higher interest expense to alter our broader earnings trajectory. Looking beyond 2026, we expect to offset potential interest expense headwinds through ongoing operational improvements and cost savings initiatives. For your reference, we have included the key assumptions underlying our third quarter and full year guidance as well as the key modeling inputs on slide 10. With that, I will turn the call back to Stuart. Thank you, Leah.

Before we move to Q&A, let me close with a few thoughts. The second quarter was another step forward for Integra. We delivered on our commitments, advanced important milestones across the business, and continued to improve the way we operate. We are seeing the benefits of stronger execution and improved supply reliability. The organization is more aligned, and we continue to make meaningful progress on the opportunities future growth, including the Surgimen relaunch and our PMA strategy in implant-based breast reconstruction. As I spend time with our customers, I am increasingly excited about what lies ahead. We still have work to do, but I believe we are building real momentum and positioning Integra well for a strong future. What gives me confidence is the talent and dedication of our team at Integra. I want to thank our employees for their resilience, commitment to the business, and the way they continue to support our purpose every day. Their focus and perseverance are central to the progress we are making and to the future we are building. Thank you for your continued interest in Integra. Operator, please open the line for questions.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment for questions. Our first question comes from Vic Chopra with BMO Capital Markets. He may proceed.

Morning, Stuart. Hi, Leah. This is Anton on for Vic. Thanks for taking our questions. Leah, maybe I'll start with you. Second quarter EPS is going to be consensus by $0.08, but the guide was held intact. Can you talk a little bit more about what's driving the reaffirmed full-year EPS outlook? despite the 3 cent organic outperformance? Is it just conservatism? Was there some spend anticipated in the second quarter that shifted to later this year? Is there some kind of incremental expense headwind you're expecting in the second half? Yes.

Yes, certainly. Thanks, Anton, for the question. So, yes, to your point, our adjusted EPS was 56 cents. We were 4 cents above the our entire guidance range 8 cents above the midpoint, to your point. Notably, we were also 24% above our prior year EPS. Relative to our May guidance, what you saw is revenue delivery and transformation savings were absolutely in line with our expectations. We did see stronger performance from an operational execution perspective, which contributed to EPS being at the high end of the guide. In addition, though, we saw tariff favorability of about five cents per share. So that's what drove us above the high end of our guide for the quarter. And to your point, in the second half, what we are now doing is that the upside that we saw from tariff favorability, which we had communicated in May, we have right-sized our tariff estimates or assumptions, continue to believe our tariff exposure for the year will be about 10 cents. And what we had as protection for any additional tariff changes, we are now using to mitigate an expectation of higher interest expense in the second half as a result of a planned refinancing transaction. So to your point, we do not expect any operational headwinds to offset some of the upside that we saw, but we do expect to see interest expense headwinds.

All right, great. I appreciate that, Colorado. And Stuart, you've appointed a new chief commercial officer and are going on commercial offense. Just looking at the business, where is the organization under index today? Call points, GPO penetration, geographic coverage, etc. And what are the areas that you're targeting to reinvigorate a commercial engine over the next 12 to 18 months?.

Thanks. Let me start with very positive notes news, which is our supply situation is improving and has improved dramatically. And that is allowing our organization to be more proactive to go on the offense. The new divisional and commercial structures have been implemented, including our new chief commercial officer and also new division leaders reporting into that role. So the focus is on accountability, faster decision-making, stronger ownership. broader enterprise contracting and deeper customer and hospital engagement. I want to reiterate enterprise. We have a really good set of relationships with GPOs and IDNs, which have really been built around our neuro business. business, and specialty surgery. But that leaves a lot of opportunity to expand those relationships into tissue reconstruction and ENT. And it's just a natural thing to add those products to our national account contracts. So our Our focus is on better deployment, coordination, using the current organization more effectively, The only real increase we expect in Salesforce is going to be – towards surge amend as it ramps, and that will be consistent with the original plan for surge amend as it begins to grow. So what we don't see is a broader strategy reset. There's not a Salesforce restructuring. It's really just a way of reinforcing our positioning with customers.

Thank you. Our next question comes from Ryan Zimmerman with VTIG. You may proceed.

Good morning, Stuart, Leah. This is Izzy on for Ryan. Thanks for taking the question. Stuart, I just want to start with you. You know, it's been a couple months since you have stepped back into the CEO role here at Integra. And I was curious what you have seen in that time that has kind of been in line with your expectations and if there has been anything that maybe you didn't expect.

So, first of all, I'm very happy with what I found. I would say all of our focus as a leadership team is on improving execution. needs a strategic reset. We've got strong market positions. We participate in really attractive in markets. specialty surgery end markets like neuro and ENT and plastic and reconstructive surgery. And our products are clinically important. They're used in critical situations for patients' life and well-being. Our leadership team and the continuity in our leadership team is supporting execution, accountability, consistent progress. So I really haven't seen a need for a reset. What I do see is an opportunity to continue to invest in our organization and drive simplification and.

accountability. Got it, thank you. And I think to the question prior to me Stuart, you mentioned that SurgiMend is expected to come back prior or in line with prior expectations. I was hoping you could maybe quantify that a little bit more ahead of that fourth quarter launch and maybe some of the expectations into.

Thanks for taking the question. Sure. So first, let me talk a little bit about how we've been doing in the market pre-surgement. You know, we sell Durazarb into... into the market with again, a separate smaller sales force. We've been driving Durazorb share and growth consistently in the double digits. So we continue with that sales organization, to be asked when are we going to get Surge Your Mind relaunched and how quickly we can bring it to market. So we have real confidence in the demand for that product from legacy customers as well as new customers. The market mix in terms of demand for tissue has been moving from human tissue to xenograft and to resorbable synthetics. And that really plays to our Surgimen portfolio and our Durazor portfolio. So we expect share recapture to build up. over multiple quarters with surger men. And I would remind you that our 2026 guidance does not assume any meaningful surger men contribution. We do expect to launch it in the fourth quarter. And then we expect a modest recovery. I think I would say something to the effect of 50% of its historical performance of $40 million. And in line with our Primatrix launch, which has been going very well and where we seem to be driving. relatively quickly about 50% of the legacy revenues.

Thank you. Our next question comes from Ravi Misra with Truist Securities. You may proceed.

Hi, good morning. Thank you for taking the question. So just on the revenue guide, So can you maybe talk about what gets you to the high end or the low end of the 3Q guide? And while we're at it, 2027 kind of consensus has growth acceleration, on the top line. Just curious, you know, with all these products coming to market, potential indication expansion for your tissue and surgemand, Are you comfortable with where the street sits? Thanks, and I have one follow-up.

Certainly. Thanks for the question, Robbie. So, to your first part of your question regarding our 2026 guide, high and low. So, as you heard, we are reaffirming our full-year organic revenue growth guidance of 0.8 to 3.3%. We did update our reported revenue range just to reflect We get to the high end of that guide through stronger supply reliability, stronger seasonal demand, as well as faster realization of our cost savings. The low end reflects a more measured pace of supply recovery as well as second half executions. So that's the high and the low. To your question on 2027, as you know, we do not provide 2027 guidance during this call. We'll do that officially in February, but I can give you a way to think about performance in 2027. So on the top line through revenue, we do expect to see growth in 27 versus 26, but like the approach we took in 2026, we're going to continue to be very prudent with respect to our assumptions on the pace of supply as well as share recovery throughout the year. From an EPS perspective, we do expect to be able to offset the incremental interest expense headwind that I talked about earlier as a result of a second half 26 refinancing through additional cost savings. When we talked about our 2026 initiatives earlier, we indicated that not only were we going to be able to offset the incremental interest expense headwind, but we also indicated that we were going to be able to offset the incremental interest expense headwind. they going to deliver the 25 to 30 million in cost savings that we projected for 26, but on an annualized basis, they would deliver an incremental 10 to 15 million dollars in 2027. Additionally, we expect to see remediation and transformation costs come down as we continue to strengthen our quality, as well as stable our supply, and all of these things together should allow us to see EPS growth faster than the rate of sales growth. And then finally, on cash flow, we expect to see continued improvement.

of the cash flow generation as we work to improve our overall quality of earnings. Great. Thank you very much. Super helpful, Culler. And then just one last follow-up for me. Just in ENT, I think your performance was a little bit better than we expected. Still a year-over-year decline, I think. But can you talk about the outlook here? I mean, you know, around the reimbursement headwinds in a Clarence and then maybe how elective procedures are shaping up in this space. Thanks a lot.

Certainly. So, from an A&T perspective, to your point, Q2 did decline, low single digits. We did continue to see growth on the Microfrance Instruments part of the business, but that was more than offset by the continued reimbursement pressures that you mentioned on the Sinus Balloons part of the business. as part of our Q1 results that we did expect ANT to be down on a four-year basis. And that continues to hold true and is reflected in our guide at this point in time. Our focus going forward will be to focus on innovation in order to drive growth in ENT in the long term. And where we see those kind of more innovative segments are in navigated systems as well as e-station tubes. To your point on procedures, You know, and I'll talk broadly because, you know, as we look across the business, Overall, procedural demand has remained generally consistent with our expectations during the quarter. The majority of our business, if you remember, is in trauma and acute care versus truly elective procedures. And so while there may be varying impacts across procedures as well as end markets, right now we can't see any specific evidence that we're seeing any unusual impacts from whether it be ACA subsidies or any other sort of insurance enrollment trends. And so we believe the procedures and care settings that we operate in provide some protection for us and haven't seen any real impacts.

Thank you. Our next question comes from Lawrence Beagleson with Wells Fargo. You may proceed.